Introduction

The Chicago Community Land Trust (CCLT) is a quasi-independent non-profit corporation operating city-wide across Chicago.  It was created in 2006 to protect the affordability of affordable ownership homes being providing by for-profit or non-profit developers through various programs in the city.

It currently controls affordable ownership units generated by Chicago Partnerships for Affordable Neighborhoods (CPAN), New Homes for Chicago, and now also the Affordable Requirements Ordinance (ARO) since 2007.

The organization was established with the expressed purpose to ensure that these units remain permanently affordable.   Formerly, the city’s affordable ownership units were subject only to secondary recapture mortgages, and many of these were forgiven over time.  Consequently, the homes were only affordable to the first buyer.  Even when the value of the reduced price was recaptured, the city found that in an appreciating housing market the money recovered was insufficient to provide replacement housing at the same income level.

Establishing a new city-wide organization for this purpose was seen as a way of providing uniform legal documents with a consistent resale formula across the city, ensuring fairness and consistency in the allocation of the units, eliminating administrative duplication, and reducing the potential for fraud through better monitoring and stronger controls.

Despite the name, the CCLT is not a community land trust as generally defined in the US.  While it shares many of the same goals – including permanently affordability – it does follow all of the hallmark practices of these organizations in the US.   They typically operate independently of government, include homeowners in their board, and use leases to maintain ownership of the land while selling the units built on it.

Organization

The organization is currently funded and supported by the city through its Department of Community Development (DCD).  This department pays the staff salaries, and provides office accommodation and support staff.   In time, the organization expects to be self-financing from the fees that it will charge.

The organization was initially supported by start-up funds from a major foundation.  These funds have run-out and it is looking for another similar temporary source.

The organization as a board of directors appointed by the mayor and approved by City Council.  The directors are drawn from various community, business and professional groups, including private and non-profit developers, service providers, universities and foundations, financial institutions and law firms, city departments and others.  In time, when its housing portfolio has increased, one third of the board will be drawn from the owners of CCLT units.

The organization now has two full-time staff, an executive director and outreach director.  This staff is expected to grow as the number of units under its control increases.

Portfolio

CCLT currently administers 38 ownership units.  Only 4 of these have come from the recently-established ARO. (The latter number is not surprising because inclusionary programs take time to be productive, and also because production is being affected the current economic downturn.)

There are well over another 1000 existing affordable ownership units in the city generated by other programs.  Unless CCLT is able to buy these units as they are resold, these units will continue under their existing agreements and outside of the permanently affordable restrictions of CCLT.

The intention is that all of the new units generated by ARO and the other programs will be placed under the control of CCLT, but there might be exceptions.  The local aldermen in Chicago on occasion strike their own deals.  So, there is the possibility that some of the ARO units will fall outside of CCLT’s control because they are subject only to the 30-year recapture mortgages used in the past.

Also, the CCLT has established a policy that it will accept only affordable units selling at a price at least $25,000 lower than the market price.  The concern is that affordable units with a smaller price deferential would not be marketable due to the legal encumbrances imposed on them to protect affordability.

Controls

The CCLT was established with the express mandate to establish resale controls and procedures for ensuring the long-term affordability of the ownership units placed under its administration.  The provisions were to be designed to balance the competing goals of long-term affordability and providing a fair return on the homeowner’s investment.

Legal Agreements

CCLT is using a covenant in the form of deed restriction recorded against the property title as the legal mechanism to control the affordability of the units.  This agreement will control affordability for 99 years.  It is also renewable whenever the unit is sold within that period.

Consideration was given to using a ground lease for single family units and the restrictive covenant only on multi-unit structures, but the decision was made to use only the covenant for various reasons:

1. one document would be easier to administer than two;
2. a ground lease could not be used on multi-unit structures;
3. the use of covenants was well-established and understood in the city; and
4. it would be more cost-efficient to administer.

Targeted Incomes

In general, CCLT will target households earning 100% or less of area median income, but under its resale price formula it will allow a price rise up to a cap set at 120% of area median income (see below).

Eligibility Criteria

In addition to meeting the income limits, CCLT requires prospective buyers to participate in pre-purchase homeownership counselling provided by one of various non-profit agencies, and also attend its own education program to deal with the covenant and other matters specific to the organization.

It applies no other criteria to ARO buyers, although some programs have asset and first-time-buyer limits.

The buyers must qualify for a mortgage loan from a private lender.

Sales Procedures

All new CCLT homes are currently being marketed and sold through the developers.  The units are posted on a website operated by another city agency that lists all of the affordable ownership and rental units available in the city.  They also rely on staff at the DCD to assess the income qualifications of the buyers.

CCLT expects to develop and operate a waiting list of eligible buyers.  It also will be developing procedural rules for the sales.   These are expected to depend upon a “first-come/first-served” approach, but modified by a points system to give priority to certain buyers.  It also could also use lotteries when justified by demand.

Resale Price

For the duration of the agreement, the owners are able sell their homes only either back to CCLT or to another income-qualified buyer.  In either case, they can be sold only for a price up to the maximum permitted resale price.

The maximum permitted resale price is allowed to rise up to a price not exceeding what would be affordable to household earning 120% of local median income.  The permitted resale price is allowed to rise so that the homeowners are able to receive a percentage of the increase in the market value of the unit.

The percentage is based on the difference between the initial fair market value of the home as determined by appraisal and the affordable purchase price that the homeowner pays. The percentage also varies according to the difference between the two figures as shown in the following:

• 25% for a difference of less than $50,000;
• 20% for $50,000 to $100,000;
• 15% for $100,000 to $150,000; and
• 12% for over $150,000.

Resale Process

When the homeowners decide to sell, they must first notify the CCLT, which will then order an appraisal of the home.  The cost of the appraisal is paid out of the sale proceeds.

CCLT holds a first option to purchase the home.  Whenever CCLT exercises this option – rather than actually buying the unit – it expects to use the 4-month closing period to transfer the ownership to an eligible buyer from its waiting list.  In lieu of real estate fees, it will charge the seller a fee based upon 3% of the sales price.

If CCLT does not exercise its option, the homeowner is responsible for marketing and finding an income-qualified buyer.  In time, CCLT expects to assist in these sales by providing the names its waiting list.

A copy of the sale contract and income qualifications of the new buyer must be submitted to the CCLT for approval prior to finalizing the sale.

Other Key Requirements

The owners are required to pay a covenant fee, currently $25/month, to cover the cost of managing the program and providing services and referrals.

The owners must use the home as their principal residence and occupy it for at least nine months out of the year.  They may not lease the land or sublease the home.

When a spouse, domestic partner or a dependent of the owner inherit a unit, they can continue to live there as long as they wish, provided they abide by the terms of the restrictive covenant.  Others heirs are able to stay in the home when they are income-qualified, but otherwise must sell according to the resale terms.

The owners must obtain approval from CCLT before making any improvements that require a building permit or increase the livable square footage of the home.

The owners must also obtain the approval of CCLT before refinancing the purchase. 

Activities

The early activities of CCLT have focused on the following:

• developing the deed restriction and resale formula to be used in the preserving affordability of the units;
• developing and operating its pre-purchase education program;
• recruiting and educating a pool of mortgage lenders willing to offer mortgages for their buyers;
• recruiting and educating a pool of lawyers to assist their buyers.  (The buyers are not required to use these lawyers, who charge their full rates.);
• securing outside funding to help low-income buyers with their legal fees; and
• obtaining a commitment from the local county assessor’s office to base the property tax on the controlled sales price and not the market price.

The organization describes the following as its major on-going responsibilities:

• helping the developers in marketing the affordable units;
• providing community outreach and education for developers, aldermen, community organizations and other interested parties;
• organizing and operating pre-purchase CCLT education courses;
• securing additional service providers (lenders, attorneys and others) for the CCLT buyers;
• monitoring the closing of the sales;
• providing post-purchase homeowner support
  • to prevent default and foreclosure,
  • to provide oversight and assistance for refinancing and resale,
  • to monitor the property taxes and assist in property tax appeals, and
  • to troubleshoot any other emerging problems;
• monitoring properties to confirm owner-occupancy, payment of property taxes and that homes are free of unauthorized liens; and
• evaluating and updating its policies and restrictions.

RD/10Oct09

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