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This article is reprinted with the permission of Nixon Peabody LLP

Late last week HUD distributed copies of its October 19, 2011, dated Notice H-2011-30 instructing HUD staff and project owners on how to use Reserve for Replacement Accounts in restructured Mark-to-Market properties. The genesis of this Notice was the ongoing discussion about the proper use of Reserve for Replacement accounts when HUD asset managers emphasize spending operating funds on project upkeep, while the Office of Assisted Housing Preservation (“OAHP”) staff have been optimizing surplus cash distributions.

The Notice generally discusses the Mark-to-Market transaction structure and underwriting, noting that the underwriting anticipated certain expenses to be paid from the Reserve for Replacement account. In essence, failure or delay in paying underwritten activities from the Reserve for Replacement account leads to more operating funds used for those purposes, and that in turn leads to less surplus cash. The Mortgage Restructuring Mortgages (“MRM”), or the “soft second loans,” generated by the Mark-to-Market process are paid based on surplus cash. The Notice discusses IRS Revenue Ruling 98-34 and notes that the MRM needs to be reasonably prepayable to be considered “real debt.” This discussion ignores prior OAHP policy that the MRM is considered new debt and not replacement debt.

The Notice also contains an appeal process if an owner believes there is insufficient Reserve for Replacement funding. Specifically, an owner can ask the local HUD office to use operating income to pay for specific capital improvements. An owner can also request an increase in the monthly deposit to the Reserve for Replacement account to pay for costs not previously taken into account in the underwriting. These requests would have to be prospective and for the same fiscal year so as not to affect surplus cash in other years.

If you have any questions about this Alert, please contact Richard Michael Price at 202-585-8716 or rprice@nixonpeabody.com, or your regular Nixon Peabody LLP attorney.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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This article is reprinted with the permission of Nixon Peabody LLP. Originally released on Oct. 25, 2011

On September 23, Governor Cuomo signed legislation that permits the New York City Housing Development Corporation (HDC) and the New York State Housing Finance Agency (HFA) to privately place unrated bonds for the purpose of financing affordable housing projects. This law took effect immediately.

Prior to passage of this legislation, HFA and HDC could only issue bonds that had been rated by a rating agency. These bonds were generally publicly offered, and the State of New York Mortgage Agency (SONYMA), Fannie Mae or Freddie Mac, or other financial institutions typically provided credit enhancement. Other issuers in New York State, such as Industrial Development Agencies (IDAs), have long had the power to issue unrated bonds, which were then purchased by a financial institution. The new law permits HFA and HDC to issue unrated bonds for private placement as an alternative form of financing for the development and preservation of affordable housing.

Under this structure, the real estate credit risk is assumed by the financial institution that purchases the bonds. The direct purchase structure should reduce transaction costs substantially, as it eliminates the need for involvement of the rating agencies, underwriters, and credit enhancers. Some financial institutions may elect to continue to seek credit enhancement from Fannie or Freddie for certain types of transactions, but the new law provides a mechanism through which HFA and HDC would still be able to issue bonds were Fannie and Freddie to cease providing credit enhancement.

The direct purchase option could not come at a better time, with the New Issue Bond Program (NIBP) expiring on December 31, 2011. The NIBP program has been enormously popular and successful in New York State, and has facilitated dozens of transactions over the past two years. It is hoped that the private placement option will facilitate some transactions that may have been structured as NIBP deals, but are not positioned to close before the end of this year.


The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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This article is reprinted with the permission of Nixon Peabody LLP

10/17/2011 – This Affordable Housing Alert addresses the recently enacted New York state law that allows municipalities to adopt local laws providing real property tax exemption to certain affordable housing projects including mixed use projects.

The newly enacted New York Real Property Tax Law (“RPTL”) Section 421-m allows municipalities outside of New York City and Nassau, Rockland, and Westchester Counties to adopt a new tax exemption. The real property tax exemption can be for the construction or substantial rehabilitation of multiple dwellings where at least twenty percent (20%) of the units are occupied by individuals or families whose incomes do not exceed 90% of AMI. If adopted locally, the exemption will apply to general municipal taxes, special ad valorem levies, and school taxes (if the applicable school district also opts to grant the exemption), but not to special assessments.

The exemption begins at 100% of the applicable taxes and phases out over a term of 20 years as follows:

During construction/rehabilitation period (maximum of 3 years)—100% exemption

Beginning the year after construction is completed:

Years 1—12 100% exemption

Years 13—14 80% exemption

Years 15—16 60% exemption

Years 17—18 40% exemption

Years 19—20 20% exemption

However, note that RPTL Section 421-m imposes a minimum tax for each taxable year in an amount equal to the taxes paid on the subject property in the year prior to the beginning of the exemption, and the subject property cannot receive the 421-m exemption if it benefits from any other real property tax exemption.

For the exemption to apply, the project must be located in a benefit area designated by the municipality, and the construction or substantial rehabilitation of the subject property must be financed, at least in part, with grants, loans, or subsidies from a federal, state, or local agency. Also, for mixed use projects, at least 50% of the project’s square footage must be used for residential rental purposes. Construction work must commence after the local law providing for the exemption is enacted and before June 15, 2015.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

The foreclosure epidemic plaguing this country since the sub-crime crisis has been the subject of much news coverage. While the countless stories of shattered neighborhoods sets the tone of the foreclosure conversation, there is a flip-side. To some, these foreclosed homes represent an ideal investment opportunity. But exactly what sort of investor has entered the market, and what does this mean for the properties and the neighborhoods riddled with boarded-up homes? According to a new study in the Journal of Planning Education and Research, “A large majority of the low-value homeswere purchased by small investors, and purchases of foreclosed homes in low-income neighborhoods were dominated by investor-buyers.”

courtesy of flickr user respres

The report, entitled Distressed and Dumped: Market Dynamics of Low-Value, Foreclosed Properties during the Advent of the Federal Neighborhood Stabilization Program, goes on to explain the implications of this finding:

While responsible investor activity in the market will aid in reutilizing these properties and should provide increased supplies of affordable, decent-quality rental housing, such activity may not be the predominant type in heavily affected communities. Some investor properties may remain unoccupied and boarded up or dilapidated, especially if investors are betting on near-term increases in values and hoping to merely resell the property in a fairly short order. Other investors may seek to rent out properties without rehabilitating what are likely to be very physically distressed homes; these properties may continue to have significant, negative spillover impacts on neighborhoods.

In short, small time investors, with scarce resources to improve properties, hoping for a short-term return, take poor care of their newly purchased investments. While healthy investor activity can and should play an important roll in the housing recovery, purchasing homes as speculative, short-term, investments often has negative implications for the physical state of the foreclosed home and the neighborhood containing it.

Fore more coverage on the story, read The Atlantic Cities piece: Who’s Buying Foreclosed Homes and Why It’s a Problem

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Some interesting news out of DeKalb County, GA courtesy of wsbtv. A grand jury has indicted three people for a scheme to take-over/steal foreclosed homes:

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Another housing scorecard… another month of “market fragility”:

September Scorecard

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On Thursday, Senator Chuck Grassley (R – Iowa), a ranking republican member of the Judiciary Committee, began an inquiry into Baltimore’s public housing authority, amidst allegations of (according to the Baltimore Sun), ” conflicts of interest, fraud, waste and abuse of taxpayers’ monies”.  According to the Sun, the senator requested “reams” of material from HUD, which oversees public housing agencies:

The Baltimore Sun reported this month that the authority has paid outside lawyers about $4 million since 2005 to fight lead-paint poisoning cases, with bills totaling $228,000 for May and June alone. Meanwhile, the authority has refused to pay nearly $12 million in court-ordered judgments in cases in which former residents of public housing were poisoned by exposure to lead paint.

As one might expect from the head of a government body facing intense scrutiny at the hands of one of congress’s most active watchdogs, Baltimore Housing Commissioner Paul T. Graziano defended his agency:

Graziano said in a statement that “there have been a number of unfair accusations made against” the Housing Authority of Baltimore City. “We are confident that there has been no wrongdoing,” he said.

For active followers of public housing authority drama, this story (public housing authority accused of waste, fraud, and abuse… sanctions and potentially HUD take-over likely to follow) may sound familiar. See “HUD takes control of Philadelphia Housing Authority” and other stories on the PHA saga to refresh your memory.

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According to an article in today’s Washington Post, the much discussed proposal to require home-buyers make 20% down-payments in order receive the lowest interest rates has stalled:

Half a year has passed since then, so here’s an update: The 20-percent proposal is still alive, but it’s temporarily bogged down in agency reviews of the roughly 12,000 comments filed by interest groups and individuals. It almost certainly would not be ready for adoption until the first quarter of 2012. Even then, there would be a mandatory one-year lag before the requirement could take effect, pushing the issue into 2013 — well after the presidential and congressional elections.

So, how challenging is the political climate for a bill such as this…

According to the post, very. Prognosis for passage, poor:

Bottom line: Don’t expect to see a 20-percent rule in the near future. Even independent regulators don’t operate in political vacuums. They’ve either gotten the message already or they will soon.

 

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HUD announced the awarding of $8.8 million in funding through it’s Housing Opportunities for Persons with AIDS (HOPWA) Program to seven organizations. The organizations, locations and funding amounts are listed below:

 

State

HOPWA Grantee Name

Area of Service

Grant Award

California

Los Angeles County Commission on HIV

Los Angeles

$1,375,000

Florida

River Region Human Services, Inc.

Jacksonville

$1,353,743

Massachusetts

Justice Resource Institute, Inc.

Boston

$1,223,377

Maine

Frannie Peabody Center

Statewide

$930,909

New York

Corporation for AIDS Research Education and Services Inc.

Albany and Rochester

$1,344,375

Oregon

City of Portland

Portland

$1,365,900

Texas

City of Dallas

Dallas

$1,287,500

TOTAL: $8,880,804

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Yesterday, the Delaware State Housing Authority released it’s consolidated annual performance evaluation report. The report, required by the U.S. Department of Housing and Urban Development (HUD), is intended to evaluate the state’s performance in meeting its annual housing goals. Below is a resource summary:

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