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					        Substantial Rehabilitation Housing Improvement Loans
                             (“SR Loans”)

Budget: Annual allocation to be determined pursuant to the Agency’s
budget process and in conformance with the Agency Five –Year
Implementation Plan.

Goal: To provide sufficient funds to rehabilitate homes that require
substantial rehabilitation (as defined by the CRL), which are owned and
occupied by very low, low and moderate-income households.

Substantial Rehabilit ation (“SR”) Loan Minimum and Maximum: SR Loan
amounts shall be provided in amounts of a minimum of 25% of the after
rehabilitation value up to a maximum of $100,000 for very low, low and
moderate-income (up to 120% of median income) persons or households
on a citywide basis. SR Loans are funded to address severe cases of
deterioration or overcrowding. Loan proceeds must first address health
and safety issues, overcrowding and exterior deterioration, and secondly,
other improvements that would improve the general character and living
environment of the housing unit, including providing room additions to
alleviate overcrowding. Funds can also be used to abate illegal garage
conversions. Properties may only receive one SR Loan during the 45-year
affordability covenant period. Loans are secured by a Deed of Trust and
carry a 3% simple interest rate that is accrued. No loan payments are
made. The property must be held for a minimum of 12 months or all
Loan Funds, including principal and interest, must be repaid. The SR Loan
amount and 3% interest will be discounted in equal amounts each year
over a period of 20 years that Homeowner occupies dwelling. A Deed of
Trust shall secure the loan.

Interest Rate: The loan has a 3% interest rate.

Eligibility: Homeowners of a single–family home with an annual income
that does not exceed Moderate Income (120% of area median income
adjusted for family size [see Appendix 1 for definitions of income
category and what constitutes income]). The home to be improved must
be the primary residence of the person or persons applying for the SR
Loan. For the purposes of this program, Homeowner shall mean that
person, or persons jointly, who has/have legal title to an eligible dwelling.
Homeowner shall also mean and include a person, or persons jointly, who
is/are the trustor(s) and beneficiary(ies) during his/her/their life or lives
of the trust estate under a Family or Living Trust.
                                 Sub stanti al Re habilit ation Hou sin g Im provement L oan

Substantial Rehabilitation Loan Terms:

   •   The SR Loan shall accrue interest at three (3%) percent per annum
       on the unpaid or remaining Loan amortized over 20 years.

   •   The SR Loan may not be combined with any other type of program
       assistance. Applicants may only receive one SR Loan during a 45-
       year period. The recipient must hold the property for a 12-month
       term or the Loan must be repaid in full with interest.

   •   The Homeowner must enter into an affordability covenant, in the
       form of a trust deed/promissory note to secure the 45-year
       affordability obligation.    The Loan obligation, including accrued
       interest, would be forgiven equally over a 20-year period.
       Affordability covenants are recorded against the property and shall apply to
       all subsequent purchasers.

   •   If the property becomes non-compliant by being sold before the end of the
       45-year period to a non-qualified purchaser or the owner fails to occupy the
       property as their principal residence, the Homeowner shall repay to the
       Housing Fund the remaining Loan obligation, plus a percentage of the
       increased equity the property owner realized as a result of the SR Loan.

Shared Equity:        In the event of a sale to a non-qualified purchaser, or the
property fails to be owner occupied, in addition to the remaining loan obligation, the
property owner and Agency will share any increase in equity that occurred from the
time of the SR Loan, in order for the Agency to recover funds for other low and
moderate income housing. The percentage of equity increase the property owner
would share with the Agency as a result of a prohibited transfer would be calculated
with the percentage retained by the owner increasing throughout the term of the
affordability covenant. The shared equity percentage which may be retained by the
property owner has been adjusted to make provision for sale or transfer of the
property to a non-qualified purchaser as a result of unanticipated life changes such
as death or divorce.




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                                Sub stanti al Re habilit ation Hou sin g Im provement L oan

                Year of           Percent of Equity Increase
                Transfer             Retained by Owner
                  Years        Other       Divorce        Death
                 0 – 15         0%           0%            0%
                16 – 18         2%           6%            9%
                19 – 21         5%           9%           12%
                22 – 24         9%           13%          16%
                25 – 27         13%          17%          20%
                28 – 30         17%          21%          24%
                31 – 33         23%          27%          30%
                34 – 36         29%          33%          36%
                37 – 39         40%          44%          47%
                40 – 42         69%          73%          76%
                43 – 45        100%         100%         100%


Example: A property with an original appraised value of $150,000 at the time the
SR Loan application was processed increased to an updated appraised value of
$200,000 as a result of a $50,000 SR Loan. At the time of sale to a non-qualified
purchaser 19 years after the rehab work was completed, the property has an
appraised value of $250,000.

In this case, in addition to the balance of the SR Loan, which would be 1/20 of the
$50,000 loan (or $2,500), the owner would be required to repay $47,500 to the
Agency (95% of the $50,000 increase in value from $200,000 after the completing
the improvements from the substantial rehab loan to $250,000 at the time the
property is sold; the owner retains 5% of the increased value). Therefore, the
owner would repay a total of $50,000 ($2,500 loan balance plus $47,500 shared
equity). If the sale took place as a result of the death of a spouse, the owner would
be required to repay the loan balance of $2,500 plus $44,000 (a total of $46,500) to
the Agency (88% of the $50,000 increase in value; the owner retains 12% of the
increased value).

Security: Total of Homeowners’ existing trust deed(s) and new SR Loan
may not exceed 95% of the value of the property after improvements.
SR Loans will be secured by a trust deed and shall not be subordinated to
any loan due to refinancing. The Agency may consider subordinating its
position under the following conditions:

    •   A Fair Market appraisal of the property is obtained by the lender,
        the cost of which will be paid by the Homeowner.

    •   A copy of the appraisal is submitted to the Agency for its review.

    •   All debt on the property does not exceed 80% of the property
        value.


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                                Sub stanti al Re habilit ation Hou sin g Im provement L oan


    •   The Homeowner does not receive cash out of the new loan unless
        the owner can prove that the cash will be used only to cure an
        emergency situation pertaining to the condition of the property or
        will be used for medical reasons, which is verified by the Agency.
        The cash out of the refinancing may not be used to consolidate
        existing household or credit card bills.

    •   If a Homeowner has sufficient equity in the property to provide a total loan-
        to-value ratio on the property that is less than 60%, the Agency will
        subordinate to a new loan that will allow the owner to access their equity in
        an amount that will maintain the 60% loan-to-value ratio.

Title: A Homeowner who is a trustor/beneficiary under a Family or Living
Trust shall submit to the Agency’s Executive Director, on each
subsequent anniversary date of the Loan provided hereunder, a
declaration executed under penalty of perjury under the laws of the State
of California attesting to the fact that the Trust has not been modified
and that the trustor/beneficiary is still the beneficiary under the trust.
Failure to submit such a declaration annually shall be deemed a default
under these Guidelines.

Cost of Loan: Homeowner costs associated with processing the Loan
(appraisals, loan processing fee, credit reports, title policy, escrow,
notary, recording documents) will be paid for from Loan proceeds. If a
loan is cancelled during the application process, any funds expended by the Agency
in conjunction with that loan application (i.e. appraisal cost) are to be reimbursed
by the property owner; if the Agency has not expended such funds but costs have
been incurred, payment is the responsibility of the property owner and the cost shall
be deducted from the property owner’s deposit.

Permitted uses for the Substantial Rehab Loan Funds: Loan proceeds may
be used for substantial rehabilitation activities in the following order of
priority.

   •    First - To Correct All Code Violations - Electrical, plumbing, heating and
        air conditioning, and structural building deficiencies that are in
        violation of current building codes. Correct planning or zoning code
        violations, such as illegal garage conversions. Correction of any
        safety problems not covered by codes, such as broken windows,
        doors and the provision of facilities for handicapped access.

   •    Second - Alleviate Overcrowding - Based upon the overcrowding
        standards set forth in the United States Department of Housing and
        Urban Development “Public Housing Occupancy Handbook” Chapter
        5 b (attached as Appendix 2) fund bedroom addition to alleviate



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                                Sub stanti al Re habilit ation Hou sin g Im provement L oan

    overcrowding. . Additionally, if a second bathroom does not exist
    in a home of four bedrooms or more and each bedroom is occupied,
    an additional bathroom may be provided.

       o   Because overcrowding is a condition determined by the makeup of a household,
           no limitation is placed on the age of the structure. Therefore, if a household is
           deemed overcrowded pursuant to the above noted HUD standards, and the house
           was built in the 1980s or 1990s, the household would be eligible for assistance if
           the income requirements are met and their plans to add an additional bedroom
           meet planning and zoning requirements of the City.

•   Third - To Refurbish Exterior Items - New roofs, rain gutters, conversion
    of carports to garages, garage and entry door replacement, fencing
    replacement, and driveway/walkway repairs.

•   Fourth - Exterior Cosmetic Improvements - Repainting, replacing dried or
    broken landscape materials and/or inoperable irrigation systems,
    and replacing broken or damaged awning improvements.

•   Fifth - Security Improvements - Upgrade door and window locks,
    installing security lighting and doors and security-related fencing.

•   Sixth - Energy Efficiency Improvements - Heating and cooling system
    replacement/upgrades, install insulation, ceiling fans, weather
    stripping, water heater replacement, and low flow plumbing fixtures.

•   Seventh - Interior Improvements (necessary to improve general living conditions)
    - Interior paint, wall coverings, new flooring, repair of existing
    hardwood flooring, needed kitchen appliances (built in only),
    replacement of deteriorated kitchen or bathroom cabinets,
    replacement of counter tops with mid-grade tile or Formica,
    replacement of inoperative lighting fixtures etc. All such interior
    items would be allowed only at mid-grade quality.

•   Improvements that are not to be funded by Loan - Indoor and outdoor
    fireplaces, pools, Jacuzzis, hardwood flooring, expensive counter
    tops, washers, dryers, barbecue pits, flower boxes, greenhouses,
    family rooms, new patios or deck construction, decorator planters,
    custom concrete work on driveways and walkways, detached
    workshops     and/or     other    non-permanent     structures  and
    improvements considered to be a luxury as determined by the
    Executive Director.

•   Work Conducted Under Program – All work conducted under the Loan
    shall be performed with approved building permits and by state
    licensed contractors. Building permit fees shall not be waived by
    the City.


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