Submitted By
Tammie Grossman, Director of Development Customer Services
Reviewed By
LKS
Agenda Item Title
Title
A Resolution Authorizing Subordination of a Lien for the Property Located at 1000-1006 South Austin Boulevard (MSA 1903-G)
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Overview
Overview
The loan recipient is requesting a subordination of their Multi-Family Housing Incentives Program mortgage to a new first mortgage. The Village remains secure in 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
One of Oak Park’s important goals is to continue to develop and maintain racial diversity. A large portion of that goal focuses around integrating and supporting continued diversity in rental and owner occupied housing. The Multi-Family Housing Incentives Program is designed to further encourage fair housing practices, to expand housing options for all prospective renters and to improve the quality of multiple-family units and dwellings.
On January 27, 2020 pursuant to the Multi-Family Housing Incentives Program, the Board of Trustees approved a $8,200 grant to the owner of 1000-1006 South Austin Boulevard. The owner is required to expend a minimum of $16,400 for improvements and repairs to receive the full amount of the grant, which have been completed. Additionally, the owner is required to enter into a three (3) year Marketing Service Agreement (MSA) to affirmatively market their rental units, which ends January 27, 2022. The Village’s interest is secured by a mortgage which was recorded against the property. The mortgage was recorded as a junior mortgage on the property with the purchase loan mortgage being in first position.
Grants made under the Multi-Family Housing Incentives Program are forgiven and the mortgages released upon proof that improvements were made to the property and by satisfactorily completing the three (3) year MSA period. The Village allows that in cases where former loan recipients wish to refinance mortgages other than the Village's, and request that the Village maintain its subordinate position, the Village will agree to maintain its junior position if:
a. The terms of new first mortgage are more advantageous to the homeowner and are reasonable under current market conditions; and
b. There is adequate equity in the property to support the total proposed encumbrance, at least 15% equity. (if necessary, homeowner(s) will submit an appraisal as proof of equity); and
c. The cost of the refinance is the only allowable equity taken out of the property.
In cases of extreme hardship, staff may recommend that the Board consider subordination when the homeowner is requesting cash back from the refinancing and the equity taken out is being used for emergency home repairs. The homeowner shall provide a written statement describing the emergency.
The homeowner is seeking to refinance their current primary mortgage and consolidate debt. The current mortgage, at a 4.41% interest rate, will be replaced with a new secondary mortgage at 3.51% interest rate. This new loan will provide Fixed Rate, 5 year mortgage. The amount of the new loan will be $1,220,000. The new loan is more advantageous than the existing loan as the new loan is at a lower rate and has a lower monthly payment than the existing payments.
The issuing lender will not make the loan unless their mortgage is the first mortgage lien against the property. The lender is requesting that the Village subordinate its mortgage to their new mortgage. The Village’s mortgage was created as a junior mortgage. By agreeing to subordinate to the new mortgage, the Village is agreeing to remain in a junior position.
According to the bank, the property has an estimated value of $2,700,000. The balance on the first mortgage of $1,209,441 and the Village’s $8,200 mortgage equal total debt of $1,217,641, leaving 54.9% equity. Staff believes that there is sufficient equity to protect the Village’s investment and is recommending the subordination.
The request complies with the Village guideline requirements.
Alternatives
The alternative would be to deny the subordination request.
Previous Board Action
On January 27, 2020 pursuant to the Multi-Famiy Housing Incentives Program, the Board of Trustees approved a $8,200 grant to the owner of 1000-1006 South Austin Boulevard.
Citizen Advisory Commission Action
N/A
Anticipated Future Actions/Commitments
N/A
Intergovernmental Cooperation Opportunities
N/A