Submitted By
Tammie Grossman, Director of Development Customer Services
Reviewed By
A.M. Zayyad
Agenda Item Title
Title
A Resolution Authorizing Subordination of a Lien for the Property Located at 822 South Austin Boulevard (MSA 2201-G)
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Overview
Overview
The loan recipient is requesting a subordination of their Multi-Family Housing Incentives Program (MFHIP) grant mortgage to a new first mortgage. The Village remains secure in a junior position on the title.
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Recommendation
Recommendation
Approve the resolution.
Fiscal Impact
The subordination is not a direct cost to the Village’s general fund. Staff time in document preparation, which is a regular part of loan portfolio management, is the only cost.
Background
The Multi-Family Housing Incentives Program is a program of grants for owners of multi-family buildings with four or more units. The purpose of the program is to allow owners to upgrade the physical condition of multi-family buildings and to expand the housing choices of renters to encourage diversity. To accomplish these purposes, the Village awards eligible property owners a grant, and in return, the owner enters into a three-year Marketing Services Agreement which requires the owner to market the building’s rental units with the Oak Park Regional Housing Center.
The Village records Multi-Family Housing Incentives Program grants as a forgivable mortgage lien against the property, with the purchase mortgage having priority over the Village’s lien. When the grant term expires the mortgage is released. The Village records the grant as a mortgage so that it has an enforcement mechanism should the owner not comply with the Marketing Services Agreement. If an owner does not fully cooperate with the Marketing Services Agreement, one option would be to cancel the grant and seek reimbursement.
During the grant term, a building owner may seek to refinance their purchase mortgage. When a property is refinanced, the original purchase loan is paid off and the mortgage lien is released. Ordinarily, this would mean that the next lien recorded against the property, the Village’s lien, would take priority. However, lenders will not refinance a principal mortgage unless their new mortgage lien has priority against the title. In this situation, the lender and the property owner request that the Village agree to subordinate its lien so that it remains in a junior position against the title.
On May 16, 2022, the Village awarded the owner of 822 South Austin Boulevard a Multi-Family Housing Incentives Program grant in the amount of $10,000 grant. The owner is required to expend a minimum of $30,000 for improvements and repairs to receive the full amount of the grant. Additionally, the owner is required to enter into a three (3) year Marketing Service Agreement to affirmatively market their rental units, which expires on May 16, 2025.
The owner is refinancing the first mortgage for a new $2,948,000 mortgage and requests that the Village Subordinate its loan to the new mortgage. The property is appraised at $5,100,000. The new first mortgage of $2,948,000 and the two Village MFHIP forgivable grants with a $10,000 mortgage each equal total debt of $2,968,000, leaving 41.8% equity In the property. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
Alternatives
If the Village does not approve this Assignment and Subordination of Lien, either the owner would be unable to obtain their new financing, or the owner would have to repay the grant funds which would normally be forgiven after three years of successful program participation.
Previous Board Action
On May 16, 2022, pursuant to the Multi-Family Housing Incentives Program, the Board of Trustees approved a $10,000 grant to the owner of 822 South Austin Boulevard.
Citizen Advisory Commission Action
N/A
Anticipated Future Actions/Commitments
N/A
Intergovernmental Cooperation Opportunities
N/A