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13.3 LOANS FOR UNITS IN A COMMUNITY LAND TRUST [7 CFR 3555.206]
Loans to finance the purchase of dwellings located on land owned by a community land trust may be guaranteed if the conditions described in this paragraph are met, and if the applicants and the property otherwise meet the requirements outlined in this Handbook.
A. Definition
A community land trust is defined as a private nonprofit community housing development organization that owns and leases land at affordable prices. A community land trust sells the property improvements (i.e., buildings, streets, sewers) that normally increase the land’s value, but leases the land under a long-term ground lease to low- and moderate-income households. The organization must:
x Be organized under State or local laws.
x Have no part of its net earnings benefiting any member, founder, contributor, or
individual.
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x Comply with financial accountability.
x Maintain, through significant representation on the organization’s governing
board, accountability to low-income community residents regarding decisions on the design, siting, development, and management of affordable housing. x Have its corporate membership open to any adult resident of a geographic area
specified in the by-laws of the organization.
x Be established to carry out all the following activities:
x Acquire parcels of land, held in perpetuity, primarily for conveyance
under long-term ground leases.
x Transfer ownership of any structural improvements located on such leased
parcels to the lessees.
x Retain a pre-emptive option to purchase any such structural improvements
at a price determined by a formula that is designed to ensure that the improvement remains affordable to low- and moderate-income people in perpetuity.
The lender must ensure that the lease contains provisions for continued use of the land for low- and moderate-income housing.
x The lender’s mortgage file must contain documentation that the community land
trust has received local market acceptance, as evidenced by market acceptance of comparable community land trust projects in the area.
x The lender must verify that the community land trust has broad-based community
representation, and that the community land trust has a two-year record of providing affordable housing.
B. Protection Of Lender Rights And Lien Position
The relevant legal documents must contain language that ensures all restrictions relating to community land trusts will automatically and permanently terminate upon foreclosure or lender acceptance of a deed in lieu of foreclosure. Language that merely subordinates the restrictions to the mortgage is not sufficient. The restrictions also cannot be forced upon subsequent purchasers following resale by the lender.
If the Lender acquires title to the home through foreclosure or acceptance of a deed in lieu of foreclosure, the Lender shall give the community land trust written notice of such
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acquisition, and the community land trust shall then have an option to purchase the home from the Lender for the full amount owed to the Lender under the Mortgage.
To exercise this option to purchase, the community land trust must give written notice to the Lender of the community land trust's intent to purchase the home within thirty (30) days following the community land trust's receipt of the Lender’s notice. The community land trust must then complete the purchase of the home within sixty (60) days of having given written notice of its intent to purchase. If the community land trust does not complete the purchase within this 60-day period, the Lender shall be free to sell the home to another entity.
C. Appraisals
A property located on a site owned by a community land trust must be appraised as a leasehold interest.
D. Title Policy
The leasehold estate must constitute real property, be subject to the mortgage lien, and be insured by a title insurance policy. Refer to title insurance policy requirements outlined in Chapter 16 of this Handbook.