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How a CLT Operates
1. What is a community land trust?
A community land trust is a non-profit organization created to acquire
and hold land for the benefit of a community and provide secure affordable
access to land and housing for community residents. In particular, CLT's
attempt to meet the needs of residents least served by the prevailing market.
CLT's prohibit speculation and absentee ownership of land and housing, promote
ecologically sound land-use practices, and preserve the long-term affordability
of housing.
2. What kinds of groups
have started CLTs?
CLTs have been established by a variety of local groups, including neighborhood
associations, religious coalitions, community development corporations,
local governments, and groups of concerned citizens. Regardless of the
kind of group, organizing a CLT involves an effort to familiarize the
community with the CLT concept and to develop grassroots support and
participation.
3. Where
does a CLT get it's funding?
In producing
affordable housing, CLTs usually rely on the same resources as other affordable
homeownership programs — including grants from government programs, contributions
of property from both public and private sources, volunteer labor, and so on.
At the same time, CLT projects do sometimes gain greater access to these resources
because the CLT is able to extend their benefits for the long-term.
4. How does a CLT acquire property?
In most cases, CLTs acquire property in the same ways as do other nonprofit
organizations. As tax-exempt organizations, they sometimes receive gifts
of property from individuals or corporations and quite often acquire
city or county-owned property from local governments. But in many cases,
they purchase property in the open market— often with the help
of funding from public sources.
5. Does the CLT ever
sell its land?
Very rarely. Once the CLT has acquired a parcel of land, its intent is to hold
it indefinitely -- never again allowing the land to be bought and sold as a commodity.
Most CLT's structure their bylaws to require the consent of all affected leaseholders
and a supermajority of the board and membership for the corporation ever to sell
any of its land. There have been situations, however, when CLT's have found it
prudent to sell a parcel of land -- exchanging land that is not appropriate for
the CLT's purposes for land that is, or selling off some land to avoid losing
the rest.
6. How do people join
a CLT?
Each CLT develops its own membership criteria. Most CLTs require an annual membership
fee of a few dollars and expect members to attend at least an orientation session
or a general meeting.
7. How does
a CLT help residents?
By providing access, affordability, assistance and security. CLTs use various
kinds of subsidies to make housing and land use more affordable for people who
cannot compete in the market. CLTs keep housing affordable for future generations
by controlling the price owners receive when they sell their homes. CLT's might
assist residents with home repair, rehabilitation and/or financing. The CLT's
lease offers residents and their heirs long-term security.
8. How are CLT homeowner/leaseholders
selected?
Each local CLT develops its selection criteria based on local needs and resources
available. When possible, occupants of buildings acquired by a CLT are given
the opportunity to stay as homeowner/leaseholders or renters. Applicants for
vacant units are normally judged on the basis of need, commitment to the CLT,
and ability to make the necessary payments and handle other responsibilities
of homeownership.
9. What kind of support
does a CLT provide for first-time homeowners?
A CLT does not leave new homeowners to sink or swim on their own. The ability
to provide support depends on the resources available to each local CLT. Some
CLTs provide homeowner training and assistance. CLT's serving cooperatives have
assisted with back-up management services, such as financial management, arbitration,
and resident training and selection. Some CLT's have developed home repair loan
funds and have made special arrangements for leaseholders who face unexpected
financial problems.
10.
How does a CLT define its "community"?
How large a community should a CLT serve?
CLTs usually decide upon a geographic area from which most members will be
drawn. This may be a region, a county, or a neighborhood. Three considerations
commonly
guide organizers of a CLT when they define the CLT's "community": (1)
Does something already bind the people of a certain area together -- a common
land or housing problem; a shared sense of common boundaries, marking one area
as distinct from another in the minds of local residents? (2) Is there a "critical
mass" for organizing a CLT -- enough people, available land, and/or housing
opportunities to accomplish its goals? (3) On the other hand, is the area small
enough to encourage grassroots participation in the CLT's activities? There is
no single way to define a "community". Different CLT's will serve communities
that differ in size -- a sparsely populated rural county may have only one CLT,
a large city may have several.
<<back to top>>
How CLT Homeownership Works
11. What is the ground
lease?
The CLT and the
homeowner sign a ground lease that defines the roles and responsibilities
of both the CLT and the homeowner. The
ground lease allows the homeowner secure, long-term rights to use the land.
CLT homeowners have exclusive use of the land, and they have full responsibility
for the property.The nominal lease rates are different for each CLT, but with
all CLTs, the
lease fee gives the homeowner full use of the land and support services from
the CLT.The ground lease is
renewable, can be transferred to the family’s heirs,
and ensures full rights of privacy. CLT homeowners
and their descendents have a right to occupy and use the leased land for as long
as they wish, provided that they abide by the terms of the land lease. These
terms place some limitations on the resale of the home— preventing resale
to a household that does not qualify as low or moderate income, and limiting
the sales price to keep it affordable. The lease lays out a "resale formula" that
determines the maximum allowable price
12. Can CLT homebuyers
get mortgage loans even though they won’t
own the land outright?
CLTs have been able to negotiate mortgage agreements that address the basic
concerns of lenders while protecting the CLT’s long-term interest in the property.
These agreements typically allow the CLT to take action, if necessary, to prevent
foreclosure and the sale of the property on the open market. Such mortgages give
the lender a claim on the borrower’s house and "leasehold interest." The
CLT’s "fee interest" in the land is not mortgaged. These "leasehold
mortgages" can be, and have been, insured by FHA, and have been purchased
by Fannie Mae and a number of state housing finance agencies, as well as banks.
CLT homebuyers have also received mortgage loans through the Rural Housing
Services program of the federal Department of Agriculture.
13. How do
property taxes work?
Residents pay property taxes on their homes if they own them. CLTs usually
pay taxes on their landholdings, with the cost usually covered by lease fees
from those using the land. (CLTs and their residents can request reduced property
tax assessments based on the resale value of the home as determined by the
CLT’s resale formula
rather than what would otherwise be the market value of the property.)
14. Can CLT homes be
inherited?
Yes, the home is an asset that can be left to the owner’s children or
to anyone else the owner chooses. When a home is inherited, most CLTs will
allow the heirs to live in the home if they are (1) children of the deceased
owner, or (2) have already lived in the home for a period of time, or (3) qualify
as low or moderate income households. Heirs who do not meet any of these qualifications,
or who do not intend to live in the home anyway, must sell the home, in accordance
with the resale restrictions, and will receive the proceeds from the sale.
15. What happens to
the CLT's land and lease arrangements if the CLT is dissolved?
If a CLT is dissolved and ownership of the land is transferred, the new owner
is obligated to honor the long-term lease agreements between the CLT and its
leaseholders. Should the land ever be offered to a non-charitable buyer, the
resident has the right of first refusal to buy the land.
16. What happens if
disputes arise between leaseholders, or between a leaseholder and the
CLT?
The parties will try to negotiate before litigating. The lease agreement usually
establishes an arbitration procedure for settling disputes or grievances. Typically
each party may appoint an arbitrator. The first two arbitrators select a third.
The three-person arbitration panel then meets to consider the case and to render
a judgment. The decisions and awards of this panel are usually binding on all
parties.
17. What happens if a leaseholder wants to move away from the CLT?
After giving the CLT adequate notice, a leaseholder may sell the improvements
to an eligible buyer, transfer the lease, and move away. Since CLTs commonly
retain an option to buy all improvements on CLT land, a leaseholder who wishes
to leave may sell his/her house to the CLT. The CLT will, in turn, sell this
house and lease the land to a new leaseholder.
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Selling
a CLT Home
18. What is the process
for selling a CLT home?
When a CLT homeowner wants to move there are several options. The home
can be sold directly to an income-qualified buyer,
can be sold back to the CLT,
or it can be given to the children or other heirs
of the homeowner. All CLT's ensure that when a CLT homeowner sells their
home, they get
all
of their
equity (the amount of money that they used as a down-payment
as well as the portion of the mortgage paid off) plus a
portion of the appreciated
value
of the home. The sales price for the house is determined
using an independent appraisal of the value of the house and the resale
formula
outlined in
the ground lease. Different CLT's have different resale formulas.
19. How
is the resale price of a home determined?
Each CLT has a formula that will determine the maximum amount to be paid when
a homeowner sells his or her home. The formula may take into account the value
of improvements made by the homeowner, and it may allow the price to be adjusted
for inflation. Generally, the aim is to give the homeowner a fair return while
limiting the price to insure the home will be affordable for the next low-income
owner.
The following is an
example of how the selling price for a CLT house would be determined.This
example uses resale guidelines that determine the sales price by adding
25% of the increase in value of a home to the initial purchase price of
home.
- Initial purchase price of CLT
home: $95,000
- Initial value of the home: $100,000
- Value of the home at resale (appraisal):
$140,000
- Increase in value of home: $140,000
- $100,000 = $40,000
- Resale price: $95,000 + (25%
x $40,000) = $105,000
In this scenario, the seller
receives the amount they paid off of their mortgage, their down- payment,
plus $10,000 from appreciation.
20. Why isn't the CLCLT
resale formula more than 25%?
CLT's provide
access to homeownership for people that cannot afford houses that are for sale
on the real estate market. CLT's make homeownership affordable for today's homebuyers
as well as for future generations of homebuyers. CLT homes are affordable today
because the CLT homebuyer does not pay for the land beneath the house. Additionally,
CLT's use public subsidies to make CLT homes even more affordable. The resale
formula preserves the affordability for the next family who will buy the CLT
house. Essentially, by agreeing to the resale formula, CLT homebuyers are agreeing
to help another limited income family purchase a house in the same way that they
were helped in purchasing their house.
| Resale
Formula |
25%(CLCLT) |
50% |
75% |
Market |
| Sales Price |
$175,000 |
$175,000 |
$175,000 |
$175,000 |
| CLCLT Investment |
$50,000 |
$50,000 |
$50,000 |
$0 |
| Mortgage
Amount |
$125,000 |
125,000 |
$125,000 |
$175,000 |
| MMI
Served |
52% |
$52% |
52% |
70% |
| Sales
Price 5 years later |
$137,000 |
$149,000 |
$161,000 |
$223,000 |
| MMI
Served 5 years later |
50% |
54% |
57% |
76% |
| Sales
Price 10 years later |
$153,000 |
$180,000 |
$208,000 |
$285,000 |
| MMI
Served 10 years later |
49% |
56% |
62% |
83% |
| Sales
Price 15 years later |
$172,000 |
$219,000 |
$267,000 |
$364,000 |
| MMI
Served 15 years later |
49% |
59% |
69% |
91% |
The resale formula preserves the
affordability for the next family who will buy the CLT house. Essentially,
by agreeing to the resale formula, CLT homebuyers are agreeing to help another
limited income family purchase a house in the same way that they were helped
in purchasing their house.*
21. Why
not just use a 2nd mortgage to recapture investment?
| Costs
and Benefits |
CLT
Ownership |
2nd
Mortgage Product |
Market-rate
Ownership |
| Monthly
Housing Costs |
| Down
Payment/Deposit or Rent |
$1,000 |
$1,000 |
$1,000 |
| Appraised
Value of Unit |
$180,000 |
$180,000 |
$180,000 |
| Affordability
Investment to serve 50% MMI |
$60,000 |
$60,000 |
N/A |
| Mortgage
Amount |
$120,000 |
$120,000 |
$180,000 |
| Principal
and Interest / Monthly |
$720 |
$720 |
$1,080 |
| Taxes,
Insurance, Mortgage Insurance, Utilities & Land Lease Fee |
$350 |
$410 |
$435 |
| Total
Monthly Housing Cost |
$1,070 |
$1,130 |
$1,515 |
| MMI
Household able to serve |
50% |
52% |
72% |
| After
7 Years….. |
| Value
of Property (assumes only 4%/yr increase) |
$237,000 |
$237,000 |
$237,000 |
| Total
Increase in Appreciation |
$57,000 |
$57,000 |
$57,000 |
| Owner's
Share of Appreciation |
$14,2502 |
$57,000 |
$57,000 |
| Mortgage
Principal Paid-off/Earned |
$12,500 |
$12,500 |
$18,750 |
| Down
payment amount & MI Savings |
$7,300 |
$1,000 |
$1,000 |
| Total
Return on Investment (seller) |
$34,050 |
$70,500 |
$76,750 |
| New
Sales Price to next buyer |
$134,250 |
$187,000 |
$237,000 |
| New
Monthly cost of housing (assumes 4% increases in costs) |
$1,327 |
$1,594 |
$1,995 |
| MMI
Household able to serve at resale (7 yrs) |
47% |
61% |
77% |
| Additional
subsidy needed to serve a household at projected 50% MMI 7 years later |
$0 |
$45,000 |
$95,000 |
22. Why bother
with resale formulas? Why doesn't the CLT simply allow leaseholders
to sell their houses on the open market for whatever price they can get?
A resale formula keeps housing affordable for future leaseholders. If land is
removed from the marketplace, but not the buildings that are on the land, then
the speculative value that would have been accrued to the land is merely transferred
to buildings on the land. Furthermore, if housing is in short supply, then residential
structures become the object of intense speculative activity. The real estate
market pushes prices higher, making access to land and housing more difficult
for persons of modest means. Also, in many cases, the owner has benefited from
various kinds of public or community subsidies made available with the understanding
that the value of these subsidies would remain in the property. By allowing only
a fair return on owner investment, the CLT locks subsidies in for the benefit
of future residents of the community.
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CLT Relationships with other
Organizations
23. Are CLTs
supported by local governments?
Yes. Though some of the first CLTs were started in communities
suffering from government neglect, it is now more common
for CLTs to work in cooperation with
local governments in meeting present and future community
needs. Public officials are recognizing that CLTs can play
an important role as stewards of community
resources -- that property and funds allocated to a CLT can
benefit not only present community members but future residents
as well. Some CLTs have been
established with strong initiative and support from local
governments. A number of municipalities have allocated Community
Development Block Grant and HOME
funds, as well as other available resources, to CLT programs.
Some have allocated city owned land. State housing financing
agencies are increasingly interested
in making financing available for housing on CLT land, and
several state legislatures have acted to appropriate special
funds to finance acquisitions by land trusts.
24. How do CLTs relate to
other housing organizations?
Many CLTs are initiated through the sponsorship of
other organizations, or emerge out of other organizations
as in the case of Albuquerque’s Sawmill CLT.
Most CLTs, regardless of how they were created, cooperate
with the efforts of other organizations in their
community. Burlington CLT, for instance, works closely
with a network of organizations that address the
area’s housing and community development needs.
In a number of communities it is common for CLTs
to acquire housing (or the land beneath housing)
that has been built or rehabilitated by other not-for-profit
(or sometimes for-profit) organizations.
<<back to top>>
*Questions and Answers
by the Institute for Community Economics
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