The city is scrambling to devise a plan on how to deal with the
amount of below-market-rate homes approaching foreclosure.
The city is scrambling to devise a plan on how to deal with the amount of below-market-rate homes approaching foreclosure.
Historically, there has been, at most, two homes in the city’s affordable housing program that have defaulted in a given year since the program was established as part of the growth control system in the 1980s, according to Business Assistance and Housing Service Senior Project Manager Erwin Ordonez.
State law requires all cities to build a certain amount of affordable and low-income homes.
The city allocates about $750,000 each year to purchase homes in default so that they stay part of the city’s affordable housing stock, he said.
But since October, the owners of 14 such homes have received default notices from their lenders. This is just less than 3 percent of the total 500 homes in the city’s below-market-rate program.
If the city expends its $750,000 buying defaulted homes, staff would have to approach the council to buy more. Sometimes, the city doesn’t find out about the notices until just weeks or even days before the trustee sale, making it difficult if not impossible for the city to take action to purchase the home and keep it in the fold, Ordonez said.
If a program home is foreclosed on, the lender sells it, and the home is no longer part of the city’s affordable housing stock.
To keep the stock of these homes healthy, the Redevelopment Agency board members, with the city council acting as the board, will consider new criteria for the city to purchase such homes. And, to hasten the process, the board will consider giving Redevelopment Agency Executive Director Ed Tewes authority to approve the purchase of such homes for one year.
That way, if the city finds out about a trustee sale late in the game, they’ll still be able to act swiftly to purchase the home, Ordonez said.
A below-market-rate home purchase isn’t the first resort for the city, he said. First, the city would connect the distressed homeowner with counseling services to encourage the owner to work with their lender to keep their home. Then, 45 days after the homeowner has received their default notice, the city would evaluate purchasing directly from the owner.
The council will consider staff’s recommendation during their regular meeting at 7 p.m. Wednesday in Council Chambers at City Hall, 17555 Peak Ave.
The city may have to buy homes to keep the stock up, but at the same time is alleviating developers of building more.
Meanwhile, developers may continue to be relieved of their affordable housing burden. The Morgan Hill Planning Commission has recommended approval of the local developers’ plea to extend the below-market-rate housing reduction program, which relieves the burden of building affordable housing on the developers.
Mayor Steve Tate said he wasn’t surprised to hear that the planning commission recommended extending the program, but he said he didn’t think the city had all the answers or resources needed to fix both problems at the same time.
“How do you optimize everything at the same time, when you don’t have the resources to do it with? That’s the question we face,” Tate said.
The program, approved in October by the city council, is devised to help kick-start development in Morgan Hill after the standstill reached during the lowest point of the housing and economic crisis.
So far, six developers have taken advantage of the program and, provided they pull construction permits by Sept. 30, will have eliminated their below-market-rate housing duty.
In exchange for eliminating their program commitment, the developers committed to enhancing some other area of their project, according to staff reports.
