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Weird Deal: Split Bundle of Rights/Leasehold? Market Value?

Discussion in 'Urgent - Help Needed' started by residentialguy, Feb 6, 2012.

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  1. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota
    I'd like your input on a purchase I'm doing an appraisal for. I have a buyer going through a special program where they can buy a house below market value because they are below median Mpls income. Here's their website: www.CLCLT.com
    The Community Land Trust (CLT) retains ownership of the land, while the homeowner owns the building. The CLT also use a shared equity model that gives the land trust a share in the equity
    when homes are sold.


    Upon resale, the homeowners receive 25% of how much the house has increased in value, plus any equity they’ve earned through down payment and principal reductions on mortgage payments. This limits the amount a CLCLT homeowner will receive when they sell their home as well as the amount that can be received from a home equity loan. CLCLT, per the terms of the Ground Lease or Housing Subsidy Covenant, is required to approve all mortgages.

    Here's an example of how the resale terms work

    1. Buyer purchases home through the City of Lakes Community Land Trust (CLCLT). It is worth $150,000 (determined by an appraisal) , and buyer pays a net price of $120,000 (assumes subsidies/investments of $30,000 through the CLCLT and/or other means).
    2. 7 years later, buyer decides to sell the home to either the CLCLT or another CLT income-qualified buyer.
    3. Let’s now assume that the home’s new value (market appraisal conducted by independent third party appraiser) is $210,000.
    4. The home’s value increased by $60,000 ($210,000 - $150,000). The buyer's share of the increased value is 25% or $15,000 ($60,000 x .25)
    5. The CLCLT or another income-qualified CLT home buyer may purchase the home for what was originally paid ($120,000) PLUS the share of the increased value of the home ($15,000) - for a maximum sales price of $135,000 ($120,000 + $15,000)
    Benefits to the buyer:
    They were able to purchase a home they other wise would not have been able to responsibly purchase at the time. They were able to receive many of the benefits of homeownership including mortgage interest deductions and able earn equity ($15,000 + down-payment made on the home purchase + principal paid)

    Benefits to future buyers:
    Another family or individual will be able to purchase this home for $135,000, even though it is valued at $210,000. (the initial $30,000 CLCLT investment has grown to $65,000 in only 7 years)




    OK...Now, appraising this for the lender. Any thoughts? (besides run away)
    Would you:
    • Appraise this as leasehold with full market value and explain that it can never sell for MV, but the MV is present, but kept in trust?
    • Appraise this as fee simple, since homeowner is not renting, per say?
    • Appraise it for the lower contract, stating that the actual MV without the contract with CLCLT would be 25% higher?
    • Appraise it as "other" and explain?
    I'm leaning to the first or last option.

    I'm going to be contacting CLCLT. Any what questions can you think of to ask? I don't want to miss anything.




    Looks like I picked the wrong day to stop sniffing glue...
     
    Last edited: Feb 6, 2012
  2. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota
    Ah...one more tidbit. There is a $15/Mo lease fee.
     
  3. J Grant

    J Grant Elite Member

    191
    Dec 9, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    beyond my feeble brain this morning...but there was a similar post less than a week ago about a housing contract price control home sale, and some good points were raised in the thread about whether the restrictions on sale survive foreclosure or not, which was spelled out in the Fannie Mae selling guide, how to treat the MV if the restriction survives foreclosure, or not, so you might want to check the deed or other source for information on that, hope you can find the receent thread.
     
  4. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota
  5. J Grant

    J Grant Elite Member

    191
    Dec 9, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    Sounds like a wise decision! Let someone else deal with the nightmare!
     
  6. Ca Ar Independent

    Ca Ar Independent Senior Member

    2
    Sep 24, 2011
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    What happens if the home declines in value after purchase? The above scenario assumes an increase but who takes the downside?
     
  7. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota
    Both, I believe. Resale is based upon MV.

    If it goes into foreclosure, the CLT buys it out.
     
  8. vanguard

    vanguard Member

    0
    Oct 18, 2004
    Professional Status:
    Retired Appraiser
    State:
    Minnesota
  9. residentialguy

    residentialguy Elite Member

    116
    Mar 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Minnesota
    Yeah, that thread was condo and OP didn't say that it was a land trust, but it sounds like what it probably is.
     
  10. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    248
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Expect in the next 40 years to see most "fee simple" properties to become complex financial instruments... luckily i will have returned to room temperature by then surely.
     
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