HOMEfires - Vol. 5 No. 5, November, 2003

Q: Can a participating jurisdiction (PJ) include both resale and recapture requirements in a written agreement on the same HOME-assisted homebuyer unit and choose the option to be imposed at the time of resale?

 
A. The HOME regulation at 24 CFR Part 92.254 (a)(5) (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.254.htm) states, "to ensure affordability, the participating jurisdiction must impose either resale or recapture requirements, at its option." Accordingly, PJs must choose one option or the other for each unit assisted..

The resale option for HOME-assisted homebuyer units is described at 24 CFR 92.254 (a)(5)(i) (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.254.htm). If the HOME unit does not continue to be the principal residence of the qualified low-income family that purchased the unit for the duration of the period of affordability, the unit must be made available for subsequent purchase only to a buyer whose family qualifies as a low-income family and will use the property as its principal residence. In addition, the price at resale must provide the original HOME-assisted owner a fair return on investment (including the homeowner's investment and any capital improvements) and be affordable to a reasonable range of low-income homebuyers.

The resale option is typically used in areas with predominantly high home sales prices, areas subject to rapidly appreciating housing costs, areas with a shortage of affordable homes for sale and no available land to build new homes, and areas where affordability will not be preserved through the unrestricted sale of the unit.

The recapture option for HOME-assisted homebuyer units is described at 24 CFR 92.254 (a)(5)(ii) (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.254.htm). Under the recapture option, the PJ recovers all or a portion of the HOME assistance to the homebuyers, if the housing does not continue to be the principal residence of the qualified low-income family that purchased the unit for the duration of the period of affordability.

A PJ may adopt any one of four options in designing its recapture provisions. First, a PJ can recapture the entire amount of the HOME investment from the homebuyer upon sale of the property during the period of affordability. A PJ can also elect to reduce the amount to be repaid on a pro-rata basis according to the time the homebuyer has owned and occupied the housing measured against the required affordability period. Another option is for the PJ and the homebuyer to share the net proceeds based upon the ratio of the HOME subsidy to the sum of the homebuyer's investment plus the HOME subsidy. Finally, the PJ may allow the homebuyer to recover his or her entire investment before any of the HOME investment is repaid to the PJ from the remaining net proceeds. In addition to these recapture options, the PJ may adopt, modify or develop its own recapture requirements for HUD approval. (Note: PJs concerned about the possibility of repaying funds in case of foreclosure may wish to consider adopting recapture provisions that base the recapture amount on the net proceeds available from the sale rather the entire amount of the HOME investment. More guidance is provided on this subject in the recent HOMEfires - Vol. 5 No. 2, June, 2003.)

Under the recapture option, there are no restrictions on the resale price or on the income of the new homebuyers. The owner can sell the house to anyone for whatever price the market will bear. The recapture option is used by most PJs because it is generally easier to administer than the resale option. The recapture option works well when the sale of the property will most likely preserve affordability without resale restrictions.

A PJ must select either the resale or recapture option for its HOME-assisted homebuyer projects at the time the assistance is provided. The PJ may select one option for all of its HOME-assisted homebuyer projects or choose on a case-by-case basis depending upon market conditions and/or the buyer's preference. In addition, all options that the PJ will employ must be identified in its Consolidated Plan and approved by HUD.

For more information on resale and recapture provisions, see 24 CFR 92.254 (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.254.htm) and Using HOME Funds for Homebuyer Programs: Structuring Recapture and Resale Provisions (HUD-1674-CPD, May 1997), available through Community Connections at 1-800-998-9999.