Oregon/Washington/Hawaii State Conference October 24, 2015

Mortgage Procedures and Regulations (MPAR)

Real Estate Settlement and Procedures Act (RESPA) Phase

Tera Doak Iris Dooling

Associate General Counsel Thrivent ODC

Habitat for Humanity International Habitat for Humanity International

Homeowner Services and Repair Products 101

Topics for Today

• Initial Considerations

– Where do Repair Products fit in Habitat “Toolbox” – Why should Affiliates consider Repair Products – Getting Started: Basic Principles and Practical Tips

• Homeowner Selection Criteria • Sweat Equity for Repair Products • Determining Cost vs. Price vs. Payment for Repair Products • Legal Issues applicable to all Repair Products • Different Payment Models: Benefits and Challenges • Enforcement Techniques

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Repairs Rehabs New Homes

Weatherization

Home Preservation

Critical Home Repair

Spectrum of Habitat Construction Services

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Weatherization

Home Preservation

Critical Home Repair

• Short-term,

exterior work

that includes

painting,

patching, minor

repair and

landscaping on

owner occupied

homes.

• A Brush With

Kindness

(ABWK) is 1

home

preservation

product

• Work done to

improve the

energy

efficiency/air

quality

• Scope of work

defined by an

energy audit

• Includes a

homeowner

education

component

• Extensive interior

or exterior work

performed to

address health

and safety issues

or code violations

Types of Repairs

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A note on terminology

• In an effort to bring consistency to our terminology, and alignment with the reporting processes, HFHI uses the term “Home Preservation” to categorize any exterior work that includes painting, patching, minor repair, landscaping and replacement of exterior building materials for maintaining good or sound condition

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Why do repairs?

1. Increase the # of families living in safe, decent, affordable housing.

2. Increase volunteer opportunities for current volunteers

3. Expand base of volunteers by providing a different type of activity

4. Keep current sponsors engaged.

5. Increase # of new sponsors.

6. As part of Neighborhood Revitalization

7. Helps your Affiliate stay in compliance.

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Getting Started: Basic Principles for Repairs

• Follows same model that all Habitat services follow. • Not a parallel or separate service.

• We serve individuals with: – A demonstrated need

– Ability to pay

– Willingness to partner

• Areas of adjustment: – Family Selection

– Sweat Equity

– Costing /Admin.

– Payment/Financing

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Getting Started: Practical Tips

• Go slowly. Take on less than you think you can handle.

• Use HFH Partner Families. You already have a personal and financial relationship with them.

• Get referrals. City, churches, neighborhood associations, other social service agencies, etc. (this is why NR is a perfect fit with Home Preservation).

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Set program parameters

Decide whether your program will

• Work on houses than need foundation repair?

• Cross the threshold and do interior repairs?

• Have cost limitations on the projects?

• Do major and minor repairs on the exterior?

• Work on homes that are more than two-stories?

• Put volunteers on roofs?

• Limit ourselves to painting and paint related repairs?

• Do landscaping?

• Do yard clean-up?

• Do concrete work?

• Work on pre-1978 homes?

• Have geographic restrictions?

• Work on mobile/prefabricated homes?

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Set program parameters

A Program Scope of Work allows you to:

• Plan - both financially and programmatically.

• Communicate - with staff, the Board, volunteers, homeowners, donors, and referring organizations.

• Know - that what you do, you can do well. Keeps you from getting in over your head.

• Be - proactive instead of reactive!

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Homeowner Selection Criteria

Homeowner Selection is key to successful Home Preservation Project - Just like with home sales! Need

Ability to Pay

Willingness to Partner

Affiliates must have policies and procedures and apply them consistently.

How does Homeowner Selection differ for repairs?

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Homeowner Selection Criteria

Need

Home must be owner-occupied

Financial Need – may serve lower AMI than home sales

- but still must have ability to pay

Property Condition – Inspection

Challenges of homeowner in performing repairs

- e.g., age or disability

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Homeowner Selection Criteria

Ability to Pay Consider overall Debt-to-Income Ratio: this repayment, plus other recurring monthly debt no more than 43% of gross income.

May consider housing cost ratio (30% of gross income for all housing costs).

Review credit history – consider a full report, at least find out if they pay housing expenses on time (home mortgage, utilities).

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Homeowner Selection Criteria

Willingness to Partner

We want to create partners, ambassadors, volunteers and donors (and willingly pay back the price for the work).

Will you require any education courses?

Any other program requirements (i.e. paying off certain debts)?

What sweat equity requirement is appropriate for the work?

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Sweat Equity

• Sweat equity is a core tenet of Habitat’s ministry and is Habitat’s most valuable tool in building the partnership among families, affiliate staff and volunteers.

• For Repairs, the number of sweat-equity hours is based on the scope of the project, with a minimum of eight hours.

• A portion of hours should be completed before the work begins on the home.

• All present, physically capable household members must take an active role in the work.

• Use creative sweat equity ideas for older adults and folks with physical challenges.

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As we move forward in this work, and I think this has been one of the secrets of success of Habitat for Humanity, every person who receives a home through this ministry is recruited to become a part of passing it on to others… Now this is revolutionary. We teach people that their house payment is a religious act.

~Millard Fuller, 1983

Why we charge for Repair Products

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Why we charge for our Construction Products

Partnering with families is foundational to our work and our ministry. Financial contributions give families a sense of pride in what they accomplished and it gives them a truer sense of ownership, whether it be of the house or of the improvement that’s being made to the house. ~Larry Gluth Senior Vice President of United States and Canada

Why we charge for Repair Products

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Why we charge for our Construction Products

For our ministry to be sustainable and indeed to expand, we have to stick with the principle that says we offer a hand up, not a hand out. That's not always the easiest way to execute our programs, but payment for repair products is critical to our long-term viability and the mission to serve even more families in need of a safe and affordable home to live. ~Larry Gluth Senior Vice President of United States and Canada

Why we charge for Repair Products

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Why we charge for Repair Products

Just like new construction

1. It is our very identity. Who we are as Habitat for Humanity.

2. It creates dignity and success for Habitat homeowners.

3. It provides sustainability for the affiliate and for the growth of Habitat programs through the revolving Fund for Humanity.

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Determining Cost of Repair Products

Project costs should include: • Cost of purchased building materials, professional services,

and contracted labor

• Value of donated building materials and professional services

• Direct or allocated labor cost for the affiliate in supervision and coordination, including transportation, material storage, and insurance

• Loan origination, closing, and servicing costs

• Permits

• Indirect costs including staff time and office overhead

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Determining Price for Repair Products

Affiliate must develop policy. Suggested models include:

• 100% of cost – no subsidy

• Sliding Scale – based on income

• Fixed Price

• Fixed Percentage

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Determining Payment Structure for Repair Products

Two Basic Options:

• Payment in full upon completion (with or without some deposit)

• Finance all or part of the payment

- Unsecured, or

- Secured by mortgage lien on property

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Legal Issues: State Regulations

• Home improvement work may require different or additional license, insurance, bond vs. new home construction.

• State regulations may require specific disclosures (e.g., process for filing a complaint, license/registration info).

• State laws may provide increased protections for vulnerable populations (seniors, disabled) or disaster response areas.

• UDAP: Know your state’s unfair and deceptive acts and practices.

“If you experience a problem you cannot resolve with your contractor, file a complaint with the Construction Contractors Board or contact the Attorney General’s Consumer Hotline at 1-877-877-9392 from 8:30 a.m. to 4:30 p.m.,

or complete an online Consumer Complaint Form anytime.” – OR DoJ 23

Legal Issues: Homeowner Agreement

Clarifies the understandings and expectations of the homeowner and affiliate regarding their respective obligations

• scope of work; consider excluding work not included (e.g., mold evaluation/remediation, foundation work)

• Payment, regardless of amount or method • Consumer protections (cooling off period, no blanks when signed) • Other obligations (e.g., access to premises, use of volunteers) • Check prohibited provisions under state law (e.g., mandatory arbitration,

waiver of jury trial, limitations of liability)

Template is starting point: make sure it is modified for any required or prohibited provisions, or formatting requirements under local law. Use local legal counsel!

Include certificate of completion – evidence of homeowner’s acceptance of work as completed

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Legal Issues: Federal Regulations

Credit means the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefor.

Consumer credit means credit extended to a natural person primarily for personal, family, or household purposes.

Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit….

**If an affiliate finances the payment of a repair product by deferring payments by the homeowner, then federal consumer protections apply – ECOA, TILA, UDAAP, FTC, FCRA

**If the payment is secured with a mortgage lien on the homeowner’s home, then RESPA also applies

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Legal Issues: Federal Regulations

If financing the payment, affiliate must: • Provide notice of status of application with 30 days of

submission of application

• Acceptance, Denial or Incomplete Application

• Provide notice of action taken within 30 days after receipt of the completed application

• Acceptance or Denial

• Note, notice of any denial required within 30 days after any decision, even if application is incomplete.

• Provide initial Truth in Lending disclosure notice once application is accepted

See Payment for Repairs Checklist for more details

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Payment Models

• Distinguish payment from costing and pricing – see program guidelines for recommendations

• Basically, two options: – Prepayment/Payment upon Completion, or

– Finance the payment after completion • May have some deposit or “down payment” but watch

for State law restrictions

• Early payment incentive (optional)

• Secured or unsecured obligation (affiliate’s choice)

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Payment Models: Payment Upon Completion

• “Prepayment” or deposit held by affiliate until earned, per the Homeowner Agreement

– Hold funds in escrow

– Be prepared to return if work is interrupted or family does not complete eligibility conditions

• Local laws may limit how much can be collected in advance

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Payment Models: Finance the Payment

Promissory note is a signed document that establishes an

enforceable promise to pay.

Contains lender and borrower info, principal amount and repayment information.

Original required for enforcement.

Must confirm Ability to Pay.

Must provide Truth in Lending Disclosure – a “consumer” debt.

Must comply with all other applicable consumer lending protections (e.g., no discrimination, provide notices of action taken under ECOA).

Include FTC “Holder Rule” Notice (See Section 10 of template).

Check for particular state requirements.

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Payment Models: Securing the Payment Obligation

• Loan may be unsecured (no collateral) or secured by the home through a mortgage.

• The mortgage grants the affiliate the right to take the property if the loan is not paid or upon other, specified triggering events.

• Mortgage also provides ongoing obligations of homeowner to protect the home.

• Must provide same initial and closing disclosures as purchase money loans.

• Must also include TILA Right of Rescission (2 copies, to each owner of record).

• Beware “due on sale” mortgages.

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While we’re talking about securing payment…

What is a “lien” anyway? A lien is an official claim or charge against a person’s property for payment of a

debt or an amount owed for services rendered.

A mortgage (including any deed of trust or deed to secure debt, depending on the jurisdiction) is a type of lien that is agreed upon by the property owner and filed against real property for the purpose of securing payment of a debt. It provides for ongoing obligations to maintain the property and remedies upon nonpayment, including foreclosure.

Other types of liens may be imposed unilaterally and involuntarily when a debt is owed, including mechanic’s liens (to secure payment for work or materials provided by a workman, contractor or supplier), judgment liens (to secure payment of a judgment obtained from a court proceeding), homeowner’s association liens (to secure payment of HOA assessments), and tax liens (for unpaid taxes).

Liens usually must be released in order to convey marketable title to real property, and are generally enforced (i.e., paid) according to the order in which they are recorded.

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What About Protecting the Subsidy?

If pricing model subsidizes the repair, how can you protect that subsidy?

• Consider setting the principal payment obligation at full cost, but forgiven over a determined period of time unless the home is sold or otherwise transferred during that period (subject to available net proceeds).

• If the homeowner sells the property within a specified period of time after completion of the repair, the full price would be payable from the sales proceeds.

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Other Enforcement Options

• Automated Clearinghouse (ACH) payments

• Mechanics/Materialmens’ liens

• Suit on note to obtain a judgment

– Can be reduced to lien against property

– Allows for garnishment, possible payment upon sale of property

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Resources

• Homeowner Selection AOM

• Homeowner Support AOM

• Home Preservation Handbook

• Pricing and Payment for Repairs Collection

• MPAR University

Affiliate Support Center: ussupportcenter@habitat.org or 1-877-434-4435

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