Program
Description
For the
Homeownership
Rehabilitation Program
Redevelopment
Authority
of the City of
I.
General
Description
The Homeownership Rehabilitation Program (HRP)
provides a subsidy for the rehabilitation of vacant houses by developers for
sale to eligible homebuyers. Homebuyer
eligibility will be determined by pre-purchase housing counseling agencies
and the Redevelopment Authority of the City of Philadelphia (RDA). Marketing and homebuyer selection are the
responsibility of the developer. The subsidy is considered gap financing; the market
value of the property, less the cost of project development determines the
amount of the subsidy. The calculation
of this amount will be determined by a review by the staff of the RDA in accordance
to the procedures contained in these guidelines and policies established by the
Office of Housing and Community Development (OHCD).
The homebuyer must purchase or finance the completed house for the after-rehab-appraised value as determined by an independent appraisal and a review by the RDA. Waivers may be granted for properties in neighborhoods where the after-rehab value will exceed affordability for low-and moderate-income buyers.
The subsidy is paid at the end of the project. The subsidy is paid to the homebuyer when
they purchase the property. The check
for the subsidy amount, the developer fee, and the counseling fee is presented
at the settlement of the property from the developer to the homebuyer. The exact subsidy amount is determined at
that time based on a final budget submitted by the developer and a review by
the RDA. When the project is approved for the program it is given a commitment
for an estimated subsidy that
will be paid at the end of the project. To use the funds during rehabilitation
the developer must obtain construction financing that will be repaid in part by
the subsidy from the RDA. The RDA will
disburse the subsidy funds to a title company in the name of the ultimate
homebuyer with instructions to pay the subsidy funds to the construction
lender.
II.
Available
Funding
A.
Construction
Subsidy - A
construction subsidy of up to $35,000 is
available per property. This subsidy can
be averaged across properties in the same zip code or in close proximity. Therefore a property requiring a subsidy of
$20,000 can be combined with a property requiring a subsidy of $50,000 in the
same zip code and the project would be approved for an average subsidy of
$35,000. To be eligible for subsidy averaging
the properties must be part of the original application.
B.
Matching
Subsidy - An additional matching subsidy of up to
$15,000 will be provided on a dollar for dollar matching basis on projects that
have other subsidies contributed from foundations, corporations, federal and
state subsidy sources or developer fee contributions.
C.
Developer
and Counseling Fees: - A fee is paid to the developer equal to the 20% of the
rehabilitation cost with a maximum fee of $15,000 and a minimum fee of
$5,000. A counseling fee of $1,000 is
paid to the counseling agency that provides homeowner counseling to the
homebuyer. This agency must be under
contract to OHCD to provide pre-purchase
housing counseling.
III. Soft Second Mortgage
A. The subsidy will be secured by a Soft
Second Mortgage. This is a zero
interest; self-amortizing mortgage herein referred to as the “Second Mortgage”. The mortgagor is the homebuyer. The amount of
the mortgage is the amount of the construction subsidy from the RDA. It does
not include the developer or counseling fees. This mortgage does not have to be repaid as long as the
homebuyer lives in the property for ten years. The mortgage is forgiven 10% each year the
homebuyer lives in the property.
B. There is no mortgage or lien placed on
the property by the RDA during construction.
C. Generally the RDA will not subordinate
its position for refinancing during the term of the mortgage unless the
homeowner is refinancing only the balance of the first mortgage or is obtaining
a “Title One” home improvement loan.
D. The FHA and FNMA have approved the RDA
mortgage as appropriate for subordinate financing. FNMA has waived the combined Loan to Value
limits for the program. To be eligible
to be used with an FHA loan the homebuyer must sign a statement acknowledging
the term of the second mortgage. The RDA
provides this form with the homebuyer application package (see HRP processing
forms).
E. A condition of the Soft Second Mortgage
requires the homeowner to maintain property insurance and name the
Redevelopment Authority as second mortgagee.
IV. Eligibility Criteria
A.
Developer
and Contractor
1.
Can be either a non-profit or for-profit
entity. All developers must attend an
HRP briefing session, or an individual predevelopment
meeting.
2.
Must be current with all taxes and fees
due to the City of
3.
Must be properly insured and have the
capacity to complete the project as determined by the developers ability to
complete the application process.
4.
Must be properly licensed by the City of
B. Homebuyer
1.
Must use the property as their principle residence.
2.
Must properly disclose their income so
they can be evaluated and classified according to HUD’s median income guidelines. (Please see attachment A). The program is targeted to low and
moderate-income homebuyers, but a small amount of funds are available for
homebuyers with higher incomes.
Developers must confirm with the RDA, before signing an agreement of
sale, as to the availability of funds for homebuyers with income greater than
80% of median income.
3.
Must complete a pre-purchase mortgage-counseling
program under contract with the Office of Housing and Community
Development. (Please see attachment B).
4.
Must be able to purchase or finance the
property with a mortgage and/or equity at the after-rehab-appraised value.
Waivers may be granted for properties in neighborhoods where the after-rehab
value will exceed affordability for low-and moderate-income buyers.
C. Property
1.
Must be a vacant property in the
City of
2.
Tenant conversions
are not eligible.
3.
Properties
that are in extremely poor condition but still occupied are not eligible.
4.
Properties
do not have to be abandoned; they can be available for sale by a private
owner.
5.
Properties must require rehabilitation.
Properties that need only cosmetic
repair may not be eligible for
HRP. The inspection staff of the
Redevelopment Authority will determine if the property warrants sufficient
repair.
6.
Properties must have a marginal increase
in value after rehabilitation. In other
words, if a property is purchased at $35,000 by the developer, and is then
rehabilitated for $40,000, the property must be sold for more then $35,000
after rehabilitation.
7.
The property must have a
Historic/Environmental review performed by the City Planning Commission and the
Historical Commission. (Please see
Environmental Historic Conditions under Rehabilitation Standards).
8.
If the acquisition price of the property
is greater than $15,000, the value of the property must be supported by an as-is
appraisal.
D. Rehabilitation
1.
Rehabilitation methods and materials must
be equivalent or better than that listed in the “City of
2.
Must be completed in accordance with
current building codes.
3.
The scope of work be approved in advanced
by the housing inspection staff of the RDA.
4.
Must be inspected on an ongoing basis by
the housing inspection staff of the RDA as evidenced by their signature on progress
payment forms.
5.
All properties must pass all the
appropriate L&I inspections.
6.
Cannot
be started without proceed order issued by the RDA.
7.
Must
receive a Certificate of Completion from the housing inspection staff of
the RDA. This is obtained by first
having a punch list inspection performed by the supervisor of the
housing inspection staff, and then passing a final inspection which
confirms the completion of the punch list.
8.
Must
adhere to the Lead Hazard Reduction Standards of the federal government.
9.
Must
adhere to the Energy Conservation Standards of the RDA and the State of
V. Vacancy Policy
The HRP
Vacancy Policy is designed to maximize the long-term benefit of the
investment of subsidy by encouraging HRP Developers to consider the long-term
strategic viability of the housing market in the areas where an HRP investment
is being made.
1.
HRP applications are not allowed where the subject properties
are located directly next to another vacant property, unless there is a current
development application in place for that additional vacant property. This includes vacant lots and commercial
property as well.
2.
HRP
applications must be on blocks where there is a vacancy rate
of 10% or less, or where a vacancy
rate of 10% or less will be achieved
by the development project.
3.
A
block survey will be required as part of the HRP application package. This survey must show all vacant properties
on the block and their current ownership.
4.
Vacant properties are considered
unoccupied, unlivable properties that are not actively being marketed for sale,
or do not have current realistic plans for development. Vacant lots are also to be counted in this
calculation. Vacant lots that are fenced
and currently being maintained may not be considered vacant. This will be reviewed on a case by case
basis.
5.
Waivers to this policy may be considered
on a case by case basis and must have written approval by OHCD.
VI. Special Rehabilitation Standards
A.
Lead
Hazard Reduction
1.
All
properties must obtain a risk assessment from a certified risk assessor.
2.
All
work write-ups must address the work necessary to correct the lead hazards
described in the risk assessment. Work
directly related to lead hazard reduction must be performed by a certified
lead abatement contractor.
3.
All
properties must obtain lead hazard clearance by means of
wipe test conducted by a certified laboratory.
4.
The
Risk Assessor and the Lead Abatement Contractor must be different companies.
5.
All
properties must have a certification statement from the Risk Assessor stating
all lead abatement work was performed in accordance to the risk assessment and
was performed by a Certified Lead Abatement Contractor.
6.
Provided
a potential lead hazard is found in the property the following work must be
performed:
a.
All
chipping cracking pealing paint must be repaired
b.
All
existing carpeting must be removed
c.
Impact
and friction surfaces containing lead paint will need to be replaced
d.
Most
exterior surfaces can be treated with interim controls
e.
The
entire property must receive a base coat of paint at minimum
f.
The
entire property must receive a Tri-sodium Phosphate or equivalent detergent
wash-down, and Hepa-vac cleaning. A certified contractor must perform this
work.
g.
At
settlement developers must give the homebuyer a copy of the risk assessment,
the final wipe test, and complete a lead hazard disclosure form.
B.
Energy
Standards –
1.
All properties must have a certified “Air Sealing and Blower Door Contractor” (see attachment D) perform energy
conservation, and weatherization techniques.
This contractor must be identified before receiving an approval letter
from the RDA. This contractor must work
in the property during all phases of construction, not just perform the Blower
Door Test at the end of the project.
2.
All properties must receive a Blower
Door Test at the end of construction. This is a procedure where a special door is
installed that pressurizes the property while a technician locates and seals
air leaks. The results are complied on a
form that is submitted to the RDA (see attachment D). The property must pass the test before RDA
funds are disbursed. A copy of the
Blower Door Test is required to schedule a punch list inspection.
3.
Direct vent heaters and hot water heaters
are required unless there is a partial
or no replacement of the existing heating system. Heating systems must “balanced” and the
proper BTU capacity must be calculated prior to installation. This is described in more detail in Division
15 of the City of Philadelphia Specifications for Construction and
Rehabilitation of Single-Family Houses” (These can be found at the OHCD website; http://www.phila.gov/ohcd; There's a small button marked "small
building specs" directly under the title heading.)
C.
Historic/Environment
Conditions
All properties that are determined to require further
review for historic or environmental reasons will require a separate inspection
by the City Planning Historical Commission.
They will then issue a memo describing what special treatments are
necessary. Rehabilitation must adhere to this memorandum.
VII.
Special
Rehabilitation Processes
A.
Contractor
Selection
1. The developer selects a contractor prior
to submitting an application to the RDA.
The HRP staff may
request an explanation as to why this contractor was selected over other
contractors. Final contractor selection
is subject to the approval of the RDA.
2.
The contractor must have a current City
of
a.
The contractors name address and phone
numbers
b.
Evidence of the contractors
c.
Evidence of insurance.
d.
A memo listing the contractors three most
recent projects, their contract amounts, and contacts to call for a reference.
3.
The RDA, at its discretion, may require
the developer choose another contractor.
B.
Construction
Document Preparation
1.
The contractor prepares the work write up
and cost estimate detailing unit measurements and unit costs.
2.
The developer has the option of preparing
the work write up independently and having the contractor supply the pricing.
3.
The RDA, at its discretion, may request
that an independent consultant, chosen in agreement with the developer, prepare
the work write up.
4.
The RDA inspection staff will meet with
the contractor and developer on-site to review the work write up and the
cost estimate.
5.
Once approved, this contractor must be
used to perform the work.
C.
Construction
Document Standards (In all circumstances
the requirements listed below are considered in addition to the requirement of
the Department of License and Inspections)
1.
For projects estimated to cost less than
$50,000 a work write-up can be used.
a.
All work must be itemized by per unit
costs for materials installed
(for example: Drywall entire room - $1,200 is not
acceptable;
Install
Drywall, 800 sq. ft. @ $1.50 per sq. ft. for a total of $1,200 is acceptable)
b.
Descriptions of work can include
specifications, or can use minimal identification of work or what is commonly
referred to as one liners. If one liners
are used they must identify the RDA technical specification section (for
example; 9.3 Install Drywall, 800 sq. ft.
@ $1.50 per sq. ft. for a total of $1,200) The notation 9.3 is the section
of the technical specifications that refers to drywall.
2.
For projects estimated to cost more than
$70,000, or are considered “gut rehabs”, sealed drawings and a trade cost
breakdown must be used. Drawings must:
a.
Be
¼” scale
b.
Indicate
length, width, and height and square footage of each room.
c.
Include
elevations, wiring diagrams, plumbing and mechanical diagrams.
d.
Include
a finish schedule.
e.
Include
a site plan.
f.
Include
floor plans and any details of specific construction, for example a footing
detail for a new wall.
3.
A work write-up can be used for projects
that are estimated to cost between $50,000 and $70,000 subject to the approval
of the RDA inspection supervisor.
4. All cost estimates must be itemized by
per unit costs for materials installed
(for example: Drywall
entire room - $1,200 is not acceptable;
Install Drywall, 800 sq. ft. @ $1.50 per sq. ft. for a total of $1,200
is acceptable)
5.
All construction documents must be dated,
have a revision number and include a pay-out form that summarizes the costs.
6.
Properties with structural repairs must
have an engineer’s report that includes a drawing of the building component to
be repaired, and a technical specification of how the repairs will be
performed.
D.
Cost
for preparation of Construction Documents
1.
Up to $3,000 can be listed in the HRP
budget for the cost of architectural drawings prepared by a third party.
2.
Up to $1,000 can be listed in the HRP
budget for the cost of drawings prepared “in house” by the organization’s
staff.
3.
If a consultant is used to prepare the
room by room work write-up the consultant’s fee must be paid by the developer’s
fee.
VIII. Eligible Budget Criteria
The HRP is
considered a permanent or “take out” lender as opposed to a
construction lender. Payment is made
after all work is completed and paid for with short term financing or equity
from the homeowner or developer.
Therefore it is difficult to provide an exact audit trail between costs
in a project and reimbursement from the RDA.
The RDA considers all expenses to be partially reimbursed from CDBG
sources; therefore all expenses listed in the budgets must adhere to the
guidelines set forth below.
A. Line
Item Budget Policies (Please see the HRP budget form Attachment
E)
1.
Acquisition
–
a.
Purchase
Price - Properties purchased for more than $15,000
must be supported by an as-is appraisal.
The cost for the property cannot be greater than 115% of the as-is
appraisal. Properties purchased from
HUD, the VA, or other government sources do not need an as-is appraisal. Back
taxes paid at settlement by the developer are considered part of the purchase
price. Properties that come from a developer’s inventory will be evaluated on a
case-by-case basis.
b.
Settlement
cost – Settlement cost on the acquisition of the
property should be taken direct from the settlement sheet and should include
credits and debits of prepaid expenses.
It is not necessary to list the prepaid real estate taxes in holding
costs, they can be listed in the settlement cost or the holding cost section of
the budget, but not both. The
settlement sheet from the acquisition settlement is required documentation to
the final the project. Fees to extend
the agreement of sale are permitted as long as they are reasonable and the
developer has responded to revision request to the work write up in a timely
basis.
2.
Construction
a.
Construction
–In the proposed budget this is the cost that is listed in the cost estimate
from the contractor. In all other
budgets it is the cost estimate approved by the RDA inspection staff. In the final budget it is the amount of the
contract with the general contractor not
including any change orders.
b.
Permits
and fees – This line is for permits and fees that are
not part of the contract with the general contractor. Many times the developer will pay for part
of, or all of the permit costs. The same costs for the permits and fees cannot
be listed in both the work write up and the line item at the same time. A $100 expediter’s fee can be included in the
building costs.
c.
Contingency - The HRP requires that all projects approved
have a 10% contingency listed in the budget.
This line item is to be used for unforeseen costs only. In the final budget this line represents the
total change orders approved by the RDA.
3.
Fees
a.
Engineering
and Architectural - Up to $3,000 can be listed in the HRP
budget for the cost of architectural drawings prepared by a third party. Up to
$1,000 can be listed in the HRP budget for the cost of drawings prepared “in
house” by the organization’s staff. If a
consultant is used to prepare the room by room work write-up the consultant’s
fee must be paid by the developer’s fee.
b.
Developer’s
Fee – The developer’s fee is equal to 20% of the
construction amount approved by the RDA.
The developer’s fee does not change once the project is approved. Therefore if construction costs are decreased
or increased during construction there is no change in the developer’s original
fee. Construction costs can only be
changed by means of a change order approved by the RDA. At settlement the RDA
will also request the Title Company hold a portion of the developer’s fee as
retainage. Once the final budget is
reconciled with the settlement sheet and all final documents have been
received, the RDA will issued a letter to the Title Company instructing them to
release the retainage.
c.
Counseling
Fee – There is a $1,000 counseling fee paid to the
pre-purchase housing counseling agency.
To receive this fee the counselor must attend settlement. If the developer arranges settlement and does
not inform the counselor the developer will need to pay this fee to the
counselor.
d.
Risk
Assessor – These are the fees paid to the risk assessor for
the risk assessment, any inspections, and the final lead clearance.
4.
Holding
Costs
Generally holding
costs are from the period of time the property is purchased to the time the
property is sold. If the property is from the developer’s inventory, holding
costs can be included from the time application is made to the program.
a.
Insurance
– This is the cost of all insurance necessary for the project paid for by the
developer. The contractor’s insurance
should be included in the cost of construction.
The projected refund for selling the property before the end of the
policy term should be calculated in the final budget. A schedule indicating the type of insurance,
it’s costs, and the terms will be necessary documentation for the final budget.
b.
Taxes
– This is the real estate taxes for property.
Projected credits at settlement from selling the property before the end of the
year should be included in calculating the final budget. Interest and penalties for not paying taxes on
time are not eligible
costs. The developer can borrow funds to
pay the taxes on time and the interest is an eligible cost, but not the interest charged by the
City of
c.
Utilities
– This is the utility costs for the project charged to the developer. It is expected that utility cost during
construction is the contractor’s responsibility and part of his price for
construction. It is the developer’s
responsibility to obtain utility charges from the utility companies and to be
able to estimate projected costs in the final budget using known rates and
available meter readings. Properties
that are obtained from the City of
d.
Maintenance
and Security – These are costs to board up the property
and protect it from theft or vandalism.
Minor clean out costs can be included as well.
5.
Financing
Costs: Generally all financing costs associated
with the project are allowed in the budget.
This includes application fees and points, interest, additional title
insurance, appraisals and closing costs. In the budget form separate lines are
provided for acquisition and construction to make it easier to project future
cost when making an application. It is
not necessary to precisely calculate the different types of interest in the
final budget.
a.
Interest
costs: A
payoff letter from the construction lender is required documentation with the
final budget; as is the settlement sheet from the loan closing. If the developer obtains/uses a line of credit
to finance the project they must document interest costs by producing a
schedule (spreadsheet) that shows the expense withdraws the interest rate, the
time elapsed between draws, and the calculated interest costs. (A sample is available from the RDA).
b.
Self
Financing: If the
developer uses available cash to finance the project, an “opportunity cost” of 2%
can be included in the final budget.
A schedule similar to the one used for credit lines must be produced as
well as documentation on the interest rate earned on the developers cash
account.
6.
Costs
of Sale
a.
Settlement
costs - These are charges to the developer listed on
the settlement sheet. Typically they
include notary fees and recording costs.
The exact amount is usually not known until after settlement, but a
reasonable estimate is expected for the final budget.
b.
Transfer
taxes – This is the developer’s portion of the
transfer taxes for the sale of the property.
For non-profit developers the City of