Oct 31, 2018
Major steps have been taken to ensure residents aren’t displaced and affordable homes are preserved for the future
Nearly seven months following the announcement that more than 300 covenant-restricted homes may be out of compliance with affordability restrictions, the Denver Office of Economic Development today reports that approximately 42 percent of these situations have been resolved and are now compliant with covenant restrictions. What’s more, progress is being made on several fronts to bring all of the homes into compliance and to preserve affordability amongst the city’s portfolio of affordable homes.
“Our homeownership program provides a critical path for residents to live and stay in Denver. We are thrilled to report that we’ve made great progress on bringing 130 affordable homes back into compliance, while avoiding displacement,” said Eric Hiraga, Executive Director, Denver Office of Economic Development. “Preserving and protecting our entire affordability housing portfolio now and in the future is essential. We will continue to work closely with the residents affected, as well as the many stakeholders within the statewide housing industry to ensure compliance rules and regulations are followed throughout the homebuying process.”
Affordable Homeownership Recovery Program
Last week, Denver City Council approved revisions to the Inclusionary Housing Ordinance, which sets the stage for OED to soon offer an Affordable Homeownership Recovery Program. Targeted for non-income qualified owners, the program provides an option for owners to stay in their homes through a temporary suspension of affordability requirements.
OED will soon file revisions to the IHO Rules and Regulations with the Denver Clerk & Recorder, which will be followed by a public hearing later in November. The revisions, which are necessary in order to offer the recovery program, are anticipated to be finalized by late November.
Resolved Cases and Violation Proceedings
Over the past several months, OED staff has reached out to each of the 306 suspected violations, to better understand the unique circumstances of each situation and to explore potential solutions. A Compliance Resolution Program was offered in lieu of standard enforcement action, giving homeowners an option to work with OED through December 31, 2018 to clear any covenant violations. To date, 130 of the homes have been cleared of any suspected issues and have been confirmed to be in compliance with the affordability requirements established per covenant.
While OED staff continues to work with the remaining 176 homeowners toward resolution, Notices of Violation will be sent beginning in November to some businesses and individuals that blatantly disregarded the program.
Foreclosures and Additional Units
OED has discovered that there are an additional 49 covenant-restricted homes in its portfolio that were previously thought to have fallen out of the program due to foreclosure. In a review of all affordable homeownership units in late 2017, there initially appeared to be 263 units that lost their affordability restrictions. However, after further investigation, OED has determined that for many units the covenant restrictions are removed only in foreclosure instances in which the first mortgage holder acquires the property at foreclosure sale. A total of 49 of the 263 foreclosed properties were sold at a foreclosure sale to individuals or legal entities other than the first mortgagee. Thus, these homes remain in Denver’s Affordable Homeownership Program.
OED is committed to working closely with these property owners to ensure they fully understand the covenant restrictions and to help ensure compliance. Letters have been issued to each of the owners, providing notification of the covenant restrictions and inviting owners to present documentation verifying compliance. Some of these owners may potentially qualify for the Affordable Homeownership Recovery Program, pending approval of the IHO Rules and Regulations.
State Regulators/Industry Groups
The City has taken a number of steps to help curb future covenant violations. The Denver City Attorney’s Office has worked with regulators and industry groups for several months to advocate for changes to regulations and forms, with the goal of making local covenant restrictions more prominently visible during the home sale process. Working directly with the title industry, real estate brokerage industry, Colorado Municipal League and other partners, Denver has made presentations to the Colorado Real Estate Commission to revise forms to include local affordable housing programs in the listing agreement, contract to buy/sell, and the seller’s disclosure form. These are ongoing efforts, and Denver expects to have another opportunity to present to the state real estate commission by year end. In addition, OED has established training across the industry, through the Land Title Association of Colorado, individual title companies, and the Denver Metro Association of Realtors.
Denver’s Affordable Homeownership Program has established an existing portfolio of 1,379 for-sale affordable units over the past two decades. These homes were created through the Inclusionary Housing Ordinance (IHO), large-scale development agreements, and rezoning agreements that predate the IHO.
As part of the program, each property is protected with a legally binding covenant that is attached to the property on file in the Denver Clerk & Recorder’s Office. Covenants provide a mechanism to ensure affordability over the designated period (generally from 15 to 20 years). Covenant regulations also outline the legal requirements for the property’s purchase, sale, and continued ownership, such as the allowed maximum income of each new buyer, the allowed maximum sale price, and owner occupancy rules.
In the past year, through its program management, OED has previously identified 306 of these homes that appear to have become non-compliant with covenant restrictions. Issues ranged from suspected rental situations, to improper transfer of the property to an estate, trust, LLC or buyer whose income has not verified as qualifying for the program, to attempted acquisition of the property by a buyer whose income exceeded the affordability requirements.