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									                          CITY OF HERCULES


                               (510) 245-6517

(REV. 07-13-10)
                               PROGRAM DESCRIPTION

1.      PURPOSE

The Citywide Employee Incentive Program (CEIP) provides homeownership
opportunities for vital members of our community –our teachers, City of Hercules staff,
police officers, firefighters, paramedics, registered nurses, and emergency medical
technicians— who currently work or live within the City of Hercules and who would like
to purchase a home within the city limits.

The purpose of the CEIP is to provide home purchase assistance in the form of a low-
interest deferred loan with the potential of the loan becoming a grant to specified
members of our community who meet long-term employment and income eligibility

The City of Hercules and the Hercules Redevelopment Agency developed this program to
improve affordable housing opportunities for our vital workforce. When the vital
workforce is able to live where they work, the quality of life for the entire community


To be eligible the following criteria must be met:


     1. Property must be located within the city limits of the City of Hercules
     2. Property must be a single-family structure (detached home, condominium or town
     3. Property may either be new or a resale home


     1. Must be employed within one of the eligible employment categories which
        include full-time certificated faculty who perform a substantial portion of their
        duties within the City Limits of Hercules, full-time Hercules City staff 1, Police
        Officers, Firefighters, Paramedics, Registered Nurses, Emergency Medical
        Technicians, and Paramedics
     2. Must work a minimum of 30 hours per week and be considered a full-time
        employee by employer and subject to all benefits and privileges of a full-time

 City of Hercules staff is defined as full-time employees who meet the additional requirements under B (2)
which include: City, Redevelopment Agency and Hercules Municipal Utility employees.

     3. Must have been performing the duties within the eligible employment category
        for a period of no less than six (6) months with the same employer
     4. Must meet income requirements
     5. Should be a first time homebuyer, but not required
                A first time homebuyer is defined as a program borrower who, with some
                limited exceptions, has no ownership interest in residential property within
                the past three years. Ownership interest includes such interest as fee
                simple, joint tenancy, tenancy in common, life estate, shareholder in a
                cooperative, or interest held in trust. Exceptions to this requirement
                include the following:

            a) A displaced homemaker who, while a homemaker, owned a home with his
               or her spouse or resided in a home owned by the spouse. A displaced
               homemaker is an adult who has not, within the preceding two years,
               worked on a full-time basis as a member of the labor force for a
               consecutive twelve-month (12) period and who has been unemployed or
               underemployed, experience difficulty in obtaining or upgrading
               employment and worked primarily without remuneration to care for his or
               her home and family;

            b) A single parent who, while married, owned a home with his or her spouse
               or resided in a home by the spouse. A single parent is an individual who is
               unmarried or legally separated from a spouse and has one or more minor
               children for whom the individual has custody or joint custody or is

            c) An individual or individuals who owns or owned, as a principal residence
               during the three-year period before the purchase of a home with Program
               assistance, a dwelling unit whose structure is:

                      1) Not permanently affixed to a permanent foundation in
                         accordance with local or state regulations; or
                      2) Not in compliance with local, state or model building codes and
                         cannot be brought into compliance with codes for less than the
                         cost of constructing the permanent structure.

     6. Must have the ability to obtain a private mortgage loan
     7. Must have a minimum FICO score of 620


To be eligible for the program, an applicant’s gross household income cannot exceed
120% of the median income for Contra Costa County as defined by the United States
Department of Housing and Urban Development (HUD) and the State of California
Department of Housing and Community Development (HCD). Household income

includes all income received by all household members over the age of 18 years, who are
not full-time students.

The income limits are adjusted annually by HUD and HCD. The current income limits
are available at the Affordable Housing Program Office or on the City of Hercules
Website at under the Affordable Housing tab. The most current
income limits will be utilized to determine income qualification upon the submittal of a
completed application for the program.


Ownership of assets and investments will not disqualify a household from the program.
However, the market value of the asset/investment (excluding qualified retirement
investments) will be considered when determining household income for purposes of
income eligibility. Qualified retirement accounts recognized and accepted by the Federal
Internal Revenue Code, such as Individual Retirement Accounts (IRAs), Deferred
Compensation Accounts (401K, 403B, 457) and employee related retirement accounts,
will not be counted in calculating household income. Assets included in this calculation
will include cash, marketable securities, certificates of deposit, money market accounts,
publicly traded stocks, life insurance plans with cash value, and personal business


       The value of an applicant’s assets and/or investments, as it pertains to gross
       income, will be determined by multiplying the value of the asset and/or
       investment by the interest rate assigned to that asset and/or investment. If no
       interest rate is provided, the value of the asset and/or investment will be
       determined by multiplying its total value by the Public Housing Passbook Savings
       Rate, as assigned by HUD to calculate earnings equivalent to assets.


       Borrowers will not be allowed to retain in excess of $20,000 in cash, or liquid
       assets immediately following loan closing. Funds in excess of $20,000 must be
       applied towards the purchase price or will be counted against the CEIP loan.
       Borrowers will be required to determine and report to the Affordable Housing
       Department the disposition of all assets in excess of $20,000 prior to the issuance
       of a final approval letter.


       Funds in excess of $20,000 must be applied toward the down payment, or will be
       counted against the program loan. Thus, the program loan will be proportionately
       reduced according to the down payment needs of each borrower. For example, if
       a borrower has liquid assets totaling $50,000, and is purchasing a home costing

       $300,000, and he/she qualifies for a first loan of $261,000, the borrower will be
       required to contribute at least $30,000 toward the down payment, and the program
       would provide a loan of $9,000 to cover the “gap” in the financing.

       Assets included by this requirement:

       1. Savings accounts
       2. Liquid Assets

       Assets excluded from this requirement:

       1.   Retirement accounts (IRA)
       2.   Deferred Compensation Accounts (401K/403B/457)
       3.   Employee Related Pension Plans
       4.   Life Insurance Plans
       5.   Personal belongings (vehicles, furniture, appliances, etc.)
       6.   Personal business holdings (property, capital, fixture, equipment, inventory,


       All information submitted to the Affordable Housing Program is confidential.
       Personal financial information submitted by an applicant will be treated in a
       confidential manner and will only be utilized to determine applicant eligibility by
       the City of Hercules / Hercules Redevelopment Agency, HUD and HCD. The
       City and Redevelopment Agency will not reveal any confidential information
       except in response to validly issued and enforceable legal process.


Applicants are required to complete a 3-part education component, which includes the
       a) Attend a City of Hercules Affordable Housing Program Orientation, prior to
           final certification of eligibility for the loan program.
       b) Complete a Homebuyer Education class provided by the City of Hercules
           Affordable Housing Program, prior to final certification of eligibility for the
           loan program. Applicants may request to be excused from the City of
           Hercules Homebuyer Education class portion of this requirement upon
           submitting proof of completion of a comparable Homebuyer Education class.
           The City of Hercules Affordable Housing Program will verify and validate the
           request on a case-by-case basis and will be the final authority on whether to
           accept the substituted program or not. Applicants will be required to pay a
           Homebuyer Education Fee.
       c) Complete a one-on-one financial literacy workshop and financial
           homeownership readiness session.

Upon completion of the education component, applicants will receive a Homebuyer
Education Certificate.


The financial assistance provided under this program is a LOAN subject to conversion to
a GRANT. This LOAN is also subject to immediate repayment as a result of separation
from the eligible employment, and/or violation of any term or condition of the Program
Loan Documents or Program Guidelines, specifically but not limited to Section 7 and its
subsections. This LOAN is provided under the following general terms, conditions and


       1. Maximum assistance amount is 10% of purchase price or $35,000, whichever
          is less. Assistance is used to fill the affordability gap.

B.     TERMS:

       1.  Assistance is provided as a silent second down payment
       2.  Assistance is a deferred loan subject to conversion to a grant
       3.  The deferral period is ten (10) years from date of home purchase
       4.  The repayment period is twenty (20) years
       5.  Interest rate is zero (0%) percent
       6.  Loan can be repaid at any time without pre-payment penalties
       7.  Grant conversion begins on the 121st month from the date of home purchase
       8.  During grant conversion process, loan principle is reduced by 5% per year
       9.  During grant conversion, eligible Borrowers may receive up to five (5) years
           of service credit for years of eligible service within the eligible employment
           category prior to obtaining the loan under this program.
       10. Service credit will be calculated on the number of completed years and
           months of service basis
       11. Service credit will be applied at the end of the deferral period or upon
           separation from the eligible employment category
       12. Service credit may also be applied to eligible repayment plans


       1. Borrower will be required to execute Loan documents, including the
          following: a Deed of Trust and Security Agreement; a Promissory Note and
          Loan Agreement; a Borrowers Disclosure Statement; a Resale Restriction
          Agreement, and a Request of Notification of Deed of Trust Amendments
       2. Loan documents (Deed of Trust and Security Agreement, the Resale
          Restriction Agreement, and the Request of Notification of Deed of Trust

            Amendments) are recorded against the property with the County Recorder’s
       3.   Loan is a second mortgage loan on the property
       4.   Property value must be able to support an acceptable debt to value ratio
       5.   Loan repayment is accelerated if any of the terms and/or conditions are
       6.   Loan ceases to convert to a Grant upon separation from the eligible
            employment category and is then immediately due and payable in full. The
            Affordable Housing Program may authorize the execution of a monthly
            repayment plan to commence no later than ninety (90) days of separation from
       7.   Loan may be transferable to another eligible job category
       8.   Borrower must reside on property
       9.   Borrower must provide a minimum of a 3% of the contracted sales price
            toward the purchase of the home. The contribution may be applied to down
            payment or closing costs. The source of the contribution must come from
            either Borrower’s own sources, which includes but is not limited to
            documented gifts or seller credits. The sources of the contribution must be
            acceptable to the primary mortgage lender

D.     LIMITS:

       1. The maximum purchase price of a home cannot exceed the current FHA
          203(b) maximum mortgage amount for Contra Costa County multiplied by
          150%. This calculation accommodates the fact that FHA has identified Contra
          Costa County as a High Cost Area.
       2. Loans will be provided on a one-time only per applicant basis
       3. Citywide Employee Incentive Program assistance funds may be combined
          with other housing assistance funds and/or programs offered by the City of
          Hercules, unless specifically disapproved by the Affordable Housing Program
       4. Annual allocation of program funds is at the discretion of the City of Hercules
          / Hercules Redevelopment Agency via the annual budget process
       5. The program year is July 1 to June 30th
       6. Should the annual allocated funds become exhausted, a waiting list may be


Your loan from the Program is a deferred loan subject to conversion to a grant. This
means you may have to pay it back. Repayment shall be addressed as per the terms of
the Promissory Note and Loan Agreement. Repayment of the loan is automatically due
and payable if you violate any of the terms and/or conditions of the Promissory Note,
Deed of Trust, and/or Resale Restriction Agreement, which are secured against your
property, unless in our discretion (City of Hercules Affordable Housing Program) we
deem the circumstance/s that brought about the event/s which caused the violation to
occur unavoidable and legitimate, whereas a repayment plan may be established. Service

Credit may also be applied to a repayment plan on a completed year and month basis for
service credit accrued prior to and/or during the term of the CEIP loan.

Below is a listing of some of the possible disqualifying events as well as refinancing
occurrences that may cause your CEIP loan to terminate and become immediately due
and payable.


       The following are considered some of the major disqualifying events and
       constitute a violation on the terms and conditions of the CEIP second mortgage
       loan. The specific remedy to any disqualifying event can be found in the
       restriction documents.

       1. Separation from the eligible employment category
       2. Lease or Rental of Home
       3. Sale, Conveyance, or other Alienation of the Home (Including a sale under
          deed of trust in the event of foreclosure), if the remaining ownership interest
          of the Borrower in the Home is less than fifty percent (50%)
       4. Borrower Ceases to Reside in Home as the Principal Residence
       5. Default Under the Terms of the Senior Loan
       6. Refinancing of Senior Loan without prior approval
       7. Delinquent Property Taxes
       8. Failure to maintain appropriate Homeowners Insurance
       9. Junior Lien placed on Home, which may include but not limited to a Home
          Owners Association Lien


       The Affordable Housing Program shall not be required to subordinate to the lien
       of a new Senior Deed of Trust in the event that the loan initially obtained by the
       Borrower is refinanced. The Affordable Housing Program will consent to such
       refinancing if all of the following conditions are met.

       1. The proceeds of such loan do not exceed the amount of the remaining
          principal secured by the Senior Deed of Trust, plus a reasonable cost to
       2. Refinancing will not provide cash to Borrower, except in an appropriate debt
          consolidation or home improvement project as approved in advance and in
          writing by the City of Hercules Affordable Housing Program
       3. The interest rate payable under the note given in connection with the
          refinancing is less than the interest rate payable under the note secured by the
          Senior Deed of Trust prior to refinancing
       4. The Borrower does not obtain an additional Junior loan which will create
          indebtedness over the current balance of the existing loans on the property
       5. No history of disqualifying events exist on the property loan


Program assistance is helping to make the costs of buying a home affordable to you. The
Program also wants to make sure others like you get the same opportunity. Therefore, the
Resale Restriction Agreement places a limit on the sales price of your home. Under the
Resale Restriction Agreement, the Fair Market Value can be determined in one of two of
the following ways.


       First, it can be established by real estate appraiser selected by you from a list of
       appraisers provided by the Program. If possible, the appraisal will be based on the
       sales prices of homes similar to yours, which are sold in your area during the
       preceding three-month period. You will be responsible for the costs of the


       The Resale Restriction Agreement also allows you and the Program to set the Fair
       Market Value of your home by mutual agreement instead of relying on an
       appraiser. Both you and the Program would have to agree to this particular
       method (instead of hiring an appraiser) and to the final Fair Market Value amount.
       If you and the Program fail to agree on the Fair Market Value, either one can
       require the use of the appraisal method, at the Borrower’s expense.


       If the home is not sold (including those cases where the loan is held to term) or
       not sold at Fair Market Value in a bona fide sales transaction to a third party,
       “Value” shall mean and be determined as follows:

              Program shall provide a list of three (3) licensed residential real estate
              appraisers, with experience in the area where the home is located.
              Borrower shall select one of said appraisers from the list who will make
              the appraisal. The appraisal will be binding upon both parties. In the event
              that the borrower does not select the appraiser within twenty (20) calendar
              days following the submission of the list by the Program, the Program will
              select one of the appraisers to make the appraisal. Both parties will
              cooperate with the appraiser in the making of the appraisal. The Borrower
              is responsible for the cost of appraisal.


The Program may have certain Federal and State income tax implications. The loan may
be deemed a below market rate loan for tax purposes, in which case an imputed interest

rate may be used by taxing authorities to determine income. The City of Hercules and its
Redevelopment Agency does not warrant and will not advise borrowers on the tax
implications of the Program and, accordingly, urges borrowers to consult with a tax
advisor regarding the tax consequences of participating in the program.


       1. Applicants must complete an application and submit said application and all
           requested information to the Affordable Housing Program
       2. Applicants will be notified of determination of pre-approval, and will be
           notified to submit the necessary documentation for program qualification
       3. Applicants will be required to attend the Program Orientation
       4. Applicants who qualify for the Program will be provided with a letter of
           “Program Eligibility” which will be good for a period of 90 days
       5. Applicants will be required to complete the Homebuyer Education Class and
           the One-on-One Financial Needs analysis with Staff
       6. Applicants are encouraged to obtain a letter of pre-approval or funding
           commitment from an approved lender, indicating potential senior loan
           amount. Applicants will provide a copy of lender letter to the Affordable
           Housing Program
       7. Applicants will proceed to search for a qualified home and submit an offer
           and enter into a purchase contract with the assistance of a licensed real estate
           professional assistance. The real estate professional will be required to submit
           a copy of their real estate license to the Affordable Housing Program.
       8. Applicants will present the following legible documents to the Affordable
           Housing Program: the completed purchase contract with all addendums; the
           Preliminary Title Report for the property; the property Appraisal; the 1003
           (signed by borrower); the 1008; the Good Faith Estimate (GFE) (signed by
           borrower); the Truth In Lending (TIL) (signed by borrower)
       9. After review and verification of the complete and accurate documents, the
           Affordable Housing Program will submit the loan file to the loan approval
           committee for final review
       10. Applicant will be notified by the Affordable Housing Program regarding their
           loan approval and assistance amount
       11. Applicants will undertake steps to open escrow and prepare to close purchase
           of home
       12. Applicants will be required to schedule a final meeting with the Affordable
           Housing staff to review the second loan documents; the loan documents will
           be sent to escrow for closing.
       13. Escrow will notify Affordable Housing Program of funding request to close


For additional information on this program, please contact the Affordable Housing
Program at (510) 245-6517.


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