NSP Walk-In Purchase Assistance with Rehabilitation ...



Los Angeles Housing Department (LAHD)

NEIGHBORHOOD STABILIZATION PROGRAM (NSP)

WALK-IN PURCHASE ASSISTANCE WITH REHABILITATION PROGRAM (WIP)

OPERATIONS MANUAL

[SAMPLE]

TABLE OF CONTENTS

1.0 POLICIES 3

2.0 NSP PROCESSES 23

3.0 VARIANCES FROM POLICIES 42

4.0 RIGHTS AND RESPONSIBILITIES OF THE HOMEBUYER 43

5.0 RIGHTS AND RESPONSIBILITIES OF CONTRACTORS 43

6.0 RESPONSIBILITIES OF THE LOS ANGELES HOUSING DEPARTMENT 44

7.0. DISPUTE RESOLUTION, GRIEVANCE AND APPEALS PROCEDURE 45

APPENDICES

Appendix A - NSP Appraisal Requirements

Appendix B - “Voluntary” Letter

Appendix C - Lead Paint Disclosure

Appendix D - NSP Loan Reservation Request Package

Appendix E - Loan Reservation Letter

Appendix F - NSP Loan Process Steps

Appendix G - Loan Deficiency Letter

Appendix H - NSP Soft Second Loan Underwriting Checklist

Appendix I - NSP Income Analysis Worksheet

Appendix J - NSP Property Eligibility

Appendix K - Appraisal Report

Appendix L - NSP Internal Financial Analysis Worksheet

Appendix M - Request for Project Disbursement

Appendix N - LAHD Lender Instructions

Appendix O - Loan File Table of Contents

Appendix P - NEPA Appendix A/RER Form

Appendix Q - Owner-Contractor Contract

Appendix R - Contractor Debarment List

Appendix S - Notice to Proceed

Appendix T - Change Order

Appendix U - LAHD Rotating Contractor System List

Appendix V - Disclosure/Disclaimer Form

Appendix W - LAHD Contractor Application

Appendix X - Contractor’s Manual

Appendix Y - Bid Comparison Sheet

Appendix Z - Owner Certification/Bid Acceptance

Appendix AA - Notice of Completion

Appendix BB - Construction & Disbursement File Table of Contents

Appendix CC - Close Out Routing Slip

Appendix DD - Owner’s Manual

Appendix EE – Living Wage Ordinance Form

Appendix FF - Request for Approval/Issuance of Loan/Grant Funds

Appendix GG - Loan Tracking Number Request

Appendix HH - Notice of Project Funding from HO to RCS

Appendix II - LAHD Loan Approval Letter to Lender

Appendix JJ - Letter to Title Office – re: Funding Check

1. POLICIES

1.0.1 Neighborhood Stabilization Program (NSP) Overview

The federal Housing and Economic Recovery Act of 2008 – HERA (HR 3221) created the Neighborhood Stabilization Program (NSP). A key goal of the NSP is to prevent the downward spiral of property abandonment and crime in neighborhoods that can result when vacant, boarded-up properties sit without attention for weeks or months at a time. The NSP allocation to the City of Los Angeles is $32,860,870 for the acquisition and rehabilitation of foreclosed properties for homeownership and rental opportunities.

NSP guidelines require that funds be utilized only for foreclosed homes in greatest need/high risk areas with the greatest percentage of foreclosures; the highest percentage of homes financed by subprime mortgage related loans; and likely to face a significant rise in the rate of home foreclosures, which is based on the HUD Risk Factor Score.

NSP regulations require that:

all funds must be used to assist households at or below 120% of area median income (AMI) (e.g. $95,150 for a four-person household);

at least 25% of funds must be used to assist households at or below 50% of AMI (e.g. $39,650 for a four-person household); (This policy does not apply to the WIP)

• a discount of at least 1% of current appraised market value be obtained when purchasing property; and

NSP funds must be expended in the areas of greatest need, as determined by the HUD Risk Factor Score and Income eligibility.

1.0.2 Walk-In Purchase Assistance with Rehabilitation (WIP) Overview

The initial allocation for the NSP Walk-In Program (WIP) is approximately $10 million. The WIP provides a purchase subordinate loan to eligible homebuyers, with incomes up to 120% AMI. WIP loan funds may be used towards:

Half of the down payment required by the first mortgage Lender

Closing costs of up to 5% of the purchase price

Gap financing for the purchase

Rehabilitation of the property

LAHD has established a website for NSP-related information. The website address is .

1.1.0 WIP OUTREACH AND MARKETING

All outreach efforts will be done in accordance with state and federal fair lending regulations to assure nondiscriminatory treatment, outreach and access to the WIP. No person shall, on the grounds of age, ancestry, color, creed, physical or mental disability or handicap, marital or familial status, medical condition, national origin, race, religion, gender or sexual orientation be excluded, denied benefits or subjected to discrimination under the WIP. The LAHD will ensure that all persons, including those qualified individuals with handicaps have access to the WIP.

1. Outreach.

The WIP is structured to complement and supplement the normal private sector process of home buying. Therefore, staff works closely with homebuyer educators, local real estate agents and first mortgage lenders to familiarize them with the program so that when they have a low or moderate income client, they can provide information on and utilize the WIP. To that end, the NSP program is advertised on the City of Los Angeles and the LAHD websites. Information provided on the website includes:

• WIP brochure;

• Information for Buyers and Sellers (more detailed information about how to utilize the program);

• list of participating lenders;

• list of LAHD-approved homebuyer educators;

• interactive and flat maps of target areas;

• interactive mapping program by address to determine whether a property is in the target area.

• list of real estate agents and brokers

Program information is also sent out in “e-blasts” to a list of approximately 670 lenders and realtors throughout the city. Staff also conducts monthly training workshops for lenders and realtors to:

• explain the WIP requirements for eligible locations, housing units and homebuyers;

• review WIP processes to clarify questions and issues;

• obtain feedback on how the program is working ; and

• encourage them to have potential homebuyers participate in the WIP.

2. Fair Housing.

The Fair Housing Lender logo will be placed on all outreach materials. Flyers or other outreach materials, in English and in Spanish which is the primary language of a significant portion of the area residents, will be widely distributed in the WIP-eligible area and will be provided to any local social service agencies. The LAHD has placed, on the NSP website, a list of homebuyer educators who provide classes to help educate homebuyers about the home buying process and future responsibilities. Those classes are either free or relatively low cost to interested parties. In addition, persons who have participated in local homebuyer seminars are notified about the WIP.

1.1.3 NSP Eligible Areas.

NSP-eligible target areas are located in clusters primarily in Central, East and South Los Angeles, and in the North and South Valley. LAHD’s website () allows interested parties to check a property address to determine if it is within a NSP Eligible area.

1.2.0 NSP PROGRAM REQUIREMENTS: PROPERTIES

1.2.1 Eligible properties are:

1 Only foreclosed properties that are lender-owned (including Fannie Mae, Freddie Mac, and FHA). If the seller is not a known bank entity, then the chain of title will be checked through Real Quest’s Foreclosure Activity Report and Property Detail Report. If it is still not clear whether the seller is the lender who foreclosed on the property, then the seller must be contacted and status confirmed. If the seller is not the lender, then the property does not qualify for the NSP WIP.

2 A property “has been foreclosed upon” at the point that, under state or local law, the mortgage or tax foreclosure is complete.

3 One-unit detached single family homes.

4 Condominiums, townhomes, and planned unit developments (PUD).

1. Housing unit size shall be sufficient to meet the needs of the homebuyer household, without overcrowding. Generally, this means not more than two persons per bedroom plus one.

5 Those located within the NSP Eligible Areas of the City of Los Angeles.

6 Those that have been vacant for at least three (3) months prior to the Purchase Offer being submitted by the homebuyer.

1.2.2 Other requirements:

Property must be appraised by a State certified-appraiser within 60 days of final purchase contract.

The Borrower must negotiate and obtain from the Seller, a minimum discount of 1% from the current appraised market value.

At its own expense, the City will inspect the subject property to determine the repairs/rehabilitation needed to bring the property up to habitability standards. The property must not require more than $75,000 of rehabilitation/repairs identified through the City’s inspection.

1. When the purchaser is approved for a loan, LAHD must send letter informing seller that this is a “voluntary purchase” per the Uniform Relocation Act requirements.

There are no maximum purchase price limits.

All purchase contracts should have the LAHD recommended proper contingencies. See the section on contingencies.

1.2.3 Third Party Verification

In so far as possible, all information provided by the homebuyer and lender will be documented with third party verifications in the file. For example, the WIP loan application will provide current debt and housing information and will be documented by the credit report and income/asset verifications. Review of the Primary Lender’s loan underwriting documentation provides basic information about the qualifications of the applicant and substantiates the affordability provided by the WIP loan. The appraisal, termite and title report will provide information to substantiate the information in the sales contract and guide the construction inspection. The first mortgage lender’s approval letter and estimated closing cost statement should reflect all the information in the loan package and show any contingencies of loan funding. The HUD-1 (Estimated Closing Cost Statement) will provide the final purchase price and outline how much of the closing costs are to be paid by the seller, etc.

5 Appraisal Requirements

The originating/funding Lender (or LAHD) must order the property appraisal from an Appraiser who holds a California Certified Residential License or California Certified General License.

1. The Appraisal must be current to within 60 days from the date that the purchase offer was finalized.

2. The appraiser must read the NSP Appraisal Requirements (contained in Appendix A) prior to undertaking the appraisal, follow all requirements and complete Appendix B for each appraisal. The appraiser or the lender will complete Appendix E.

3. Appraisers may not use properties purchased with NSP funds as comparable properties to include in their appraisals unless there are an insufficient number of properties to use as comparables in the surrounding area, the amount of the discount is added to the sales price and recognition given to the properties’ poor condition.

2 “VOLUNTARY” LETTER AND PURCHASE CONTINGENCIES

Prior to making an offer to purchase an eligible housing unit, the LAHD shall provide seller with a disclosure containing the following provisions:

1. Although the homebuyer intends to apply for a loan from the Los Angeles Housing Department (LAHD) to use in buying the property, homebuyer has no power of eminent domain and, therefore, will not acquire the property if negotiations fail to result in an amicable agreement; LAHD will send the “Voluntary” Letter to that effect as soon as the required appraisal is provided;

1. Homebuyer’s offer is an estimate of the fair market value of the housing unit, to be finally determined by a state licensed (certified) appraiser within 60 days of final offer;

2. Purchase offer is at least a 1% discount from the current market appraised value;

3. Since the purchase is voluntary, neither the owner or anyone living in the house, except a tenant with a legal lease, will be eligible for relocation payments or other relocation assistance;

4. The housing unit must be foreclosed upon and vacant for three months prior to submission of the purchase offer.

If the seller is not provided with a statement of the above provisions prior to the purchase offer, the seller may withdraw from the agreement after this information is provided. A copy of the letter is included as Appendix B.

The following contingencies are required in the purchase agreement:

1. The housing unit will be subject to inspection for health and safety hazards and code compliance. Note: All housing units built prior to January 1, 1978 will require a Lead Paint Disclosure to be signed by both the homebuyer and seller (Appendix C);

2. Property requires no more than $75,000 worth of rehabilitation as determined by LAHD inspectors;

Please note: In order to be funded the property must receive National Environmental Policy Act (NEPA) clearance per Section 2.3.1 #5.

6 NSP PROGRAM REQUIREMENTS: BORROWERS

1 Eligible Borrowers must:

Not have any ownership interest in any real property or outstanding mortgage obligations at the time that they submit a purchase offer for a property under this program. This includes being a co-signer on a mortgage that is paid by someone else.

Earn at or below 120% of the area median income.

Complete eight (8) hours of homebuyer education from an LAHD and HUD approved housing counseling agency.

Occupy the acquired property as their primary Residence.

1. Special Circumstances:

Property owners, whose homes have been or will be taken by LA Unified School District under eminent domain as shown in the LAUSD Acquisition And Relocation Plan, qualify as eligible borrowers even though they may have an ownership interest in their primary residences until eminent domain proceedings have been completed.

If Borrowers combine their NSP loans with Mortgage Credit Certificates (MCC), the stricter MCC first time homebuyer definition applies.

7 NSP INCOME GUIDELINES

2. Maximum Annual Income Limits

All applicants must certify that they meet the household income eligibility requirements and have their household income documented. The income limits in place at the time of loan approval will apply when determining applicant income eligibility. All applicants must have incomes at or below 120% of the area median income (AMI), adjusted for household size, as published by HUD for the calendar year.

2009 HUD NSP Median Family Incomes for Los Angeles

| |Family Size |

|AMI |1 |2 |3 |4 |5 |6 |7 |

|80% |$44,400 |$50,750 |$57,100 |$63,450 |$68,550 |$73,600 |$78,700 |

|120% |$66,600 |$76,150 |$85,650 |$95,150 |$102,750 |$110,400 |$118,000 |

Source: 2009 NSP Income Limits (HUD/PDR)

1.5.2 Calculating Annual Income.

The WIP uses the definition of annual income defined in 24 CFR 5.609, "Part 5 Annual Income," in determining the eligibility of the applicant and applies that definition in accordance with the procedures and calculations described in the Technical Guide for Determining Income and Allowances for the HOME Program (HUD-1780-CPD). The HUD Income and Allowances Calculator can be found at the following web address:



The WIP staff will compare the income the Primary Lender used when qualifying the household to the income limits in the HUD NSP Income Limits Chart. Since the Primary Lender underwrites its loan to FHA or conventional guidelines; it may not calculate the household income or assets in the same way as required by the WIP. Therefore, the WIP Loan Officer will recalculate the income information to make certain that the applicant is eligible for the program, using the following guidelines:

2 The income of all adults 18 years of age or older who are part of the household must be included.

• Non-occupant co-signers/co-borrowers on the first mortgage loan will not be allowed.

3 All income subject to Part 5 Annual income regulations must be documented.

4 Household size will be determined by the borrower(s) and the dependents claimed on their federal tax returns. (If they did not file tax returns then the family has insufficient income to purchase property.)

5 Other household members who are not claimed as dependents on the borrower(s) federal tax returns will have to provide supporting documentation to prove that they are part of the household (e.g., the recent adoption of a child, a change of child custody, or recent marriage).

6 All household members who are 18 years of age and older who say that they do not receive any form of income must sign a No Income Certification form and a release so that LAHD may check their credit reports.

7 LAHD will review Credit Reports on all household members, regardless of whether they signed the No Income Certification, to check debt, credit and whether it appears that they have income.

8 Lender must project the total gross income (before any deductions have been taken) of the household for the next 12 months.

9 Income will be verified by reviewing and documenting tax returns, copies of wage receipts, subsidy checks, bank statements and third party verification of employment forms sent to employers.

10 Types of income that must be counted and included to determine program eligibility: Gross wages, salaries, overtime pay, commissions, fees, tips, royalties, and bonuses. Net income from the operation of a business, profession, business activities, and investments.

11 Interest, dividends, and other net income of any kind from real or personal property.

12 Social Security, VA compensation, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts.

13 Unemployment, disability compensation, worker’s compensation, and severance pay.

14 Welfare Assistance.

15 Alimony and child support.

16 All regular pay, special pay, and allowances of a member of the Armed Forces.

All documentation shall be dated within six months prior to loan closing and kept in the applicant file and held in strict confidence.

1.6.0 NSP LOAN FEATURES

1.6.1 Two loans: one for purchase and one for rehabilitation.

• Up to $125,000 for households at or below 80% area median income (AMI);

• Up to $100,000 for households between 81 and 120% AMI.

• Maximum of $75,000 in each loan can be spent for rehabilitation.

1.6.2 Mortgage Assistance and Downpayment (Gap) Loan

WIP staff will encourage participating lenders to maximize the amount of the first mortgage loan in order to ensure that qualified homebuyers receive only the amount of “gap” financing from the WIP needed to purchase the housing unit. First mortgage loans will be analyzed by WIP staff to ensure that the maximum amount has been obtained.

Shared appreciation loan; requires no monthly payments. Shared appreciation applies only to the mortgage assistance and downpayment (Gap) loan portion.

Loan is due upon the sale of property; title transfer; first mortgage repayment (only in the cases when allowed by first mortgage lender); failure to meet the rehabilitation requirements; or if the borrower no longer occupies the property as his/her primary residence.

Gap loan may be used in combination with the City’s Mortgage Credit Certificate (MCC) Program

Loan may be used to pay for closing costs of up to 5% of the purchase price.

Although the City may only contribute half of the required down payment, the City’s NSP loan can also provide assistance for Closing Costs and Gap Financing (acquisition financing).

8 Shared Appreciation

LAHD’s Percentage Share is equal to the ratio of LAHD’s Purchase Assistance (gap) loan to the total purchase price of the property, up to a maximum ratio of 49.99%. Under the NSP, when the property is sold, the owner will receive credit for selling costs, their downpayment, and documented improvements, additions, and other items that affect the home's adjusted basis to the property (as defined by the U.S. Internal Revenue Service). Property maintenance costs will not be included as a credit when the owner sells the property.

The sale of property, transfer of title, repayment of the first mortgage (if allowed by the first mortgage lender) or default triggers repayment of the shared appreciation mortgage.

EXAMPLE:

Assume that the buyer purchased the home for $250,000 and the property is sold for $400,000 sometime in the future. The LAHD’s share of appreciation will be calculated as follows:

LAHD Purchase Assistance (Gap) Loan $ 75,000

Purchase Price $250,000

LAHD’s Shared Appreciation Percentage 30.00%

($75,000/$250,000 = 0.30)

Sales Price (in the future, for example purposes) $400,000

Original Purchase Price ($250,000)

Appreciation $150,000

To Calculate Funds Due LAHD:

LAHD Purchase Assistance Loan $ 75,000

LAHD’s Share of Appreciation $ 45,000

(30% of $150,000)

Total Due LAHD $120,000

For Purchase Assistance and Shared Appreciation

To Calculate Funds Due Owner

Sales Price (in the future) $400,000

Less the Assumed Balance of First Mortgage ($113,033)

Equals Subtotal $286,967

Less the Payment to LAHD Principal & ($120,000)

Shared Appreciation

Amount of Funds Due Owner $166,967

1.6.4 NSP Down Payment Requirement

The LAHD requires that borrowers contribute a minimum down payment of 1% of the purchase price from the borrower’s own funds. Please note that the borrowers may need to contribute more than 1% of their own funds towards the down payment to make the deal work.

The City’s NSP loan can provide up to half (1/2) of the first mortgage’s down payment requirement. For example, FHA requires a 3.5% down payment so the City’s down payment contribution would be a maximum of 1.75% if FHA financing is utilized.

A Conventional mortgage may require a 10% down payment so the City’s down payment contribution would be a maximum of 5% if conventional financing is utilized.

Borrowers must contribute 80% of all liquid assets towards the down payment of their home in excess of $20,000. Retirement assets are exempt from this rule. For example, if a buyer has $25,000 in non-retirement liquid assets, the buyer would be required to contribute only $4,000 ($25,000 - $20,000 = $5,000 x 80% = $4,000). If the 80% rule applies, the minimum required down payment will be the greater of the 80% rule or 1% of the purchase price.

4 This is the minimum requirement; borrowers have the option to contribute additional funds towards the purchase.

EXAMPLE: FHA LOAN REQUIRING A 3.5% DOWN PAYMENT

Purchase Price $250,000

Closing Costs $ 7,500

TOTAL FUNDS NEEDED $ 257,500

Required Down Payment By First Mortgage Lender $ 8,750

(3.5% of purchase price)

First Mortgage $ 178,125

Minimum Buyer Down Payment

(1% of the purchase price) $ 2,500

LAHD NSP Down Payment Portion $ 4,375

(Half of required DP)

LAHD NSP Closing Costs Portion $ 7,500

LAHD Gap Portion $ 63,125

Shortfall/Buyer’s additional down payment contribution $ 1,875

TOTAL FUNDS TO PURCHASE PROPERTY $ 257,500

1.6.5 Rehabilitation Loan

Three percent (3%) simple interest per year on rehabilitation loan portion only.

• Term is the same term as LAHD Gap loan.

LAHD will close LAHD’s third mortgage (rehab loan) after the close of escrow for the Gap Loan. LAHD will initiate contact with the borrower to sign loan documents for the rehab loan and record the lien.

22 Other Loan Elements

23 LAHD’s loans consist of a Loan Agreement, Promissory Note and Deed of Trust. If any document appears to have wording that is inconsistent with another, the Promissory Note is the controlling document.

24 LAHD’s loans are assumable. Language in the Note stipulates: This Note may be assumable to subsequent qualified purchasers, subject to the written approval of the Los Angeles Housing Department.

10 NSP UNDERWRITING CRITERIA

Minimum middle FICO score required for each borrower: 620

Ratios:

Borrower’s maximum housing expense to income: NONE

Borrower’s minimum debt-to-income: 38.00%

5 Borrower’s minimum debt-to-income: 36.00% if the Borrower has $0 debt

6 Borrower’s maximum debt-to-income: 42.00%

COMPENSATING FACTORS ACCEPTABLE TO LAHD

Lender may exceed 42.00% back-end ratio, if two (2) or more of the following Compensating Factors apply and LAHD approves:

Middle credit score of 700 or higher for at least one borrower.

Borrower invests more than 3% of own funds as down payment.

Monthly debt less than $50 AND total debt less than $2,500.

Five years on the same job or in the same line of work.

Cash reserves of at least 3 months PITI after loan closes.

Low payment shock; PITI no more than 20% of the borrower’s present housing payment.

Other -- evaluated by LAHD on a case-by-case basis

Entire collections debt will be counted towards monthly payment unless Borrower provides proof from collection agency that Borrower is making monthly payments.

Student loans will not be counted if deferred for at least one year with documentation.

• Loan payments (that are not for residential real property), such as car loans, where the applicant is a co-signer but can document that the other person on the title is paying the payment in full for at least the most recent 12 months will not be counted.

Installment loans will not be counted if less than 10 months old.

Debt that is going to be paid off to lower the “back-end” ratio must be done prior to LAHD releasing its funding check to escrow. Proof must be submitted to LAHD prior to a check being released.

Many factors such as excellent or poor credit history, amount of down payment, and size of loan will influence the decision to approve or disapprove a particular loan. The borrower’s credit history will be reviewed by the WIP staff and documentation of this will be maintained in the loan file. In order to reduce unnecessary expenditure of funds, WIP will rely on a current copy of the borrower’s credit report obtained by the first mortgage lender.

21 ELIGIBLE FIRST MORTGAGES

FHA and Conventional, fixed, 30 to 40 year, fully amortized. There shall not be a balloon payment due before the maturity date of the WIP rehabilitation loan.

Lender fees cannot exceed 2.0% for loan origination; no discount fees/points to get a market rate loan.

Combined Loan-to-Value (CLTV) Maximum: LAHD allows up to 125% CLTV; however, FHA or Conventional first mortgage products may require a lower CLTV. The stricter maximum CLTV applies.

FHA Section 203(b) loans, combined with LAHD NSP mortgages, are allowed up to a maximum combined loan-to-value (CLTV) ratio of 125%. Lenders who will be utilizing FHA Section 203(b) loans with LAHD’s NSP program must include a copy of HUD’s approval letter in each case binder submitted to HUD for insurance endorsement.

11 NSP PROPERTY REHABILITATION

1.9.1 LAHD WIP Property Rehabilitation Policies

At its own expense, the LAHD or its designee, will inspect the subject property to determine what repairs are needed to bring the property up to LAHD habitability standards using “Green” components.

Rehabilitation is limited to $75,000 and includes structural and major house system repairs, such as plumbing, roofing, electrical, and HVAC (heating, air conditioning, ventilation).

LAHD’S NSP Rehabilitation Construction Specialists (RCSs) will inspect the property, identify the items to be repaired, develop the scope of work and cost estimate, conduct pre-construction conference, conduct progress and final inspections and provide final approval of payments and change orders.

The rehabilitation standard for the WIP is a habitability standard – systems must be brought up to code with “Green” components, using the specifications on the LAHD website under Developers/Contractors pull down list labeled Homeowner Rehab Construction Standards. There will be no upgrades of materials or equipment to luxury items and no remodeling of interior spaces unless required by code.

The scope of work and any change orders must be approved in writing by the homebuyer, the Contract Agency RCS and the LAHD RCS.

• Although three bids are preferable, a minimum of two bids are required on each project. If the owner has tried to obtain at least three bids and has only obtained one, the CHPM will decide whether to approve the construction based on the staff’s estimate and whether the bid is 15% within that.

• General contractors selected by homebuyers must meet LAHD requirements.

• The Owner is responsible for selecting the contractor; the Contract Agency and LAHD can provide information such as a rotating list of pre-qualified contractors, to assist in identifying contractors.

The selected contractor’s bid must be within 15% of the LAHD estimate. Bids above and below the estimate will not be considered.

Rehabilitation work required by LAHD begins after the close of escrow.

The homebuyer must commence the rehabilitation/repair work required by the City within 90 days from the close of escrow of the rehab loan. All rehabilitation and repairs must be completed within 6 months of closing escrow, otherwise the homebuyer will be in default of the loan.

Homeowners will be allowed to contract for or complete (themselves) minor rehabilitation work up to a maximum of $1,000. Homeowners must obtain permits for any code items and all work must be completed within 30 days of the close of escrow.

• All construction work must meet professional standards of workmanship. While there are many ways to describe quality, one rule of thumb that can be used by the CA and LAHD RCSs in evaluating the construction is to ask him/herself: “would I allow this work in my house?” If the answer is: “NO”, then the work needs to be brought up to standard.

LAHD’s RCSs must conduct all inspections, progress and final, and approve all disbursements and change orders. Conditional and unconditional lien waivers (as appropriate) must be received prior to a disbursement being processed.

All lead hazards must be abated.

All code violations must be addressed.

If system components need to be replaced, then they will be replaced with “Green” components.

• At the completion of rehabilitation --

• A clear pest inspection report will be required for each housing unit;.

• A lead clearance will be required if lead hazards were detected

• No requests or payment(s) will be approved for work not completed. No requests will be approved for payment for any work completed that was not a part of the original contract or an approved by LAHD change order.

• If the RCS observes any changes or additional work taking place at the job site that is not a part of the original scope of work, s/he should immediately inform the owner and tell the contractor to cease work on that item unless a change order has been approved.

• Change orders should be requested only for unforeseen problems and/or emergencies, not for upgrades.

• LAHD will not pay for work that is substandard. If work is deemed substandard, the contractor must tear out the work and replace it with work of appropriate quality.

1.10.0 LOAN MONITORING PROCEDURES

LAHD will monitor Borrowers and their housing units to ensure adherence to WIP requirements including, but not limited to, the following:

• Owner-occupancy

• Property tax payment

• Hazard insurance coverage

• Good standing on Primary loans

• General upkeep of housing units

12 LAHD-APPROVED HOMEBUYER EDUCATION PROVIDERS

Eight (8) hours of homebuyer education must be obtained through one of the following HUD-certified providers (Certificate of Attendance is required). A list of these providers can be found on the LAHD NSP website.

Homebuyer must provide lender with a Certificate of Attendance from a homebuyer education course from one of the LAHD approved agencies. The lender must include that certificate with the Loan/Application Package.

1.12.0 NON-DISCRIMINATION REQUIREMENTS

The WIP will be implemented in ways consistent with the LAHD’s commitment to non-discrimination. No person shall be excluded from participation in, denied the benefit of, or be subject to discrimination under any WIP activity on the basis of his or her religion or religious affiliation, age, race, color, creed, gender, sexual orientation, marital status, familial status (children), physical or mental disability, national origin, or ancestry.

13. CONFLICT OF INTEREST REQUIREMENTS

Because LAHD’s WIP utilizes Federal funds, in accordance with Title 24, Section 570.611 of the Code of Federal Regulations the following Conflict of Interest requirements apply:

“(a) Applicability.

(1) In the procurement of supplies, equipment, construction, and services by recipients and by subrecipients, the conflict of interest provisions in 24 CFR 85.36 and 24 CFR 84.42, respectively, shall apply.

(2) In all cases not governed by 24 CFR 85.36 and 84.42, the provisions of this section shall apply. Such cases include the acquisition and disposition of real property and the provision of assistance by the recipient or by its subrecipients to individuals, businesses, and other private entities under eligible activities that authorize such assistance (e.g., rehabilitation, preservation, and other improvements of private properties or facilities pursuant to Sec. 570.202; or grants, loans, and other assistance to businesses, individuals, and other private entities pursuant to Sec. 570.203, 570.204, 570.455, or 570.703(i)).

(b) Conflicts prohibited. The general rule is that no persons described in paragraph (c) of this section who exercise or have exercised any functions or responsibilities with respect to CDBG activities assisted under this part, or who are in a position to participate in a decision making process or gain inside information with regard to such activities, may obtain a financial interest or benefit from a CDBG-assisted activity, or have a financial interest in any contract, subcontract, or agreement with respect to a CDBG-assisted activity, or with respect to the proceeds of the CDBG-assisted activity, either for themselves or those with whom they have business or immediate family ties, during their tenure or for one year thereafter.

(c) Persons covered. The conflict of interest provisions of paragraph (b) of this section apply to any person who is an employee, agent, consultant, officer, or elected official or appointed official of the recipient, or of any designated public agencies, or of subrecipients that are receiving funds under this part.

(d) Exceptions. Upon the written request of the recipient, HUD may grant an exception to the provisions of paragraph (b) of this section on a case-by-case basis when it has satisfactorily met the threshold requirements of (d)(1) of this section, taking into account the cumulative effects of paragraph (d)(2) of this section.

(1) Threshold requirements. HUD will consider an exception only after the recipient has provided the following documentation:

(i) A disclosure of the nature of the conflict, accompanied by an assurance that there has been public disclosure of the conflict and a description of how the public disclosure was made; and

(ii) An opinion of the recipient's attorney that the interest for which the exception is sought would not violate State or local law.

(2) Factors to be considered for exceptions. In determining whether to grant a requested exception after the recipient has satisfactorily met the requirements of paragraph (d)(1) of this section, HUD shall conclude that such an exception will serve to further the purposes of the Act and the effective and efficient administration of the recipient's program or project, taking into account the cumulative effect of the following factors, as applicable:

(i) Whether the exception would provide a significant cost benefit or an essential degree of expertise to the program or project that would otherwise not be available;

(ii) Whether an opportunity was provided for open competitive bidding or negotiation;

(iii) Whether the person affected is a member of a group or class of low- or moderate-income persons intended to be the beneficiaries of the assisted activity, and the exception will permit such person to receive generally the same interests or benefits as are being made available or provided to the group or class;

(iv) Whether the affected person has withdrawn from his or her functions or responsibilities, or the decision making process with respect to the specific assisted activity in question;

(v) Whether the interest or benefit was present before the affected person was in a position as described in paragraph (b) of this section;

(vi) Whether undue hardship will result either to the recipient or the person affected when weighed against the public interest served by avoiding the prohibited conflict; and

(vii) Any other relevant considerations.”

2.0.0 NSP PROCESSES AND PROCEDURES

2.1.0 Loan Reservation Process for NSP Lenders – Steps….

2.2.0 Buyers and Sellers – Steps:

2.3.0 WIP Loan Processing And Approval --Steps

2.3.1 Loan Processing Procedures

2.3.2. Escrow Procedures

2.4.0 WIP Property Rehabilitation --Steps

2.4.1 Rehabilitation Steps Prior to Contractor Selection Process

2.4.2 Contractor Bid Processing/Contractor Selection

2.4.3 Pre-Construction Conference

2.4.4 Construction Management And Monitoring

2.4.5 Progress Payments and Disbursements

2.4.6 Final Inspection And Payment

2.4.7. Disbursement of Final and Retention Payment

2.4.7.1 Retention Payment

2.4.8 Project Closeout

3.0.0 VARIANCES FROM POLICIES

Variances from these policies and procedures shall only be granted by the Director of Homeownership and Preservation --

o under extraordinary and extenuating circumstances;

o if HUD regulations have changed;

o if a variance will make the program more efficient and/or effective due to changes in the housing market ; or

o if granting a variance will further the goals, purposes, and effectiveness of the WIP and conform to all applicable HUD guidelines.

4.0.0 RIGHTS AND RESPONSIBILITIES OF THE HOMEBUYER

The applicant is responsible for submitting true and accurate financial and other information required to document eligibility for the program. The applicant is also responsible for notifying the LAHD, in writing, of any change in household composition or income within ten (10) calendar days of such change. Failure to provide updated information shall result being permanently excluded from the program. The applicant is also responsible for:

1. Selecting the contractor;

2. Making reasonable accommodation to the schedules of the contractor and the LAHD for the purposes of inspections, completion of work, etc.

3. Reviewing, executing, and understanding the contract, work write-up, and associated documents.

4. Notifying the contractor and LAHD of any concerns during the construction period and during the warranty period.

5. Participating in the final inspection and signing the final inspection report.

6. Properly maintaining all installed items/components to help minimize premature failure or damage.

7. Maintaining required property insurance for the duration of the lien.

5.0.0 RIGHTS AND RESPONSIBILITIES OF CONTRACTORS

The contractor is responsible for completing the work identified in the contract and scope of work within the agreed-upon timeframe and for the following:

1. Communicating with the homeowner and the LAHD regarding status of the work during the construction period.

2. Adhering to warranty agreements and performing warranted work within the warranty period(s).

3. Notifying LAHD in writing, including justification(s) for any change orders and negotiating with LAHD regarding the cost of such change orders and time required to complete them.

4. Completing any items identified at the final inspection prior to execution of the Certificate of Completion.

5. Cleaning the property of work materials after conclusion of work.

6. Ensuring quality of workmanship and materials in compliance with the contract.

7. Making reasonable accommodation with City Code Inspectors, RCSs and the homeowner regarding scheduling of inspections and completion of the work.

8. Performing all work in an acceptable and professional manner.

9. Completing all required work items.

6.0.0 RESPONSIBILITIES OF THE LOS ANGELES HOUSING DEPARTMENT

The LAHD is responsible for

1. Determining eligibility of the property and the applicant/borrower;

2. Underwriting the mortgage assistance and rehabilitation loans;

3. Determining the rehabilitation scope of work and cost estimate;

4. Inspecting and approving the construction work;

5. Paying the contractor as set forth in the contract.

6. Administering the program in a professional manner that ensures maximum effectiveness, efficiency, and customer satisfaction.

7. Documenting project files in compliance with all applicable HUD regulations.

7.0. DISPUTE RESOLUTION, GRIEVANCE AND APPEALS PROCEDURE

7.1 Financial Assistance

As described in Section 2.3.1 #13 --

If there are problems with the applicant’s eligibility or underwriting, the LO will discuss the problem(s) with his/her supervisor to contact the lender by telephone or email to see whether the problem can be resolved. The lender will have 10 business days within which to resolve the problem. If the problem cannot be resolved, the LO issues a Letter of Denial stating the reason(s) why the application has been deemed ineligible.

If the applicant’s appeal is in regard to borrower, property or financial eligibility and LAHD’s response in the Letter of Denial accurately describes the reasons why the applicant is ineligible for the program, LAHD’s decision is final.

Determination of the amount, type and cost of property rehabilitation is the sole responsibility of LAHD and cannot be appealed. LAHD has strict standards and specifications that must be met for this program. While it may be the opinion of the applicant, a realtor, a contractor or other party that fewer and/or cheaper repairs could be made to the property, the decision of LAHD is final. LAHD’s RCSs have had rigorous training in inspecting properties for health, safety and code violations. LAHD believes that it is inappropriate to assist lower income applicants to purchase a home that is not sound or is going to require major repairs soon after the buyer moves in. Many of the homebuyers participating in the program will be lower income first-time buyers without the income to make needed property repairs.

7.2. Property Rehabilitation

• Mediation. If contractor and the owner are involved in a dispute, LAHD construction staff will attempt to resolve the dispute by mediating the disagreements. In cases where the dispute is based on the amount or quality of work performed, the RCS will identify the line item(s) in dispute and specify the percentage completed, the estimated value of the work performed and note whether the work was up to the quality required or substandard. The RCS may also take into consideration the cost of completing or remedying the work in question. The RCS will propose a solution to the dispute, but it is not binding on the parties.

• Arbitration. Most owner and contractor agreements contain a Binding Arbitration Clause. If the parties agree to binding arbitration, the parties are obligated to comply with such decision. The arbitration shall be in accordance with the construction industry arbitration rules of the American Arbitration Association. LAHD may use loan proceeds to pay the portion of the arbitration award for work completed to LAHD standards. Additionally, contingency funds from the loan may be used by the Owner to pay for his/her portion of the initial arbitration fee. NOTE: California law allows the parties to arbitration to challenge the results in court. Nothing in this paragraph or LAHD documents shall be construed to limit the parties rights under law.

• Disbursement of Funds while Parties in Dispute. As a general rule, LAHD will disburse funds only if the owner has approved payment to the contractor. However, LAHD retains the authority to make unilateral payments to the contractor without owner approval if LAHD determines that the owner is unreasonably withholding approval and the work is up-to-standard.

• Change of Contractor. Since the rehabilitation contract is between the owner and the contractor, the owner may elect to change the original contractor, in accordance with the Owner-Contractor Agreement, without LAHD approval, but LAHD must be informed and the contractor must meet LAHD standards. At the time that the owner discharges the contractor from the job, the RCS must inspect the property to identify work that has been completed to rehabilitation standards in order to pay the contractor for the work he has done. The RCS will document any substandard work and will inform the contractor and owner in writing of substandard work for which the contractor will not be paid.

• If it appears, in a dispute between the owner and contractor, that the contractor is partially correct and the owner is partially correct and the owner does not want the current contractor to complete the work, prior to approving a replacement contractor, LAHD will require that an inspection of the property be made to establish the work that has been completed and whether that work meets standard.

• The replacement contractor must meet all LAHD qualifications and be approved in writing by LAHD. LAHD will not make payment to a contractor for work performed by the contractor prior to LAHD’s approval of that contractor.

• Grievances against LAHD’s RCSs. If a homeowner or contractor has a grievance against an LAHD RCS, contact the Director of Homeownership and Preservation, 1200 W. 7th Street, Los Angeles CA 90017, 213-808-8948 who will assign it to appropriate staff to investigate. . In order for a complaint to be investigated, the person making the complaint must provide contact information to LAHD. That contact information will remain confidential. Investigation of all complaints received will start within three business days of receipt. Within 20 business days, the person making the complaint will be informed of the status of the complaint.

Key staff of the Walk-In Purchase Assistance with Rehabilitation Program are:

• Loans: G__________, telephone; email:

• Property Rehabilitation: P___________, telephone; email:

• NSP Director: Doug Swoger, telephone; email.

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