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  #1  
Old 02-06-2012, 08:09 AM
residentialguy's Avatar
residentialguy residentialguy is offline
 
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Exclamation Weird Deal: Split Bundle of Rights/Leasehold? Market Value?

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...
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Last edited by residentialguy : 02-06-2012 at 08:39 AM.
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  #2  
Old 02-06-2012, 08:55 AM
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Ah...one more tidbit. There is a $15/Mo lease fee.
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  #3  
Old 02-06-2012, 08:59 AM
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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  
Old 02-06-2012, 09:25 AM
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I dug deeper into land trusts and ended up declining the assignment out of lack of competency. (Fannie does not allow an appraiser to become compent on the job after accepting the assignment) - not to mention, the fee did not reflect the additional work necessary to complete this assignment.

For any appraiser dealing with Community Land Trust, here are some good links:

http://www.ihtmv.org/PDF/FNMAGuidelinesonValuation.pdf
http://www.adkhousing.org/documents/clt_appraisals.pdf
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  #5  
Old 02-06-2012, 09:30 AM
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Sounds like a wise decision! Let someone else deal with the nightmare!
  #6  
Old 02-06-2012, 09:33 AM
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Ca Ar Independent Ca Ar Independent is online now
 
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What happens if the home declines in value after purchase? The above scenario assumes an increase but who takes the downside?
  #7  
Old 02-06-2012, 09:44 AM
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Both, I believe. Resale is based upon MV.

If it goes into foreclosure, the CLT buys it out.
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  #8  
Old 02-06-2012, 10:14 AM
vanguard vanguard is offline
 
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Since you rejected the request it is probably not an issue any more.

Here is a similar thread:

http://appraisersforum.com/showthread.php?t=185264
  #9  
Old 02-06-2012, 10:23 AM
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Yeah, that thread was condo and OP didn't say that it was a land trust, but it sounds like what it probably is.
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  #10  
Old 02-06-2012, 03:38 PM
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Terrel L. Shields Terrel L. Shields is online now
 
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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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