Welcome to …. Commonwealth of Kentucky NSP Implementation Training A Little About Us … Held by Commonwealth of Kentucky Governor’s Department for Local Government (DLG) Your trainers from ICF International: – Kelly Price & Les Warner DLG staff – Lynn Littrell, Anne Chaney & Travis Weber HUD Representative in attendance – Richard Knight NSP1 Implementation Training Slide 2 Participant Introductions My agency is: – Local government? • State CDBG grantee? – Nonprofit? • Worked with CDBG? • Worked with HOME? Years of experience with CDBG <1 yr 1-5 yr 6-10 yr 10+ yr Years of experience with HOME <1 yr 1-5 yr 6-10 yr 10+ yr NSP1 Implementation Training Slide 3 Course Objectives We are here to provide information on NSP so that programs can get started and be in compliance with requirements We will: – Review NSP rules and requirements – Review Kentucky NSP program requirements & processes – Provide some of the forms to be utilized by all NSP grantees NSP1 Implementation Training Slide 4 Agenda Day One Welcome and Introductions Overview of KY NSP Program NSP Eligible and Ineligible Uses – National objective – Units targeted to 50% AMI Key NSP requirements Acquisition/Rehab/Resale NSP1 Implementation Training Slide 5 Agenda Day Two Demolition Projects Redevelopment Projects Land Banking Programs Lender Presentations Key Implementation & Compliance Steps What’s Next… NSP1 Implementation Training Slide 6 Rules!!!! Please ask questions…this is your chance! – “Sticky questions” board May have to live with some ambiguity – sometimes no one “right” answer or NSP policy has not yet been determined – “Parking lot” Please turn all electronic devices to silent/vibrate only mode NSP1 Implementation Training Slide 7 Overview of the KY NSP NSP Overview Neighborhood Stabilization Program (NSP) passed by Congress August 2008 The goal of the program is NOT primarily affordable housing Goal is to stabilize neighborhoods – Arrest decline – Get foreclosed housing back into occupancy – Neighborhood focused – areas of greatest need Program on very tight timeline Can serve up to 120% of AMI NSP1 Implementation Training Slide 9 KY NSP Kentucky’s share of NSP - $37,408,788 KY was required to submit an amendment to the action plan outlining NSP program and uses Funds are required to be distributed to areas of greatest need A formula was utilized to determine a community needs score by county NSP1 Implementation Training Slide 10 NSP Deadlines State must use/obligate funds within 18 months after execution of the grant agreement by HUD – September 19, 2010 Obligate = contracts signed or written offers for properties – Options or other non-binding instruments not acceptable Must EXPEND NSP $ within four years – PI may be generated and expended later than 4 yr period Must use it or lose it (otherwise funds get reallocated) NSP1 Implementation Training Slide 11 KY NSP Timeline RFP was issued 12/2008 Applications were reviewed; 21 projects were selected Funding announcements made April 2, 2009 Grant agreements will be issued following this training NSP1 Implementation Training Slide 12 KY NSP Timeline (cont.) Subrecipients will have until June 1, 2010 to obligate all NSP funds awarded – Should have 50% obligated by 1/30/10 – 75% obligated by 4/30/10 NO EXTENSIONS due to HUD deadlines – Key is to have pipeline of prospective deals & “mortgage ready” buyers Unobligated $ will be reallocated to high performing grantees – Receiving agencies will then have until August 1, 2010 to obligate NSP1 Implementation Training Slide 13 NSP Eligible Uses & Ineligible Activities Key Partners Grantee = Commonwealth of KY NSP Administrator = term for entities awarded funds Subrecipient = public agency or nonprofit that administers program for grantee – Includes UGLG receiving funds from state Developer = nonprofit or for-profit organization that arranges & completes rehab deals – New construction pending decision at HUD Beneficiary = homebuyer or tenant NSP1 Implementation Training Slide 15 Subrecipients All local governments and nearly all nonprofits are considered subrecipients Subrecipients subject to: – All CDBG regs – All applicable cross-cutting requirements – The Uniform Admin Rule & OMB circulars • Part 85 (local govts), Part 84 (nonprofits) • A-122 (costs) • A-133 (audits) NSP1 Implementation Training Slide 16 Roles & Relationships State - DLG Subrecipient (ULG Developer (certain or Nonprofit) nonprofits only) Sub Subrecipient (e.g., Nonprofit or Land Agreements must be in Bank Authority) place between all parties Beneficiaries NSP1 Implementation Training Slide 17 Procurement Must comply with Federal requirements at 24 CFR Part 85/84 or more stringent state/local requirements – Designed to achieve maximum open and free competition – Required to adopt written procurement procedures – Must procure all goods and services NSP1 Implementation Training Slide 18 Procurement (cont) Select 1 of 4 procurement methods based product/service procured – Small purchase procedures (under $20,000) – Competitive sealed bids (construction) – Competitive negotiation (RFP/RFQ for services where price not only criteria) – Non-competitive negotiation (sole source, but be careful!) Keep documentation Adhere to Section 3, M/WBE requirements NSP1 Implementation Training Slide 19 Conflict of Interest Conflict of interest prohibited in procurement of goods & services, determining of beneficiaries Persons covered may not gain financial benefit/interest Persons covered includes: – Employee, agent, consultant, officer, elected official, appointed official – Grantee or subrecipient – Themselves or family/business ties NSP1 Implementation Training Slide 20 Key Definitions Abandoned: Mortgage/tax foreclosure proceedings initiated & no mortgage/tax payments for 90 days and vacant for 90 days Foreclosed: Mortgage/tax foreclosure complete, includes title transfer – Must be acquired out of foreclosure – NSP acquisition not authorized until Action Plan submission (12/1/08) – Implication: Cannot reimburse acquisition of foreclosed properties prior to Action Plan & cannot rehab these sites except if allowed under eligible use E NSP1 Implementation Training Slide 21 Key Definitions (cont) Blighted: Objectively determinable deterioration that is threat to human health, public safety, public welfare Adhere to KRS definition (see handout) – Careful! HUD emphasizing that blighted properties must pose a threat to health & safety NSP1 Implementation Training Slide 22 Key Definitions (cont) Land Bank: Purchase, manage, dispose of property in defined area Vacant Property: Unoccupied structures or vacant land that was once developed Homes: Permanent residential unit Residential Property: Homes plus vacant residential land and multifamily properties NSP1 Implementation Training Slide 23 Eligible Uses and Activities HERA defines five “uses” of funds Generally, uses of HERA funds must be CDBG eligible – Some exceptions HUD has cross referenced HERA uses to CDBG activities HUD permission needed if CDBG activity not on list NSP1 Implementation Training Slide 24 Eligible Uses Eligible Use CDBG Eligible Activities A. Financing Activity delivery cost for an mechanisms for eligible activity (designing & purchase & setting it up) redevelopment of The financing of an NSP foreclosed upon eligible activity – such as soft homes & residential second loans, loan loss properties reserve, equity sharing Other activities in Uses B-D NSP1 Implementation Training Slide 25 Eligible Uses (cont) Eligible Use CDBG Eligible Activities B. Purchase and Acquisition rehabilitate homes Disposition and residential properties that have Relocation been abandoned or Direct homeownership assistance foreclosed upon, in Eligible rehabilitation and order to sell, rent, or preservation activities for homes redevelop such and other residential properties homes and properties Housing counseling - for those seeking to take part in the activity NSP1 Implementation Training Slide 26 Eligible Uses (cont) Eligible Use CDBG Eligible Activities C. Land banks for homes and Acquisition residential properties (Bridge Disposition (includes Notice anticipated) that have maintenance) been foreclosed upon Eligible Use CDBG Eligible Activity D. Demolish blighted structures Clearance, for blighted structures only NSP1 Implementation Training Slide 27 Eligible Uses (cont) Eligible Use CDBG Eligible Activities E. Redevelop Acquisition demolished or Disposition vacant Public facilities and improvements properties Housing counseling – for prospective participants in NSP Relocation New housing construction Direct homeownership assistance Rehabilitation (new, likely under Bridge Notice) NSP1 Implementation Training Slide 28 Ineligible Uses If ineligible under CDBG, usually ineligible under NSP – New Construction is exception Ineligible under NSP: – Foreclosure prevention – Demolition of non-blighted structures – Acquisition of property or structures that are not abandoned, foreclosed or vacant (eligible use E) NSP1 Implementation Training Slide 29 Ineligible Uses (cont) Need to be careful when addressing tax or other foreclosed properties owned by grantee Cannot use NSP funds to reimburse cities/counties/towns for tax foreclosed properties or non-profits for its own foreclosed upon units – Can only pay for reasonable title transfer costs – Can pay for back taxes as part of acquisition cost when foreclosed unit owned by private lender NSP1 Implementation Training Slide 30 Eligible Costs Direct project costs allowed: – Land or property development (for eligible sites) • Acquisition • Labor • Materials • Energy efficiency • Lead paint • Handicapped access • Developer fee – Site preparation – Buyer purchase assistance – Buyer closing costs NSP1 Implementation Training Slide 31 Eligible Costs (cont) Project delivery costs: – Costs for grantee/subrecipient directly related to delivering the assisted projects – Example: Inspections, work write-ups, appraisals, homebuyer selection, environmental review, etc. – Can pay delivery costs as part of eligible program – Not an admin cost (more later) NSP1 Implementation Training Slide 32 Eligible Costs (cont) Housing counseling – Can be activity delivery for NSP-assisted family or public service under Eligible Use E – Note: if buyer drops out from counseling program, cost is still eligible NSP expense – Participants in NSP housing counseling need to be “mortgage ready” or “near ready” • NSP does not allow time for long term credit clean-up, etc. NSP1 Implementation Training Slide 33 Admin Vs. Project Delivery Costs Admin costs are costs to administer NSP grantee or subrecipient agency – Must have tie to NSP (NSP budgeting, reporting, etc.) – Document how determined, etc. Activity/Project Delivery – Cost of delivering an assisted project or service – Not counted toward admin cap – Keep documentation to show tie to project/program/unit NSP1 Implementation Training Slide 34 Administrative and Planning Costs – Staffing Costs Capped at 5% of NSP award Can include applicable staff and jurisdiction administrative and management costs – Two options for calculating staff costs: • Entire salary/wages OR • A pro-rata share – Choose one option by staff person! – Must document by timesheets or other approved means NSP1 Implementation Training Slide 35 Other Admin/Planning Costs Other eligible costs may include: – Public information – Fair Housing – Budgeting, reporting – Indirect costs under a cost allocation plan NSP1 Implementation Training Slide 36 National Objectives All NSP activities must meet a national objective Defined differently than regular CDBG because: – Allows you to serve households up to 120% of median (called LMMI) – “Slum/blight” and “urgent need” National Objectives not allowed • Have to serve LMMI households through housing OR, for limited activities, a LMMI area NSP1 Implementation Training Slide 37 National Objectives (cont) Area benefit (LMMA): defined area with > 51% of residents < 120% of median – Activity serves all residents of primarily residential area – Use for land banks if also do maintenance, demolition, redevelopment Limited clientele (LMMC): family with income < 120% of median – Use for special needs public facilities NSP1 Implementation Training Slide 38 Housing Natl Objective Activities that provide housing must meet Low/Mod/Middle Income Housing LMMI – H – Households must be <120% AMI Housing is a direct benefit activity so have to calculate & document income For homebuyers, determine prior to provision of assistance For renters, at initial occupancy & at unit turnover during affordability period NSP1 Implementation Training Slide 39 Income Determination Must document that each household meets income eligibility requirements – Section 8 definition of income must be used – Section 8 regulations in 24 CFR Part 5 Definition means gross amount of income for all adult household members anticipated to be received in coming 12 months NSP1 Implementation Training Slide 40 Income Determination (cont) 1. Ask questions of household regarding income sources & assets • Do not include “necessary” personal assets 2. Gather appropriate documentation 3. Calculate total household income 4. Compare to HUD income limits 5. Place documentation in files Use the Income Calculator on HUD’s website! NSP1 Implementation Training Slide 41 Low Income Targeting HERA requires low income set aside – 25% of NSP funds used for activities that provide housing for households with incomes <50% of area median income (very low income) – Set aside funds are identified in funding awards – Be careful about what counts toward set aside • Must meet LMMH national objective • Can only be foreclosed/abandoned units for permanent residential housing NSP1 Implementation Training Slide 42 Key NSP Implementation Requirements Key Implementation Requirements In addition to eligible use, eligible cost and national objective: – Purchase price – Appraisals – Other federal requirements – Green building/energy efficiency – Sales price to homebuyers – Affordability period NSP1 Implementation Training Slide 44 Typical NSP Unit Process UNIT FORECLOSED/ ABANDONED UNIT PURCHASED BY Purchase at discount based on GRANTEE/PARTNER appraisal COMPLY WITH OTHER FEDERAL Environmental, Fair Housing, acquisition, labor, etc. UNIT REHABBED/DEMOLISHED/ REDEVELOPED Rehab to standards UNIT SOLD TO Sale price for homebuyer units HOMEBUYER OR RENTED cannot exceed cost, must have OR RE-USED W/AFFORD PERIOD affordability period & counseling PROGRAM INCOME TRACKED/USED/REMITTED Return PI to State (later) NSP1 Implementation Training Slide 45 Purchase Price However, purchase price of foreclosed homes/properties is capped Must be purchased at “maximum reasonable discount” from current market value Amount of discount per home: – 15% minimum portfolio average (this may be removed) – 5% minimum individual home NSP Bridge Notice anticipated to change this requirement NSP1 Implementation Training Slide 46 Maximum NSP Investment KY caps the maximum NSP investment for homebuyer projects to: – 50% of contract sales price for non-targeted households – 100% of contract sales price (less DPA, which is limited to 50% of the lender-required DP) for targeted households • Homeless • Activity duty military or veteran • Physically or mentally disabled household member NSP1 Implementation Training Slide 47 Appraisals Appraisal determines market value –Generally required for purchases of foreclosed homes & properties to demonstrate cost reasonableness –Not required if anticipated value of acquisition is < $25,000 (new, Bridge Notice anticipated) • Must still do valuation based on available data but may be done by qualified person (non- appraiser) –Consider as-is acquisition appraisal and post- rehab/construction based on plans/specs –No review appraisal required NSP1 Implementation Training Slide 48 Appraisals (cont) Must adhere to URA appraisal standards at 24.103 • Fee appraiser must be state licensed or FIRREA certified • Use procurement to select contracted appraisers • Appraisal to include: description of property; approaches to value; comparables; statement of value; date and signature Have to conduct within 60 days of final offer to purchase Handout provided on appraisal guidance NSP1 Implementation Training Slide 49 Environmental Review Environmental review required before any funds obligated Participant may not commit or expend HUD funds prior to receiving DLG approval if activity would have adverse environmental impact or limit choice of reasonable alternatives – “Participant” includes public or private nonprofit or for- profit entities or their contractors – Activities that are exempt or categorically excluded not subject to §58.5 & may proceed with DLG written approval NSP1 Implementation Training Slide 50 Environmental Review Local governments have to take on the role of responsible entity (RE) under Part 58 – Conduct environmental review • Recommend doing tiered, geographic aggregated review with site specific checklists when sites IDd – Must request release of funds (RROF) from DLG Nonprofits can’t be RE so DLG conducting tiered review now – Need to prepare site specific checklist as homes IDd and submit with set-up package (will review later) DLG to explain Clearinghouse process & issues…. NSP1 Implementation Training Slide 51 URA Uniform Relocation Act (URA) applies to all projects – Has acquisition and relocation/displacement rules Section 104(d) One-for-One Unit Replacement waived – Section 104(d) relocation rules NOT waived – NOTE: If NSP is combined with HOME or CDBG, the 1 for 1 rules may apply NSP1 Implementation Training Slide 52 URA (cont) Involuntary purchases (use of eminent domain) are generally not allowed Acquisitions (even from bank, court, etc.) are covered by URA – Must provide voluntary sale notices with offers Three different types of voluntary sale: – Grantee has eminent domain powers but won’t use – Grantee doesn’t have eminent domain powers – Purchases from government agency where buyer does not have eminent domain powers over that agency NSP1 Implementation Training Slide 53 URA (cont) Must notify the seller: – Grantee will not use (or does not have) power of eminent domain – Seller not eligible to receive relocation assistance – Estimate of fair market value • Appraisal already required by program if acquiring foreclosed unit worth > $25k Notice provided in your handouts NSP1 Implementation Training Slide 54 URA (cont) If properties occupied, URA relocation rules apply – Must determine occupant’s status & URA entitlement – Lawful occupant entitled to: • Notices • If displaced, advisory services, moving costs, and replacement housing assistance • If not displaced, temporary moving assistance, if applicable If allow new tenants to occupy, provide “move-in” notices NSP1 Implementation Training Slide 55 Labor Standards Davis Bacon rules apply when triggered: – 8 or more units per property when construction contract is financed whole/part with NSP $ If applicable – Bid docs & contracts/subcontracts must contain standard clauses & applicable wage decisions – Must review payrolls from contractor & subs – Must conduct interviews & resolve any issues Kentucky Prevailing Wage Law may apply… – Requires prevailing wages be paid by public authorities for construction over $250,000 – Requires overtime be paid regardless of contract value NSP1 Implementation Training Slide 56 Other Labor Laws Contract Work Hours & Safety Standards Act – Workers shall not work more than 40 hours/week unless they get overtime & projects must comply with safety standards Copeland Anti-Kickback Act – Requires payment once a week & only permissible payroll deductions Fair Labor Standards Act – Federal minimum wage & overtime requirements NSP1 Implementation Training Slide 57 Lead Based Paint Applies to rehab of pre-1978 units Certain types of rehab work exempt – Properties tested & found not to have lead – Properties where lead has been removed – Rehab won’t disturb paint surfaces Lead evaluation and treatment depends on level of assistance which is lower of: – Per unit rehabilitation hard costs (all funds) OR – Per unit federal assistance NSP1 Implementation Training Slide 58 Lead Based Paint (cont) Evaluation activity depends on level of assistance: – Less than $5,000 = Paint testing – $5,000 to $25,000 = Risk assessment – More than $25,000 = Risk assessment How to address lead depends upon amount of assistance: – <$5k = repair surfaces to be disturbed using safe work practices – $5k - $25k = interim controls using safe work practices & trained workers – >$25k = abatement using safe work practices & certified supervisor & workers NSP1 Implementation Training Slide 59 Lead Based Paint (cont) Clearance must also be performed – Do NOT pay final payment to contractor before unit has passed clearance – Provide Notice of Lead Hazard Reduction to property owner within 15 days of clearance test NSP1 Implementation Training Slide 60 Fair Housing & Equal Opportunity Comply with non-discrimination and equal opportunity laws – Affirmatively further fair housing – Affirmative marketing plan when 5+ assisted units • State has sample to follow Comply with Section 504 regarding handicapped access Comply with Section 3 regarding employment and contracting for low income persons NSP1 Implementation Training Slide 61 Fair Housing & Equal Opportunity (cont) Other applicable rules: – Assist beneficiaries with limited English proficiency – Take action to promote contracting with minority & women owned businesses Cannot provide assistance to persons not legally in the U.S. – Local governments must ask – Nonprofits not required to ask More on fair housing in your handouts NSP1 Implementation Training Slide 62 Property Standards NSP projects must comply with local codes & occupancy standards At a minimum, grantees must adopt the 2006 International Code Council (ICC) Property Maintenance Code All units must meet 2007 KY Residential Code Green building & energy efficiency improvements required – Was element of application scoring – need to meet! NSP1 Implementation Training Slide 63 Sale Price Cap to Homebuyers Homebuyer purchase price must be “affordable” – Set by KY at $150,000 for households < 80% AMI – Set at $237,000 for households 80.1% - 120% AMI Also, sales price to buyer cannot exceed grantee’s cost or appraised value, whichever is less – “Cost” = acquisition + rehab + activity delivery costs – Cannot include maintenance/holding costs in sales price NSP1 Implementation Training Slide 64 Affordability Period Min. Affordability Per Unit NSP $ Period <$15,000 5 years $15,000 - $40,000 10 years >$40,000 15 years Reconstruction/New Construction/New Unit 20 years Acquisition If project does not remain compliant for period, investment may need to be repaid NSP1 Implementation Training Slide 65 Acquisition/Rehab/Resale NSP Eligible Use A & B Project Elements Purchase of foreclosed or abandoned single family properties Rehabilitation or reconstruction of units to meet property standards Selection of income eligible homebuyers Provide homebuyer counseling Sale of unit including possible assistance to homebuyer (DPA & closing costs) to make unit affordable – NOTE: DPA limited by CDBG regs to 50% of lender- required DP NSP1 Implementation Training Slide 67 Eligible Costs Eligible direct project costs include: – Property acquisition – Site preparation – Construction/rehab • Allowable costs are those that address housing safety, quality and habitability codes, laws, and regulations • Costs may include energy efficiency and conservation improvements or the provision of a renewable energy source – Relocation – Buyer purchase assistance – Buyer closing costs NSP1 Implementation Training Slide 68 Eligible Costs (cont) Activity/project delivery costs: – Costs for grantee to deliver the program – Ex: Inspections, work write-ups, appraisals, homebuyer counseling, environmental review, lead inspections & clearance testing, fees relating to title transfer, recording liens, etc. NSP1 Implementation Training Slide 69 Types of NSP Assistance NSP/CDBG caps down payment assistance at 50% of the lender-required DPA – Closing costs can be paid 100% – Principal write down in the form of a soft 2nd is allowable NSP funds can be used to acquire up-front private mortgage insurance (PMI) – BUT…look at financing structure before using this option NSP1 Implementation Training Slide 70 NSP Assistance (cont) Total NSP assistance to non-targeted population buyers capped at 50% of contract sales price NSP funds can be utilized to provide mortgage financing up to 100% for targeted populations (less 5% for DPA) – Active military, veterans, homeless, households with members who have physical/mental disabilities NSP financing would typically be in the form of an amortized loan – Match the affordability period to the length of the loan and/or the minimum affordability period, whichever is longer NSP1 Implementation Training Slide 71 Property Selection Properties must be within targeted areas • Documentation of target area location by census tract & block group Under Eligible Uses A-C, property must be foreclosed or abandoned • Files will need to document property eligibility • Foreclosed property – evidence that title for the property had been transferred back to the lender • Abandoned – evidence of the initiation of foreclosure filing and 90 days with no payment & vacant FHA properties should be considered NSP1 Implementation Training Slide 72 Property Selection (cont) Property must be able to be brought up to property standards Important to understand the targeted buyer and select units that can be marketed and sold within program timeline NSP1 Implementation Training Slide 73 Identifying Potential Properties Conduct a windshield survey of target area to identify potential units Work with lenders and FHA to identify portfolio units located within targets ID owner – If lender, expect delays in the process NSP1 Implementation Training Slide 74 Does The Property Make Sense? How will the property compare to existing units in the area market? What impact will the surrounding neighborhood have on marketing the unit? Does the unit have the amenities the target buyer wants – number of bedrooms, baths? Will cost of rehabilitation raise the sale price above competitive level? NSP1 Implementation Training Slide 75 Issues for Acquisition Get title search, boundary survey, other due diligence items Can execute an option if conditional on enviro clearance & at your own risk – Cost of option must be nominal ER site specific checklist must be completed & ensure compliance with any applicable requirements NSP1 Implementation Training Slide 76 Acquisition Issues (cont) Appraisal required to determine market value Negotiate sale price w/ owner to meet the property discount requirements Must document as a voluntary acquisition under URA – Provide the required notice in offer/contracts (in handout) – Document receipt by including an acknowledgement of receipt signature line on notice NSP1 Implementation Training Slide 77 Acquisition Issues (cont) Units must be vacant or “walk away” – If occupied, URA triggered and will add time and cost – Site inspection recommended to confirm the unit is vacant Determine if rehab necessary – If so, inspect & develop a scope of work and cost estimate Determine if property built before 1978 – If so, comply with LBP requirements NSP1 Implementation Training Slide 78 Rehabilitation All NSP units will need to be brought up to local code and occupancy standards –minimum of the 2006 International Property Maintenance code Conduct inspection and develop scope of work including cost estimate Additional specs may need to provided for green building/energy efficiency standards NSP1 Implementation Training Slide 79 Reconstruction Demolition of an existing structure and replacement with a newly constructed comparable single family unit NSP1 Implementation Training Slide 80 Oversight Responsibilities NSP recipient will be responsible to conduct progress, draw & final inspections to certify as to: – Meeting code & standards requirements – Handicapped accessibility (if required) – Energy efficiency/green building features KHC will conduct inspections of all rental projects and sample of homebuyer properties on behalf of DLG NSP1 Implementation Training Slide 81 Oversight Responsibilities (cont) Certification of all homebuyers are income eligible and complete required homebuyer counseling – Maintain documentation Respond to and resolve disputes, keep DLG informed of potential issues Track the long term affordabilty requirements – Enforce recapture provisions NSP1 Implementation Training Slide 82 Buyer Eligibility Homebuyer will need to be at or below 120% of area median income – Some units may be targeted to households at/below 50% AMI Document the buyer has completed 8 hours of homebuyer counseling with a HUD-approved agency State has debt ratios to use in underwriting – 21-24.99% for <50% AMI, 25-29.99% for 51-120% AMI – Back end capped at 41% or lender requirements if more stringent Establish timeline for potential homebuyer to get lender approval for mortgage and set closing – Cannot work with buyers for long period of time to get them “mortgage ready” due to NSP deadlines NSP1 Implementation Training Slide 83 Sale Price Cap to Homebuyers Homebuyer purchase price must be “affordable” as defined in Action Plan Sales price will be the lesser of: – Fair market value (appraised value) OR – Grantee cost to acquire, redevelop • Can include grantee’s activity/project delivery costs • Cannot include maintenance/holding costs in sale price NSP1 Implementation Training Slide 84 Example of Maximum Sale Price Calculation Market Value of completed unit: $140,000 NSP investments: • Acquisition $90,000 • Rehabilitation $25,000 • Project delivery $10,000 Total NSP “cost” $125,000 Maximum Sale price $125,000 (lesser of market value and total cost) NSP1 Implementation Training Slide 85 Long-Term Affordability Min. Affordability Per Unit NSP $ Period <$15,000 5 years $15,000 - $40,000 10 years >$40,000 15 years Reconstruction 20 If project does not remain compliant for period, portion of direct subsidy repaid as per recapture provisions NSP1 Implementation Training Slide 86 Recapture Requirements Meet affordability requirement by recapturing funds if unit sold by owner during affordability period – Amount recaptured depends on sale price and chosen recapture approach May re-sell unit to any buyer at any price – Once $$$ recaptured & unit sold, no additional unit restrictions NSP1 Implementation Training Slide 87 Recapture (cont) Affordability period based on “total amount subject to recapture” Total subject to recapture is direct homebuyer subsidy: – Assistance provided to buyer: downpayment/closing costs, subsidized loan – Amount between market value and sales price of home Does not include NSP amounts to subsidize development when that cost exceeds market value (known as development subsidy) NSP1 Implementation Training Slide 88 Recapture Affordability Period Example NSP direct loan to buyer: $15,000 NSP closing cost assist: $5,000 NSP develop subsidy to NP: $50,000 Sale price of unit: $145,000 Total amount subject to recapture: – $15,000 + $5,000 = $20,000 Affordability period = 10 years NSP1 Implementation Training Slide 89 Recapture Model: Amount Recaptured Occurs when home is sold during affordability period (whether voluntary or foreclosure) Recapture amount is limited to “net proceeds” Net proceeds defined as: Net Proceeds = Sale Price – Superior Debt – Current Closing Costs – Homebuyer Investment & Improvements Limits amount owed back if net proceeds insufficient If proceeds greater, can do proportionate share (if in recapture agreements) NSP1 Implementation Training Slide 90 Demolition NSP Eligible Use D Demolition Demolition = Clearance of blighted structures – Must be blighted = Meet KRS 99.705 (discussed previously) – Can be combined with other eligible activities Any type of units/properties OK Must have end use that meets either LMMI- Housing or LMMI- Area benefit national objective NSP1 Implementation Training Slide 93 Other Federal Requirements Do not proceed until environmental clearance is obtained Need to procure demo services If demo only contract, Davis Bacon labor standards requirements do NOT apply If contract is for demo and construction, labor standards will apply – Get wage decision & put in bid and contract docs – Get payrolls, conduct interviews NSP1 Implementation Training Slide 94 Redevelopment Projects Eligible Use E Redevelopment Projects Redevelop demolished or vacant properties Eligible activities: – Acquisition – Disposition – Public facilities and improvements – Housing counseling public services (limited to purchasers or tenants of redeveloped properties) – Relocation – New housing construction – Direct homeownership assistance – 570.204 activities by CBDOs – Rehabilitation (new, likely under Bridge Notice) NSP1 Implementation Training Slide 96 Redevelopment Projects Under redevelopment (NSP eligible use E): – Property does not need to be foreclosed or abandoned – But…MUST be vacant – Can be any type: residential, commercial, industrial, recreational, etc. Can be combined with other eligible activities IF meets criteria for those activities NSP1 Implementation Training Slide 97 Meeting a National Objective If project is providing housing, use LMMI Housing national objective – Households must be <120% AMI – Calculate income & obtain source documentation – Must meet for affordability period If project serves a targeted population, use LMMI Limited Clientele – 51% of users must be LMMI or presumed LMMI – Subject to change of use restrictions in CDBG regs NSP1 Implementation Training Slide 98 Other Federal Requirements Full range of cross-cutting requirements could apply, depends upon activity being undertaken: – Environmental review – URA acquisition requirements – Labor standards – Lead-based paint hazard reduction – Section 504 handicapped accessibility – Fair housing/affirmative marketing NSP1 Implementation Training Slide 99 Land Banks NSP Eligible Use C Land Bank Activities Land bank set up to purchase, manage & dispose of properties – Conducted by nonprofit or public agency – Operate pursuant to KRS 65.350 – 65.375 – Land bank must operate in defined geographic area determined by grantee Units purchased must be foreclosed & must be residential (homes) – Can be foreclosed vacant land but must be zoned residential NSP1 Implementation Training Slide 101 Land Banks (cont.) Must have a plan for using property – Can include interim uses (i.e., rent out homes prior to final disposition) – If carry out other activities (demo, rehab, redevelopment) have to adhere to requirements for those uses May not hold properties for more than 5 years from date of acquisition – Waiver from DLG will be considered for up to 5 additional years Costs of boarding up & maintaining eligible – Must be reasonable – Follow procurement to hire services – Keep documentation NSP1 Implementation Training Slide 102 Land Bank – Natl Objective If land bank acquiring properties & carrying out other activities to arrest neighborhood decline (maintenance, demo, redevelopment), use LMMI Area Benefit – Area served must be LMMI If land bank only acquiring properties & disposing for housing, use LMMI Housing – Households buying/renting homes must be LMMI NSP1 Implementation Training Slide 103 Land Bank – Other Federal Requirements URA acquisition rules apply Need to adhere to financial mgmt requirements, incl. – Maintain real property inventory • Must be updated at least twice annually • Detailed information on location and value of property – Have procedures for tracking costs, disposition revenue & end use NSP1 Implementation Training Slide 104 Land Bank Operations Land bank authority/ULG responsible for all aspects of property mgmt & maintenance & disposition As such, need to have: – Established priorities for which properties to acquire – Operating budget & source of revenue to fund ongoing operations (typically thru sale of properties) – Established policies incl. disposition policy Community must have capacity to absorb and develop properties from the land bank NSP1 Implementation Training Slide 105 Lender Presentations Implementation & Compliance Implementation & Compliance Certain key steps in NSP implementation – Funding agreement – Project set-up – Interim purchase – Construction oversight – Financial management – Tracking obligations & draw requests – Reporting – Monitoring – Close out NSP1 Implementation Training Slide 108 Funding Agreement DLG preparing funding agreements Agreement will include: – Authorized NSP eligible uses & funding associated with each – Applicable CDBG requirements – Applicable other federal requirements – State laws and requirements – Terms and conditions Agreement must be executed prior to draw down of funds NSP1 Implementation Training Slide 109 Project Set Up DLG has created a package of forms that must be completed to set up projects – Excel-based e-files Set up forms include: – Set-up Checklist – Activity/Property Information Form – Construction Start-up Notice – Unit budget – ERR site specific checklist (nonprofits only) – Various lead paint forms NSP1 Implementation Training Slide 110 Set Up Forms Please refer to your hand out We will show you the Set Up forms & checklist NSP1 Implementation Training Slide 111 Interim/Unit Closing When proceeding to purchase of property, need to provide basic information to the State: – HUD-1 Settlement Statement – Homebuyer Demographic Info – Homebuyer (or tenant) income info – Proposed finance structure/underwriting – Draft loan docs (mortgage/note) NSP1 Implementation Training Slide 112 Construction Oversight NSP recipients must oversee construction – Conduct inspections – Do not pay construction draws unless inspection conducted & work in place KHC staff will perform inspections on behalf of DLG – 100% of rental projects – Sample of homebuyer units KHC’s review stages for new construction: – Open footer with steel installed – Framing after all mechanicals are complete & insulation installed but before drywall cover – Final after local code approval Rehab basically same but inspector will want to see concealed areas before they are covered NSP1 Implementation Training Slide 113 Financial Mgmt 24 CFR Part 570 (CDBG Regs) OMB Circular A-87 (Allowable costs) OMB Circular A-133 (Audits) Provisions of 24 Part 85 (local governments) or Part 84 (nonprofits) (Administrative requirements) NSP1 Implementation Training Slide 114 Financial Mgmt Constant process of tracking finances & safeguarding financial assets Requirements pertain to: – Accounting systems & internal controls – Allowability & allocability of costs – Audits – Program income NSP1 Implementation Training Slide 115 Tracking & Documenting Costs All costs must be eligible – For a NSP eligible use & CDBG eligible activity – In accordance with CDBG and OMB Circulars – Adhere to procurement when applicable Have source documentation for all costs Charge project delivery costs to project when possible (vs. admin) – For drawdown & reporting purposes, can allocate project delivery costs of property acquisitions (or considering purchasing) across all properties under acquisition category NSP1 Implementation Training Slide 116 Obligation & Draw Request Form DLG has developed Obligation Report & Draw Request form – Timeline for payments TBD See your handout package NSP1 Implementation Training Slide 117 Program Income All NSP program income must be remitted to state Program income includes: – Proceeds from the sale/lease of property acquired, rehabbed, redeveloped with NSP – Principal and interest on NSP loans – Recapture of funds as per recapture provisions recorded on assisted homes – If have a rental project, contact DLG NSP1 Implementation Training Slide 118 Program Income (cont) PI is earned in perpetuity – Number of revolutions does not matter – Date of receipt does not matter – Document receipt of PI ALL PI must be returned to the state State must use PI prior to draw new funds – Counts PI committed or spent toward obligation & spending deadlines NSP1 Implementation Training Slide 119 Reporting NSP uses Disaster Recovery Grant Reporting (DRGR) rather than IDIS, which requires: – Monthly reporting on obligations – Quarterly reporting required by recipients to DLG within 30 days of quarter end • DLG must post on website to be shared with citizens Awaiting guidance from HUD on contents of report DLG is developing required report formats & will send those to you as soon as possible NSP1 Implementation Training Slide 120 Monitoring DLG required to monitor projects to ensure: – Approved activities carried out in a timely manner – Activities conducted in compliance with NSP objectives & requirements – On-going affordability requirements met Monitoring can be carried out by reviewing reports (desk review) as well as on-site inspections & reviews – Set up, interim & other forms intended to allow for a lot of desk monitoring as projects implemented – Site visits will focus on record keeping, financial management, cross-cutting other Federal NSP1 Implementation Training Slide 121 Close Out Close-out completes NSP process with state recipients & helps verify NSP funds properly spent Triggered when state recipient has spent 100% of its NSP funds and project is complete – Complete = occupancy/sale and project completion report approved DLG is developing a close-out package to obtain necessary information NSP1 Implementation Training Slide 122 Close Out (cont) Close-out process NOT complete unless: – There are no outstanding monitoring findings – National objective met – Audit requirements satisfied (including resolution of audit findings) – Letter received from DLG NSP1 Implementation Training Slide 123 What’s Next? NSP regulations subject to change & policies being clarified all the time – check: – www.hud.gov/ – www.dlg.ky.gov/grants/federal/Neighborhood+Stabili zation+Program.htm For help, contact Anne Chaney at 800.346.5606 or email@example.com Update on KY’s NSP2 application… NSP1 Implementation Training Slide 124 Thanks for Coming!