CPMS
Agenda Item D.2
DISCUSSION/ACTION ITEM
Meeting Date: July 18, 2023
TO: Mayor and Councilmembers
FROM: Peter T. Imhof, Planning and Environmental Review Director CONTACT: Lucy Graham, Senior Housing Analyst
SUBJECT: Affordable Housing Policies & Procedures Manual RECOMMENDATION:
Provide comments and direction on the initial draft of the Affordable Housing Policies & Procedures Manual.
BACKGROUND:
In 2020, the Council directed the PER Department, as part of its Annual Work Program, to develop a guiding document to implement the City’s affordable housing goals and programs and to ensure equitable, consistent, and transparent application . In addition, the Council authorized the creation of a Senior Housing Analyst position to develop and oversee such efforts. Since that time, the Analyst position was filled and PER staff has prepared a draft Affordable Housing Policies & Procedures Manual for consideration by the Council provided in Attachment 1.
The purpose of this report is to present the Affordable Housing Policies & Procedures Manual (Manual), introduce common affordable housing terminology, and summarize the different sections of the Manual including how Below Marke t Rate (BMR) housing is priced, and how the City will administer BMR housing as described in the Manual.
DISCUSSION:
Affordable housing units in the City are created via the Inclusionary Zoning program, Density Bonus Law, City financial subsidy, or othe r mechanisms. City staff are responsible for imposing housing -related conditions, drafting long -term affordability covenants, and ensuring compliance with City program requirements for those units .
Where applicable city, state, or federal regulations are silent on certain details that are necessary in practice to administer the price-restricted units for the full term of affordability, it is important that the City have policies and procedures in place. The draft Affordable Housing Policies & Procedures Manual lays out these items for consideration and discussion by the Council. Staff recommends the City Council review the draft Manual 1 Meeting Date: July 18, 2023
and provide comments and direction. Staff will incorporate Council feedback and bri ng the revised Manual back for adoption by resolution at a future meeting date.
Terminology for Housing Units
Below is a list of definitions for terms that are commonly used in the Affordable Housing sector and that are found throughout the Manual:
Area Median Income – The annual publication of area median income (AMI) and income limits by the California Department of Housing and Community Development ( HCD) serves as the definitive source of income -category information in the City . HCD bases AMI on the e stimate of median family income for a four -person household published by the U.S. Department of Housing and Urban Development (HUD) . The current AMI for Santa Barbara County as of June 6, 2023, is $107,300.
Below Market Rate Units - The term “affordable” can be defined differently depending on the context and usage. Staff is proposing use of the general term “below-market-rate units” (“BMR Units”) for price -restricted units in the City, to reduce ambiguity and refer specifically to such units created and regulated by the City’s housing programs.
Term of Affordability - “Term of Affordability” refers to the minimum number of years during which the affordability covenant recorded on title will apply. Currently, for projects subject to t he Inclusionary Housing Ordinance, Title 17 (the City’s zoning code) requires “…generally 45 to 55 years but not less than 30 years.” Staff is proposing 55 years as the minimum term of affordability for all BMR Units . This duration aligns with affordabilit y requirements for Low -Income Housing Tax Credit projects and Density Bonus Law projects in California and increases transparency and predictability in the entitlement process.
Affordability Standard - The relationship between housing costs and household income is often used as a benchmark of housing affordability. Mortgage lenders sometimes use 28-35% of income as an acceptable limit for monthly payments made toward total housing costs, or an “affordability standard.” Staff is proposing an affordability standard of 30% for BMR Rental Units and 35 % for BMR Ownership Units, in recognition of the increased stability, predictable payments, and long-term benefits of homeownership.
Target Income - All income categories used to determine eligibility for BMR Uni ts have an upper limit, but it is not always appropriate to use the upper limit of the income range in the formula to calculate the City’s maximum sales prices or maximum rental rates. This is because the income of households applying to live in BMR Units may not be at or near the upper end of the income range, so a point in the income range is selected as the “target income.” A target income is used as a factor in the calculation of maximum prices for BMR Ownership and maximum rents for BMR Rental Units. This method provides a predictable method for potential purchasers or renters, as well as for developers who must incorporate the short-term costs of development as well as the long-term revenues in project budgets to ensure the long-term viability of the overall housing development. 2 Meeting Date: July 18, 2023
Bedroom Adjustment Factor - Similar to housing units in the open market, BMR Units can be priced according to the size of the unit (i.e., number of bedrooms) . Staff is proposing to use a multiplier in the calculation of maximum sales prices and maximum rent amounts for BMR Ownership Units and Rental Units, respectively. The recommended “bedroom adjustment factor” is 0.70 for studio, 0.80 for a one-bedroom unit, 0.90 for a two-bedroom unit, 1.00 for a three-bedroom unit, and 1.08 for a four-bedroom unit.
Utility Allowance - For BMR Rental Units, the maximum monthly rent amounts set by the City assume that landlords pay the utilities for the unit. If the tenant is to pay for utilities (including gas, electricity, water, trash but not phone, internet, or cable), then staff recommends that the maximum monthly payment by the tenant be reduced by the applicable amount from the utility schedule published annually by the Housing Authority of the County of Santa Barbara (HASBARCO), which is reviewed and approved by HUD.
Pricing BMR Units
Staff recommends that the City calculate and publish (once annually, following publication of the AMI) a matrix of the maximum rent amounts for BMR Rental Units and a matrix of the maximum sale price s for BMR Ownership Units , by income level and number of bedrooms. This practice increases predictability for both developers and applicants, and it eliminates the need to negotiate the prices on a project-by-project basis.
Maximum Rent Amount
The maximum rent amount that could be charged for a BMR Rental Unit is calculated using a formula. The rent limits are the product of the current AMI, the target income percentage for the income cate gory, the bedroom adjustment factor for the size of the unit, and an affordability standard of 30 %, which is then divided by 12 months, and the applicable utility allowance, if any, is subtracted for utilities paid by the tenant household.
A sample matrix of maximum rent amounts calculated with this methodology is shown in Attachment 2.
Maximum Sale Price
The maximum sale prices for BMR Ownership Units are set using a combination of factors. These pricing factors include AMI, the target income percentage for the income category, the bedroom adjustment factor for the size of the unit, an affordability standard of 35%, down payment (5% for Extremely Low and Very Low income and 10% for Low, Moderate, and Above Moderate income up t o 200% AMI), property taxes (1. 25% of purchase price), primary mortgage insurance (0.28% of purchase price), hazard insurance (0.40% of purchase price), mortgage interest rates (the 24 -month average market yield on U.S. Treasury Securities at 10 -Year Constant Maturity, plus 200 basis points), and an average of a local sampling of HOA fees (currently $420).
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A sample calculation for the Low-income category is shown in Attachment 3. The resulting maximum sale prices using this calculation methodology are shown in a sample matrix in Attachment 3.
Administration of BMR Units
Household Criteria
Another important function of the Manual is to specify the eligibility criteria for households applying for BMR Units. While the specific eligibility requirements will be outlined in the application packet for future projects, in compliance with the conditions of approval and affordability covenant recorded on the property, the Manual outlines basic requirements for applicant households to understand and for housing staff to apply. To be eligible for a BMR Unit, a household must have been formed at least six months prior to applying and must live in the BMR Unit as their primary residence a minimum of 10 months per calendar year. The sources of income inclusions and exclusions will be used by staff in calculation of a household’s annual income, which must not exceed the income limit, as published annually by HCD, for the applicable income category for the BMR Unit. Households must not currently or within the past three years own residential real estate in the United States.
The Manual also sets occupancy requirements (at least one person per bedroom) , prohibits all-student households, and excludes developers and City employees or their immediate family from applying f or BMR Units except when a random public lottery is used.
Financial Criteria
In addition to household criteria, there are certain financial provisions in the Manual for BMR Ownership Units. The maximum ratio of housing expenses to gross income is 40%, and the maximum t otal debt-to-income ratio is 50%. A minimum credit score of 620 is required, unless a waiver is requested and approved for good cause such as medical expenses. A minimum down payment of 3% is required, and no more than a 40% down payment is allowed. Gifted funds may be used for down payment and closing costs but are limited to 20% of the purchase price. Co-signors are allowed, if needed.
Local Housing Preference
In the interest of community sustainability and equity and to the extent allowed by law, a local housing preference for BMR Units can be utilized to ensure that units created under the City’s housing programs help alleviate any jobs-housing imbalance in the city. Such a policy would give an advantage, during the process of selecting tenants and purchasers of BMR Units, to local employees and residents to attain housing closer to the places where they already live, work, and contribute. Staff is recommending that the preference be given to households with at least one member who works onsite a minimum of 20 hours per week at a location within the city limits of Goleta or households currently living on the South Coast of Santa Barbara County , defined here as b etween the county line near Carpinteria and the tunnel at Gaviota.
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The local housing preference would be applied during the public lottery process for new BMR Units and to subsequent rentals of BMR Rental Units , except where a waiver is requested in writi ng and approved by the City for good cause , such as special -needs housing referrals. During the public lottery process for new BMR Units, a random drawing would be held first for applicants who meet any applicable preference-category criteria, followed by a random drawing for the remaining applicants. In recognition of the significant administrative costs (e.g., staff time, marketing costs, lost rental revenue) as well as the relatively low vacancy/turnover rate for apartments in Goleta , staff is recommending that a lottery not be used to fill each subsequent rental of a BMR Rental Unit. Instead, in compliance with the project’s City -approved Tenant Selection Plan , a property owner or manager w ould first allow a seven -day period during which only applications from households meeting the local housing preference criteria would be considered. After the seven-day period, if the unit were still available, then applications from the general population co uld be accepted and reviewed to find a qualifying household.
Renting a BMR Unit
The Manual sets rules and restrictions for developers and occupants of BMR Rental Units, which are to be understood by households prior to applying and to be incorporated by staff into the affordability covenant for the developer. These requirements include:
A minimum one -year lease must be offered to tenants, after which the tenancy may be month-to-month.
All adults in the household must sign the le ase and the income of all adults must be included in household income calculation.
Prior to move -in, a household’s income is calculated to verify that it does not exceed the limit for the applicable income category and compliance monitoring and recertification of income will be done annually thereafter. Increases in income are not grounds for eviction but may result in increased monthly rent over time. The occupant household may not rent or sublet the BMR Rental Unit.
Owning a BMR Unit
The Manual sets rules and restrictions for owners of BMR Ownership Units, which are to be understood by households prior to applying and to be incorporated by staff into the affordability covenant for the purchaser. These requirements include:
All adults in the household must be on title.
The owner(s) cannot rent out the unit, in whole or in part. During the term of affordability, the owner(s) can sell to any household that meets the income/household requirements.
The maximum r e-sale price is the purchase price paid by the owner(s) plus the percentage increase in AMI since the date of purchase. In addition, an increase in the maximum sale price can be requested for certain permitted substantial improvements made to the unit, up to 10% of the maximum sale price calculated by staff.
The owner(s) can refinance their loan, provided City approval is granted, the owner is in compliance with City regulations, the new loan terms are more favorable, and 5 Meeting Date: July 18, 2023
the loan-to-value ratio will not exceed 80% of the maximum sale price as calculated by staff. Negative amortization loans or “reverse mortgages” are not permitted. During a refinance, cash can only be taken out for capital improvements, medical expenses, or legal settlement(s).
Council Direction
Staff recommends that the City Council provide comments and policy direction on the items discussed above or any other issues pertaining to the Manual, after which the document will be revised and scheduled for review and adoption at a later date.
GOLETA STRATEGIC PLAN:
Adoption of an Affordable Housing Policies & Procedures Manual is consistent with Goleta’s 2023-2025 Strategic Plan.
City-Wide Strategy #4: Support Economic Vitality
Strategic Goal : Support organizations, programs, and policies that facilitate affordable housing for the Goleta workforce.
Objectives
Provide assistance, financial or otherwise, where possible, and regulatory changes to support affordable housing by for-profit and non- profit developers, and homeowners
Implement inclusionary housing policies for rental hou sing that meet requirements under state law
Develop tools, such as local preference ordinances or loans to enable additional affordable housing or to allow new housing to have a smaller impact on neighborhoods
Encourage and/or provide incentives for Goleta employers to provide new housing for their employees near the employers’ workplace Support organizations, programs, and policies that facilitate affordable housing for members of the Goleta workforce, such as first responders, teachers, and nurses
FISCAL IMPACTS:
There is no fiscal impact associated with this item.
ALTERNATIVES:
Council may suggest alternatives to the draft Manual as part of this discussion.
6 Meeting Date: July 18, 2023
Reviewed By: Legal Review By: Approved By:
___________________ ___________________ _________________ Kristine Schmidt Megan Garibaldi Robert Nisbet
Assistant City Manager City Attorney City Manager
ATTACHMENTS:
1. Draft Affordable Housing Policies & Procedures Manual
2. Sample Maximum Rent Amount Matrix
3. Sample Maximum Sale Price Calculation for Low-Income BMR Ownership Units
4. Sample Maximum Sale Price Matrix
7 Attachment 1
Draft Affordable Housing Policies & Procedures Manual
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City of Goleta
INITIAL DRAFT
Affordable Housing
Policies & Procedures Manual
Adopted by City Council
Resolution No. _______
Month XX, XXXX
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Table of Contents
I. INTRODUCTION ..................................................................................................................................... 1 A. History of Affordable Housing in Goleta ........................................................................................... 1 B. How Do I Sign up for Affordable Housing in Goleta? ........................................................................ 1 C. What is the Purpose of This Manual? ............................................................................................... 2 D. How Does This Manual Relate to Other Documents? ...................................................................... 2 E. What if the Requirements in These Documents Conflict? ................................................................ 3 F. What are the Consequences of Not Following Policies and Procedures in This Manual?................ 3 G. Where Can I Find the Definitions of Some of the Terms Used in This Manual? ............................... 3 II. HOUSING PROGRAMS ........................................................................................................................... 4 A. Affordable Housing Programs ........................................................................................................... 4 B. Funding Sources for Affordable Housing in the City ......................................................................... 5 III. DEVELOPER REQUIREMENTS ............................................................................................................ 7 A. Project Approval Process .................................................................................................................. 7 B. Requirements for BMR Units ............................................................................................................ 8 C. Pricing BMR Units.............................................................................................................................. 8 D. Administration of BMR Units .......................................................................................................... 12 E. Local Preference Requirement ....................................................................................................... 13 F. Marketing New BMR Units ............................................................................................................. 14 G. Refinancing or Subordination of City Financing .............................................................................. 16 IV. AFFORDABLE HOUSING LOTTERY ................................................................................................... 16 A. Lottery Process ................................................................................................................................ 16 B. Income Certification and Unit Selection ......................................................................................... 18 V. APPLICANT ELIGIBILITY & REQUIREMENTS ......................................................................................... 18 A. Who Can Apply for Affordable Housing in Goleta? ........................................................................ 18 B. Is There a Limitation to Information I Have to Provide to the City? ............................................... 20 C. Will my Information Be Shared with Outside Agencies? ................................................................ 20 VI. DETERMINING HOUSEHOLD INCOME AND ASSETS ........................................................................ 21 A. Income Sources ............................................................................................................................... 21 B. Calculating Baseline Household Income ......................................................................................... 22 C. Treatment of Assets ........................................................................................................................ 22 D. Income Qualification Process .......................................................................................................... 23 VII. OWNERSHIP PROGRAM .................................................................................................................. 24 10 65266.00423\41139945.4
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A. Applying for a BMR Ownership Unit ............................................................................................... 24 B. Qualifying to Purchase a BMR Ownership Unit .............................................................................. 25 C. Requirements of Owning a BMR Ownership Unit .......................................................................... 27 D. Compliance Monitoring .................................................................................................................. 29 E. Refinancing a BMR Ownership Unit ................................................................................................ 30 F. Reselling a BMR Ownership Unit .................................................................................................... 31 VIII. RENTAL PROGRAM .......................................................................................................................... 33 A. Applying for a BMR Rental Unit ...................................................................................................... 33 B. Application Process for BMR Rental Units ...................................................................................... 33 C. Tenant Selection Plan ..................................................................................................................... 34 D. Appeal Process for BMR Rental Units ............................................................................................. 35 E. Permissible Reasons for Project Owners to Deny BMR Rental Applicants ..................................... 35 F. Restrictions on BMR Rental Units and Renters ............................................................................... 36 G. Lease Requirements for BMR Rental Units ..................................................................................... 37 H. Annual Monitoring and Re-certification of BMR Rental Units ........................................................ 39 I. Eviction or Non-renewal of Lease for BMR Rental Units ................................................................ 40 IX. CITY NOTICES AND WAIVERS .......................................................................................................... 40 A. Official Notices ................................................................................................................................ 40 B. Requests for Waiver ........................................................................................................................ 41 C. Annual Updates to Income Limits ................................................................................................... 41 D. Annual Updates to Rent Limits ....................................................................................................... 41 E. Increases in Contracted Rent Amounts .......................................................................................... 41 F. Changes in Property Management for Rental Units ....................................................................... 41 G. Resale or Refinance of Ownership Units......................................................................................... 41 X. DEFINITIONS ........................................................................................... Error! Bookmark not defined.
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1 I. INTRODUCTION
Housing that is affordable and attainable benefits individuals, families, and children . The stability of an affordable mortgage or rent can improve health outcomes, childhood development, and school performance. Affordable housing improves the wider community as well : a workforce that lives locally can reduce traffic congestion , minimize air pollution, and promote investment and revenue in the surrounding economy. The State of California and its cities have begun to recognize that a lack of housing affordability is counterproductive to a healthy, sustainable, equitable community.
According to California’s Department of Housing and Community Development (HCD), in order for the private market to adequately address the housing needs and demand of Californians, local governments must adopt plans and regulatory systems that provide opportunities for—and do not unduly constrain— housing development. As a result, housing policy in California rests largely on the effective implementation of local general plans and, in particular, local housing elements. This Manual spells out the way City staff is to operate the Affordable Housing Programs that implement the City’s housing goals and programs found in the Housing Element of the General Plan and in Title 17 of the Goleta Municipal Code (the “Zoning Ordinance”).
A. History of Affordable Housing in Goleta
In 2002, Goleta incorporated as a new city. Prior to the City’s incorporation, however, the area was already a thriving community, with housing that had been permitted by the County, some of which included deed- restricted units under various housing programs. In 1981, the County enacted its first inclusionary housing program, which required a percentage of residential units in a project to be reserved for certain income categories for a period of time (usually 30 years) to provide housing opportunities for all income levels of workers and households in the community. Since the 1990s, t he County provided local funds and redevelopment agency funds to assist development of housing projects with affordable units in the Goleta area, which are monitored by County staff through the expiration of those affordability restrictions. The County has also provided grant funding from the HOME Investment Partnerships Program, which has the primary goal of providing decent, affordable housing for lower-income households, in exchange for long- term affordability covenants.
Following incorporation, Goleta assumed responsibility for many of the functions and services previously handled by the County, including the creation of affordable housing. See Section II for a summary of the City’s active housing programs.
B. How Do I Sign up for Affordable Housing in Goleta?
While the City does not own or operate any affordable housing, City Housing staff maintains an Affordable Housing Interest List. The Interest List is used to notify potential applicant s of upcoming affordable housing units for sale or rent available through a public lottery process.
In addition, there are several local agencies wh ich provide affordable housing and related services. For example, t he Housing Authority of the County of San ta Barbara ( HASBARCO1) develops and operates housing within the unincorporated county and all cities within the county, except the City of Santa Barbara. The Housing Authority of the City of Santa Barbara operates within Santa Barbara city limits and
1 www.hasbarco.org
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2 leads the “Housing Santa Barbara ” advocacy group, with such efforts as organization of the annual Housing Santa Barbara Day event and compilation of the Santa Barbara Affordable Housing Resource Guide,2 available in both English and Spanish.
C. What is the Purpose of This Manual?
This Affordable Housing Policies and Procedures Manual (Manual) formalizes the rules and processes that staff are to apply when implementing the City’s affordable housing -related programs . Applicable to projects with residential units in the City, these regulations include items such as minimum and maximum criteria, prohibitions, and waivers, which have been carefully considered to ensure that the City’s affordable housing program is operated fairly and transparently.
While the provisions of this Manual apply to affordable housing projects and applicants, staff will review them periodically to assess the need for modifications . In some cases, it is possible to submit a written request for a waiver of one or more of the regulations herein. Housing is central to a household’s ability to function and thrive in a community, so i t is important that the City’s affordable housing program s do not create or contribute to housing problems (e.g., renting an affordable housing unit sized inappropriately for the household) or housing instability (e.g., evicting a tenant household immediately if their income increases minimally). In certain circumstances, where strict application of the policies and procedures in this Manual would cause undue hardship or unintentionally exclude an otherwise qualifying household from participating in the City’s programs , a request for a waiver may be submitted. Refer to Section IX.B – Requests for Waiver for more information.
D. How Does This Manual Relate to Other Documents?
This Manual increases transparency to applicants, decision-makers, and the public by providing clarity and guidance on how staff will implement affordable housing projects and programs. Housing projects in the City are governed by various layers of regulation: federal statute, state law, the City’s General Plan and Housing Element, the Zoning Ordinance, this Manual, permit conditions for an approved project, and other legal documents recorded on a property.
Certain federal regulations apply to all states an d, by extension, to cities . In particular, t he federal Fair Housing Act and the Americans with Disabilities Act apply in the City and prohibit discrimination in housing matters.
As a general law city in California, the operation of the City is governed by the California Government Code, which requires that each city adopt a comprehensive, long -term general plan for physical development in the city (or outside its boundaries which bear relation to its planning). The City’s General Plan was adopted in 2006 an d contains nine main components or “elements,” including the Land Use Element, Transportation Element, and Housing Element, among others. The Housing Element establishes housing objectives, policies, and programs; analyzes existing and projected housing needs; and identifies adequate sites for various types of housing for all economic segments of the community.
The City’s Zoning Ordinance, in Title 17 of the Goleta Municipal Code (GMC), implements the General Plan and its elements. Development projects in the City, such as those that include housing units, must comply with the regulations, requirements, and permit processes in the Zoning Ordinance as well as General Plan
2 https://housingsantabarbara.org/housing-resource-guide 13 65266.00423\41139945.4
3 policy. Projects approved with land use or similar permits often contain Conditions of Approval specific to the project to ensure compliance with the General Plan and Title 17, such as a requirement to record a long-term affordability covenant on the property.
This Manual applies to projects during the initial permit application period throug h recordation of the long-term affordability documents. Once an affordability document (such as an “Agreement to Provide Affordable Housing” or “Regulatory Agreement”) is recorded on a property, the specific provisions of that legal document apply and supersede the more general provisions of this Manual.
Updates and a mendments to this Manual will be made periodically , as necessary . Major updates are reviewed and approved by the City Council, whereas minor administrative changes are approved by the Planning and Environmental Review Director . Such amendments only apply to past projects where the recorded affordability documents are silent or where the amended Manual’s policies and procedures do not conflict with the recorded documents.
E. What if the Requirements in These Documents Conflict? In most cases, the provisions of multiple documents can apply simultaneously to a given project. If the requirements of governing documents differ but do not necessarily conflict with each other , then the more restrictive requirements would apply. If there exists a conflict between applicable documents, the document that is most specific to the project governs. (For example, the final Conditions of Approval that were approved on the project or the affordability covenant that was recorded on the property would apply, rather than the more general Policies and Procedures Manual that was in place at the time the project was approved or that was later amended.) Contact City staff for assistance with any questions on a particular project or circumstance not covered by this Manual.
F. What are the Consequences of Not Following Policies and Procedures in This Manual? This Manual sets out the policies and procedures for implementation of affordable housing programs by staff and for participation by members of the public. It is important that the provisions of this Manual be applied consistently to ensure that the City’s affordable housing programs are administered fairly.
Providing false or misleading information or withholding relevant information to circumvent proper implementation of this Manual will result in exclusion from participation in the City’s affordable housing programs and/or recovery of damages by the City. The City reserves the right to pursue any remedies available at law or equity.
G. Where Can I Find the Definitions of Some of the Terms Used in This Manual? Many of the terms used in this Manual are defined in the text below . However, as an implementing document of the Housing Element of the General Plan as well as the Zoning Ordinance of the Goleta Municipal Code, the full definitions and further context of some terms may be found in those documents.
Contact City staff with specific questions.
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4 II. HOUSING PROGRAMS
Affordable housing units produced under the City’s various programs are subject to the provisions and standards of this Manual. This Section lists the main sources of affordable housing and affordable housing subsidies in the City as well as information about the long-term monitoring requirements for each program.
A. Affordable Housing Programs
Inclusionary Housing
In 2017, the City revised its Inclusionary Housing policy to include rental housing projects and facilitate an adequate supply of housing for persons from all economic sectors of the community. Consistent with the General Plan, the Inclusionary Housing program (GMC Chapter 17.28, Inclusionary Housing) requires the development of affordable housing when market rate for-sale or rental units are constructed, leveraging limited land resources to promote a sustainable community with an economically diverse work force, thereby reducing both adverse impacts on air quality and energy consumed by commuting . The primary intent of the inclusionary requirement is to achieve the construction of new affordable units onsite , or when that is infeasible, the construction of affordable units off -site, transfer of sufficient buildable land to the City or a City-approved affordable housing specialist, or payment of an in-lieu fee to the City.
Affordable housing units produced under the Inclusionary Housing program are an important source of affordable housing for the City and are monitored for compliance throughout the term of affordability for the units.
State Density Bonus Law
California’s State Density Bonus law was first enacted in 1979 and is codified in California Government Code Section 65915 et seq. Density Bonus law seeks to encourage and incentivize lower-income housing and transit-oriented housing by allowing developers to exceed the normal density restrictions when they meet certain criteria and provide price-restricted housing. Beyond the density bonus itself, there are other allowed incentives which can help make the development of affordable and senior housing economically feasible, such as reduced parking r atios, smaller building setbacks, and lower minimum square footage requirements.
In 2021 and 2022, California expanded the state’s density bonus program provisions. These amendments provide additional incentives for development projects that include affordable housing units deed restricted as affordable for at least 55 years, such as a maximum density bonus of up to 50% (or up to 80% in certain limited circumstances), as well as waiver or reduction of development standards and statutory limits on required parking.
Although this program is state law, the City implements its regulations, executes the associated regulatory agreements, and monitors projects for long-term compliance (GMC Chapter 17.27, Density Bonuses and Other Incentives) . Affordable units under Density Bonus law can apply toward fulfilling the City’s Inclusionary Housing requirements, although one program does not replace the other, and both programs must be complied with.
Projects Approved with a Special Modification
The City’s Zoning Ordinance allows for requests for Special Modifications of the ordinary dimensional requirements for height and lot coverage (GMC Chapter 17.62, Modifications), when the review authority 15 65266.00423\41139945.4
5 can make a “good cause ” finding that the requested modification will provide a significant community benefit. If a Special Modification were approved on a project in exchange for providing one or more affordable units with a long-term affordability covenant, the project would be subject to this Manual.
Subordination of City Financing
In cases where the City has previously provided affordable housing funding, it may become necessary or desirable for the property owner to refinance or restructure with different or more favorable loan terms, where a condition of the new financing is subordination of other funding on the property, such as City financing. City staff will review each request for subordination of City financing in compliance with Section III.G of this Manual.
Other Programs
There are other situations where a project would be subject to the requirements of this Manual. Generally speaking, if a project receives f unding or concessions from the City in exchange for affordable housing units or if a project voluntarily provides a portion of its units as price restricted resulting in an affordability covenant with the City, this Manual will govern administration of those units and the requirements herein would apply.
B. Funding Sources for Affordable Housing in the City
Affordable Housing Trust Fund
Fees collected by the City for affordable housing (e.g., Inclusionary Housing In-Lieu Fees, Non-Residential Development Impact Fees, or donated funds) are maintained in a City account known as the Affordable Housing Trust Fund. These funds are to be used to create, maintain, or preserve affordable , attainable housing in the City.
A Comprehensive Affordable Housing Finance Plan will be developed for review and approval by the City Council to guide the use of this funding source.
Projects Funded by Federal HOME & CDBG Funds
The City is a member of the Santa Barbara County HOME Consortium. A HOME Consortium is a mechanism which allows jurisdictions to partner together with the County where they are located to form a sufficiently large resident population to qualify for federal grants from the US Department of Housing and Urban Development (HUD), such as H OME Investment Partnerships (HOME) program funding. The primary aim of the HOME Program is to fund the creation of decent, affordable housing for lower-income households in exchange for long-term affordability covenants.
The City is also an entitlement cit y under the federal Community Development Block Grant (CDBG) Program, receiving its own annual allocation of CDBG funding to be used for community development, including a ctivities that may address infrastructure needs, economic development, public facilit ies, community centers, housing rehabilitation, public services, clearance/acquisition, microenterprise assistance, code enforcement, homeowner assistance and more. While affordable housing is not a main goal of the program, CDBG funds can be used to suppo rt, preserve, and rehabilitate housing in the community.
Housing Trust Fund of Santa Barbara County
The Housing Trust Fund of Santa Barbara County (HTFSB) is a separate agency from the City of Goleta that operates a revolving loan fund in partnership with community lenders to offer below-market interest rate 16 65266.00423\41139945.4
6 loans and technical assistance to eligible affordable housing sponsors of rental and home ownership projects that expand affordable housing opportunities for Santa Barbara County residents. HTFSB also operates the Workforce Home Buyer Program to offer deferred or low-cost, interest-only down payment loans to help low- to middle-income working families and individuals purchase an entry-level, market rate home in the Santa Barbara C ounty community where they work, enabling a stable residence that strengthens the family and the local neighborhood. The City of Goleta contributes funds in support of this program within City limits. In addition, HTFSB’s Housing Innovations Program was created to research and demonstrate innovative technologies that can reduce the cost of constructing affordable housing and encourage sustainability using natural, recycled, climate-resilient, and fire-resistant building materials and state-of-the-art energy systems. These HTFSB programs do not utilize long-term affordability covenants, but they do enable lower-income households to enter the local housing market.
Low-Income Housing Tax Credits
Created in 1986, the Low -Income Housing Tax Credit (LIHTC) Program is an important federal program that offers sizable tax credits, awarded in California by the California Tax Credit Allocation Committee, to developers of affordable housing with a term of 55 years. The City does not implement this program or monitor LIHTC projects for compliance, as that is handled by the State, but the City makes every effort to coordinate on such projects in support of the housing units created.
Other Funds & Mechanisms
Where the City has discretion to provide loans, grants, or concessions to projects to facilitate the production of affordable housing, such projects would be subject to the requirements of this Manual.
17 65266.00423\41139945.4
7 III. DEVELOPER REQUIREMENTS
The developer of any project that will provide below-market rate (BMR) units subject to this Manual are required to submit information and documents related to the affordable component of the development, as outlined in this Section.
A. Project Approval Process
Affordable Housing Plan
During the land use entitlement process for the project, the developer, as the entity applying for a permit, is required to draft and submit an Affordable Housing Plan (or an Inclusionary Housing Plan for projects entitled under GMC Chapter 17.28), including a description and site plan of the project, identification of the BMR Units, and floor plans and unit information (e.g., income category, square footage, bedroom count, amenities). Generally, BMR Units must be dispersed throughout a project and be comparable to other units in the entire project. Refer to Section III.B – Requirements for BMR Units for more information.
Agreement to Provide Affordable Housing and Affordability Covenants In addition to submitting an Affordable Housing Plan, the developer of a project with BMR Units must agree to record on property title certain affordability docum ents to govern the long -term affordability and operation of th ose units. One such document, specific to projects with BMR Ownership Units, is an “Agreement to Provide Affordable Housing .” This agreement is in a form provided by the City, and it is recorded on the property (prior to issuance of a building permit or recording of a Final Map for the project) to serve as the formal agreement for implementation of the previously submitted and approved Affordable Housing Plan. It also provides the framework for the individual affordability covenants that will be executed with purchasers of the BMR Ownership Units in the future.
Affordability covenants (or “Density Bonus Agreements” for projects entitled under G MC 17.27) are official documents recorded on title to ensure the long-term compliance with the affordability restrictions on the property. In the case of BMR Ownership Units, the affordability covenant is between the City and the individual household membe r(s) who purchase the unit, and in the case of BMR Rental Units, the covenant is between the City and the property owner responsible for operation and maintenance of the property throughout the required term of affordability.
Term of Affordability
For proj ects with BMR Units subject to this Manual, the minimum term of affordability is 55 years .
Requests for subordination of City financing, however, have a different term of affordability ; refer to Section III. G – Refinancing or Subordination of City Financin g for more information . The term of affordability will be reflected in the affordability covenant recorded on the property . Any request for a shorter term of affordability will require review and approval by City Council. For any project receiving federal HOME Program funds, t he City’s affordability covenants will distinguish between the statutorily required HOME affordability period and the City-imposed term of affordability.
Timing of Construction of Units
The BMR Units in a pr oject should either be developed entirely in the first phase of construction or be developed concurrently and proportionately with the construction of market-rate units throughout each phase of development. Requests for deviation from this standard must be submitted during the 18 65266.00423\41139945.4
8 entitlement (permit) process and finalized in the approved Affordable Housing Plan and the Conditions of Approval for the project.
B. Requirements for BMR Units
Size and Equivalency of Construction
All BMR Units should be equivalent in function to other units in the entire project. The size (i.e., number of bedrooms) of the BMR Units provided should match or exceed the mix of market-rate units in the project. There should be no difference in size, design, or functionality between the BMR Units and market- rate units, but they can differ in terms of luxury finishes and fixtures, such as granite countertops, hardwood flooring, etc.
Location in Development
The BMR Units in a development should not be clustered in any one section of a property. Instead, the units should be evenly dispersed throughout the project and as indicated in the approved Affordable Housing Plan for the project.
C. Pricing BMR Units
The City incorporates multiple factors into the calculation of maximum sale pri ces and maximum rent amounts for BMR Units, as discussed in the following pages.
Pricing Factor: Income Category
A key factor used when setting maximum prices for BMR Units is income category. The annual publication of area median income (AMI) and income limits by HCD serves as the definitive source of income-category information in the City.
The City’s Housing Element defines the various household income levels as:
• Extremely-Low-Income Households: Households earning 30 percent or less of the median household income.
• Very-Low-Income Households: Households earning 30 to 50 percent of the median household income.
• Low-Income Households: Households earning 50 to 80 percent of the median household income. • Lower-Income Households: Households earning less than 80 percent of the median income. • Moderate-Income Households: Households earning 80 to 120 percent of the median income. • Above-Moderate-Income Households: Households earning over 120 percent of the median household income.
• Workforce Households: Household s earning more than 120 percent and up to 200 percent of median household income.
The City’s income categories align with HCD’s income limits, which are published on HCD’s Income Limits webpage with the following explanation:
State statutory limits are bas ed on federal limits set and periodically revised by the U.S.
Department of Housing and Urban Development (HUD) for the Section 8 Housing Choice Voucher Program. HUD’s limits are based on surveys of local area median income. The commonly used income categories are approximately as follows, subject to variations for household size and other factors:
19 65266.00423\41139945.4
9 Acutely low income: 0-15% of AMI
Extremely low income: 15-30% of AMI
Very low income: 30% to 50% of AMI
Lower income: 50% to 80% of AMI; the term may also be used to mean 0% to 80% of AMI Moderate income: 80% to 120% of AMI
More specifically , Area Median Income is based on the US Department of Housing and Urban Development’s estimates of Median Family Income based on a four -person household (using the latest American Community Survey data from the US Census Bureau and the Consumer Price Index from the Bureau of Labor Statistics), which are further reviewed and used to create the various income categories, released annually by HCD. The se income categories and limits , as well as the Workforce (or Above Moderate up to 200% AMI) category, are adjusted for household size and used by City staff to administer and monitor affordable housing units in the City.
It should be noted that exceeding the upper limit of an income categor y excludes a household from qualifying for a particular BMR Unit, but earning less than the lower end of an income category is not a disqualifying factor. In other words, a household could be in a lower income category and choose a unit in a higher income category than that for which the BMR Unit is designated, e.g., a household with income in the Low -Income category could still qualify for a Moderate-Income unit. For BMR Ownership Units, however, an acceptable overall debt -to-income ratio is a requirement for approval of the purchase, as further outlined in Section VII – Ownership Program , and property owners or managers may have a minimum income requirement for BMR Rental Units to ensure the ability to pay monthly rent (unless the household has a Section 8 voucher or similar housing-assistance payment in place).
Pricing Factor: Affordability Standard
Another factor used when calculating maximum prices for BMR Units is the assumed affordability standard. The affordability standard, or housing-expense ratio , is a percentage calculation of a household’s total housing costs to its gross income. A housing-cost burden is defined (by the US Census Bureau, HUD, and others) as spending more than 30 percent of a household’s income on housing expenses. Therefore, the City uses an Affordability Standard of 30 percent of household income to be included as the multiplier in th e calculation of maximum rents for BMR Rental Units. The Affordability Standard used as the multiplier in the calculation of maximum sales price for BMR Ownership Units is 35 percent of household income (except where otherwise defined by another applicable program’s regulations), in recognition of the increased stability , predictable payments, and long-term benefits of homeownership.
Given the variety of BMR Units and types in the City’s inventory, it would be impractical for the City to set (and properly monitor) rental prices based on actual household income, so an assumed household income is set for each income category to be used in the calculation of maximum prices, using Income Targeting.
Pricing Factor: Income Targeting
The next factor in setting maximum prices is target income. Income targeting is a way to ensure that BMR housing prices are set to be reasonably affordable for certain economic segments of the population (as represented by income categories), as well as to ensure the developer or property owner can adequately cover the short- and long-term costs of building and maintaining the project. While applicant households submit income documentation and qualify for a particular income category provided their income does 20 65266.00423\41139945.4
10 not exceed the applicable limit, the household does not necessarily earn income at the upper end of the range. For this reason, setting maximum prices for B MR Units using the upper end of an income range could create an unintended housing-cost burden on a majority of the households whose annual incomes fall within the applicable income range. To address this possibility, each income category was reviewed to find a point within the income range to be used as the Income Target (percentage multiplier) in calculation of maximum prices for BMR Ownership and Rental Units; see Table 1 . This method also provides a predictable method for developers to be able to incorporate the short-term costs of development as well as future revenues in order to budget and ensure the long-term viability of the overall housing project.
Table 1 – Income Target Percentages
Program
Allowed Income
Category
Maximum Income
Level3 (adjusted by
household size)
Income Target
Percentage
City Inclusionary Program
for Rental/Ownership Units
and other City programs
Workforce 200% AMI 160%
Moderate 120% AMI 100%
Low 80% AMI 60%
Very-Low 50% AMI 50%
Extremely-Low 30% AMI 30%
State Density Bonus Law4
for Ownership Units
Moderate5 120% AMI 110%
Low6 80% AMI 70%
Very-Low 50% AMI 50%
State Density Bonus Law4
for Rental Units
Low6 80% AMI 60%
Low6 (student SRO7 unit) 80% AMI 65%
Very-Low 50% AMI 50%
HUD’s HOME Program8 Low (“High HOME”) 60% or 80% AMI 65% Very-Low (“Low HOME”) 50% AMI 50%
Pricing Factor: Adjustment for Number of Bedrooms
The next factor used to price BMR Units provides a price differential between units of different size. For BMR Units in the City, a s for market-rate units in the general housing market , maximum rents and sale prices are higher for units with a greater number of bedrooms and lower for units with fewer bedrooms.
This approach reflects the fact that larger units will accommodate larger households, with correspondingly higher maximum allowable household incomes.
Housing program regulations use assumptions about the average number of persons that will be occupying units with various numbers of bedrooms , sometimes stated as “adjusted for family size
3 Maximum income levels are commonly referred to by a percentage of AMI as shown here, but the income limits for the Extremely-Low, Very-Low, and Low income categories are calculated numerically and then adjusted by HUD and HCD before being published annually by HCD: https://www.hcd.ca.gov/grants-and-funding/income-limits. 4 Per California Government Code 65915.
5 State Density Bonus law allows for ownership units at the Moderate-Income level but not rental units. 6 State Density Bonus law for ownership and rental units refers to this income category as “Lower -Income.” 7 SRO – single-room occupancy.
8 HUD sets the maximum income-category limits and maximum rents for HOME-assisted units; 24 CFR Part 92(a-b). 21 65266.00423\41139945.4
11 appropriate for the unit .” For example, the City assumes that the average number o f persons in a two - bedroom unit will be three persons , and HUD sets the median income for a household of three persons at 90% of the median income of a household of four. Therefore, for a two -bedroom unit, the City multiplies the AMI by a “bedroom adjustment factor” of 90%. This further adjusts the “target” income for a two -bedroom unit , and similar bedroom adjustments are applied to arrive at reasonable rent differentials for the other unit sizes. Although these bedroom adjustments may not correspond to the actual household sizes in the units, they reflect the assumption that larger units will be occupied by larger household sizes and that larger units offer more space and command a higher price in the housing market.
The chart below, Table 2, reflects these assumptions about the number of persons who will occupy units.
For units with more than four bedrooms, the City would add eight percent for each additional bedroom.
The Bedroom Adjustment Factors are:
Table 2 – Bedroom Adjustment Factors
Number of Bedrooms Bedroom Adjustment Factor Assumed Number in Household 0 bedrooms or studio 0.70 1 person
1 bedroom 0.80 2 persons
2 bedrooms 0.90 3 persons
3 bedrooms 1.00 4 persons
4 bedrooms 1.08 5 persons
Pricing Factor: Utility Allowance
The final factor used in pricing BMR Units is a utility allowance (used for BMR Rental Units only). In setting maximum rents for BMR Rental Units, the City assumes that the landlord pays all utilities. If the tenant’s lease requires the tenant to pay some or all of the utilities, the maximum rents are reduced in accordance with a utility allowance schedule prepared annually by HASBARCO and approved by HUD. The schedule specifies the utility allowance amounts by the various utility combinations (i. e., all -electric versus all - electric except space heating, etc.) and by number of bedrooms in the unit . A chart listing the current utility allowance for various combinations of utility payments in the City is available upon request from Housing Programs staff. Utility-allowance information is also available directly from HASBARCO.
Maximum Rent Amount for BMR Rental Units
Once each year, the City sets and publishes t he maximum rent amounts for BMR Rental Units using a formula that combines the factors explained above: AMI for a 4-person household, the income category, the target income percentage for th at income category, bedroom adjustment factor for the size of the unit, and an affordability standard of 30 percent.
However, the highest amount that a tenant household can be charged is the maximum rent amount reduced by the applicable utility allowance (UA) for those utilities paid by the tenant. The refore, the maximum total tena nt payment is calculated using the following formula : and rounded t o the nearest dollar:
(𝑨𝑴𝑰 × 𝑻𝒂𝒓𝒈𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 × 𝑩𝒆𝒅𝒓𝒐𝒐𝒎 𝑨𝒅𝒋𝒖𝒔𝒕𝒎𝒆𝒏𝒕 𝑭𝒂𝒄𝒕𝒐𝒓 × 𝑨𝒇𝒇𝒐𝒓𝒅𝒂𝒃𝒊𝒍𝒊𝒕𝒚 𝑺𝒕𝒂𝒏𝒅𝒂𝒓𝒅 𝟏𝟐 𝒎𝒐𝒏𝒕𝒉𝒔 ) − 𝑼𝑨
22 65266.00423\41139945.4
12 The only components used in this calculation of the total tenant payment that will change over time are the AMI and the utility allowance, which are published annually. The City will update the maximum rents and post them on the City’s website, along with the utility allowance schedule.
The City may consider allowing owners or managers of rent-restricted units to charge higher rents than those listed above , if the owner or manager rents to recipients of “Section 8 ” vouchers. Through the Section 8 program, which is administered by HASBARCO, the tenant pays 30% of their income for rent and utilities. Federal funds are paid to the landlord to make up the difference between th e tenant share and the “Fair Market Rent” (FMR). HUD periodically establishes FMRs for the County of Santa Barbara based on a survey of rents. The FMRs calculated by HUD for Santa Barbara County are usually far below actual market rents in the City. In response to this disparity, at the request of HASB ARCO, HUD has approved “Exception Payment Standards” for the South Coast, including the City of Goleta, that allows FMRs to be increased substantially. With this increase, the Exception Payment Standards more closely approximate market rents in the City. The FMRs or Exception Payment Standards reflect the maximum amounts paid through the Section 8 voucher program. The actual rent paid to landlord for the Section 8 tenant is based on HASBARCO’s reasonable rent valuation for that specific unit and is not to exceed Exception Payment Standards. Further information is available on the HUD and HASBARCO websites under payment standards.
A sample calculation of Maximum Rent Amounts for the Low Income category is shown in Exhibit A.
Maximum Sale Price for New BMR Ownership Units
Once each year, t he City sets and publishes the maximum sale prices for new BMR Ownership Units of different sizes and at various income levels, based on the annual publication of area median income. The maximum sale prices are calculated by combining relevant financial rates and assumptions related to the purchase and financing of a residential unit and rounded to the nearest hundred dollars . These calculations incorporate assumptions about mortgage interest rates (using the 24-month average market yield on U.S. Treasury Securities at 10 -Year Constant Maturity, plus 200 basis points ), down payment amounts (using an assumed 5% down payment for Extremely Low and Very Low income and 10% down payment for Low, Moderate, and Workforce Income), homeowners’ association fees, local property tax, and insurance rates, as well as the City’s affordability standard of 35%, income targets, and applicable bedroom adjustment factors. The published maximum sale prices therefore represent a price point at which a qualifying household in the applicable income category could cover foreseeable costs of homeownership within standard financial norms.
A sample calculation of Maximum Sale Prices for the Low Income category is shown in Exhibit B.
D. Administration of BMR Units
Ensuring Units are Occupied
All new BMR Units must be sold or leased in a timely manner. See Section III.F – Marketing New BMR Units for more information on initial sale or occupancy requirements.
Marketing and Lotteries
All newly -created BMR Units will be subject to the City’s marketing requirements, as well as a public lottery process, pursuant to Section IV – Affordable Housing Lottery. A waiver of the lottery requirement 23 65266.00423\41139945.4
13 is possible only if a written request is submitted and approved for good cause . Refer to Section I X.B – Requests for Waiver for more information.
A Marketing Plan must be submitted to Housing staff for review a minimum of six (6) months prior to the anticipated sale or initial occupancy of the BMR Units. Housing staff will review the plan for compliance with City requirements as well as fair housing and other regulations, etc., and provide an approval , an approval with suggested modifications, or a disapproval in the case of significant issues which must be revised. After approval of the Marketing Plan or corrected Marketing Plan, staff will schedule the public lottery for selection and ranking of applicants for the BMR Units, subject to any applicable preferences.
See Subsection III.F – Marketing New BMR Units below for Marketing Plan requirements.
Document Retention Policy
Developers (and property owners) must retain all records related to administration of the sale BMR Ownership Units for a minimum of five years after the sale. Records related to the leasing of BMR Rental Units must be retained for at least five years past the end of an occupant household’s tenancy or the project’s term of affordability. Such documents must be made available for review by City staff upon written request and at least 5 calendar days’ notice.
Housing Preference Categories
A housing preference grants priority to applicant households that have one or more household members with a given characteristic, such as a local resident or local employee or a senior resident over the age of
55. An applicant household which qualifies for a housing preference category applicable to a project will be ranked higher on the housing lottery list than an applicant household wh ich does not qualify for a housing preference category and owners of BMR Ownership Units who wish to sell must sell to an applicant household which qualifies for the housing preference category applicable to its unit. Therefore, a housing preference increases an applicant household’s odds of obtaining a BMR Unit. Except where prohibited by fair housing laws, the City has a Local Preference Requirement, as outlined below in Section III.E – Local Preference Requirement, which provides a preference during the application process for local employees or local residents for the initial sale or lease, as well as re-sales or re-rentals, of BMR Units. A developer may propose additional housing -preference categories, but they must be included in the submitted Marketing Plan and, if applicable, Tenant Selection Plan for the project and approved in writing by City staff before marketing begins.
E. Local Preference Requirement
Except where prohibited by state or federal law or a project’s funding program regulations, for new BMR Units, the City’s Local Preference Requirement provides a benefit to applicant households with at least one member who currently works, has been hired to work, or has a bona fide offer to work onsite a minimum of 20 hours per week at a location within the City limits of Goleta or who currently resides on the South Coast of Santa Barbara County (from the county line near Carpinteria to the tunnel at Gaviota).
Refer to Section IV – Affordable Housing Lottery, for more information on application of housing preferences in the public lottery process.
For subsequent leasing of BMR Rental Units to fill a vacancy, a public lottery is not held and a first - come/first-served method can be utilized, per the approved Marketing Plan and Tenant Selection Plan. To satisfy the Local Preference Requirement, an initial application period of seven (7) days must be reserved only for applicant households claiming to meet the applicable income requirements and Local Preference 24 65266.00423\41139945.4
14 requirement. If all applications received during that seven-day period are reviewed for eligibility, none of the applicant households meet the minimum qualifications , and the unit remains available , then applications can be accep ted and considered from applicant households who do not meet the Local Preference requirement.
F. Marketing New BMR Units
To ensure that BMR Units are marketed properly, fairly, and equitably, the City requires that developers submit a Marketing Plan that outlines how the City’s minimum marketing requirements will be met as well as any particular methods proposed for the individual project. The required contents of the Marketing Plan are outlined below.
(In addition, a Tenant Selection Plan is required for BMR Rental Units; see Section VIII – Rental Program for more information.)
Marketing Plan Required
Before marketing of the BMR Units can begin, the property owner or manager must submit a Marketing Plan, which must be approved by Housing Programs staff and in compliance with this Manual.
1. The Marketing Plan must:
a. Describe the proposed staff training the project developer (or property owner or manager) will use in order to be able to comply with applicable federal, state, and local fair housing laws. b. Describe the developer’s or property owner’s/manager’s proposed advertising methods for providing the public with information about the available units for initial occupancy via a public lottery, as applicable, and for leases subsequent to the initial leases for BMR Rental Units. The plan must outline action items, such as printing flyers in multiple languages, distribution of information, and specific media outlets appropriate f or the persons /groups needing to be targeted.
c. Outline the proposed process for the distribution and acceptance of the lottery applications , beyond the minimum City requirements (also see Section IV – Affordable Housing Lottery). d. Include contact information for submittal of applications. e. Provide project specifics, including:
The number of the BMR Units
The size of the BMR Units
The sale price of BMR Ownership Units
The initial rent amount of BMR Rental Units
Any application fees to be charged with justification for said fees Required timeframes for mortgage loan approval for BMR Ownership Units, and Any minimum income requirements for BMR Rental Units. f. Specify any housing preference categories, such as the Local Preference (see Section III.E – Local Preference Requirement) or other housing preference categories proposed, if any. g. Describe the developer’s or property owner’s/manager’s process for collecting and maintaining information on:
Activities undertaken to inform the public, including copies of advertisements placed, copies of flyers, and copies of letters to the local housing authorities. 25 65266.00423\41139945.4
15 Activities undertaken to inform special populations , including advertisements placed in specialized media and copies of letters, notices, or flyers distributed.
Marketing Timeline
The Marketing Plan must be submitted and revised, as needed, prior to the issuance of the building permit for the BMR Units. The property owner or manager must submit the Marketing Plan to Housing Programs staff. Staff will review the submitted plan and either approve it or require revisions to comply with City requirements. If revisions are required, the Marketing Plan must be revised and the revised plan approved prior to the commencement of any marketing for the project.
Goal of Marketing and Outreach Requirements
The City’s Marketing requirements are designed to ensure that its Housing programs are aiding not only those households that will benefit from the assistance but also those least likely to apply. Developers or property owners/managers must craft their proposed marketing methods to best inform the public and potential tenants or buyers about upcoming newly created BMR Units as well as re-rentals of BMR Rental Units. City staff will review the submitted Marketing Plan for appropriateness and conformance to City policies and this Manual.
Advertising and Community Outreach
The proposed methods of providing the public with informati on about the available units must include, at minimum:
a. Advertisements/articles in local newspapers
b. Notifications sent to local housing authorities (for rental projects) c. Notifications sent to individuals on the City’s Interest List (for ownership and rental projects) d. Information available at City buildings and/or community centers e. Information available through web pages
Use of the Affordable Housing Interest List
The City maintains an Affordable Housing Interest List with contact information for households wishing to apply for available BMR Units. Households must resubmit their contact information every six (6) months to remain on the list. Signing up on the Affordable Housing Interest List is not a prerequisite for participation in the City’s Housing program s. The list serves as an added method of outreach for the marketing of BMR Units. The list is also made available to current owners of BMR Ownership Units who wish to sell their unit; the owners may choose to make use of the list or not.
Timing of Initial Sale or Occupancy
All new BMR Ownership Units should be sold and all new BMR Rental Units should be leased within six (6) months of the issuance by the City’s Building Division of the final occupancy clearance (or if there will be no certificate of occupancy issued, then final building permit signoff) of the last market -rate unit in the development or, in the case of a 100% BMR project, the last BMR Unit. In the unlikely event that a property owner or manager has reason to believe that this deadline cannot or will not be met, written notice must be delivered to City Housing staff at least 30 days prior to the deadline , stating the number of units anticipated not to be sold or occupied, the marketing efforts undertaken for such units, a plan for additional marketing efforts, and a proposal for a reasonable time extension within which to sell or lease the remaining units. The PER Director or the Director’s designee has ultimate authority to grant or deny 26 65266.00423\41139945.4
16 such requests or to impose other remedies to ensur e the units are sold or leased and occupied in compliance with City requirements to prevent a default under the affordability covenant.
G. Refinancing or Subordination of City Financing
If a developer or property owner has a need or desire to restructure the debt on their property and would like the City to subordinate the City’s financing on the project, a written request should be submitted to City Housing Program staff for review. An extension of the term of affordability for an additional 30 years via a re corded covenant is a requirement for approval of a subordination request. A request for subordination that would significantly increase the risk to the City’s financial interest or to the viability of the affordable housing units would likely be grounds for denial.
The City will not subordinate its affordability covenant on a property, except in the case of a first mortgage lien in first position , state or federal requirements of affordable housing programs such as Low Income Housing Tax Credit program, or similar situation.
IV. AFFORDABLE HOUSING LOTTERY
The limited supply of affordable housing in the City of Goleta and surrounding area means that demand usually far exceeds the supply of such units. In an effort to create a fair system of allocating the available Units, the City uses a public lottery process for new BMR Units.
A. Lottery Process
The City and the project developer will hold a public lottery for the new BMR Units in a project. A waiver of the lottery requirement is possible only if a written request is submitted and approved for good cause in compliance with Section IX.B – Requests for Waiver.
The City’s lottery process is intended be used only for the BMR Units in a project that were created under the City’s programs. If a project also contains income -/price-restricted units governed by other non -City funding sources or programs, and the developer wishes to use the City’s lottery process for all the restricted units in the project, a written request for a waiver must be submitted to the City in compliance with Section IX – City Notices and Waivers.
Advertising of Lottery
Information about the lottery, including application dates and public-lottery details, will be posted on the City’s website, at City Hall, and in a t least one local newspaper a minimum of two weeks prior to the opening of the lottery application period.
Lottery Application and Preference Categories
The lottery application form for a project with new BMR Units will be available on the City’s website, at City Hall, and at other locations specified by the project developer throughout the open lottery application period. Every applicant that submits a complete lottery application for a BMR Unit will receive a lotte ry ticket number. Attendance at the lottery is not required for participation in the scheduled lottery drawing.
While every applicant must meet the City’s basic eligibility requirements, some applicants may qualify for a lottery preference that ranks them higher on the lottery results list and therefore increases the chance that they will be offered a BMR Unit. The specific preferences available may change from one project to another. The lottery application will indicate which preferences are applicable to a particular project. 27 65266.00423\41139945.4
17 Applicants will be required to submit proof of eligibility for any available preferences when applying for the housing lottery.
Generally, qualifying for more than one preference category will not result in a higher ranking than qualifying for just one preference category. Any deviation from this standard must be requested in writing by the project developer or property owner or manager for inclusion in the project’s Marketing Plan and Tenant Selection Plan (pursuant to Section III – Developer Requirements and Section VIII – Rental Program, respectively) and must be reviewed and approved by the City in advance of initiation of any marketing for the lottery. An explanation as to available preference categories and how preferences will function will be included in the lottery application packet.
Lottery Application Content and Changes
Applicants must complete the lottery application form in its entirety and provide all information requested. (In addition to entering a household into the public lottery, the lottery application will be used by staff to determine the household’s eligibility for any housing preferences, the type and size of unit for which the household is suited, as well as the preferred contact information for official noti fication purposes.) Of particular importance are the following pieces of information:
Primary contact information for the household (to be used to notify the household if selected for a BMR Unit in the lottery)
A listing of all household members and their ages
Self-certification that the preliminary income information provided is accurate and true Evidence/documentation of qualification for any housing-preference category.
If an applicant household’s information changes between the time of submittal of its lottery application and the date of the lottery, it is the responsibility of the household to inform City Housing program staff of the changes. The City will not be responsible for errors or omissions on a submitted application.
Public Lottery
The lottery will be a public event, held at the time and location specified in the public advertisements.
Lottery applicants and other members of the public may attend, but attendance at the event is not a requirement for participation.
A drawing will first be held for the applicants qualifying for a housing preference category, followed then by a drawing for applicants who do not qualify for a housing preference category, resulting in the ranked lottery results list.
Posting of Lottery Results
The lottery results li st will be posted on the City’s website and at City Hall within 7 days of the public lottery and for a minimum of 30 days’ time.
Notification of Applicant Ranking
In addition to public ly posting the official lottery results, the City will within two weeks of the lottery notify, via email and mailed notice, at least the number of lottery applicants equal to the number of available BMR Units, beginning with the top of the ranked lottery results list. The notification will include information on the procedure and deadline for submitting the required documentation, including the Income Certification Application.
28 65266.00423\41139945.4
18 If a household does not respond to the City’s notification email/letter and request for submittal of information (e.g., Income Certification Application) by the deadline stated in the written notification, then Housing program staff will move to the next -ranked household and the non -responding household may lose their opportunity to purchase or lease a BMR Unit.
B. Income Certification and Unit Selection
Submittal of Income Certification Application
The Income Certification Application is provided by City staff to the top -ranked applicants from the housing lottery results, who must complete and submit the application by the specified deadline with all accompanying documentation to begin the process of confirming household eligibility to purchase or lease a BMR Unit, pursuant to Section VI – Determining Household Income and Assets.
Issuance of Certificates of Eligibility
If City staff reviews a household’s Inc ome Certification Application and determines that a household meets the income and other qualification requirements to be eligible to purchase or lease a BMR Unit, staff will issue a Certificate of Eligibility to the household, via email and mail.
Alternatively, if a household cannot be found to be eligible to purchase or lease a BMR Unit in the project, a notification of that decision will be sent to the household, via email and mail.
City staff will continue to contact and income -qualify households in the order they appear in the ranked lottery results list, until all the available BMR Units are selected for purchase or lease by an eligible household.
Unit Selection by Eligible Households
Beginning with the top of the ranked lottery result s list, City staff will contact households with issued Certificates of Eligibility to give each, in turn, the opportunity to select an available BMR Unit. Each household may select an available BMR Unit in the location and type of unit of their choosing, p rovided that their household meets all eligibility requirements, including minimum and maximum occupancy for the unit.
IMPORTANT: In certain circumstances, it may be possible that a household on the lottery results list with an issued Certificate of Eligibility will be unable to obtain a BMR Unit, if all the units in the size or income category for which they qualify have already been selected for occupancy by households ranked higher on the lottery results list.
V. APPLICANT ELIGIBILITY & REQUIREMENTS
A. Who Can Apply for Affordable Housing in Goleta?
The City’s affordable housing programs are open to anyone who is interested to apply and meets the eligibility requirements. Most of the programs feature BMR Units restricted for occupancy by households in a certain income category, earning below the applicable income limit. In the interest of community sustainability and equity and to the extent allowed by law, preference will be given to applicants who live or work locally (see Section III.E – Local Preference Requirement for more information). Certain projects may have additional preference categories, pursuant to program requirements of a project funding source or the mission of the project developer’s agency.
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19 Definition of Household
The Zoning Ordinance defines a household as one or more persons, related or unrelated, living together as a single housekeeping unit ; it is a lso known as a “family.” For the purposes of the City’s affordable housing programs, a household is further defined as the adults age d 18 or older and children under the age of 18 (or under 26, if enrolled at least half -time at an accredited college or university) who reside together permanently and have been a household for the previous six (6) months or more. An unborn child is not included in ho usehold size until birth. For all BMR Units, all adults in the household are expected to provide income documentation and, for BMR Ownership Units, all adults in the household at the time of purchase must be on title. Any request for a waiver of these requirements must be submitted in compliance with Section IX.B – Requests for Waiver.
Minimum and Maximum Household Size
The size of a household must be compatible with the size of the BMR Unit. The minimum household size is at least one person per bedroom (e.g., no fewer than two people can live in a 2-bedroom unit).
As for maximum household size, any requirement imposed by a property’s owner or manager must:
Be no less than two times the number of bedrooms in the unit plus one, Comply with this Manual, and
Be applied fairly and evenly to all units in the building and all applicants for housing.
An increase in household size resulting from birth or adoption of a child under the age of 18 shall not be acceptable grounds fo r eviction from a BMR Rental Unit on the basis of exceeding the maximum household size.
Conflicts of Interest
When a random public lottery is held to select households to purchase or lease a BMR Unit, any household that meets the eligibility requirements can apply to enter the lottery. In situations where a lottery is not held (e.g., the subsequent leasing of a BMR Rental Unit following the initial occupancy), a household with one or more of the following may not apply for the BMR Unit:
An employee, officer, or agent of the City
An immediate family member9 of any employee, officer, or agent of the City An employee, officer, or agent of the developer or property owner/manager An immediate family member of any employee, officer, or agent of the developer or property owner/manager
Non-Homeowner Requirement
To be eligible to purchase or rent a BMR Unit in the City, an applicant must not currently own or have owned (in full or in part) a housing unit in the United States in the past 3 years.
Non-Student Household Requirement
Generally, households comprised entirely of students are not eligible for BMR Rental or Ownership Units, except in the case of a student -housing development for lower income students under state Density
9 Immediate family member means spouse or domestic partner, parent, child, sibling, grandparent, father -in-law, mother-in-law, sibling-in-law, or any other person who is a legal dependent of the subject person. 30 65266.00423\41139945.4
20 Bonus law. A full-time student is defined as a person who attends an educational institution with regular facilities (including enrollment in on-line classes) other than a correspondence or night school, during at least five months of the calendar year during the BMR application and eligibility review.
However, there are limited exceptions where households with full-time students may be eligible , if one or more of the following applies:
Any member of the household is married or in a domestic partnership and is filing (or could file) a joint tax return.
The household consists of a single parent and his /her minor children and neither the parent nor children are a dependent of a third party.
At least one member of the Household receives assistance under Title IV of the Social Security Act, such as AFDC, TANF, CalWORKs, etc. (SSA or SSI do not qualify). At least one member is enrolled in a job training program receiving assistance under the federal Workforce Innovation and Opportunity Act or similar federal, state, or local laws. The household consists of a member who recently exited the Foster Care system, who is no older than 24 years old.
The household consists of one or more United States veteran(s).
Immigration Status
The City does not require proof of citizenship, legal residency, or immigration status as a prerequisite for qualifying for a BMR Unit. California Civil Code Section 1940.3(b) prohibits property owners/managers from discriminating against applicants based on immigration status and from making inquiries into the immigration status of an applicant or requiring applicants to provide proof of legal residency. However, for BMR Ownership Units , all applicants must obtain first -mortgage financing from a lender, and many lenders are unable to approve applicants without proof of legal immigration status. For BMR Rental Units, property owners/managers, who require social security numbers from applicants in order to run a credit and/or criminal background check , are advised to accept alternatives to traditional credit , such as payment histories from utilities, rent, tuition, etc. Those requiring proof of identity must accept any government-issued identification, including the State of California Identification Card.
B. Is There a Limitation to Information I Have to Provide to the City? The City requests information from developers, applicants, tenants, property owners/managers, etc., to confirm applicant and/or household eligibility and compliance with applicable regulations, restrictions , and this Manual. The City reserves the right to request additional information as necessary throughout an applicant’s or household’s participation in the City’s Housing Programs.
C. Will my Information Be Shared with Outside Agencies? The City does not share, sell, or transfer any identifying personal or financial information to any third party that is not affiliated with an application for housing or with monitoring for program compliance. Program participants, including buyers and renters, project developers, and property managers , should be aware that under certain circumstances information provided in connection with City Housing programs may be considered to be public records and /or subject to disclosure in accordance with the California Public Records Act, a court order, or other applicable state or federal laws. 31 65266.00423\41139945.4
21 VI. DETERMINING HOUSEHOLD INCOME AND ASSETS
For most of the City’s Housing programs, household income is a qualifying factor for participation. The City uses the federal Part 5 definition of annual income (24 CFR 5.609) to determine household income anticipated to be received during the 12 -month period following income certification or recertification .
The results of an income determination are valid for 120 days. If the household has not purchased (or leased) and moved in by that point, new income documentation must be submitted, and household income must be recertified.
A. Income Sources
Income Inclusions
The City includes the following sources in the calculation of gross household income:
Income from wages, salaries, tips, etc.
Business income
Recurring payments (e.g., unemployment or disability income, welfare assistance, alimony, child support, Armed Forces income, and recurring gifts)
Retirement and insurance income
Interest and dividend income
Income Exclusions
The City will not include the following sources in the calculation of gross household income:
Student financial aid
Income of children (including foster children) under the age of 18 years Income of live-in aides
Foster care payments
Lump-sum additions to family assets, such as inheritances, state or local property tax refunds, and insurance pay-outs
Temporary, nonrecurring, or sporadic income (including some gifts) Income from full-time students in excess of $480 (unless head of household or spouse) Adoption assistance payments in excess of $480 per adopted child Deferred periodic amounts from supplemental security income and Social Security benefits that are received in a lump sum amount or prospective payments Certain other payments (e.g., reparation payments, medical expense reimbursements, “Home Care” assistan ce payments, “Hostile Fire” pay, Self -Sufficiency Program income, AmeriCorps income, Earned Income Tax Credit Refund Payments, Indian Claims Commission payments) Income Source Documentation
During the applicatio n process, the City or its designee may request source documentation to verify household income, such as any of the following:
W-2 forms from the prior 3 years
Federal tax returns, including all schedules, from the prior 3 years Earning statements/paystubs from the prior 4 months
Bank statements for all open accounts from the prior 3 months 32 65266.00423\41139945.4
22 Latest Social Security statements
Evidence of most recent rental payments
Copies of court order of alimony or child support documents, specifying payment amounts (If self-employed) Year-to-date Profit & Loss statement (If self-employed) All business bank statements for the prior 12 months B. Calculating Baseline Household Income
Calculating Expected Total Annual Income
The City calculates gross household income for th e upcoming year using the income documentation requested and submitted with the income certification application . Household income projected for the next 12 months is used to determine eligibility for participation in City Housing programs.
Income Increase Tolerance and Recalculation Criteria
An applicant household’s income certification is valid for six months. If a household has not occupied a BMR Unit within six months of income certification, information must be resubmitted so that household income can be recalculated. In addition, if a household’s income increases more than 5% between the time of income certification and the purchase or lease of a BMR Unit, the applicant must resubmit income information for recalculation.
C. Treatment of Assets
During the income certification process, an applicant household must disclose all assets in excess of $1,000. If the household has assets totaling more than $5,000 in value, then imputed income will be calculated using the passbook savings rate used by HASBARCO, as approved by HUD. The imputed income calculated will be compared with the actual income earned from the assets, and the higher of the two will be included in gross household income.
In the case of BMR Ownership Units, t he household’s total assets must not exceed 50% of the purchase price of the BMR Ownership Unit for which they are applying.
Assets to Disclose
Assets in excess of $1,000 in value, which are the property of the applicant or applicant's household, must be disclosed along with a description and their value. Examples of such assets include:
Physical and real property assets, which, although possibly owned by more than one person, allow unrestricted access by the applicant;
Bank accounts, certificates of deposit, trust funds, stocks and other securities, etc.; Any property valued over $1,000, such as cash at home, real estate property, antiques, jewelry, coin collections, antique vehicles, computers, cameras, etc.; and Automobiles (include registration and loan paperwork in application).
Disposal of Assets
If the household disposed of any assets for less than fair market value in the 24 months prior to submitting an income certification application, the applicant must provide information on the asset and its value, the date of disposition, and the amount received for it.
33 65266.00423\41139945.4
23 Gifts
Temporary, sporadic, or non-recurring gifts are generally not included in calculation of income. However, gift funds from an individual who is related by blood, marriage, adoption, or legal guardianship and who is not part of the household may be used for the down payment and/or closing costs, which will affect the applicant’s housing expense ratio and overall debt -to-income ratio when applying to purchase a BMR Ownership Unit. To purchase a BMR Ownership Unit, a minimum down payment of three percent (3%) of the purchase price is required (see Section VII – Ownership Program for more details). If necessary, the entire down payment can come from gifts , but the total amount of gifted funds for down payment and closing costs cannot exceed 20 percent.
Annuities
In the case of annuities, if an applicant has begun receiving annuity payments, then these payments are counted as income. If the applicant has the option of withdrawing all fund s from an annuity, either with or without penalty, the annuity will be treated like any other liquid asset account. To account for income taxes and any early withdrawal penalties, sixty percent (60%) of the full value of the annuity will be counted as the cash value of the annuity and applied toward the liquid asset income calculation.
Lump Sum Receipts
Lump sum payments will be counted toward assets. Example of lump sum payments include: inheritances, capital gains, lottery winnings paid in one payment, cash from the sale of assets; insurance settlements; and any other amounts that are received as one-time lump sum payments.
D. Income Qualification Process
Income Certification Application
The Income Certification Application is provided by City staff to applicants for BMR Units. The application must be completed and submitted to begin the process of confirming household eligibility to purchase or lease a BMR Unit. Staff will use the submitted information to determine household income, pursuant to this section, as well as eligibility for certain unit types and sizes. It is therefore essential that households provide complete and accurate information and documentation regarding the household’s income, assets, property, etc., in the Income Certification Application. Even if the exact nature of the household’s real property and financial circumstances are not specifically mentioned or requested in the application, the household must provide a full accounting and explanation of its financial situation.
If a complete d Income Certification Application is received and City staff determines that additional information or clarification is required, staff will contact the primary contact person on the application to provide one opportunity to submit anything further that is needed and the deadline for submittal.
Application Changes after Submission
If a household determines that relevant information was changed, omitted, or misrepresented in the Income Certification Application that was submitted, the household must inform the City as soon as possible.
Credit
Property owners or managers may require adult household members to clear a credit check, but only after the household has been income-qualified for the unit. If a property owner or manager’s minimum credit 34 65266.00423\41139945.4
24 score standard is above 620 (or its equivalent in the case of other credit scoring models), the property owner or manager must consider the following mitigating circumstances when selecting applicants:
An applicant’s recent timely payment history, i.e., 24 months from the date of the application of on-time payments for bills and credit accounts.
An applicant’s timely rent payment history, i.e., 24 months from the date of the application of on- time rent payments of equal or greater value to the proposed rent for the BMR Rental Unit. Negative credit history due to outstanding medical or student loan debt or unpaid balances below $2500 should not be taken into consideration.
Alternate forms of credit history , such as rent payments, insurance, utilities, and childcare paid on time, especially in the case where an individual has no credit, should be taken into consideration.
Certificate of Eligibility
If City staff reviews a household’s Income Certification Application and determines that the household meets the income and oth er qualification requirements to be eligible to purchase or lease a BMR Unit, staff will issue a Certificate of Eligibility to the household, via email and mail.
Alternatively, if a household cannot be found to be eligible to purchase or lease a BMR Unit in the project, a notification of that decision will be sent to the household, via email and mail.
VII. OWNERSHIP PROGRAM
A. Applying for a BMR Ownership Unit
Notification Regarding New BMR Ownership Units
When new BMR Ownership Units will soon be available for pur chase, City staff will notify via email the interested parties who have submitted an Affordable Housing Interest List sign -up form and will post preliminary information on the City website.
Housing Lottery
The City and the Project Owner will hold a joint public lottery for each Project with new BMR Ownership Units. Refer to Section IV – Affordable Housing Lottery for more information.
Before Applying for a BMR Ownership Unit
For any new BMR Ownership Units, the City will post project -specific details, housing -preference information, and minimum requirements prior to the public lottery. Potential applicants hoping to purchase a BMR Ownership Unit (new or resale) should first review the applicant eligibility requirements posted by the City and in Section V – Applicant Eligibility and Requirements to determine if the household can meet the applicable requirements.
Submission of a Full Income Certification Application
If a household is selected in the housing lottery process for a new BMR Unit or by the seller of an existing BMR Ownership Unit, City staff will provide the household with an Income Certification Application, which must be completed and submitted by the applicant household to begin the process of confirming household eligibility to purchase the unit, pursuant to Section VI – Determining Household Income and Assets. In addition, the household must obtain loan approval, which must be included with the Incom e Certification Application.
35 65266.00423\41139945.4
25 B. Qualifying to Purchase a BMR Ownership Unit
Household Size
For information on household composition requirements, refer to Section V.A - Who Can Apply for Affordable Housing in Goleta.
Income/Credit Requirements
Applicants for new BMR Ownership Units must submit a Lottery Application (see Section IV – Affordable Housing Lottery), and applicants for both new and resale BMR Ownership Units must submit a full income certification application (see Section VI.D – Income Qualification Process) to verify eligibility.
The City does not have a minimum income level for purchasing a BMR Ownership Unit, but the applicant’s housing expense ratio cannot exceed 40 percent (40%). Housing expense ratio is defined as the percentage of gross household income that goes toward paying housing expenses, including the mortgage loan payment(s), mortgage insurance premium, if applicable, hazard insurance premium, property taxes, and homeowners' association dues, if applicable).
The applicant’s total debt-to-income ratio cannot exceed fifty percent (50%). Total debt -to-income ratio is defined as the percentage of gross household income that goes toward paying all recurring debt payments, including housing expenses and other debts, such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, legal judgments, and all other debt payments. Total debt-to-income ratio is calculated by dividing total monthly debt payments by monthly Gross Household Income.
The City requires a minimum credit (“FICO”) score of 620 (or its equivalent in a different credit scoring program) to purchase a BMR Ownership Unit. Requests for a waiver of this requirement will be considered by the PER Director when a request is submitted in writing along with documentation of good cause; refer to Section IX.B – Requests for Waiver for more information. Mortgage lenders may have different policies and applicants should be prepared to meet both requirements.
Down Payment Requirements
To purchase a BMR Ownership Unit, a buyer must provide a down payment equal to or greater than three (3) percent of the purchase price but no more than 40 percent of the purchase price . Some or all of the down payment may come from gifts, but the total amount of gifted funds for down payment (and closing costs) cannot exceed 20 percent of the purchase price.
Mortgage Readiness and Requirements
All applicants for BMR Ownership Units must be able to secure first-mortgage financing to purchase the unit. Pre -approval fro m a lender is not required prior to entering a City housing lottery, but it is recommended, as obtaining loan pre -approval can be helpful for households to determine if they can qualify and meet the requirements to purchase a BMR Ownership Unit, and evidence of loan pre-approval must be submitted with the household’s Income Certification Application. 36 65266.00423\41139945.4
26 Applicants who are selected by lottery to purchase a BMR Ownership Unit will have a limited period of time to obtain full loan approval from a n institutional l ender.10 A buyer’s first mortgage loan must be amortized over the loan period and cannot include graduated interest, graduated payments, interest-only payments, balloon payments, or negative amortization. If the buyer obtains a second mortgage loan as part of thei r purchase money financing, the second mortgage loan may have an interest only -payment and/or a balloon payment. Adjustable-rate mortgages are not allowed.
Title Requirements
All household members aged 18 years or older must be on title for the BMR Ownersh ip Unit. However, the following individuals are not required to be on title:
• Legal dependents of titleholders as claimed on the two most recent federal income tax returns. • Household members younger than 24 years of age, who are the children of a titleholder and who will reside in the BMR Rental Unit as their primary residence, regardless of whether they are named as a dependent on a recent federal tax return.
• Live-in aides for health care purposes , who are (1) determined to be essential to the care an d well-being of a household member; (2) are not obligated for the support of the household member; and (3) would not be living in the unit except to provide the necessary supportive services.
Inability to Obtain Financing
If a buyer is unable to obtain a mortgage on their own credit, for reasons such as insufficient credit score or similar, a co-signer is allowed, if needed, to help the buyer qualify for financing. In such instances, the income of the co-signer will not be included in calculation of the buyer household’s housing-expense ratio and total debt-to-income ratio. If financing is not able to be obtained, the household will not be able to purchase the unit.
Sales Contract and First Mortgage Financing
If City staff determines that the household meets the income and other qualification requirements to be eligible to purchase a BMR Unit, staff will issue a Certificate of Eligibility to the household, pursuant to Section VI – Determining Household Income and Assets . Within 30 days of receipt of the Certificate of Eligibility, the household must enter into a purchase contract with the seller of the BMR Ownership Unit and open escrow with an escrow company that is willing and able (knowledgeable) to complete a price - restricted “affordable unit” resale.
Closing the Sale
Original or certified copies of the recorded documents related to the refinance must be delivered to City Housing staff after closing.
10 An institutional lender is any financial institution, such as a bank or a savings and loan organization, whose lending practices are subject to and regulated by mortgage-finance regulations. 37 65266.00423\41139945.4
27 C. Requirements of Owning a BMR Ownership Unit
Documents that Enforce Program Restrictions
Applicants for BMR Ownership Units should be aware that they will be required to read, understand, and sign applicable program restrictions, including income and resale restrictions. Prior to close of escrow, the applicant will have to sign certain long -term regulatory d ocuments, including a Primary Residence Statement (PRS) and an Affordability Covenant.
Owner Occupancy
Homeowners, including all adults on title, must occupy the BMR Ownership Unit as their primary residence for a minimum of ten (10) months per calendar year. This requirement may be modified only on a short-term basis and only if the homeowner submits a written request to the City in compliance with Section IX.B – Requests for Waiver , which is approved in advance for good cause, such as illness, employment changes, etc.
Grant of Option and Right of First Refusal
In consideration of the benefits received by the Owner and in accordance with the recorded covenant on the BMR Unit, the Owner grants to the City and the City shall have an Option to Purchase the unit any time the Owner intends to sell or transfer the unit.
If the City does not exercise its right to purchase the Property, the Owner shall have the right to sell or transfer the Property to a City -qualified household, subject to the terms and conditions of this Manual and their recorded affordability covenant.
No Renting or Subleasing
Except as provided in this Section, BMR Ownership Units may not be rented out, in whole or in part, unless approved in writing and in advance by the PER Director when good cause is shown; refer to Section IX.B – Requests for Waiver for more information . In no case may a BMR Unit or portion thereof be rented or subleased as a short-term (less than 30 days) rental or listed on short-term rental or vacation rental sites.
Renting of a parking space or any other space purchased with the Unit is also prohibited.
In his/her sole discretion, the PER Director may grant consent to a BMR Owner to rent all or part of their BMR Unit for up to 12 months. Possible “good cause” circumstances include:
• The Household is required to temporarily relocate due to documented employment requirements;
• The BMR Owner is experiencing temporary financial hardship where the Household ’s monthly housing expenses exceed 50% of the total household income; or • For other reasons deemed acceptable by the City in its sole discretion.
Prior to granting consent to a BMR Owner to temporarily rent all or part of their BMR Unit , the PER Director will verify that all the following conditions are satisfied:
• The BMR Owner is in compliance with all Program requirements and has not previously been out of compliance.
• The total period for which the BMR Unit is to be leased does not exceed 12 months and is not offered as a short-term rental.
• Incoming tenant satisfies the income and other eligibility requirements placed on the BMR Unit. 38 65266.00423\41139945.4
28 • Incoming tenant acknowledges, in writing, that the rental is temporary. • Initial rent does not exceed the maximum rent amount that the City would allow for a BMR Rental Unit in the same income category or the BMR Owner’s total documented housing expenses (including mortgage principal and interest, property taxes, homeowners association or HOA dues, and insurance), whichever is lower.
Owners experiencing temporary financial hardship and requesting to temporarily sublet a portion of the BMR Unit are required to reside in the BMR Unit and provide the City with a written explanation of how the arrangement will lead to long-term financial stability.
Maintenance
Ownership of a BMR Unit affords the owner many rights and responsibilities similar to owning a market- rate home. The owner is expected to use their judgment to prioritize and apply their resources to maintain the property in good condition through regular maintenance and repair of property damag e. If there is property damage or substantial deferred maintenance, the City may require the owner to correct it or, if the owner initiates a sale of the unit in the future, the City may lower the Maximum Sale Price by the amount needed either to repair the damage or to correct needed maintenance.
Insurance
The BMR Unit must be covered by a hazard insurance policy for a minimum of its replacement value. If homeowner’s association (HOA) policies do not cover replacement of the interior of the BMR Unit, the BMR Owner must obtain and maintain a separate HO-6 condominium or other homeowner insurance policy that lists the City as an additional insured or loss payee during the owner’s term of ownership.
Title Changes
The City will not permit changes in title except as provided below. Owners of BMR Units must get written permission from the City before making any changes to title. The City requires documentation to approve any title change, and Owners of BMR Units must be in compliance and current with annual monitoring and other programmatic requirements in order to be considered for requested title changes. Mutually agreed to amendments to title documents will be recorded. The City will permit a change in title only for one of the following reasons:
a) Marriage or Domestic Partnership – No sooner than 12 months after the original purchase, the spouse or registered domestic partner of the Owner of the BMR Unit may be added to title and assume the same rights and responsibilities as the original Owner.
b) Dissolution of Marriage or Domestic Partnership – The Owner of the BMR Unit must submit to the City proof of dissolution of marriage (or domestic partnership) to remove an Owner of record from title. c) Owner’s Death – When one BMR Owner dies, any surviving co-Owners previously approved by the City continue to hold title. Surviving Owners must notify the City within 60 days and provide all requested documentation prior to removing a deceased owner from title.
In a case where all BMR Owners on title have died, the BMR Unit may be transferred by inheritance, will, or any other function of law to a child, spouse, or domestic partner not on title, provided that the child or spouse otherwise qualifies for ownership of the BMR Unit under the applicable program requi rements.
Within one (1) year of the death of the BMR Owner(s), the proposed transferee must submit a full standard Income Certification Application with financial and other qualifying information to verify 39 65266.00423\41139945.4
29 eligibility. If qualified, within ninety (90) days, the child, spouse, or domestic partner shall execute a City affordability covenant, deed of trust, and any other City documents related to the BMR Unit and assume the same rights and responsibilities as the deceased Owner. If not qualified or not interested in retaining the BMR Unit, within 30 days following the disqualification or within twelve (12) months of the death of the BMR Owner(s), the child, spouse, or domestic partner must begin the sales process and procedures to sell the BMR Unit to a qualified buyer who meets all eligibility requirements of the program. The heir(s) of the BMR Owner is/are entitled to receive the deceased Owner’s proceeds after the sale.
D) Living Trust – The City will only consider requests to transfer title to an inter vivos (living) revocable trust from a BMR Owner if all the following conditions are met:
The trust complies with and is governed by the laws of California. The BMR Owner must be named as the trustor and trustee of the trust. There is no unusual risk or impairment of the City’s rights, including the right to have full title to the property in the case of default or foreclosure.
The proposed living trust documents contain language approved by the City that a transfer of the BMR Unit to a beneficiary under the living revocable trust , who is not the BMR Owner , triggers the City’s Right of First Refusal or Option to Purchase the BMR Unit, and other rights under the program.
Any changes to a City-authorized trust must be approved by the City before those changes are made.
Default and Foreclosure
Owners of BMR Units are encouraged to contact the City as soon as possible if they are at risk of a loan default or foreclosure, or if HOA dues or “special assessme nts” become unaffordable. City staff will attempt to assist the Owner with locating available assistance, if possible.
Affordability use restrictions will survive foreclosure, and any BMR Units purchase by an ineligible buyer through foreclosure must be im mediately resold through the City’s resale process to an eligible household.
D. Compliance Monitoring
Annual Report Form
The City will send an annual report form to owners of BMR Units to check for continued compliance and to remind owners of applica ble program regulations. BMR Owners must complete the form and sign it, under penalty of perjury, as a condition of their participation in the City’s Housing program and per the terms of their recorded affordability covenant. Failure to respond to required an nual report forms can constitute an event of default, pursuant to the terms of the recorded affordability covenant on the unit.
City Requests for Information or Inspection
In addition to complying with annual reporting requirements, owners of BMR Units must cooperate with the City, if and when the City requests additional information or inspections , with reasonable notice, to investigate complaints or verify ongoing compliance with program requirements. 40 65266.00423\41139945.4
30 E. Refinancing a BMR Ownership Unit
Prior City Approval Required
Over the course of a BMR Owner’s loan term, it may become necessary or desirable to refinance the loan.
In order to refinance, a BMR Owner must submit a request to Housing Program staff for review by the PER Director and obtain prior written approv al of any refinancing or any addition of a lien on the BMR Unit , regardless of lien position. The City will not consider nor approve the following loans or terms: reverse mortgages, stated income, adjustable -rate mortgage (ARM), interest -only, negative amortizing, and balloon payments. The City reserves the right to identify additionally prohibited loan characteristics.
BMR Owners may submit a request to the City to refinance their first mortgage for the following purposes:
Lower interest rate
Shortened first mortgage loan term provided the payment increase is no more than 15% Lower monthly payment of at least 5%
Requirements for City Approval of Refinance
When requesting approval to refinance, the following requirements apply:
The Owner must b e up to date with Annual BMR Unit monitoring and in compliance with applicable City Housing Program rules.
The Owner must h ave no delinquent mortgage payments, property taxes, HOA payments, unauthorized loans, or liens . If there are any, those items must be paid/cleared as part of the refinance loan settlement.
The terms of the new loan are more favorable than the old loan, such as a lower interest rate. The proposed refinance will not exceed a maximum 80% loan-to-value ratio. All owners of record must be listed on all loan documentation (including the Promissory Note and Deed of Trust).
When considering requests for refinance on a BMR Unit, the City may review an Owner’s credit and may decline approval of proposed refinancing in cases where the borrower’s credit is poor.
Cash equity withdrawals on BMR Units are allowed only under the following circumstances and m ust be pre-approved in writing by the City:
Capital improvements to the BMR Unit;
Medical expenses of the BMR Owner or the Owner’s immediate family member; or Funds required to implement a marriage domestic partnership dissolution agreement or other legal settlement.
Documentation supporting the expense will be required. If the City’s approval of the Owner taking out cash is conditioned upon the pay -off of certain installment debt, such installment debt payments shall occur and be document ed through the ref inance escrow. Under no circumstances may the new loan amount exceed the original loan amount and the resulting combined loan-to-value ratio may not exceed 80%.
BMR Owners with down payment assistance loans from the City or any City -sponsored agency may not access cash equity from refinancing until the down payment assistance loan is repaid in full. 41 65266.00423\41139945.4
31 Maximum Appraisal Value Set by City
The Maximum Appraisal Value of a BMR Unit is the City -approved purchase price paid by the Owner adjusted by the percentage change in the AMI for Santa Barbara County during the period in which the Owner owned the unit and occupied it in compliance with the requirements of the recorded affordability covenant.
No increase for improvements made to the unit shall be added to the owner’s calculated Maximum Appraisal Value for a refinance transaction.
Maximum Loan-To-Value Ratio
The maximum allowable loan-to-value (or loans-to-value) ratio is 80 percent (80%).
Closing
Original or certified copies of the recorded documents related to the refinance must be delivered to City Housing staff after closing.
F. Reselling a BMR Ownership Unit
The City shall oversee any transfer or sale of the BMR Unit. No transfer or sale of the unit shall occur without the prior written approval of the PER Director or the Director’s designee.
The City may approve a proposed transfer of the unit provided that the Owner is not in default under the recorded affordability covenant on the unit, that the City does not elect to exercise its Option to Purchase, and that the City has determined that the Owner and the proposed transferee ha ve complied with all of the requirements and provisions of this Manual, as applicable, and the recorded affordability covenant.
Notice of Intent to Sell
The first step toward selling a BMR Ownership Unit is to contact City Housing Program staff to obtain and complete a Notice of Intent to Sell form. Staff will review the form, confirm receipt, and provide the Owner with a Maximum Resale Price and a Resale Instruction Sheet.
Maximum Resale Price Formula
The Maximum Resale Price of a BMR Unit is the City-approved purchase price paid by Owner adjusted by the percentage change in the AMI for Santa Barbara County during the period in which the Owner owned the unit and occupied it in compliance with the requirements of the recorded affordability covenant. Upon request, the PER Director may consider an increase to the Maximum Resale Price equal to the value of substantial structural or permanent fixed improvements to the unit, subject to limitation and verification.
Cost Reimbursement (Capital Improvements) in Resale Price To help assure continued affordability to subsequent Transferees, the City limits price increases or other reimbursements for property improvements made by an Owner of a BMR Unit . The Owner is of course free to make improvements for the Owner ’s benefit and enjoyment, but the Owner will not necessarily be compensated for such improvements upon sale of the property.
The PER Director or the Director’s designee may consider, on a case-by-case basis, requests for price increases for improvements to a BMR Ownership Unit. The minimum cost threshold for consideration is $2,000 and the following shall apply:
42 65266.00423\41139945.4
32 1. The improvements must be new, permanent, and substantial (maintenance repairs s hall not be considered). Only new permanent and substantial improvements to the kitchen and/or bathroom(s), or increase in the number of bedrooms shall be considered. Examples include but are not limited to: energy -efficiency upgrades such as new double -pane windows, kitchen remodels, bathroom remodels, and addition of a bedroom or bathroom.
2. Improvements that are considered decorative, luxury, nonessential, or maintenance shall not be considered. Examples include but are not limited to painting, wall coveri ngs, window coverings, flooring, carpeting, and lighting.
3. Owners are required to contact City Housing program staff to obtain program policy regarding owner improvements prior to the commencement of work.
4. Owners must document that the improvements will be completed with all required City permits and that the improvements meet the requirements imposed by their Homeowners Association and recorded CC&Rs.
In order for the City to consider , in a timely manner, a request to allow for a price increase for improvements made by the Owner, the Owner must submit the following documentation:
a. Submit their written request prior to commencement of the work but a minimum of 60 days prior to submitting the Notice of Intent to Sell for the sale or transfer of the BMR Unit; and b. Submit before and after photos; and
c. Submit proof of payment for the work that was completed, such as paid invoices or receipts; and d. Submit a copy of any necessary permits, if required; and e. Submit an approval letter from the HOA, if required.
The allowed price increase for approved improvements shall not exceed the lower of the following:
1. Fifty percent (50%) of the actual out-of-pocket cost of approved improvements paid by Owner, as verified by paid receipts; or
2. Ten percent (10%) of the Maximum Resale Price as calculated at the time of Owner’s request and prior to improvements.
Any allowed price increase for approved improvements shall be added to the Owner’s calculated Maximum Resale Price upon resale only and not for a refinance.
Owner’s Right to Sell
A BMR Owner is free to sell the unit to any household wh ich qualifies in the applicable income category and meets all applicable qualification criteria. The Owner may contact individuals from the City’s Interest List, provided by City staff, or find their own qualified buyer. Any public advertisements are subject to City approval. The City will provide the maximum sale price as well as the required paperwork/instructions for the resale process at the time the Owner notifies the City of their intent to sell the unit. The BMR Owner chooses whether to pay for representation by a realtor or attorney or to conduct a “For Sale By Owner” transaction.
Resale Process
Owner shows property to prospective buyers and selects one who seems to meet the eligibility requirements and who can provide a recent loan pre-qualification letter from an institutional lender. The Owner and prospective buyer execute preliminary real -estate documents, after which the City accepts 43 65266.00423\41139945.4
33 and reviews income documentation to verify that the prospective buyer qualifies. Upon City approval of the prospective buyer, an approval letter will be emailed to the buyer and seller, at which point the Owner and prospective buyer open escrow with an escrow company that is willing and able (knowledgeable) to complete a price-restricted “affordable unit” resale.
Closing
Once the BMR Owner notifies the City that they are in escrow with the qualified buyer, the City will prepare escrow instructions for the escrow officer. The escrow instructions will reiterate the restrictions on the BMR Unit and specify the order and timing of the applicable affordability documents (e.g., “Affordability Covenant & Option to Purchase”) to be signed and recorded at close of escrow. Original copies of the recorded documents will be delivered to City Housing staff.
VIII. RENTAL PROGRAM
A. Applying for a BMR Rental Unit
Before Applying for a BMR Rental Unit
Before applying for a BMR Rental Unit, households should review the published information regarding the available units. It is important that applicant households understand the applicable requirements for the unit for which they are applying, including any minimum income requirements, occupancy limits, etc.
Submission of a Full Application with Income Documentation If a household is select ed in the housing lottery process to lease a new BMR Rental Unit, the household must submit an Income Certification Application which must be completed and submitted by the applicant household to begin the process of confirming household eligibility to lea se the unit, pursuant to Section IV – Affordable Housing Lottery and Section VI – Determining Household Income and Assets. For re-rentals of an existing BMR Rental Unit , applicant households must submit a complete application packet, including income documentation, and the property manager will select tenant(s) to lease the BMR Rental Unit(s), pursuant to the approved Tenant Selection Plan for the property. Income determinations will be conducted pursuant to Section VI – Determining Household Income and Assets.
B. Application Process for BMR Rental Units
Notification Regarding Upcoming Available Units
When new or existing BMR Rental Units will soon be available for lease, the property manager will advertise the units only as prescribed in the approved Marketing Plan and Tenant Selection Plan for the property.
Housing Lottery
The City and the Project Owner will hold a joint public lottery for each Project with new BMR Rental Units.
Refer to Section IV – Affordable Housing Lottery for more information.
Application Changes after Submission
If a household determines that relevant information was changed, omitted, or misrepresented in the Lottery application materials or Income Certification Application that the household submitted, the household must inform the City as soon as possible.
44 65266.00423\41139945.4
34 Fees for Applying
The property owner or manager of a project with BMR Units in the City can charge reasonable application fees to applicants for rental units. Such fees must be approved in advance by Housing Program staff an d must be no greater than fees charged to any applicant for rental units in the development.
BMR Rents
The City sets maximum monthly rent amounts for BMR Rental Units using a formula which combines: AMI for a 4-person household, the target income percentag e applicable to the income category, a bedroom adjustment factor for the size of the unit, and an affordability standard of 30 percent (see Section III – Developer Requirements ). The maximum rent amounts, by income category and unit size, will be published annually on the City’s website.
Additional Fees or Rent Required of Renters
Property owners or managers must obtain prior written approval from the City of any additional required fees or rent, such as renters’ insurance, that will be required of tenants of BMR Rental Units. Such fees will be allowed only if they apply to all renters in the development and only if the fees or rent do not exceed the maximum monthly rent amounts applicable to the BMR Rental Unit(s) , unless authorized by the City.
C. Tenant Selection Plan
Developers (or property owners or managers) responsible for BMR Rental Units must submit to the City a Tenant Selection Plan. A Tenant Selection Plan establishes a set of actions and policies that are consistently applied to all residents and applicants regarding tenant selection. The plan governs selection of tenants in BMR Rental Units using a public housing lottery (as required by the City) or when a public housing lottery is waived for good cause in compliance with Section IX.B – Requests for Waiver, as well as for subsequent leasing of the units beyond the initial occupancy.
Tenant Selection Plan Requirements
Prior to initiation of any marketing for BMR Rental Units, the property owner or manager must submit both a Marketing Plan as well as a Tenant Selection Plan which must be approved by the City and be in compliance with the following minimum requirements.
1. The Tenant Selection Plan shall include a nondiscrimination statement in compliance with applicable local, state, and federal fair housing laws.
2. The Tenant Selection Plan shall set forth the essential requirements of tenancy and the grounds on which tenants will be rejected for failing to meet such requirements. At minimum, the Tenant Selection Plan shall describe:
a. Program eligibility requirements and identification of any preferences or occupancy standards for the project. Applicant households’ total annual income cannot exceed the maximum income limits for their household size. Current income limits shall be posted at the property owner or manager’s office during regular hours of operation. b. Application procedures including availability of applications and how to apply. c. Method for processing applications as required by the project’s recor ded Affordability Covenant, including whether the property owner or manager will use a public housing lottery, maintain their own waitlist, use HASBARCO’s waitlist, and/or on a first-come/first- served basis.
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35 d. Waitlist procedures, if applicable.
e. Process for reviewing applications, including determining income eligibility, applicable preference categories, screening procedures, and possible reasons for denial. The method of income calculation, as outlined in Section VI – Determining Household Income and Assets and as further defined in 24 CFR 5.609, will be used to verify income eligibility for BMR Rental Units unless otherwise requested and approved by City Housing staff. f. Process for rejection letters and grievance procedure, in compliance with Section VIII.D – Appeal Process for BMR Rental Units below.
g. Annual income recertification procedures. All residents of BMR Rental Units must cooperate with income recertification on an annual basis.
3. The property owner or manager shall obtain approval from City Housing staff prior to making any changes to the Tenant Selection Plan.
4. The Tenant Selection Plan must be available for public viewing at the property owner or manager’s office during regular hours of operation.
Application Approval and Disqualification
When property owners or managers approve applicants for a BMR Rental Unit, they must attempt to contact the approved household through email, mail, and telephone. The approval notification must include information on next steps required in the process of renting a BMR Rental Unit.
When property owners or managers disqualify applicants, they must notify the applicant in the same manner as for approvals. The disqualification letter will explain the reason(s) for the disqualification and provide information on the appeal process, including a deadline and a link for secure electronic submission of sensitive materials.
D. Appeal Process for BMR Rental Units
If a disqualified applicant believes the disqualification decision was reached in error and has additional information and documentation that could reverse the decision, they can submit an appeal to the property manager per the grievance procedure outlined in the approved Tenant Selection Plan, asking for reconsideration. Appeal requests must be made in writing and must clearly state the basis for the applicant’s belief that the property manager made an error in disqualifying the application. To ensure it is received in a timely manner, it is best to send an appeal request electronically, but it can also be sent through the US Postal Service , United Parcel Service, or FedEx . The appeal request must include supporting documentation that corrects the error.
The property owner will review, document, and make a determination on any appeals received, per the approved grievance procedure. The property owner must consider any additional material submitted in making a decision on an appeal request.
City staff will review records on applicant appeals during the annual compliance monitoring as well as in response to any complaints received by applicants.
E. Permissible Reasons for Project Owners to Deny BMR Rental Applicants Does Not Meet Minimum Income Requirement
The ov erall viability of a rental property is dependent on the monthly rent payments of its tenant households. It is important then that residents be able to pay rent amounts when they are due. While the 46 65266.00423\41139945.4
36 City does not have a minimum income level for BMR Rental U nits, some property owners or managers may set a minimum income requirement as a method of ensuring that tenants have the financial capacity to pay contracted rent amounts. Any such minimum monthly income requirement must be approved in writing in advance by Housing Program staff and must not exceed two times the monthly rent (or the tenant’s portion thereof, in the case of housing voucher/rental assistance payments).
Failure to pay rent amounts due is one of the few permitted reasons for evictions of tenants in BMR Rental Units. If tenants foresee that they will be unable to pay their rent, they should contact the City as early as possible to determine if any assistance programs are available.
Credit
Property owners or managers may require adult household members to clear a credit check, but only after the household has been income qualified for the unit. If a property owner or manager’s minimum credit score standard is above 620 (or its equivalent in the case of other credit scoring models), the property owner or manager must consider mitigating circumstances when selecting applicants. See Section VI – Determining Household Income and Assets for more information.
F. Restrictions on BMR Rental Units and Renters
Occupancy
Occupant households, including all adults on the lease, must occupy the BMR Rental Unit as their primary residence for a minimum of ten (10) months per calendar year. This requirement may be modified only if the household submits a written request to the City in compliance with Section IX.B – Requests for Waiver, and such request is approved in advance for good cause, such as illness, employment changes, etc.
No Subletting
BMR Rental Units may not be rented or sublet for any reason or any amount of time. In the event of household circumstances or emergency that would create a financial hardship in remaining in and paying for the BMR Rental Unit, tenants should contact the property manager and City staff as early as possible to discuss any assistance that may be available.
Household Size
For information on household composition requirements, refer to Section V.A - Who Can Apply for Affordable Housing in Goleta.
Household Changes
Any changes in household size or composition must be reported to the project owner or manager.
However, w ithin the first year of occupancy of a BMR Rental Unit, changes in household size or composition are not permitted, except in the case of birth, death, or dissolution of marriage or domestic partnership within the household. Any such changes must be approved by the property owner or manager and reflected in a written lease amendment, and the household must meet the applicable income limit for the unit at the next annual re-certification. Additions to the household may be subject to a credit and criminal background check when qualifying. Unapproved changes in household size could result in non - renewal of the household’s lease in the BMR Rental Unit , except that an increase in household size resulting from birth or adoption of a child under the age of 18 shall not be acceptable grounds for eviction on the basis of exceeding the maximum household size.
47 65266.00423\41139945.4
37 Transferring BMR Rental Units
If a household occu pying a BMR Rental Unit wishes to move to a different unit in the project, they may submit a written request to the property manager for such a move when another BMR Rental Unit becomes available. If the reason for the request is related to mobility -accessibility needs or changes in household size, the property owner must make diligent efforts to accommodate the request when feasible. Otherwise, the approval of such a request is subject to the discretion of the property manager.
The household will be responsible for the costs associated with such a transfer.
Rental Unit Maintenance
BMR Rental Units must be properly maintained by occupant households as well as property managers.
Occupant households are responsible for making sure that their BMR Rental Units are not damaged, for maintaining the unit in compliance with the terms of their lease, and for notifying the property manager of any condition requiring repairs . Project owners or managers are responsible for maintaining all BMR Rental Units as decent, safe, and sanitary condition and in the same manner they maintain the market rate units on the property.
Annual Re-certification
Occupant households in BMR Rent al Units must submit to annual re-certification of the household’s continued program eligibility, including household size, occupancy, and income.
G. Lease Requirements for BMR Rental Units
Unit Selection
If there are multiple BMR Rental Units available and an eligible household is given the opportunity to select a unit to occupy, the household can cho ose the particular unit they wish to occupy based on the size, location, and features available, as long as the household complies with the rules and requirements of this Manual.
Lease
Prior to occupancy of a BMR Rental Unit, the property owner or manager must submit a sample lease to City staff for review. The lease must offer at least a one-year term at initial occupancy and again at lease renewal. Upon a tenant household’s request only, a shorter lease may be agreed upon and executed. The lease must contain a declaration by the tenant household members that they will occupy the unit as their primary residence and that they consent to cooperate with annual recertification of household income.
The lease may not contain any of the following provisions:
(1) Agreement to be sued. Agreement by the tenant to be sued, to admit guilt, or to a judgment in favor of the owner in a lawsuit brought in connection with the lease; (2) Treatment of property. Agreement by the tenant that the owner may take, hold, or sell personal property of household members without notice to the tenant and a court decision on the rights of the parties. This prohibition, however, does not apply to an agreement by the tenant concerning disposition of personal property remaining in the housing u nit after the tenant has moved out of the unit. The owner may dispose of this personal property in accordance with State law;
48 65266.00423\41139945.4
38 (3) Excusing owner from responsibility. Agreement by the tenant not to hold the owner or the owner’s agents legally responsible for a ny action or failure to act, whether intentional or negligent;
(4) Waiver of notice. Agreement of the tenant that the owner may institute a lawsuit without notice to the tenant;
(5) Waiver of legal proceedings. Agreement by the tenant that the owner may evict the tenant or household members without instituting a civil court proceeding in which the tenant has the opportunity to present a defense, or before a court decision on the rights of the parties; (6) Waiver of a jury trial. Agreement by the tenant to waive any right to a trial by jury; (7) Waiver of right to appeal court decision. Agreement by the tenant to waive the tenant ’s right to appeal, or to otherwise challenge in court, a court decision in connection with the lease; (8) Tenant chargeable with cost of legal actions regardless of outcome. Agreement by the tenant to pay attorney’s fees or other legal costs even if the tenant wins in a court proceeding by the owner against the tenant. The tenant, however, may be obligated to pay costs if the tenant loses; and (9) Mandatory supportive services. Agreement by the tenant (other than a tenant in transitional housing) to accept supportive services that are offered.
Lease Execution and Commencement
Prior to occupying a BMR Rental Unit, a household must sign a lease . The lease term should commence and the household should occupy the unit no more than 60 days after signing the lease.
Minimum Term and Early Lease Termination
All leases must have a twelve (12)-month term. The material terms of the lease shall not change from year to year, except for the monthly rent amount (in compliance with the recorded covenant on the property) and other changes as required and approved by City staff.
If a household wishes to terminate its lease early, it must notify the property owner or manager in writing of its intentions and will be financially responsible for the fees associated with an early termination.
However, any fees assessed or co llected must be reasonable and applicable to all units in the project.
However, property owners or managers may not assess, charge, or collect fees for BMR Rental Units for any period in which the BMR Rental Unit has been re-rented.
Household Members on the Lease
All household members aged 18 years or older must sign the lease for a BMR Rental Unit. However, the following individuals are not required to sign the lease:
Legal dependents of leaseholders as claimed on the two most recent federal income tax returns. Household members younger than 24 years of age who are the children of a leaseholder who will reside in the BMR Rental Unit as their primary residence, regardless of whether they are named as a dependent on a recent federal tax return.
Live-in aides for health care purposes who are (1) determined to be essential to the care and well- being of a household member; (2) are not obligated for the support of the household member; and (3) would not be living in the unit except to provide the necessary supportive services. 49 65266.00423\41139945.4
39 Security Deposits
A property owner or manager may require a security deposit upon move -in to a BMR Rental Unit. The amount collected at move -in, including any combination of first month’s rent, last month’s rent, and security deposit(s), must be in compliance with applicable state law and in no case more than equal to two (2) months’ rent.
Late Payment Fees
A property owner or manager may impose fees or penalties for late payment of the monthly rent amount by the due date specified in the signed lease agreement, only if fees are lawful and applicable to all tenants in the project. However, for BMR Rental Units, late payment fees are limited to no more than five percent (5%) of the monthly rent amount.
H. Annual Monitoring and Re-certification of BMR Rental Units City Monitoring of BMR Rental Properties
City staff will conduct annual compliance monitoring of projects with BMR Rental Units. This monitoring could include inspection of files and records, as well as on-site property and unit inspections as needed.
Annual Renter Household Re-certification
Occupant households in BMR Rental Units must submit to annual re -certification of the household’s continued program eligibility , including household size, occupancy, and income. (Credit and criminal background checks may only be undertaken at the household’s initial qualification or if there are changes in household size or composition. ) Property managers should provide households the required re - certification application prior to lease expiration, ideally 120 days in advance. Renters must complete the re-certification form and provide all information requested in that application.
Allowable Income Increases upon Re-certification
Within the first twelve (12) months of occupying a BMR Rental Unit (for example, if the property owner or manager conducts income re-certifications for all BMR Rental Units at the same time, resulting in a re- certification within a year of a household’s move -in date) , the income of the BMR Renter Household cannot exceed the income limit applicable of the BMR Rental Unit when it was first rented. However, the housing security and affordability provided by a BMR Rental Unit may foster concomitant benefits for the tenant household, such as greater professional success and promotion. Such advancement, including pay raises, should not be avoided for fear of jeopardizing the household’s living arrangement. Therefore, after the first 12 months of occupying a BMR Rental Unit, it is permissible for the income of the BMR Renter Household to increase up to a maximum 1 60% of AMI (or up to 200% AMI for Above Moderate units) , adjusted for household size, before rent increases are implemented.
Permissible Rent Increases for BMR Rental Units
Rent increases in BMR Rental Units are permitted once per year upon lease renewal, with adequate prior written notice to the tenant household and in compliance with the maximum rent amount calculation specified in Section III – Developer Requirements.
In addition, if upon re-certification the tenant household’s income exceeds 160% of AMI (or 200% AMI for Above Moderate units) , the property owner or manager may increase the tenant’s monthly rent to 30 percent (30%) of the household’s gross income, adjusted for unit size pursuant to this Manual and the recorded affordability covenant. If and when the over-income tenant vacates the unit, the property owner 50 65266.00423\41139945.4
40 or manager must lease the unit to a household wh ich meets all income and other City program requirements applicable to the unit, including the local employee/local resident preference requirement.
I. Eviction or Non-renewal of Lease for BMR Rental Units Eviction or Non-renewal of Leases
Some tenants in BMR Rental Units may find themselves in a situation where they need counseling and/or legal services to prevent lease non -renewal or eviction. Prior to any eviction or non -renewal of a lease, the City expects property owners or managers to refer such tenants to the Rental Housing Mediation Program (operated by the City of Santa Barbara and contracted to assist City of Goleta residents with tenant-landlord relations) and to communicate potential lease violations or other issues to the City before taking any action against a tenant of a BMR Rental Unit.
A property owner or manager may not terminate the tenancy or refuse to renew the lease of a tenant of a BMR Rental Unit, except for:
Documented non -payment of rent, meaning that the tenant of the BMR Rent al Unit or the guarantor, if any, has failed to pay the rent to which the property owner or manager is lawfully entitled under the lease agreement.
Documented illegal use of the BMR Unit, meaning that the tenant is using it or permitting it to be used for any illegal purpose.
Documented subleasing of the BMR Unit or offering it as a short-term rental. Documented breach of the lease agreement.
Overcrowding of the BMR Rental Unit. The tenant must adhere to the terms of the executed lease for the unit including the approved number and listing of the household members occupying the unit. (An increase in household size due to the birth or adoption of a child under the age of 18 shall not be grounds for eviction or non-renewal of lease.) Documented violation of City Program rules, for example, not occupying the BMR Rental Unit as the household’s primary residence.
An increase in the tenant’s income is not grounds for eviction or non-renewal of lease.
General Procedures for Eviction or Non-renewal of Lease To terminate or refuse to renew tenancy, the owner must serve written notice upon the tenant specifying the grounds for the action at least 30 days before the termination of tenancy and in accordance with applicable state law.
IX. CITY NOTICES AND WAIVERS
The City will periodically update and publish information related to operation of City Housing programs and BMR Units. Additionally, there are times when property owners or managers must notify the City of changes planned for BMR Units.
A. Official Notices
Official notices must be mailed to the appropriate party, via USPS certified mail, UPS or FedEx. For issues related to a project’s affordability covenant, the mailing address and contact person listed in the recorded affordability covenant will be used unless/until an amended mailing address is provided. Notifications to the City as well as requests for waivers should be mailed to:
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41 City of Goleta
Housing Programs Staff
Planning & Env. Review
130 Cremona Dr, Suite B
Goleta, CA 93117
B. Requests for Waiver
The provisions of this Manual are intended to apply consistently to projects with BMR Units . However, where strict application of the policies and procedures in this Manual would cause undue hardship to an applicant or developer or would unintentionally exclude an otherwise qualifying household from participating in the City’s programs, a request for a waiver may be submitted in writing along with documentation of good cause.
Possible examples of good cause would be:
Requesting a waiver from the public lottery requirement because of conflicting programmatic requirements of a project’s funding sources
Requesting a waiver from the public lottery requirement because of plans to serve special needs populations via client referrals, etc.
Requesting a waiver from minimum credit score because medical expenses adversely affected credit rating.
Requests for waivers will be reviewed by the PER Department Director, or the Director’s designee, who is empowered to approve or deny such requests at the department level. The decision of the PER Director or the Director’s designee is final.
C. Annual Updates to Income Limits
HCD publishes annual updates of AMI and income limits, which serves as the definitive source of income- category information in the City. City staff will provide a link to that information on its website.
D. Annual Updates to Rent Limits
The City will update annually the rent limits applicable to BMR Rental Units by income category and by unit size, and City staff will post the updated rent limits on its website.
E. Increases in Contracted Rent Amounts
When property owners or managers plan to increase contracted rent amounts at the time of lease renewal for BMR Rental Units, they should give the tenants at least 30 days’ notice and provide a copy to the City.
F. Changes in Property Management for Rental Units
The City should be notified of any pending cha nge in the property manager or property management company responsible for administration of BMR Rental Units.
G. Resale or Refinance of Ownership Units
If the current owner of a BMR Ownership Unit wishes to sell or refinance their unit, the owner should first contact the City and follow the process as outlined in Section VII – Ownership Program. 52 65266.00423\41139945.4
42 Exhibits:
Exhibit A. Sample Calculation of Maximum Sale Price - Low Income Exhibit B. Sample Calculation of Maximum Sale Price - Low Income
53 65266.00423\41139945.4
43 Exhibit A
Sample Calculation of Maximum Rent Amount - Low Income
Source date: June 2023
Number of Bedrooms Studio 1 2 3 4
Income Level: 107,300$ AMI
Target income (% of AMI): 60% 60% 60% 60% 60% 30% Affordability Std.
Bedroom Adjustment Factor 0.70 0.80 0.90 1.00 1.08
Target income for affordability: 45,066$ 51,504 $ 57,942 $ 64,380 $ 69,530 $ Affordability Standard 30% 30% 30% 30% 30%
Max payment for housing: 1,127 $ 1,288 $ 1,449 $ 1,610 $ 1,738 $ Low
54 65266.00423\41139945.4
44 Exhibit B
Sample Calculation of Maximum Sale Price - Low Income
Source date: June 2023
Number of Bedrooms Studio 1 2 3 4
Income Level: 107,300 $ AMI
Target income (% of AMI): 60% 60% 60% 60% 60% 1.25% Property Taxes Bedroom Adjustment Factor 0.70 0.80 0.90 1.00 1.08 1.00% PMI Target income for affordability: 45,066$ 51,504$ 57,942$ 64,380$ 69,530$ 0.40% Hazard Insurance
4.65% Mortgage Interest
Housing cost/inc ratio for calc: 35% 35% 35% 35% 35% 30 Loan Term in Years Max payment for housing: 1,314 $ 1,502 $ 1,690 $ 1,878 $ 2,028 $ 10% Down Payment 35% Max. HCI ratio
Down payment used for calc: 10% 10% 10% 10% 10% 420$ HOA fees Mortgage interest used for calc: 4.65% 4.65% 4.65% 4.65% 4.65% Association fees used for calc: 420$ 420$ 420$ 420$ 420$ Property tax payments: 136$ 165$ 193$ 222$ 245$ Hazard insurance payments: 44$ 53$ 62$ 71$ 78$ Mortgage insurance payments: 109$ 132$ 155$ 177$ 196$ Mortgage payments: 606$ 733$ 860$ 988$ 1,090 $ Amt of loan this will amortize: 117,532$ 142,206$ 166,881$ 191,555$ 211,295$ Plus down payment: 13,059$ 15,801$ 18,542$ 21,284$ 23,477$ Total sale price: 130,591$ 158,007$ 185,423$ 212,839$ 234,772$ Maximum sale price (rounded): 130,600$ 158,000$ 185,400$ 212,800$ 234,800$ Low
55 65266.00423\41139945.4
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Attachment 2
Sample Maximum Rent Amount Matrix
57 Studio 1-bedroom 2-bedroom 3-bedroom 4-bedroom
Extremely Low $563 $644 $724 $805 $869
Very Low $939 $1,073 $1,207 $1,341 $1,449
Low $1,127 $1,288 $1,449 $1,610 $1,738
Moderate $1,878 $2,146 $2,414 $2,683 $2,897
Workforce $3,004 $3,434 $3,863 $4,292 $4,635
58 Attachment 3
Sample Maximum Sale Price Calculation
for Low-Income BMR Ownership Units
59 Low Income
Number of Bedrooms Studio 1 2 3 4
Income Level: 107,300$ AMI
Target income (% of AMI): 60% 60% 60% 60% 60% 1.25% Property Taxes Bedroom Adjustment Factor 0.70 0.80 0.90 1.00 1.08 1.00% PMI Target income for affordability: 45,066$ 51,504$ 57,942$ 64,380$ 69,530$ 0.40% Hazard Insurance
4.65% Mortgage Interest
Housing cost/inc ratio for calc: 35% 35% 35% 35% 35% 30 Loan Term in Years Max payment for housing: 1,314$ 1,502$ 1,690$ 1,878$ 2,028$ 10% Down Payment 35% Max. HCI ratio
Down payment used for calc: 10% 10% 10% 10% 10% 420$ HOA fees Mortgage interest used for calc: 4.65% 4.65% 4.65% 4.65% 4.65% Association fees used for calc: 420$ 420$ 420$ 420$ 420$ Property tax payments: 136$ 165$ 193$ 222$ 245$ Hazard insurance payments: 44$ 53$ 62$ 71$ 78$ Mortgage insurance payments: 109$ 132$ 155$ 177$ 196$ Mortgage payments: 606$ 733$ 860$ 988$ 1,090$ Amt of loan this will amortize: 117,532$ 142,206$ 166,881$ 191,555$ 211,295$ Plus down payment: 13,059$ 15,801$ 18,542$ 21,284$ 23,477$ Total sale price: 130,591$ 158,007$ 185,423$ 212,839$ 234,772$ Maximum sale price (rounded): 130,600$ 158,000$ 185,400$ 212,800$ 234,800$ Low
60 Attachment 4
Sample Maximum Sale Price Matrix
61 Studio 1-bedroom 2-bedroom 3-bedroom 4-bedroom
Extremely Low $33,400 $49,200 $63,100 $77,100 $88,200
Very Low $95,000 $117,000 $139,100 $161,100 $178,700
Low $130,600 $158,000 $185,400 $212,800 $234,800
Moderate $258,500 $304,200 $349,900 $395,600 $432,200
Workforce $450,400 $523,600 $596,700 $669,800 $728,300
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