Friday, August 01, 2008

CLT FAQ

by Portland Community Land Trust


The following are frequently asked questions and answers about the Community Land Trust model in general and Portland Community Land Trust in particular.

1. What is a community land trust?

A community land trust is a private non-profit community organization that safeguards land in order to provide affordable housing opportunities. The Portland Community Land Trust buys and holds land permanently, preventing market factors from causing prices to rise. PCLT builds and sells affordably-priced homes to families with limited incomes—PCLT keeps the price of homes affordable by separating the price of the house from the cost of the land. When a family decides to sell a PCLT home, the home is resold at an affordable price to another homebuyer with a limited income. PCLT’s goal is to balance the needs of homeowners to build equity and gain stability in their lives with the needs of the community to preserve affordable home ownership opportunities for future generations.

Community Land Trusts (CLTs) across the country share certain basic characteristics. Here are five:

a. Dual Ownership. Ownership of land is separated from ownership of homes located on the land. A long-term land lease defines the arrangement between a CLT and leaseholders who own their homes and other improvements. The land trust offers leaseholders security, privacy, stability, and a legacy for their heirs.

b. Permanent Affordability of Housing. CLTs protect affordability for future residents by ensuring the affordable resale of homes and other improvements on their land. Shared-appreciation provisions in the PCLT lease agreement offer homeowners a fair return on their investment while protecting the community's investment of public and private resources (funds as well as skills) that go into creating a CLT and making housing affordable. PCLT’s resale formula allows homeowners to sell their homes for the price they bought it plus 25% of the appreciated value.

c. Commitment to Local Control. CLTs provide greater local control over land and housing ownership, giving community members a greater say in land-use decision-making. Like the more than 100 community land trusts across the country, Portland Community Land Trust is community based and democratically controlled, so the community residents—the members—will decide how the land trust is run.

d. Flexibility. The CLT model is flexible. In addition to affordable housing, the Portland Community Land Trust may make land available for community gardens, playgrounds, parks, local businesses and other community services.

e. An Active Land Acquisition and Development Program. CLTs are committed to an ongoing acquisition and development program that seeks to meet diverse community needs, continuing to grow the stock of homes and land whose affordability is permanently protected.

2. How does PCLT help residents and communities?
PCLT provides access to land and homeownership for people who cannot afford what’s for sale on the housing market. PCLT homeownership provides greater housing security than renting.

Benefits to a Land Trust Homeowner

Homeownership at an affordable price
Stable monthly payments
Security from eviction
Tax advantages
Opportunity to build equity
Opportunity to take a leadership role in the organization by serving on the board of directors or board committees


Benefits to the Community

Home-buying opportunities for neighborhood residents
Preservation of affordable homes into the future despite rapidly escalating housing prices
Opportunity for renters to become owners
Wise use of tax dollars (public subsidy)
In addition, PCLT helps buyers gain access to down-payment assistance and special financing


Land trust homebuyers generally must be able to handle monthly mortgage payments and other costs, including home repairs as needed and reasonable lease fees for use of the land. In Portland’s current housing market, these monthly costs of ownership through PCLT are similar to the expense of rent for an equivalent sized unit.

3. Who are the members of PCLT?
All PCLT homeowners are automatically members, and other people in the community may also join. The members elect a Board of Directors composed of PCLT homeowners, general members who are not PCLT homeowners, and people who have a broad view as public representatives. This partnership of different perspectives ensures community input and representation. Membership fees are on a sliding scale starting at $10 per year, so that people with limited incomes can afford to become members. To become a voting member of PCLT, one needs to live in the City of Portland, support the creation and preservation of permanently affordable housing, pay annual dues and attend a brief orientation session. Non-voting members may be businesses or individuals, and need only pay annual dues.

4. Who makes decisions about PCLT’s activities?
The Board of Directors and the members of PCLT make the decisions that guide PCLT’s work. Of course, PCLT has to follow local laws and zoning requirements, but our direction comes from the community. Ideas for projects, programs, and community services that the land trust is involved in usually come from community residents, and are decided by a Board of Directors that is elected by the members.

5. How does PCLT home ownership compare with other home ownership?
Land trust homeownership is essentially the same as other homeownership except that the land that PCLT homes are located on is owned collectively by the membership organization. Native Americans traditionally considered the land to belong to everyone, and the homes to belong to families. In much the same way, PCLT land belongs to the community-based organization and the homes are owned by families.

The Same

The homeowner secures a loan from a lender
The homeowner accumulates equity
The homeowner may will the home to heirs (both home and lease may be inherited).
The homeowner may make alterations and improvements
The homeowner receives federal mortgage tax deduction
The homeowner may enjoy the types of rights that renters are frequently precluded from—having pets, planting a garden, repainting the house, etc


The Different

The homeowner (and all subsequent buyers) must meet income qualifications
The purchase price is lower, usually 20-30% below the market rate, because the land is already paid for
PCLT owns the land, and the homeowner leases the land from PCLT for a nominal fee
The homeowner agrees to live in the home as a primary residence most of the time
The homeowner will sell the PCLT home at an affordable price, helping the next family of modest means to become a homeowner


6. What is the lease arrangement?
Because PCLT owns the land and the homeowner owns the home, PCLT and the homeowner sign a lease together allowing the homeowner secure, long-term rights to use of the land. The lease gives the homeowner use of the land for 99 years at a time. The lease is renewable, may be transferred to the family’s heirs, and ensures full rights of privacy. The lease also addresses resale of the home.

Leaseholders retain nearly all of the rights and responsibilities that go with home ownership. PCLT control is limited to the following areas where there is a long-term interest:

Permanent affordability through a shared-appreciation resale provision in the lease
Owner-occupancy requirement to encourage investment in maintaining the property and to preclude profiteering (by leasing the house for more than the mortgage amount)
Protection of the condition of the land and buildings for future users by ensuring that the property is adequately insured, that improvements are permitted, and that environmental contamination is not introduced to the site
Permanent affordability, through the use of a shared-appreciation resale provision


7. If I don’t own the land, but I’m leasing it instead, can I still get a loan to buy my house?
Yes. Across the country, there are dozens of banks, housing finance agencies and other mortgage lenders who lend to community land trusts. PCLT buyers have taken out loans with local lenders, including Umpqa Bank and Key Bank. Washington Mutual and Bank of America are also approved lenders for PCLT homebuyers.

8. What is the process for selling my home?
When a homeowner wants to move, there are several options. After giving the community land trust adequate notice, a homeowner may sell the home to an eligible buyer, transfer the lease, and move away. As with most community land trusts, PCLT retains the first right of refusal to buy all improvements on the land. If PCLT exercises this option, then PCLT buys the house and sells it to a new leaseholder. The house may also be given to the homeowner’s children or other heirs.

Since CLT homes are not bought and sold on the open market, each CLT has a formula that determines the maximum amount to be paid when a homeowner sells his or her home. The goal of this resale provision is to give the homeowner a fair return on investment while ensuring the home will be sold at an affordable price to the next low-income buyer. Essentially, in exchange for buying the home at an affordable price, the homeowner agrees to sell the home to the next buyer at an affordable price. This preserves the affordability for the next family who will buy the CLT home.

Portland Community Land Trust’s shared appreciation resale provision allows homeowners to resell their homes for their purchase price plus 25% of the home’s appreciation, based on market appraisals.

A resale formula keeps land trust homes 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 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 makes its homes affordable to future residents of the community without additional public or private subsidy.

9. What about property taxes?
CLT homeowners typically pay all the taxes associated with the property (on the land and on their homes). Some PCLT homeowners have limited tax abatements based on the geographic location of their home; others pay property taxes in full. As with all homeowners, the interest portion of the mortgage payment for a land trust home is tax deductible. If the homeowner itemizes federal income taxes, the property taxes that are paid are also tax deductible.

CLTs can qualify for exemption from federal and state taxes, but they usually pay local real estate taxes on the land they own. It is politically important for the CLT to pay for its share of services enjoyed by the neighborhood. In some cases CLTs and their residents may request an assessment based on the resale value of the home as determined by the CLT's resale formula rather than the market value of the property.

10. How does PCLT acquire property?
PCLT uses a variety of tools to bring land into trust. PCLT receives some donated property from government entities, including tax-foreclosed lots and surplus properties. Also, PCLT buys land under existing homes through its ‘Buyer Initiated’ program. As a nonprofit, tax-exempt organization, PCLT can receive tax-deductible donations of property or funds to buy property. As an interim measure, PCLT can borrow funds to purchase land from local lenders or intermediaries such as the Institute for Community Economics (which maintains a Revolving Loan Fund that CLTs and other community development corporations may access).

11. Who lives in CLT homes?
People. Families, children, grandparents, young married couples and singles. PCLT is a tool to help folks with limited incomes buy a home. PCLT homeowners have steady incomes and access to credit, but incomes that are not high enough to purchase a home the traditional way. When incomes do not rise as fast as housing prices, many people cannot afford a market rate house. Land trust homeowners share an important goal: to escape a lifetime of renting by owning a home of their own.

12. How are CLTs funded?
CLTs receive support from a variety of sources.

Foundations, businesses and individual supporters. CLTs rely heavily on private donations, including contributions from members and supporters, to fund their programs.

Fees for services. CLTs receive developer fees in their housing development, and a small monthly “lease fee” from each land trust household in consideration for use of the land.

Local government. Many CLTs work in cooperation with local governments in meeting present and future community needs. Public officials in communities across the country recognize that CLTs can play an important role as stewards of community resources, and that property and funds allocated to a CLT can benefit not only present community residents but future residents as well. Some CLTs, Portland Community Land Trust included, have been established with strong initiative and support from local governments.

13. How do CLTs relate to other housing and community development organizations?
Most CLTs work to support and complement existing efforts in a community. Since Portland already has several non-profits experienced at developing affordable homes for sale, PCLT concentrates on acquiring and holding land in trust, organizing grassroots support, and working with prospective homebuyers. We work with many different community partners to provide homes throughout Portland.

14. What other CLTs are nearby?
Clackamas Community Land Trust is active in Clackamas County. Sabin Community Development Corporation has a community land trust program in Northeast Portland. Clark County, Washington is in the process of launching a CLT. A little further away, there are two dozen CLTs in the Pacific Northwest, from the San Juan Islands in Puget Sound to Leavenworth, WA to Ashland, OR.

15. What happens to the clts land and lease agreements if the CLT dissolves?
If a CLT dissolves and ownership of the land is transferred to a new entity with a compatible mission (as required in the Articles of Incorporation), 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, land trust homeowners have the right of first refusal to buy the land beneath their homes.

16. What kind of support does PCLT provide for first-time homeowners?
Community land trusts are deeply invested in the success of land trust homeowners. The homeowners have, after all, entered into a long-term (99-year!) relationship through the land lease agreement. A CLT’s ability to provide support depends on the resources available. Some CLTs provide homeowner training and assistance. Others have developed home repair loan funds and have made special arrangements for leaseholders who face unexpected financial problems.

PCLT provides:

Education to guide homebuyers step-by-step through the challenging process of buying their first home Support for homeowners through such activities as tree plantings, landscaping classes, garden construction, and referrals to community resources

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