Title
Resolution to Adopt a Policy Regarding Affordable Housing Project Liens
Memorandum
The City of Ann Arbor has a long history of financially supporting affordable rental housing through allocating federal and local funds, approving PILOT’s, and through PUD zoning requirements. The City has provided over 70 grants and loans to affordable housing providers over the past 20 years. The City’s goal was not to act like a private bank and charge interest to make money off of the loans. The City’s goal has been either to add affordable housing stock or to maintain affordable housing for the longest term possible.
When an affordable housing provider requests funding from the City, the City is one funding source out of many. The other funders can include other public entities, non-profits, or private lenders. When the City loans funds, it places a mortgage lien on the property. Twenty years ago, the City provided 20 or 30-year term loans with below-market rate interest (1% - 3%) that were paid off over the term of the loan. The City’s lien position was dependent on the other funding sources, but was typically in second or third position, behind private lenders and the State. Private lenders typically had 5-year terms with market rate interest rates (6% - 8%) and public lenders typically had 20-30 year terms with below market interest rates or 0% interest deferred payment financing.
Over time, the housing providers need to refinance their loans: every 5 years for private financing due to the 5 year term, and every 10 - 15 years for public financing due to the need to reinvest in the capital needs of the buildings. Every time a refinancing occurs, the lenders/funders have to renegotiate lien positions, which requires City Council approval if the City’s lien position moves. When these refinancings occur, and following Council approval, Community Development and the City Attorney’s office have taken the opportunity to revise the term of the City’s liens and t...
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