Attachment_C-_Trust_ADU_Policy_Manual.pdf

Affordable ADU Loan Program Policy Manual

July 19, 2023

Agenda Item 2 Attachment A

Table of Contents Overview

Goals/Objectives

Program Description

Stakeholders

Design Philosophy

Reportable metrics

Program Processes

Loan Terms

Federal Fund Rate

Differences due to Tenancy

Extension of Affordability Covenant

Basic Timeline of Participation

Dates

Participant Responsibilities & Requirements

Homeowners

Tenants

Builder/consultant

Property Management

Budget

CalOptima

Remedies

Excessive permit delays

Contractor fails or commits fraud

Other funding falls through

ADU destroyed before Affordability Term complete

Overview Orange County Housing Finance Trust’s Affordable ADU Loan program offers a unique, not-for-profit loan product to Orange County homeowners that creates new ADU rentals which are affordable to build for all homeowners, as well as affordable to rent for households making less than 50% of the Area Median Income.1

The program aims to expand the variety and location of affordable housing options, giving access to high-opportunity and high-resourced areas while also increasing the density of existing housing developments in line with Regional Housing Needs Allocation (RHNA) and Southern California’s Association of Governments Connect SoCal 2020 regional development plan.

Goals/Objectives A. Provide financing for the construction of 34 accessory dwelling units, adding affordable housing rentals in all Service Planning Areas for individuals and families earning at or below 50% AMI by September 2025.

B. Lower the development cost of constructing the 34 new affordable rental units to an average of $250,000 or less per unit from the current average tax credit multi-family rental unit of $497,570.2

C. Reduce the amount of time to produce a new affordable rental unit from the typical tax credit multi-family rental unit taking 3-5 years from the typical tax credit multi-family rental unit taking 3-5 years to 18 months, or less, for 60% of participating homeowners, starting with their application to the ADU loan program and ending at building final or certificate of occupancy ending at building final or certificate of occupancy.

Program Description The Affordable ADU Loan Program, administered by the Orange County Housing Finance Trust, offers $100,000 low-interest, forgivable, deferred, 20-year loans to eligible homeowners for the construction of ADUs which will be set aside for 10 years as affordable rental housing for very low-income households in Orange County. Affordability will be secured through a Deed of Trust on the property and meets the requirements for an RHNA credit which will be reported to the corresponding city.

1 https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits

2 County of Orange Housing Funding Strategy 2022 Update – Page 13

Agenda Item 2 Attachment A https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits

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Participating homeowners have no income requirements for participation; they may choose to rent to a voucher holder or any other income-qualified tenant. Additional program features include a $5,000 grant for a limited number of mobility accessible ADUs and funding for assistance with tenant selection and leasing from an experienced property manager. The program has built-in flexibility to provide choice and contingencies for the homeowner while providing strong incentives for continued participation and making rentals available for those most in need in the community.

Stakeholders Principal Stakeholders

● CalOptima (funder)

● OC Public Housing Authorities (OCHA, SAHA, AHA, and GGHA)

● Trust Member Cities

● Contracted Property Management companies

● Contracted income verification service provider

● Homeowners

Additional Stakeholders

● Organizations contracted for housing navigation services through CalOptima.

● Builders and consultants for ADU construction and permitting.

● City and local building departments

● California HCD

Design Philosophy This program is designed to capitalize on the unique strengths of the Orange County Housing Finance Trust as an experienced affordable housing lender while relying on outside subject matter experts in other areas such as feasibility, permitting, construction, tenant selection, and property management. Emphasis has been placed on avoiding common pitfalls of other ADU programs in the pre-development phase by focusing on homeowners who have already committed to building an ADU and completed initial feasibility studies. This eliminates the need for ADU education, shortens the timeline between the start of program participation and construction completion, and provides better-qualified participants from the beginning.

Additionally, this program is primarily interested in market testing two concepts: consumer interest in and financial viability of a loan product secured with future rents and equity, and homeowner willingness to provide affordable housing within and outside of the voucher system.

Related to the latter, the program is designed to offer significant financial incentives to those homeowners who do lease to voucher tenants as a further test of what amount and kind of incentives create sufficient motivation.

Reportable metrics Tenant

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A. Most recent previous housing type (shelter, unsheltered, transitional, institution, subsidized rental, market rental) and location for the tenants

B. Income changes overtime for the tenants C. Length of tenancy for each renter within the program (turnover rate) D. Relationship between renter and landlord, and impact on rents E. Demographic

1. CalOptima members, or eligible for membership but not enrolled.

2. Household size

ADU/Landlord A. Number of ADUs constructed with funding from the program.

B. Actual cost of subsidies to those ADUs

1. Trust’s subsidy

2. Any other subsidies they are benefiting from.

C. Subsidy vs total cost of ADU (estimated and/or actual) D. Qualitative data on the landlord experience

Affordable Housing A. Total years and months of subsidized housing B. Number of very low-income households accessing affordable housing C. Number of RHNA credits (counted as a year of affordability for a single unit)

Program/Process A. Time from application to program to certificate of occupancy for each new ADU.

1. Time spent in construction.

2. Time spent permitting.

B. The share of participating homeowners who lease at least once to a very low-income tenant.

C. Share of participating homeowners who lease a minimum of 60 months to a very low-income household.

D. Share of participating homeowners who lease to a voucher holder vs non-voucher holder vs non-eligible tenant, and for how long.

E. Share of participating homeowners who remain in good standing in the program year-over-year.

F. Share of participating homeowners who exit early from the program, while in good standing

G. Share of participating homeowners who exit early from the program, while NOT in good standing

H. Amount of punitive interest charged and share of homeowners who are charged a punitive interest penalty.

Program Processes Available as separate files in flowchart Visio format. As detailed procedures are created, they will be linked in this document.

A. Application to Loan Program (“ADU Application Flow”,”)

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B. Screening and selection of participants (“CalOptima Applicant Ranking decision tree”) C. Predevelopment & Construction period (“ADU Predevelopment & construction flow”) D. Loan closing (“ADU Loan Issuance process flow”) E. Affordability Period

1. Lease-up process (“ADU initial tenancy process flow”)

2. Move-out process (“ADU Turnover process flow”)

3. Renew lease process (“ADU tenancy recertification process flow–Non voucher”, “ADU tenancy recertification process flow– Voucher)

4. “ADU tenancy extreme noncompliance process flow”

5. “ADU tenancy noncompliance process flow”

F. Post-affordability period/ Program exit

1. “ADU Exit before loan disbursement.”

2. “ADU Loan Repayment”

3. End of affordability covenant (“ADU Loan Hold Periods”)

Loan Terms

Notes

Loan Amount $100,000 Or the total cost of construction, whichever is lesser

Affordability Term 10 years Option to extend after the initial term.

Loan Term 20 years

Interest

Fixed, simple interest, calculated on a 365-day year and based on actual days elapsed.

Interest rate during Construction

Federal Fund Rate + 5% simple interest

Interest is completely forgiven with a minimum of 60 months of qualified tenants in place.

Interest rate during Affordability Term Dependent on tenant qualifications

Interest rate during tenant vacancy

Determined by applicable interest rate of the incoming tenant.

Grace period of up to 90 days to lease to another tenant. After 90 days, interest during vacancy is equal to non-compliance rate.

Interest rate during non-compliance

Federal Fund Rate + 5% simple interest

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Interest rate post Affordability Term Federal Fund Rate + 1%

If owner has not met the minimum of 60 months with a qualified tenant in place, the rate is Federal Fund Rate + 5% Interest will be applied to the principal minus any earned forgiveness during the affordability period.

Interest rate post Repayment Event

Federal Fund Rate + 6% established at end of loan term.

Only applied if the borrower does not pay off the loan before 20-year term ends or other qualifying repayment event.

Payments

-No monthly payments -Lump sum payment due at qualifying repayment event

Repayment events

-Title change -At expiration of affordability covenant, property is no longer owner-occupied.

-End of loan term -Lot is split

- ADU is no longer approved for occupancy

Loan Forgiveness

$13.15 a day for each day a qualified tenant occupies the ADU during the Affordability Covenant.

Earned loan forgiveness will be applied at the end of any affordability term or when the loan is repaid, whichever comes sooner.

Proof of qualified tenant is required.

Partial months are prorated to actual days of tenancy, based on a 365-day year. Vacancy periods do not qualify for forgiveness

Subordination Yes, to primary mortgage and home equity loan/line of credit

Other situations subject to written approval by Trust

Qualified Tenant Household income is equal or lesser than 50% Area Median Income

Sale of Loan

Trust retains the right to sell the loan after the end of the Affordability Covenant

Federal Fund Rate The Federal Fund Rate will be defined as the “Federal Funds (effective) rate” as published by the Federal Reserve https://www.federalreserve.gov/releases/h15/ https://www.federalreserve.gov/releases/h15/

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The Federal Fund Rate will be set based on the day the loan documents are issued. If there is a change of more than .5% in the Federal Rate between that date and the date the funds are issued, the Homeowner may elect, one-time, to change their base Federal Fund Rate by submitting a written request to the Trust.

Differences due to Tenancy Depending on the tenant leasing the ADU, the borrower will have different terms and limits on the following conditions.

Vouchered Tenant Non-Vouchered Tenant Notes

Interest Rate during Affordability Covenant 0% 3%

Non-qualified tenants have a higher rate

Maximum allowed rent

Determined by Public Housing Authority

MTSP limits for 50% AMI at applicable rental size, updated annually Published by HCD

Rent increases

As approved by Public Housing Authority and allowed by state and local law

Up to current MTSP limits, if allowed by state and local laws

Market rent decreases

Public Housing Authority policy on previously approved rents will apply

Rent can remain at previously allowed amount while same tenant remains.

New tenants will be limited to current MTSP maximums.

Extension of Affordability Covenant At the end of any Affordability Covenant, a Homeowner may request from the Trust an additional covenant, extending the total affordability period up to the end of the Loan Term. This would qualify the homeowner to continue to earn forgiveness of the loan and benefit from a reduced interest rate whenever a qualified tenant was in place. Any additional Affordability Covenants are at the sole discretion of the Trust.

Basic Timeline of Participation A. Application to participate submitted by Homeowner, verified by Trust.

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B. Trust alerts Homeowner that they have a loan available and issues commitment letter if homeowner confirms desire to proceed.

C. Contingency milestones are met by homeowners.

D. Loan Closing Request packet submitted to Trust (construction and payment schedules, contractor contract if not previously provided, final approved plans) E. Trust confirms Closing Request packet, send Loan Approval packet (term sheet, loan agreement, regulatory agreement, deed) for e-signature. Date signed is the start of the loan.

F. Trust funds are paid after all other planned funds have been used, as verified by Trust Fund Request Form, submitted by Homeowner.

G. Loan Documents recorded. Check request made to the County.

H. Affordability covenant term starts from the date of the final building permit/certificate of occupancy approval.

I. After 10 years, Affordability Covenant ends J. 20 years after loan documents are signed, loan term ends.

Dates

Loan Start Date Date loan documents are issued by Trust (loan agreement, deed of trust, regulatory agreement) [Dry loan closing]

Loan End Date 20 years after the Loan Start Date

Interest Start Date Date loan is disbursed to Homeowner

Interest End Date Date loan is paid off

Affordability Start Date Date final building permit approval or certificate of occupancy is received

Affordability End Date 10 years after the Affordability Start Date, or as extended by mutual agreement

Participant Responsibilities & Requirements

Homeowners Benefits Participating homeowners will receive several benefits for participating in the Affordable ADU Loan Program.

A. A deferred, forgivable, low-interest loan of up to $100,000 for the construction of the

ADU

B. $5,000 grant for selecting ADUs that meet the mobility requirements listed below.

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C. Grant for professional property management services during tenant selection and lease-up by a Trust vetted property manager (while funds are available)

D. An additional 10-year deferred, low-interest post-affordability period.

E. Choice of tenants including those with or without a housing voucher and the option to lease to very low-income family members.

Eligibility

A. Owner-occupied property, in Trust member city in Orange County B. New ADU or ADU under construction that has not yet received final building permit sign-off/certificate of occupancy.

a. Illegal ADU conversions are not eligible.

C. Properties with more than one residence are eligible if they have not already exceeded the maximum allowed number of ADUs per the city ordinances.

D. One Affordable ADU Loan from the Orange County Housing Finance Trust per parcel and only one Affordable ADU loan may be held at a time by any owner or co-owner.

E. Trust’s loan cannot be any lower than 3rd position on the property.

F. Total financing is sufficient to cover the cost of construction of the ADU, but all equity-based financing aside from the Trust loan cannot add up to more than 100% loan-to-value on the principal residence and cannot exceed a maximum limit of more than 120% of estimated construction costs.

G. There is no upper limit on the cost of building the ADU, although participants are encouraged to carefully consider the maximum rent they can charge if renting to a non-voucher holder to ensure there is sufficient cash flow to service any additional debt.

H. Working with an expert in ADU construction (including design, permits, and building) to provide technical assistance. If the homeowner has professional residential development experience, they may self-manage. Constructing party must be licensed as a contractor in California.

I. ADU expert confirmation of the feasibility of the ADU for permitting, construction, and cost in a formal report.

J. No members of the Trust board, staff, or family members of the same can participate in this program as a homeowner.

Ranking and Sorting Criteria Should more qualified homeowners apply for the Affordable ADU loan program than available loans, then the program will utilize the following criteria to prioritize the selection of homeowners to receive the loans.

A. Priority for ADUs that meet the selected mobility accessibility requirements (see below) B. Sorted by geographic location to allow for ADUs throughout the county.

C. Secondary priority for ADUs already under construction D. Tertiary priority to earliest completed program application

Mobility Accessibility Standards ADUs that meet the following minimum standards for mobility accessibility will receive priority for Affordable ADU loans.

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● Exterior and interior accessible path for mobility-aided persons from the property entrance through to kitchen, living area, dining area, one bedroom, and one bathroom at a minimum. There may be stairs or other non-accessible barriers as long as an additional accessible path exists into those rooms and areas.

● Doorways are at least 32 inches wide, and all hallways are at least 36 inches wide.

● At least one bath, on the entry-level, with a clear space area of at least 60 inches in diameter and must have reinforced walls for grab bars to use in entering and exiting the tub/shower and around the toilet. Grab bars do not need to be installed.

● A roll-in, no-threshold, or low-threshold bathing facility in an entry-level bathroom.

Certification that the design meets these requirements will be the responsibility of the designer.

Plans that are certificated as ADA-compliant designs will also qualify in this category.

Responsibilities Participating homeowners are responsible for:

A. Ensuring that all milestones are met before the deadline or communicating actively with the program administrator about any delays.

B. Providing proof that milestones have been met as required.

C. Any lines of credit that were used for financing the construction of the project must have the credit limit removed once the construction period is completed.

D. Completing income-qualification verification through a Trust-authorized company.

E. If they choose not to use a Trust-authorized property management company, they will be responsible for paying any fees associated with leasing the property.

F. Ensuring that tenants meet the income requirements and providing proof of qualification along with the lease to OCHFT.

G. Ensuring rent does not exceed the California Department of Housing and Community

Development Multifamily Tax Subsidy Project (MTSP) rent limits for a tenant at 50% AMI in the corresponding sized rental.

H. Completing and submitting annual recertifications of tenant qualifications I. Notifying the Trust upon move-out of a current tenant J. Repayment of the loan with any accrued interest at the time of a qualifying event or upon a decision by the homeowner to exit the program.

K. The borrower agrees to keep the improvements and personal property now existing or later located on the Property insured against loss by fire, vandalism, and malicious mischief by a policy of standard fire and extended all-risk insurance.

Loan Contingency Milestones A. All non-Trust sourced loans are secured and available for use no later than the first projected date of use per the contract with the builder, permitting consultant, or manufacturer.

B. Permit applications must be submitted to the respective jurisdiction within 3 months of receiving the letter of commitment of funding from the Trust.

C. Permit approvals must be received from the respective jurisdiction within 9 months of receiving the letter of commitment of funding from the Trust.

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If a participating homeowner fails to meet all three milestones, they will be considered to have forfeited their reservation of funding in the Affordable ADU loan program and those funds will be committed to another project. Homeowners may re-apply with proof that all milestones have been met but their date of completed application will be reset to the date of the re-application and not the original application.

If a participating homeowner fails to meet the first milestone, they will be issued a warning letter from the Trust on the date of the first missed payment deadline. Two subsequent warnings will be issued at 30 and 60 days post the first missed payment if funds have still not been secured.

At that time, the Trust reserves the right to rescind the offer of the loan and reallocate that funding to another participating homeowner.

Loan Issuance Once all milestones have been achieved, the Homeowner will complete the Loan Closing Request forms and turn them in to the Trust. Once verified, the Trust will issue the Loan Approval packet including the Loan Agreement, Promissory Note, Deed of Trust, and Regulatory Agreement for the Homeowner’s signature.

These documents will be held until the Homeowner submits a Trust Funding Request Form along with the required documentation of the exhaustion of other funding. Once verified, the Trust will record the loan documents with the County and request the issuance of the loan in a lump-sum wire transfer.

Affordability Period The affordability period will commence upon the final permit approval or certificate of occupancy of the ADU.

To ensure accurate accounting of homeowner participation and therefore applicable interest rates, it is imperative that participating homeowners or their property managers provide accurate and timely information to the Trust for all the following events:

● New tenant with new income verification or voucher

● Lease extension or new leases with current tenants

● Annual compliance checks

● Tenant notification to moveout

● Current tenants’ income exceeds 70% Area Median Income

● Notice to quit or eviction notice issued to tenant.

● Change in tenant’s voucher status.

Additionally, the borrowing homeowners are expected to keep the Trust informed of changes in property management, contact information for the homeowner and current tenant, and if the property ceases to be their primary residence.

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Throughout the program, the Trust will share with borrowers the exact steps and tools needed to meet these reporting requirements and may adjust them from time to time to better meet the needs of participating homeowners, tenants, and the program.

Max rents allowed can be found on the California HCD website: https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits These are updated annually. Rents may be increased to the updated amount with the legally required advanced notification to tenants and only effective on or after the effective date stated by HCD.

If a previously qualified tenant’s income is reported to be above 50% AMI at the annual recertification, that tenant will be considered to still be a qualified tenant until their income exceeds the 70% AMI level. At that point, the tenant is not qualified, and the non-compliance interest rate will be applied to the loan, starting with the expiration of the current lease or lease extension. If the tenant is renting on a month-to-month automatic extension of a previous lease, the start date of the higher interest rate will be 60 days from the date the Trust notifies the borrower that their tenant is out of compliance. See the Tenant Eligibility section for more details.

Application

A. Completed application form.

1. Concept of build

2. Understand & agree to terms of the program.

3. Points of contact including permitting, contractor, project manager, and manufacturer B. Trust documents (if parcel is owned by a trust) C. Feasibility study D. Estimated budget E. Verification of funding sources F. Design plan (if available) G. Most recent mortgage statement (total balance) H. Proof of primary residency

Loan Closing Request Packet

A. Payment schedule with both dates and construction milestones, divided to leave even payments solely sourced from the Trust.

B. Construction Schedule with an anticipated completion date C. Construction Contract (if separate from entity assisting with permitting) D. Proof of all other funding sources secured.

E. County Vendor Information

Application Selection Criteria A completed application is not a guarantee of a loan through this program. While early applications will have the best chance of being selected, higher priority will be given to those

Agenda Item 2 Attachment A https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits https://www.hcd.ca.gov/grants-and-funding/income-limits/state-and-federal-income-rent-and-loan-value-limits

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ADUs that meet the minimum mobility accessibility requirements as outlined in this document.

Additionally, the program will prioritize a wide geographic disbursement of the ADUs to ensure that every region of the county benefits from this program. Finally, to ensure that loans are offered in a timely manner, those ADUs that are further along in construction will be considered first for funding.

Tenants Eligibility Qualified tenants in the Affordable ADU Loan Program must be certified to have a household income of no more than 50% of the Area Median Income (adjusted annually) at the time of leasing. This requirement can be satisfied through an income verification process with a Trust-authorized compliance screener or a current housing choice voucher. There is no minimum income requirement.

The income of individuals shall be determined in a manner consistent with determinations of lower-income households under Section 8 of the United States Housing Act of 1937, as amended (or, if such program is terminated, in a manner consistent with such determinations under such program as is in effect immediately before such termination) and by the California Department of Housing and Community Development in accordance with California Health and Safety Code Section 50052.5.

Full-time and part-time students at institutes of higher education are eligible to lease, provided they either meet the HUD definition of an independent student or their parent(s) are also income eligible, and their separate household meets the income limits of the rental, including financial assistance in excess of tuition, but not including loans used to cover educational and living expenses. If the homeowner is an immediate or extended family member of the student tenant, any reductions in rent from the maximum allowed rent for a 50% AMI household will be counted as financial assistance from the family member for purposes of income calculations but not for determining independence. They must also provide proof of continued independence or parental eligibility at the first annual recertification of eligibility, but not at subsequent recertifications.

For reference: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.hud.gov/sites/documents/DO

C_20482.PDF

Tenants whose income exceeds the maximum allowed amount of 50% AMI after they have leased the ADU will be considered qualified tenants for this program as long as their income is at or below the 70% AMI limit. Once their income has exceeded the 70% AMI threshold, the applicable interest rate for the loan will increase to the non-compliance rate while that tenant remains in the ADU. As of June 2023, in consultation with the Fair Housing Council of Orange County, as long as the primary residence is owner-occupied, the homeowner is not required to provide just cause for termination of tenancy. Because income recertifications will be conducted

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If homeowners lease the ADU to a tenant who is considered unqualified at the time of leasing, they will be considered out of compliance with the terms of the loan and will incur a higher interest rate than charged when in compliance.

Tenant Screening The Affordable ADU Loan Program has no additional tenant screening requirements. However, homeowners are reminded that tenant selection must adhere to all applicable federal, state, and local laws.

Specifically, it is a violation of the California Fair Employment and Housing Act (FEHA) to discriminate based on source of income, including using a housing subsidy. While landlords may choose not to advertise directly to voucher recipients, they cannot deny housing based solely on the use of a housing subsidy. For more information on allowed and prohibited practices related to source of income, see this helpful FAQ document from the California Civil Rights Department.

Tenant Responsibilities All tenants, regardless of being qualified tenants or not, of an ADU covered by a loan agreement as a part of this program are required to truthfully complete and return the annual income recertification documentation. At move-out, they are expected to confirm their vacating of the property for the Trust’s records. They may also be contacted directly by the Trust to confirm the information provided by the tenant as part of their income verification.

Builder/consultant The Trust will invite selected residential construction and permit companies with expertise in ADUs to participate in the program by promoting the program to their customers or potential customers. The Trust reserves the right to decline to work with certain builders or provide loans to homeowners working with certain builders if the Trust believes that to do so would introduce unusual risk into the permitting or construction processes.

Builder Requirements

● Successfully permitted or built (corresponding to their services offered) at least 5 ADUs in California, at least one in Orange County

● For contractors, an active license in good standing with the California Contractors’ State Licensing Board

● Successfully partnered with the Trust on any past ADUs funded by the Trust.

● Method of construction must be established or well documented for the construction of residential rental properties, as determined by the Trust, and meet the requirements of the jurisdictional building and planning departments.

Agenda Item 2 https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2020/02/SourceofIncomeFAQ_ENG.pdf

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● The sales team must attend a program overview call with the program administrator to ensure an understanding of loan terms and requirements.

Builder Expectations

● Provide materials on the Affordable ADU loan program to all customers who intend to rent their Orange County ADU

● Connect interested customers to the Trust program administrator.

● Honor a release of information from the customer allowing the builder to communicate directly with the Trust about the progress of the ADU’s permitting and construction.

● Provide timely and accurate updates on the progress related to financing, permitting, construction, and final occupancy certifications for any Trust funded ADUs.

● Divide the payment/construction draw schedule so that no payments/draws are partially funded by the Trust.

Property Management The Trust will open up a Request for Proposals from local property management companies to select and contract with a small number of companies for the provision of Trust-funded services to the participating homeowners. These Property Management companies will be authorized by the Trust and will agree to offer the unique combination of services required by this program but will not be contracted to the Trust directly.

Responsibilities

● Register the rent-receiving entity with the appropriate Public Housing Authority for any vouchered tenants.

● Promote available rental on PHA vacancy lists (as directed by homeowner) and to housing navigators through CalOptima, as well as common avenues for advertising a rental.

● Responsible for showings, applications, screening, Request for Tenancy application to PHA, HQS inspections, lease agreement including HAP addendum if required, move-in, and lease submission to PHA (if applicable)

● Homeowners may also request that the property manager selects the tenant.

● If the tenant does not possess a voucher, required to conduct income verification screening, and submit the determination to the Trust (or use the approved Trust income verifications service provider)

● Ensures that all federal, state, and local regulations related to fair housing, housing discrimination, and tenancy are adhered to by the homeowner during the tenant selection and leasing processes.

● Submit invoice for services to Trust for payment.

● Provide instruction and guidance to the homeowner throughout the process to increase their education and familiarity with the leasing and voucher processes.

Requirements

● Provide services in Orange County, California

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● Demonstrated experience with housing choice vouchers or low-income housing.

● Commitment to fair housing practices

● Demonstrated experience with ADU rentals, or failing that, single-family home rentals.

● Accept payment from the Trust for services rendered.

Budget

CalOptima $4,000,000 was received from CalOptima Health for this program.

Requirements

● Semi-annual progress report

○ First due Oct 30, 2023, covering Apr 1, 2023 - Sep 30, 2023

● Final report

○ Due April 30, 2024

Spending Estimates

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Remedies

Excessive permit delays Loan contingency milestones allow the Trust to terminate the commitment letter. If excessive delays are not the fault of the homeowner or their contractor and the source of delay is likely to be resolved, Trust may opt to continue the loan commitment.

Contractor fails or commits fraud If the Trust has not issued funds, the Homeowner may decide to cancel the agreement with the Trust at no penalty. If the Trust has issued funds, the Homeowner must find a replacement builder to finish the project or can repay the borrowed amount with interest.

Trust will require verification of progress on construction before first releasing Trust funds.

Other funding falls through Homeowners must find replacement funding before the first anticipated payment would have been made from those funds. For instance, if an ADU was being paid with cash first, then a HELOC, the Homeowner has until the date or construction progress point that would first pull from the HELOC funds to secure a replacement source of money.

If other funding cannot be secured, Homeowner will have failed to meet the financing milestone and the Trust can rescind their funding.

ADU destroyed before Affordability Term complete Homeowners must repay the loan as a required Repayment Event, likely from an insurance settlement. If Homeowner intends to rebuild, they may reapply to the program for a new loan. The Trust may at their discretion apply as a credit to the new loan the number of months with a qualified tenant during the first loan to meet the minimum 60 months of eligible tenancy threshold.

Attachment B

ADU LOAN PROGRAM TERMS

Description Terms Notes

Loan Amount $100,000 Or the total cost of construction, whichever is lesser

Affordability Term 10 years Option to extend after the initial term.

Loan Term 20 years

Interest Fixed, simple interest, calculated on a 365 day year and based on actual days elapsed.

Interest rate during Construction

Federal Fund Rate + 5% Interest is completely forgiven with a minimum of 60 months of qualified tenants in place.

Interest rate during Affordability Term

Dependent on tenant qualifications See table “Differences due to Tenancy”

Interest rate during tenant vacancy

Determined by applicable interest rate of the incoming tenant.

Grace period of up to 90 days to lease to another tenant. After 90 days, interest during vacancy is equal to non-compliance rate.

Interest rate during non-compliance

Federal Fund Rate + 5%

Interest rate post Affordability Term Federal Fund Rate + 1%

If owner has not met the minimum of 60 months with a qualified tenant in place, the rate is Federal Fund Rate + 5% Interest will be applied to the principal minus any earned forgiveness during the affordability period.

Interest rate post Repayment Event

Federal Fund Rate + 6% established at end of loan term.

Only applied if the borrower does not pay off the loan before 20-year term ends or other qualifying repayment event.

Payments -No monthly payments -Lump sum payment due at qualifying repayment event

Attachment B

Repayment events

-Title change -At expiration of affordability covenant, property is no longer owner-occupied.

-End of loan term -Lot is split

- ADU is no longer approved for occupancy

Homeowner can repay the ADU loan at any time subject to repayment terms and applicable interest

Loan Forgiveness

$13.15 a day for each day a qualified tenant occupies the ADU during the Affordability Covenant.

Earned loan forgiveness will be applied at the end of any affordability term or when the loan is repaid, whichever comes sooner.

Proof of qualified tenant is required.

Partial months are prorated to actual days of tenancy, based on a 365-day year. Vacancy periods do not qualify for forgiveness

Differences due to Tenancy

Voucher Tenant Non-Voucher Tenant Notes

Interest Rate during Affordability Covenant

0% 3% Non-qualified tenants have a higher rate

Maximum allowed rent

Determined by Public Housing Authority

MTSP limits for 50% AMI at applicable rental size, updated annually

Published by

HCD

Rent increases As approved by Public Housing Authority and allowed by state and local law

Up to current MTSP limits, if allowed by state and local laws

MTSP = Multifamily Tax Subsidy Projects

HCD = California Department of Housing and Community Development

Federal Fund Rate will be the published daily rate located at:

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