Minutes of HRA Regular Board Meeting s1

Minutes of HRA Special Board Meeting Monday, August 30, 2010, 12:00 p.m.

1. Call to Order. Vice Chair Mensing called the meeting to order at 12:08 p.m. in the meeting room of the Public Safety Center.

2. Roll Call. Members present: Vice Chair Dan Mensing, Rick Scholtes, Ken Skaare and Paula Kelly. Member absent: Les Hintz. Staff absent: Kathy Bailey, City Administrator and Nancy Cole, Executive Director/Housing Manager. Also present: Mayor Rob Hammond and Linsey Warmka.

3. Old Business. A. Development Services Inc. housing program discussion.

Co-owners Paul Olson and Vince Robinson of Development Services Inc. (DSI) were present to discuss the Blue Earth Housing Rehabilitation Program guidelines. Olson stated that today’s meeting would focus more on the housing rehab portion of the City’s program.

Olson asked for feedback on the proposed Property Demolition & Re-use Program Guidelines. Olson noted that the information for the program was provided at the August 9, 2010 HRA meeting. Olson shared that the program is similar to the one implemented in Wells with additional information from other blighted programs.

The HRA Board had no comments on the guidelines at this time.

Olson addressed the guidelines for the housing rehabilitation program and noted that the steps and procedures are provided from start to finish. Olson shared that the program would be suitable for a broad range of qualified applicants. Olson stressed that rehabilitation is not for remodeling a home but rather for addressing a problem with the structure for long-term preservation and re-use of the housing stock.

Olson shared that through experience they have learned to stay away from rehabilitating vacant dwellings and recommended using caution when considering this type of rehab. Olson noted that the dwelling to be rehabilitated needs to be the applicant’s principal place of residence.

Olson discussed that some dwellings may not be suitable for rehabilitation either because they may be in good condition and do not need assistance or because they have deteriorated to a point where rehab is structurally not feasible. Robinson reviewed the ineligible buildings that included temporary structures, movable structures, out-buildings, buildings used primarily for storage and detached garages. Robinson noted that mobile homes are not included in the rehab program because they are considered movable structures.

Olson reviewed the types of financial assistance for the housing rehabilitation program that included loan guarantees, deferred loans and repayable loans.

Olson discussed that the loan guarantee program was designed for households in the upper range of eligibility with the applicant obtaining a loan from a lender which is backed by a guarantee from the HRA.

1 The deferred loan is secured by a lien against the property and must be repaid in the event the property which is rehabilitated is sold, transferred, conveyed or ceases to be the applicant’s principal place of residence within ten years from the date of the repayment agreement. Olson shared that repayment of the deferred loan would be on a prorated basis with the amount repayable declining by 10% per year until the obligation reaches zero. Olson noted that this option provides a good incentive for participation in the housing rehab program.

The third option is a repayable loan for a term not longer than 10 years at a reduced interest rate and requires a minimum monthly payment. Olson discussed the importance of the homeowner’s 10% participation from other leveraged sources in the housing program.

Robinson reviewed the four levels of the income eligibility guidelines. Robinson discussed that the income guidelines are used by the State in their housing programs and can be altered by the City. Robinson shared that the income eligibility limit eliminates applications from households that don’t have a need for the housing rehab funds. Robinson stated that the goal of the program is to bring stressed housing up to standard to improve the tax base of the City. Robinson added that if there isn’t a demand for housing rehab loans the income guidelines can be re-evaluated.

Scholtes questioned the post-loan-debt-to-income ratio of less than 40%. Mensing shared that the loan to value can be an issue in the event that the market value of a home decreases. Mensing discussed that level 4 is a good option for rehab financing and added the post-loan debt-to-income ratio limit is a necessary requirement. Mensing noted that lenders would be hesitant to enter into a loan commitment with an applicant that may result in a foreclosure.

Robinson discussed that the primary purpose of the housing rehab program is to utilize the funds through a long term investment with the owner. Robinson added that although the repayment portion is important, the bigger picture of the program is to get the home fixed. The program needs good parameters set to begin with but the guidelines can be revisited at a later date. Robinson reminded the board that the HRA has the authority to make exceptions to the guidelines if there is a compelling need to do so.

Mensing commented on the wording of the deferred loans and shared that he liked the idea of prorating the repayment in the event the property is sold. Robinson agreed that the prorated repayment option is a benefit for the applicants that are elderly.

Robinson discussed the possibility of a structure having additional rehab issues within the initial ten years and shared that the City will be asked frequently for subordination when the owner refinances or makes additional improvements. Mensing suggested adding wording to the guidelines that subordination is not encouraged but would be reviewed by the HRA. Robinson noted that additional rehab to the home strengthens the tax base of the property and shared that the repayable portion of the loan would be paid in full when refinancing occurs.

Mensing suggested adding wording to the repayable loan guidelines that states that the interest rate is based on the published index rate to be reviewed annually. Robinson agreed and noted that the interest rate for the repayable loans is generally set at 2% - 3%. The wording of the loan guarantee was discussed and it was recommended setting the maximum amount for the loan at $25,000.00. Robinson shared that this loan amount would be for the maximum project cost of $35,000.00. Mensing agreed that $25,000.00 would be a good number and noted that it could be adjusted if necessary. The board suggested setting the floor for interest at 2% with the rate fixed annually based on the 10-year treasury. The recommended minimum monthly payment is $50.00.

Olson reviewed the eligible improvements under Program Operation. Olson shared that new siding would be considered eligible if it results in a substantial weatherization and increased energy-efficiency of the structure. Olson discussed that the housing program administrator would need to determine the eligibility of the improvement project on a case by case basis. Olson reviewed the ineligible improvements that included carpeting, landscaping, fencing, detached garages, fireplaces, central air 2 conditioning units, water softeners, decks, patios or other such improvements. Olson noted that the applicant may use bank loans, his/her own funds on hand, and other leveraged funds in order to undertake improvements which are not otherwise eligible for financing with program funds.

Olson addressed additional requirements for the Program Operation that included the following:  Building owner’s insurance provided prior to placing a rehabilitation project under contract. All insurance policies and renewals shall be acceptable to the HRA and shall include a standard “mortgage clause” and a “lender loss payee clause.”  Contractor’s insurance shall be provided to the HRA with documentation of appropriate liability insurance and other coverage which indemnifies the HRA and holds the HRA harmless in the carrying out of the project.  Contractor’s warranties to the applicant and subsequent owners of the property.  The program will not require a first position security interest for deferred loan and/or repayable loan financing.  Tax, Utility and Ordinance Compliance.  Default, Bankruptcy, Judgments.  Refinancing, work in progress or previous improvements.  Applicant’s own labor is allowed with provisions.

Robinson recommended setting completion deadlines for the rehabilitation in the contract.

Robinson reviewed the program administration procedure of the housing rehabilitation program. The steps for the application for rehabilitation included the following:  Verification of all applicable information which is relevant to the applicant’s eligibility.  Inspections, work write-ups and bid specifications.  Contracting process for rehab work that includes receiving cost estimates and preparing contracts.  Determination of completion date of contracted work. Robinson shared that he prefers to negotiate the start date of the project rather than the completion date.  Change orders require approval by the program.  Closing costs may be paid by the applicant at closing or can be added to the repayable portion of rehabilitation assistance.  Payment to contractors will be made after inspections have been conducted of work performed.  Prior to the release of checks appropriate lien waivers must by provided by the contractor.

Robinson discussed that the setting of policies, priorities and decision making concerning the program shall rest with the HRA. Robinson addressed the appeal process for any decision or action relating to the administration of the program. Mensing requested eliminating the judicial arbitration wording in the appeal process and recommended rewording it to say that in the event that the HRA is unable to resolve the dispute the matter will be brought to the City Council.

Olson reviewed Appendix 1 & 2 of the guidelines that addresses gross annual income calculation and loan guarantee eligibility.

Scholtes questioned the wording pertaining to vacant dwellings not being eligible for rehabilitation under the section of Targeting Criteria, Building Eligibility, and Occupancy Status. Scholtes noted the discrepancy in the wording that exceptions may be granted if repairs are necessary to allow the dwelling to become a full-time residence within three months of the date of completing the repairs. Robinson explained that the housing program is aimed at getting people vested into owning the home and questioned if the City has vacant houses that someone would be interested in purchasing if rehab funds are available.

Further discussion included questioning if the bank would be willing to take the risk of the guarantee for the applicant. Robinson shared that each situation would have to be looked at closely. Mensing recommended removing #3 from Appendix 2 of the loan guarantee eligibility guidelines that states the applicant must have occupied the house being rehabilitated as their principal place of residence for at 3 least three consecutive years prior to applying for the program. Hammond shared that foreclosures are usually blighted housing. Skaare commented that homes that become available through an estate are usually livable due to the fact that the elderly maintain their homes. Skaare added that the homes usually require updates that would not qualify for funds through the rehab program. Robinson suggested amending the wording regarding vacant dwellings to read “Generally vacant dwellings shall not be eligible for rehabilitation.” Robinson discussed that the applicant would have to want to move into the vacant home and added that the seller does not qualify for the program but rather the buyer would. Robinson shared that the conditions for financing could be written into the note and mortgage which could include moving into the residence within 90 days of completion. Skaare questioned who would determine if the rehab increases the value of the home. Scholtes agreed that the value needs to be there when the rehab is completed. Robinson responded that the HRA would make the determination to ensure that the rehab goals have been accomplished.

Skaare questioned if an abstract would be required if the City acquires tax forfeiture property intended for the blight removal program. Robinson responded that the matter should be referred to the City Attorney for advice. Robinson discussed that when acquiring blighted property the City needs to determine who will pay for the expenses which can include abandoned wells, septic systems and determining property lines. Robinson suggested having a lien on the property that would be paid when the property is sold.

Robinson discussed that he would make the recommended changes to the housing rehabilitation program guidelines and it would be available for the HRA Board to review at the September 13, 2010 meeting.

4. The next HRA Board meeting will be held on Monday, September 13, 2010 at noon at the Crescent Apartments.

5. Adjournment. Vice Chair Mensing adjourned the meeting at 1:35 p.m.

______HRA Chair

Minutes approved on ______