It’s All About Choice

Rather than just developing homes for sale, City of Lakes CLT lets buyers pick houses to bring into the land trust.

Charting a New Course

Preliminary analysis of data from the National Community Land Trust Network’s 2011 Comprehensive CLT Survey, conducted by Emily Thaden, shows that 35 percent of CLTs with resale-restricted ownership units at the end of 2010 have a buyer-initiated program, where eligible buyers identify properties and the CLTs help with the purchase and/or rehabilitation.

Even though HIP was patterned after other successful buyer-initiated programs, the CLCLT structured HIP with a couple significant differences.

First, the CLCLT chose consciously not to tie its affordability investment directly to the value of the land. Instead the organization chose to focus on understanding the affordability gap of its community and determining a range of affordability investments that aligned with needs at varying AMI levels. This exposed the organization to more risk, since it could owe more to funders that its land assets were worth. However, the organization decided it was in a better position to assume that risk than individual homeowners. This choice also meant CLCLT was able to help lower-income households than it could have had it limited its investments to land values.

Second, the CLCLT decided that rehab on HIP homes would be completed post-purchase, after the new homeowner moved in. This would allow homeowners to be more of a partner in the rehab process, by having a say in selection of colors or materials required for repairs, and secondarily providing another onsite pair of eyes to ensure the quality of the work.

This departs from both the CLT norm and usual market practices. CLTs usually construct or purchase a house themselves, complete rehab, and then sell it to a homeowner. Traditionally, lenders in a direct-to-owner-occupant sale would require either that repairs be completed prior to closing or that funds be escrowed to ensure identified repairs or enhancements are completed after closing.

CLCLT decided not to escrow funding either, since the nature of their funding stream didn’t allow it to access its funds until a contractor was identified through a competitive bid process and work was ready to begin. CLCLT couldn’t afford to draw down operating capital to cover escrow requirements that are often 1.5 times the total rehab cost. These departures from the norm required extensive discussions with lenders and funders. In lieu of escrowing funds, the CLCLT offers copies of its rehab scope, forwards correspondence stating it is assuming responsibility for required repairs, and provides proof of repairs completed post-purchase when asked.

The CLCLT was still a young organization when HIP was started, working to establish its credibility with buyers, lenders, the community, and funders. It quickly found that getting funding when it was partnering with an established developer was one thing; convincing others to commit funds to an emerging organization for its own program and on its own merits was quite another.

The CLCLT decided to take a risk and move forward with program implementation with only a portion of needed funds committed, figuring demand would be hard to ignore. It gathered a buyer wait list, and got some early funding from Powderhorn Park Neighborhood Association (through its portion of the city’s Neighborhood Revitalization Program funds) to assist HIP’s first three homeowners. But then the program stagnated while the CLCLT negotiated and executed an agreement with other funders.

Managing expectations of buyers on the wait list during that time was challenging, especially those buyers coming onto the wait list just as initial funding was being exhausted. Some waited nearly a year before they could move forward with the program. HIP was able to channel their frustrations into action, however, by organizing them to contact elected officials and encourage follow through on promised commitments in a timely manner. Eventually, the state, county, city, neighborhoods, and private foundations provided funding — probably faster than they would have been without organized demand.

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