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HomeMy WebLinkAboutReso 71-2002RESOLUTION NO. 71-2002 CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA A RESOLUTION APPROVING A PROGRAM DESCRIPTION FOR THE CITY OF SOUTH SAN FRANCISCO FIRST TIME HOMEBUYER PROGRAM AND AUTHORIZING THE CITY AND AGENCY TO USE THE COUNqWWIDE HOMEOWNERSHIP INVESTMENT PROGRAM LOAN DOCUMENTS FOR THE FIRST TIME HOMEBUYER PROGRAM AND AUTHORIZING THE USE OF $250,000 IN REDEVELOPMENT AGENCY FUNDS FOR THE FIRST TIME HOMEBUYER PROGRAM AND AUTHORIZING THE CITY MANAGER AND AGENCY DIRECTOR TO APPROVE AND EXECUTE LOANS ON BEHALF OF THE CITY OF SOUTH SAN FRANCISCO WHEREAS, it is recommended that the City Council approve a First Time Homebuyer Program. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of South San Francisco that the City Council (1) approves the program description for the City of South San Francisco First Time Homebuyer Program, (2) authorizes the City and Agency to use the Countywide Homebuyer Program loan documents, (3) authorizes the use of $250,000 in Redevelopment Agency funds for the first time homebuyer program and (4) authorizes the City Manager and Agency Director to approve and execute loans consistent with the First Time Homebuyer Program on behalf of the City for qualified borrowers. I hereby certify that the foregoing Resolution was regularly introduced and adopted by the City Council of the City of South San Francisco at a regular meeting held on the 24th day of July 2002 by the following vote: AYES: NOES: ABSTAIN: ABSENT: Councilmembers Joseph A. Femekes, Raymond L. Green and Karyl Matsumoto, Mayor Pro Tem Pedro Gonzalez None. None. Mayor Eugene R. Mullin ATTEST: y Clerk Exhibit A School District Participation in the First Time Homebuyer Program City staff spoke with Jim Novak, Assistant Superintendent of the South San Francisco Unified School District, about the School District's participation in a first-time homebuyer program. First, Mr. Novak stated his appreciation for the City Council's considering the needs of schoolteachers in developing the City's first time homebuyer program. He also acknowledged that School District's problem losing many teachers to other school districts. While the First Time Homebuyer Program sounds interesting and they would like to participate, Mr. Novak believes the School District would need a substantial amount of time to consider the program and the options available to it. Mr. Novak identified the following concerns that the District would have to consider in making a decision to participate in the program: · Would the School District be able to legally make loans to its employees · Would it be able to legally give preferential treatment to teachers only, or would it have to make loans available to all of its employees · Where would the School District get money to fund a first time homebuyer program · Where does the School Board stand on the issue. These are difficult question for the School District to answer. Until it is able to answer them it will be unable to make a commitment to the City's program. The City Council also asked for clarification on the College of San Mateo's and the San Mateo Unified School District's participation in a first time homebuyer program. The College of San Mateo has a unique source of funds--a reserve they set aside for retiree benefits. Their board has decided that the countywide first time homebuyer program meets its investment standards and has allocated a small percentage of the fund for making first time homebuyer loans. The San Mateo school district has no such fund and is searching for a means to fund a first time homebuyer program. To date it has not been able to identify any funds for the program. Exhibit B City Loan Call Back Provision City staff contacted local banks, other cities, and a mortgage broker to inquire about the possibility of the City calling in its loans when employees quit their jobs with the City or are terminated. Their comments are summarized below. Banks Sierra Point, as previously discussed cannot make risky loans because it must safeguard its members' deposits. Similarly, First National Bank does not make residential loans, Therefore neither Sierra Point nor First National Bank are options for making loans that allow the City to call back its loan. Washington Mutual agreed to review the City loan program and is currently looking at the loan documents and the program. To date it has not responded to the City request for information. Cities In discussions with other cities about first time homebuyer programs, staff identified three programs that require repayment when employees quit. These programs, however, are significantly different in that they are not part of the City's general first time homebuyer program. Brisbane, San Bruno, and San Carlos all have employee home purchase programs that are administered by the cities' finance departments and funded with general funds. In Brisbane, executive level employees can borrow city general funds to purchase a home but must repay the loan when they end their employment. Employees have six months to repay their loans when they leave voluntarily, and one year to repay when they leave involuntarily. The loan is secured by a side letter agreement that is recorded on the property. Banks are not informed about this side agreement when the employee is securing financing since it would jeopardize their bank loan. When asked what he thought banks would do if they became aware of the side letter agreement, the directors said it would cause problems and the city would probably have to back away from it in order to not jeopardize their employees first loan. The City of San Bruno has a similar loan program open to ali employees but has only been able to make three loans. After making its first three loans, the City of San Bruno has had a difficult time finding lenders willing to lend on its employee loan program, in part because of the call back provision. Finally, staff is still in the process of obtaining additional information about the City of San Carlos' employee loan program. Mortgage Broker First Home Inc. (FHI) is both a mortgage broker and first time homebuyer program administrator for several cities on the Peninsula. Their experience indicates banks are not likely to allow a call back provision on city loans. The sited the following reasons for their opinion: · As previously noted, the secondary loan market would not approve these loans for the secondary market. · In some cases the City loan may be in third position after a bank loan and a CHFA loan. No bank would be willing to take a loan in third position thus complicating the borrower's ability to repay the City loan. · A loan call back might be legally suspect. FHI questioned whether a loan call back would be discriminating against city and schoolteachers since the terms of their loans would be more severe than those offered to the general public. FHI advised us to check with our attorney but they believe simply giving loan priority is not enough of a bonus to warrant higher penalties against employees for leaving their jobs. · Calling a loan back will create a substantial hardship most first time homebuyers. With a City loan most employees would be spending 35% of their income on housing payments. If a loan call back were to occur, the ration would jump up to more than 45% of income. FHI also suggests that if the City is using CDBG or Redevelopment funds it inquire whether a loan call back would violate the program's rules by creating a housing affordability hardship. · A loan call back in all likelihood would jeopardize other financial assistance packaged with their loans. For example, the borrower would lose his or her County Mortgage Credit Certificate, and potentially a CHFA loan if they had one. · The City could suffer from negative publicity if they were to call in a loan and put a schoolteacher or public employee in financial difficulties due to a loan call back. FHI, however, did offer an alternative for employees that quit their jobs. According to FHI, the City could end the deferral period and require the former employee to begin making payments on the loan. The City of Redwood City has added this provision to their loans and banks have been willing to accept it. Exhibit C Assumptions Home Purchase Price $ 400,000 City Loan $ 50,000 City % of Loan 12.5% Annual Home Appreciation 5.0% Equity Share Payment to City Year Employee Employee Employee Home Value Sells House Quits Year 3 Quits Year 12 $400,000 o $o $o $420,000 1 $5,000 $5,000 $441,000 2 $10,250 $10,250 $463,050 3 $15,763 $15,763 $486,203 4 $21,551 $21,551 $510,513 5 $27,628 $27,628 $536,038 6 $34,010 $33,216 $562,840 7 $40,710 $38,772 $590,982 8 $47,746 $44,267 $620,531 9 $55,133 $49,668 $651,558 10 $62,889 $54,939 $684,136 11 $71,034 $60,037 $718,343 12 $79,586 $67,264 $754,260 13 $88,565 $74,854 $791,973 14 $97,993 $82,822 $831,571 15 $107,893 $91,189 $873,150 16 $118,287 $99,975 $916,807 17 $129,202 $109,199 $962,648 18 $140,662 $118,885 $1,010,780 19 $152,695 $129,055 $1,061,319 20 $165,330 $139,734 $1,114,385 21 $178,596 $150,947 $1,170,104 22 $192,526 $162,720 $1,228,610 23 $207,152 $175,082 $1,290,040 24 $222,510 $188,062 $1,354,542 25 $238,635 $201,691 $1,422,269 26 $255,567 $216,001 $1,493,383 27 $273,346 $231,027 $1,568,052 28 $292,013 $246,805 $1,646,454 29 $311,614 $263,371 $1,728,777 30 $332,194 $280,765 $1,815,216 31 $353,804 $299,029 $1,905,977 32 $376,494 $318,207 $2,001,275 33 $400,319 $338,343 $2,101,339 34 $425,335 $359,486 $2,206,406 35 $451,602 $381,686 Conclusions: -The program creates an incentive to pay the City loan as -The longer an employee works for City or School District, the City Employee Quits Year30+ $o $5,000 $10,250 $15,763 $21 551 $27 628 $33 216 $38 772 $44 267 $49 668 $54 939 $60 037 $64,914 $69,518 $73,788 $77,658 $81,053 $83,890 $86,074 $87,503 $88,061 $87,620 $86,038 $83,156 $78,800 $72,776 $64,869 $54,844 $42,436 $27,358 $9,290 $o $o $0 $o $o soon as possible theless equitythey haveto pay -For employees that quit, the longer they take to pay the City loan, the more money the City makes on its loan -If an employee quits, it behooves them to pay the City loan back immediately so they can minimize the equity share they have to pay the City -For the City early pay back means they can make a new loan quicker, delayed pay back means more money for more loans later Exhibit D City of South San Francisco First Time Homebuyer Program General Program Objectives The proposed City of South San Francisco First Time Homebuyer Program is designed to achieve the following key objectives: · To establish and maintain a program that creates and maximizes affordable home ownership opportunities for low- and moderate-income households · To create a program that provides for long term affordability for homeowners · To maximize the number of households that receive assistance · To leverage City funds by participating in the San Mateo County CHIP program and other lending programs · To assist City employees purchase a home and encourage employee retention by giving them first priority for loans · That assist South San Francisco schoolteachers purchase a home and encourage employee retention by giving them second priority for loans · To provide assistance to long-time South San Francisco residents and workers by also giving second priority for loans to people who have lived or worked in South San Francisco for five or more years Program Funding Structure The City's First Time Homebuyer program provides low-interest "silent second" loans to qualified first time homebuyers. By deferring loan payments for a period of five years the City is creating a grant-like mechanism that makes it easier for borrowers to qualify for conventional first loans from a lenders. City loans can be for up to $100,000 with a maximum loan amount of $50,000 from Redevelopment Agency (RDA) funds and a maximum loan amount of $50,000 from Community Development Block Grant (CDBG) funds. In addition, the City's loan is compatible with the San Mateo County CHIP Program. Compatibility with CHIP will make it possible for CHIP eligible first time homebuyer programs to borrow up to $100,000 by leveraging the City's funds with CHIP Investor funds. Pro~ram Particioant Requirements First Time Homebuyer Program participants must be first time homebuyers. A first time homebuyer is defined as a borrower who has not owned a residential property in the past three years. The city will verify non-ownership status by reviewing the participant's credit reports and the last three years' tax returns. Exceptions can be made for displaced homemakers such as divorced and widowed single parents. Occupancy Requirement Participants must reside in the dwelling unit they purchase, and it must be their principal residence. Not residing in the dwelling, or leasing it for a period of more than two months in any one calendar year will result in disqualification from the program. Disqualification will require the immediate repayment of the City loan, principle, and shared appreciation. Live and/or Work Requirements Participants in the City's first time homebuyer program must live and/or work in the City of South San Francisco. Priority is also given to people who have lived or worked in South San Francisco for five or more years. Program Education and Counseling The City program requires interested prospective buyers to attend a first time homebuyer seminar. The City contracts with organizations such as Consumer Credit Counseling Services and First Home to provide homebuyer educational seminars. Program Priority - Target Buyers In addition to live and work priorities, the City will give priority to certain targeted borrowers. The City has determined there is a need to attract and retain certain types of public service employees, such as teachers, librarians, and police officers that serve the South San Francisco community. Therefore, the City will give priority to City employees and South San Francisco schoolteachers. To further leverage City funds, the City may also decide to give priority to employees of organizations participating in the CHIP Program. Income Eligibility Income eligibility is contingent on the funding source used to make loans and on the number of persons in a household. Loans funded with Redevelopment Agency Housing Set-Aside are available for buyers whose income does not exceed 120 percent of area median income. Loans funded with federal Community Development Block Grants (CDBG) are restricted to persons earning up to 80 percent of median income. Loans funded using federal HOME program funds will be restricted to persons earning up to 60 percent of median income. If the City uses more than one source of money to fund a loan the more restrictive eligibility criteria will take precedence. For the 2002-2003 fiscal year income eligibility is as follows: % Area Income I Person 2 People 3 People 4 People 60% MFI $36,150or less $41,340or less $46,500or less $51,660or less 80% MFI $36,151- $57,000 $41,341- $65,150 $46,501- $73,300 $51,661- $81,450 120% MFI $57,001- $72,300 $65,151- $82,650 $73,301- $92,950 $81,451- $103,300 % Area Income 5 People 6 People 60% MFI $55,800or less $59,940or less 80% MFI $55,801- $87,950 $59,941- $94,450 120%MFI $87,951- $111,550 $94,451- $119,850 7 People 8 People $64,050or less $68,190or less $64,051- $101,000 $68,191- $107,500 $101,001- $128,100 $107,501- $136,350 Geographic Restrictions Funds from the City's First Time Homebuyer Program can only be used to purchase homes within South San Francisco city limits. For loans made with certain types of federal funding, such as HOME or CBDG, the City may impose additional geographic restrictions such as limiting home purchases to established CDBG target neighborhoods. Property Restrictions Property types eligible for purchase is limited to detached single-family residences, condominiums, or town homes. All other types of properties are excluded from the program. Ownership in Fixed Assets Applicants who own fixed assets such as land or a percentage of investment property are eligible for the first time homebuyer program, however, the City will consider the earnings equivalent value of the assets to determining income eligibility. To determine the earnings equivalent, the City will multiply the value of the fixed asset by a factor assigned by the Department of Housing and Urban Development (HUD). Currently the earnings equivalent is set at six percent (6%). For example, for a fixed asset valued at $100,000 the City will add $6,000 ($100,000 x .06) to that person's income for the purpose of calculating income eligibility. Loan Approval by First Lender Program participants must be credit approved by a first lender prior to obtaining a loan reservation from the City's First Time Homebuyer Program. The approval must meet the following guidelines: The first lender's credit approval must be for an "A" or better grade loan. This requires that the borrower maintain good to excellent credit and have a savings history that will allow the lender to provide the borrower with an "A" grade mortgage loan. The City, or its program administrator, will require the program participant to provide a copy of the first lender's approval prior to submitting a reservation request to the City. The first lender will establish a maximum debt ratio for housing costs and personal debt for the borrower. The allowable housing cost ratio will also depend on the source of funds for the second loan. Both CDBG and RDA Housing Set- Aside have a 30 percent ratio requirement. Mortgage Credit Certificates Program participants will be able to participate in the County's Mortgage Credit Certificate Program (MCC), provided that the borrower meets MCC income guidelines, that the purchase price of the property does not exceed $381,000, and that funds are available under the MCC Program. Loan Parameters The City provides its first time homebuyer loans in the form of a silent second mortgage loan. Repayment of loan will occur through two components-- amortization and shared appreciation. Amortized Repayment The City will defer payments and provide its loan interest free for a period of five (5) years. The loan will then amortize over a period of 25 years with an interest rate of four percent (4%). Voluntary principal reduction is available for borrowers who want to reduce the balance of their notes during the deferral period. By making interest-free payments on a scheduled incremental basis borrowers will prepare themselves for the mandatory payments that will begin on the sixth year of the loan. Standard Shared Appreciation Shared appreciation requires that the borrower pay the City a portion of the profit they make upon sale of the property. The City's appreciation share is also due at the time the borrower takes out cash through a property refinance, or upon transfer of the property. The City can make an exception to the cash out option for borrowers making property repairs or having certain emergencies, as determined by the City's Housing Manager, provided that the City's loan is not placed at risk. By risk, it means that under no circumstance will the City allow borrowers to take cash out without requiring repayment if the total loan(s) to value exceeds 80 percent (80%) of home value including the value of the City's loan principle, interest due, and appreciation share. The City's appreciation share is equal to the City's percentage contribution of the purchase price. For example, if the City contributes $50,000 towards the purchase of a $400,000 home, the City's will have contributed 12.5 percent (12.5%) of the purchase price. Therefore, the City will receive 12.5% of the property's appreciation upon sale. In this example, if the contract price is $500,000 at the time of sale (an appreciation of $100,000), the City will receive $12,500 of the $100,000 profit, plus any remaining loan principle and interest. The owner will receive $87,500 of the $100,000 profit plus any equity accrued though principle reduction. The City, at its discretion may adjust the appreciation share for individuals so that the City's First Time Homebuyer Program is in compliance with other loan programs that can leverage City funds. For example, the City may adjust the appreciation share for some buyers so that buyers can qualify for a loan from the California Housing Finance Agency (CHFA) who has established loan appreciation caps. Public Service Employee Shared Appreciation To encourage public service employee retention, the City is establishing an alternative method to calculating the appreciation share on public service employee loans. Public service employees that receive priority loans will have an initial appreciation share factor of 200 percent (200%) that will gradually decrease to zero percent (0%) over a period of up to twenty-five years. That is, if the City initially contributes 12.5% of the purchase price it will be entitled to 25% (12.5% x 200%) of the appreciation value if the borrower sells the property during the first year. However, over 25 to 30 years, the City's appreciation share will decrease to zero percent (0%). Therefore, if the borrower sells the property after a period of up to 25 to 30 years of continued public service employment, the borrower will retain all of the appreciation value. The rate of declining appreciation share would correlate to the reduction in the City's outstanding loan principle. That is if 90 percent of the City's loan principle is outstanding, the City will receive 90 percent of its contracted appreciation amount. If the outstanding principle is 10 percent, the City would receive 10 percent of its contracted appreciation amount. Thus the longer an employee works for the City, the less principle they will owe, and the lower amount of appreciation they will have to pay the City when they sell their home. Also, the City Council should note that the original principle and interest are still due as scheduled on the City's loans which are not affected by the declining depreciation. Finally, the City would only allow cash-out refinancing under the conditions specified the Standard Share Appreciation section above. 5 Exhibit E (Sample Loan Documents) COUNTYWIDE HOME INVESTMENT PARTNERSHIP (CHIP) City of SILENT LOAN PROGRAM PROMISSORY NOTE Date Thc undersigned, ("Borrowers") promises to pay to The Redevelopment Agency of Some City ("Lender/Agency"), or order, at Some City, California, the principal sum of Dollars ($~). Except as hereinafter provided, no interest shall accrue upon the principal until the sixth (6th) anniversary of the date of this Note. Thereafter, interest shall accrue at the rate of four percent (4%) per annum upon the unpaid principal, and interest and principal shall be payable in three hundred (300) equal monthly installments of $ commencing sixty (60) months from the date of this Note. In addition, it is anticipated that the Lender / Agency will contract an outside service to service the payments on the Note. The projected cost of the service will be approximately six dollars and fifty cents ($6.50) per a month. The cost of this service will be borne by the Borrower and may be changed with no further notice prior to and/or after the principal and interest repayment on the loan commences. Commencing the anniversary date of the fifth year, in the event that any installment of interest or principal is not made when due, and such default continues for a period of fifteen (15) days thereafter, Borrower promises to pay a late charge equal to 5% of the delinquent payment. If default shall be made in the payment of any installment when due and said default shall continue for a period of fifteen (15) days thereafter, at the option of the holder of this Note, the entire remaining balance of the principal and accrued interest shall become immediately due and payable. In the event that default shall be made in the payment of this Note when due, and proceedings shall be commenced to foreclose under the terms of the deed of trust securing this Note, Borrower promises to pay to the holder of this Note a reasonable attorney's fee incurred in such foreclosure proceedings. This Note may be prepaid at any time without penalty. This Note is made pursuant to a Shared Appreciation Loan Agreement between Borrower and Lender/Agency of even date. The Loan Agreement provides, among other things, that the following shall constitute Disqualifying Events: (a) Lease of the Dwelling for a period of more than two months in any one calendar year. (b) Sale, conveyance, or other alienation of the Dwelling (including a sale under a deed of trust in the event of foreclosure), if the remaining ownership interest of Borrower in the Dwelling is less than fifty percent (50%). (c) Borrower ceases to reside in the Dwelling as his or her Principal Residence. (d) A default shall occur under the terms of the Senior Deed of Trust and said default shall not be cured within sixty (60) days following the recordation of notice of default by the trustee under the Senior Deed of Trust. (e) Borrower incurs additional indebtedness, either through a senior or junior loan, on the property in excess of the principal balance of the existing loans secured against the property at the original purchase of the property. Upon the first day of the calendar month following a Disqualifying Event, notwithstanding anything to the contrary contained in this Note or the Junior Deed of Trust, the following shall occur. (i) Interest on this Note shall accrue at a rate equal to the Federal Reserve Boards Eleventh District Cost of Hicapdoc-CHIP final (March 2002) 1 Funds plus 2.5% per annum, and the principal balance of this Note shall be amortized in equal monthly installments including interest and principal over a period of thirty (30) years commencing upon the first day of the second month following the Disqualifying Event. (ii) At the option of the holder of this Note, the entire remaining balance of the principal and accrued interest shall become immediately due and payable. The Loan Agreement also provides that Borrower shall pay Lender/Agency a portion of the appreciation in the value of the Dwelling securing this Note, and Borrower agrees to pay said sum, if any, to Lender/Agency in accordance with the terms and conditions of the Shared Appreciation agreement incorporated with this Loan Agreement. This Note is secured by a deed of trust upon real property situation in Some City, County of San Mateo, State of California commonly known and described as .. Borrower Co-borrower Dated Dated Hicapdoc-CHIP final (March 2002) - COMPLIMENTARY RECORDING REQUESTED PURSUANT TO GOVERNMENT CODE SECTION 27383 When Recorded Mail To: The Redevelopment Agency of Some City PO Box 391 Some City, CA 94064 Attn: Silent Loan Program Coordinator Loan Number: DEED OF TRUST AND SECURITY AGREEMENT SUBORDINATE DEED OF TRUST THIS DEED OF TRUST AND SECURITY AGREEMENT ("Deed of Trust") made this __ day of ,20_._, among the trustor, __ ("Borrower"), whose address is , and ("Trustee"), and the Redevelopment Agency of Some City (the "Agency") as Beneficiary, whose principal address is , Some City, California 94064. The Borrower, in consideration of the promises herein recited and the trust herein created, irrevocably grants, transfers, conveys and assigns to Trustee, in trust with power of sale, the property located in Some City, State of California, described in the attached Exhibit "A" and more commonly known as: Some City, California (the "Property"). TOGETHER with all the improvements now or hereafter erected on the property, and all easements, rights, appurtenances, and all fixtures now or hereafter attached to the property, all of which, including replacements and additions thereto, shall be deemed to be and remain a part of the property covered by this Deed of Trust; and TOGETHER with all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefore, whether or not the same are or shall be attached to said building or buildings in any manner; and all of the foregoing, together with the Property, is herein referred to as the "Security"; To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever; TO SECURE to the Agency the repayment of the sums evidenced by a Promissory Note executed by Borrower and the Agency dated 20_, in the amount of Dollars ($~) ("Note"); and TO SECURE the payment of all other sums, with interest thereon, said Note providing for full payment, due and payable upon sale or transfer of the Property or failure of Borrower to occupy the Property as Borrower's principal place of residence BORROWER AND AGENCY COVENANT AND AGREE AS FOLLOWS: 1. Title. That Borrower is lawfully seized of the estate hereby conveyed and has the right to grant and convey the Property, and that Borrower will warrant and defend generally the title of the Property against all claims and demands subject to any declarations, easements, or restrictions listed in the schedule of exemptions to coverage in any title insurance policy insuring Agency's interest in the Property, and that other than this Deed of Trust, the Security is encumbered only by the following priority lien senior to this deed: (1) that deed of trust (the "First Lender Deed of Trust") executed by Borrower in connection with a loan made to Borrower by _ (the "First Lender"), securing a promissory note executed by Hicapdoc-CHIP final (March 2002) 3 Borrower in favor of the First Lender ("First Lender Note") and (2) the Note, (3) and the following allowed encumbrances 2. Repayment of Loan. Borrower will promptly repay, when due, the principal, interest (if any), and any late charges due and required by the Note and such other amounts as are provided under this Deed of Trust or under the Note. 3. Preservation and Maintenance of Property. (A) Borrower covenants to keep the Property in good condition and repair, not to remove or demolish any building thereon; to complete or restore promptly and in good and workmanlike manner any building which may be constructed, damaged or destroyed thereon and to pay when due all claims for labor performed and material furnished therefor; to comply with all laws affecting the Property or requiring any alterations or improvements to be made thereon; not to commit or permit waste thereof; not to commit, suffer or permit any act upon the Property in violation of law; to cultivate, irrigate, fertilize, fumigate, prune, and do all other acts which form the character of the Property may be reasonably necessary, the specific enumeration herein not excluding the general. (B) If this Deed of Trust is on a unit in a condominium, stock cooperative, or a planned unit development, Borrower shall perform all of Borrower's obligations under the declaration or covenants creating or governing the condominium, stock cooperative, or planned unit development, and constituent documents. If a condominium, stock cooperative, or planned unit development rider is executed by Borrower and recorded together with this Deed of Trust, the covenants and agreements of such rider shall be incorporated into and shall amend and supplement the covenants and agreements of this Deed of Trust as if the rider were a part hereof. 4. Appear and Defend. Borrower shall appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of the Agency or Trustee; and to pay all costs and expenses, including cost of evidence of title and attorney's fees in a reasonable sum, in any such action or proceeding in which the Agency or Trustee may appear, and in any suit brought by the Agency to foreclose this deed. 5. Prior Deeds of Trust; Charges; Liens. Borrower shall pay all taxes, assessments, charges, fines and impositions attributable to the Property which may attain priority over this Deed of Trust, and leasehold payments or ground rents, if any. Borrower shall make payment on time directly to the person owed payment. Borrower shall make such payments when due, directly to the payee. Except for the lien of the First Deed of Trust, Borrower shall promptly discharge any other lien which shall have attained priority over this Security Instrument unless Borrower: (a) agrees in writing to the payment of the obligation secured by the lien in a manner acceptable to the Agency; (b) contests in good faith the lien by, or defends against enforcement of the lien in, legal proceedings which in the Agency's opinion operate to prevent the enforcement of the lien; or (c) secures from the holder of the lien an agreement satisfactory to Agency subordinating the lien to this Security Instrument. Except for the lien of the First Deed of Trust, if Agency determines that any part of the Property is subject to a lien which may attain priority over this Security Instrument, Agency may give Borrower a notice identifying the lien. Borrower shall satisfy such lien or take one or more of the actions set forth above within ten (10) days of the giving of notice. 6. Subordination. Agency and Borrower acknowledge and agree that this Deed of Trust is subject and subordinate in all respects to the liens, terms, covenants and conditions of the First Lender Deed of Trust and to all advances heretofore made or which may hereafter be made pursuant to the First Lender Deed of Trust including all sums advanced for the purpose of (a) protecting or further securing the lien of the First Lender Deed of Trust, or for any other purpose expressly permitted by the First Lender Deed of Trust or (b) constructing, renovating, repairing, furnishing, fixturing or equipping the Property. The terms and provisions of the First Lender Deed of Trust are paramount and controlling, and they supersede any other terms and provisions hereof in conflict therewith. In the event of a foreclosure or deed in lieu of foreclosure of the First Lender Deed of Trust, any provisions herein or any provisions in any other collateral agreement restricting the use of the Property to low income households or otherwise restricting the Borrower's ability to sell the Property shall have no further force or effect on subsequent owners or purchasers of the Property. Any person, including his successors or assigns (other than the Borrower or a related entity of the Borrower), receiving title to the Property through a foreclosure or deed in lieu of foreclosure of the First Deed of Trust shall receive title to the Property free and clear from such restrictions. Hicapdoc-CHIP final (March 2002) 4 Further, if the First Lender acquires title to the Property pursuant to a deed in lieu of foreclosure, the lien of the Deed of Trust shall automatically terminate upon the First Lender's acquisition of title, provided that the Agency shall not have cured the default under the First Deed of Trust or diligently pursued curing the default as determined by the First Lender within the sixty (60) day period provided in such notice sent to the Agency. 7. Hazard Insurance. Borrower will keep the Security insured by a standard fire and extended coverage insurance policy in at least such amounts and for such periods as the Agency may require, which amounts shall be the lesser of (1) the sum of the loan amount under the Note and the First and Second Lenders Note, or (2) the replacement cost of the Security, but in no event less than (3) the amount necessary to prevent Borrower from becoming a co-insurer under the terms of the policy. The insurance carrier providing this insurance shall be licensed to do business in the State of California and be chosen by Borrower subject to approval by the Agency. All insurance policies and renewals thereof will be in a form acceptable to the Agency and will include a standard mortgagee clause with standard lender's endorsement in favor of the holder of the Second Lender Note as its interests may appear and in a form acceptable to the Agency. The Agency shall have the right to hold, or cause its designated agent to hold, the policies and renewals thereof, and Borrower shall promptly furnish to the Agency, or its designated agent, the original insurance policies or certificates of insurance, all renewal notices and all receipts of paid premiums. In the event of loss, Borrower will give prompt notice to the insurance carder and the Agency or its designated agent. The Agency, or its designated agent, may make proof of loss if not made promptly by Borrower. The Agency shall receive thirty (30) days advance notice of cancellation of any insurance policies required under this section. Unless the Agency and Borrower otherwise agree in writing, insurance proceeds, subject to the rights of the First Lender, will be applied to restoration or repair of the Security damaged, provided such restoration or repair is economically _ feasible and the security of this Deed of Trust is not thereby impaired. If such restoration or repair is not economically feasible or if the security of this Deed of Trust would be impaired, the insurance proceeds will be used to repay the grant under this Deed of Trust, with the excess, if any, paid to Borrower. If the Security is abandoned by Borrower, or if Borrower fails to respond to the Agency, or its designated agent, within thirty (30) days from the date notice is mailed by either of them to borrower that the insurance carrier offers to settle a claim for insurance benefits, the Agency, or its designated agent, is authorized to collect and apply the insurance proceeds at the Agency's option either to restoration or repair of the Security or to repay the loan. If the Security is acquired by the Agency, all right, title and interest of Borrower in and to any insurance policy and in and to the proceeds thereof resulting from damage to the Security prior to the sale or acquisition will pass to the Agency to the extent of the sums secured by this Deed of Trust immediately prior to such sale or acquisition subject to the rights of the First Lender. 8. Occupancy of Property: Borrower's Loan Application. Borrower shall occupy, establish, and maintain the use of the Property as Borrower's principal residence within sixty (60) days after the execution of this Security Instrument. Borrower's principal residence shall mean the Property is occupied by the Borrower for at least ten (10) months out of each year. The Borrower shall not lease the Property for more than two (2) months without the written consent of the Agency during any twelve (12) month period and shall not lease the Property without providing the Agency with a copy of the lease. Borrower shall be in default if any forfeiture action or proceeding, whether civil or criminal, is begun that in Lender's good faith judgment could result in forfeiture of the Property or otherwise materially impair the lien created by this Deed of Trust or Agency's security interest. Borrower may cure such a default and reinstate, as provided in paragraph 19, by causing the action or proceeding to be dismissed with a ruling that, in Agency's good faith determination, precludes forfeiture of the Borrower's interest in the Property or other material impairment of the lien created by this Deed of Trust or Agency's security interest. Borrower shall also be in default if Borrower, during the loan application process, gave materially fa]se or inaccurate information or statements to Agency (or failed to provide Agency with any material information) in connection with the loan evidenced by the Note, including, but not limited to, representations concerning (i) Borrower's occupancy of the Property as a principal residence and (ii) Borrower's income. 9. Protection of the Agency's Security. Hicapdoc-CHIP final If Borrower fails to perform the covenants and agreements contained (March 2002) 5 in this Deed of Trust or if any action or proceeding is commenced which materially affects the Agency's interest in the Security, including, but not limited to, default under the Deed of Trust securing the First Lender Note, eminent domain, insolvency, code enforcement, or arrangements or proceedings involving a bankrupt or decedent, then the Agency, at the Agency's option, upon notice to Borrower, may make such appearances, disburse such sums and take such action as it determines necessary to protect the Agency's interest, including but not limited to, disbursement of reasonable attorney's fees and entry upon the Security to make repairs. Any amounts disbursed by the Agency pursuant to this paragraph, with interest thereon, will become an indebtedness of Borrower secured by this Deed of Trust, Unless Borrower and Agency agree to other terms of payment, such amount will be payable upon notice from the Agency to Borrower requesting payment thereof, and will bear interest from the date of disbursement at the rate payable from time to time on outstanding principal under the Note unless payment of interest at such rate would be contrary to applicable law, in which event such amounts will bear interest at the highest rate permissible under applicable law. Nothing contained in this paragraph will require the Agency to insure any expense or take any action hereunder. 10. Inspection. The Agency may make or cause to be made reasonable entries upon and inspections of the Security; provided that the Agency will give Borrower reasonable notice of inspection. 11. Application of Payments. Unless applicable law provides otherwise, any payments received by the Agency under the Note shall be applied by the Agency first to interest, if any, and then to the principal due on the Note. 12. Condemnation. (A) The proceeds of any award or claim for damages, direct or consequential, in connection with any condemnation, exercise or eminent domain, or other taking of the Property, or part thereof, or for conveyance in lieu of .. condemnation, are hereby assigned and shall be paid to the Agency subject to the terms and rights of the First Deed of Trust. (B) In the event of a total taking of the Property, the proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with any excess paid to Borrower. In the event of a partial taking of the Property, unless Borrower and the Agency otherwise agree in writing, the sums secured by this Security Instrument shall be reduced by the amount of the proceeds multiplied by the following fraction: (1) the total amount of the sums secured immediately before the taking, divided by (2) the fair market value of the Property immediately before the taking. Any balance shall be paid to the Borrower. (C) If the Property is abandoned by Borrower, or if, after notice by the Agency to Borrower that the condemnor offers to make an award or settle a claim for damages, Borrower fails to respond to the Agency within thirty (30) days after the date such notice is mai]ed, the Agency is authorized to collect and apply the proceeds of any award to the sums secured by this Deed of Trust. (D) Unless the Agency and Borrower otherwise agree in writing, any such application of proceeds to principal shall not extend or postpone the due date of payment or payments specified in the Note or change the amount of such payment or payments. 13. Forbearance by the A~ency Not a Waiver. Any forbearance by the Agency in exercising any right or remedy will not be a waiver of the exercise of any such right or remedy. The procurement of insurance or the payment of taxes or other liens or charges by the Agency will not be a waiver of the Agency's right to accelerate the maturity of the indebtedness secured by this Deed of Trust. 14. Remedies Cumulative. All remedies provided in this Deed of Trust are distinct and cumulative to any other right or remedy under this Deed of Trust or any other document, or afforded by law or equity, and may be exercised "concurrently, independently or successively. 15. Successors and Assigns Bound. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the Agency and Borrower subject to the provisions of this Deed of Trust. Hicapdoc-CHIP final (March 2002) 6 16. Joint and Several Liability. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the Agency and Borrower, subject to the provisions of paragraph 29 hereof. All covenants and agreements of Borrower shall be joint and several. 17. Notice. Except for any notice required under applicable law to be given in another manner, (a) any notice to Borrower provided for in this Deed of Trust will be given by certified mail, addressed to Borrower at the address shown in the first paragraph of this Deed of Trust or such other address as Borrower may designate by notice to the Agency as provided herein, and (b) any notice to the Agency will be given by express delivery, return receipt requested, to the Agency at the address shown in the first paragraph or to such other address as the Agency may designate by notice to Borrower as provided above. Notice shall be effective as of the date received by Agency as shown on the return receipt. 18. Governing Law. This Deed of Trust shall be governed by federal law and the law of the State of California. 19. Severability. In the event that any provision or clause of this Deed of Trust or the Note conflicts with applicable law, such conflict will not affect other provisions of this Deed of Trust or the Note which can be given effect without the conflicting provision, and to this end the provisions of the Deed of Trust and the Note are declared to be severable. 20. Captions. The captions and headings in this Deed of Trust are for convenience only and are not to be used to interpret or define the provisions hereof. 21. Hazardous Substances. Borrower shall not cause or permit the presence, use, disposal, storage, or release of any Hazardous Substances on or in the Property. Borrower shall not do, nor allow anyone else to do, anything affecting the Property that is in violation of any Environmental Law. The preceding two sentences shall not apply to the presence, use, or storage on the Property of small quantities of Hazardous Substances that are generally recognized to be appropriate to normal residential uses and to maintenance of the Property. 22. Hicapdoc-CHIP final Acceleration: Remedies. Upon Borrower's breach of any covenant or agreement of Borrower in this Deed of Trust, including, but not limited to, the covenants to pay, when due, any sums secured by this Deed of Trust, the Agency, prior to acceleration, will mail by express delivery, return receipt requested notice to Borrower specifying; (1) the breach; (2) the action required to cure such breach; (3) a date, not less than thirty (30) days from the date the notice is received by Borrower as shown on the return receipt, by which such breach is to be cured; and (4) that failure to cure such breach on or before the date specified in the notice may result in acceleration of the sums secured by this Deed of Trust and sale of the Security. The notice will also inform Borrower of Borrower's right to reinstate after acceleration and the right to bring a court action to assert the nonexistence of default or any other defense of Borrower to acceleration and sale. If the breach is not cured on or before the date specified in the notice, the Agency, at the Agency's option, may: (a) declare all of the sums secured by this Deed of Trust to be immediately due and payable without further demand and may invoke the power of sale and any other remedies permitted by California law; (b) either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Security and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts which it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof, and the entering upon and taking possession of the Security shall not cure or waive any breach hereunder or invalidate any act done in response to such breach and, notwithstanding the continuance in possession of the Security, the Agency shall be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any uncured breach, including the right to exercise the power of sale; (c) commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (d) deliver to Trustee a written declaration of default and demand for sale, pursuant to the provisions for notice of sale found at California Civil Code Sections 2924, eta., as amended from time to time; or (e) exercise all other rights and remedies provided herein, in the instruments by which the Borrower acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing all or any portion of the obligations secured hereby, or provided by law. (March 2002) The remedies specified herein are not intended to substitute for those provided in the Promissory Note and Shared Appreciation Agreement, all of which shall remain in full force and effect. The Agency shall be entitled to collect all reasonable costs and expenses incurred in pursuing the remedies provided in this paragraph, including, but not limited to, reasonable attorney's fees. 23. Borrower's Right to Reinstate. Notwithstanding the Agency's acceleration of the sums secured by this Deed of Trust, Borrower will have the right to have any proceedings begun by the Agency to enforce this Deed of Trust discontinued at any time prior to five (5) days before sale of the Security pursuant to the power of sale contained in this Deed of Trust or at any time prior to entry of a judgment enforcing this Deed of Trust if: (a) Borrower pays Agency all sums which would be then due under this Deed of Trust and no acceleration under the Note has occurred; (b) Borrower cures all breaches of any other covenants or agreements of Borrower contained in this Deed of Trust; (c) Borrower pays all reasonable expenses incurred by Agency and Trustee in enforcing the covenants and agreements of Borrower contained in this Deed of Trust, and in enforcing the Agency's and Trustee's remedies, including, but not limited to, reasonable attorney's fees; and (d) Borrower takes such action as Agency may reasonably require to assure that the lien of this Deed of Trust, Agency's interest in the Security and Borrower's obligation to pay the sums secured by this Deed of Trust shall continue unimpaired. Upon such payment and cure by Borrower, this Deed of Trust and the obligations secured hereby will remain in full force and effect as if no acceleration had occurred. 24. Assignment of Rents; Appointment of Receiver; the Agency in Possession. Upon acceleration under Paragraph 22 hereof or abandonment of the Property, the Agency (in person, by agent or by judicially appointed receiver) shall be entitled to enter upon, take possession of and manage the Property and to collect the rents of the Property (if any) including those past due. All rents collected by the Agency or the receiver shall be applied first to payment of the costs of management of the Property and collection of rents including, but not limited to, receiver's fees, premiums on receiver's bonds, and reasonable attorney's fees, and then to the sums secured by this Security Instrument. The Agency and the receiver shall be liable to account only for those rents actually received. The provisions of this paragraph and Paragraph 22 shall operate subject to the claims of prior lien holders. 25. Reconveyance. Upon payment of all sums secured by this Deed of Trust, the Agency will request Trustee to reconvey the Security and will surrender this Deed of Trust and the Note to Trustee. Trustee will reconvey the Security without warranty and without charge to the person or persons legally entitled thereto. Such person or persons will pay all costs of recordation, if any. 26. Substitute Trustee. The Agency, at the Agency's option and upon providing written notice to the First Lender, may from time to time remove the Trustee and appoint a successor trustee to any Trustee appointed hereunder. The successor trustee will succeed to all the title, power and duties conferred upon the Trustee herein and by applicable law. 27. Superiority of First and Second Lenders Documents. Notwithstanding any provision herein, this Deed of Trust shall not diminish or affect the rights of the First Lender under the First Lender Deed of Trust or any subsequent First Lender Deed of Trust hereafter recorded against the Deed of Trust. 28. Use of Property. Borrower shall not permit or suffer the use of any of the Property for any purpose other than as a single family residential dwelling. 29. Transfer of the Property; Assumption. If all or any part of the Property or an interest therein is sold or transferred by Borrower without the Agency's prior written consent, the Agency may, at the Agency's option, declare all the sums secured by this Security Instrument to be immediately due and payable. If the Agency exercises such option to accelerate, the Agency shall mail Borrower notice of acceleration in accordance with Paragraph 22 hereof. Such notice shall provide a period of not less than 30 days from the date the notice is mailed within which Borrower may pay the sums declared due. If Borrower fails to pay such sums prior to the expiration of such period, the Agency may without further notice demand on Borrower, invoke any remedies permitted by Paragraph 22 above hereof. Hicapdoc-CHIP final (March 2002) 30. Borrower's Copy. Borrower shall be given a conformed copy of the Note and this Security Instrument. IN WITNESS WHEREOF, Borrower has executed this Deed of Trust as of the date first written above and by so :loing, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument. Borrower Co-borrower Hicapdoc-CHIP final (March 2002) STATE OF CALIFORNIA COUNTY OF On personally known to me - OR - , before me, , personally appeared proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/am subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies) and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. STATE OF CALIFORNIA COUNTY OF On personally known to me - OR - , before me, , personally appeared proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(is) and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Hicapdoc-CHIP final 10 (March 2002) Legal description EXHIBIT A Property Description Hicapdoc-CHIP final 11 (March 2002) COMPLIMENTARY RECORDING REQUESTED PURSUANT TO GOVERNMENT CODE SECTION 27383 When Recorded Mail To: The Redevelopment Agency of Some City PO Box 391 Some City, CA 94064 Attn: Silent Loan Program Coordinator COUNTYWIDE HOME INVESTMENT PARTNERSHIP (CHIP) CITY OF SHARED APPRECIATION LOAN AGREEMENT This Loan Agreement made this Agency of Some City CLender/Agency") day of ,20___, by and between The Redevelopment _ ("Borrower") RECITALS: A. Lender/Agency has established a First Time Home Buyer Program ("Program") for the benefit of households who are either employed within the geographic region or currently reside within the geographic region of Some City B. Borrower will receive a loan from Lender/Agency under the Program. C. The parties wish to enter into this Loan Agreement to define the rights and obligations of the Borrower with respect to the Loan. NOW, THEREFORE, the parties agree as follows: 1. Definitions. Unless otherwise defined in this Agreement, all capitalized words, terms and phrases used in this Agreement shall have the following meanings a. "Appraiser" shall mean a real estate appraiser who is certified and licensed in California. c. "Borrower" shall mean a borrower or co-borrower or co-borrower(s) who execute this Agreement and all relevant loan program documents related hereto. d. "First Time Homebuyer" shall mean a Borrower who has not owned a primary residential property within the past three years. Exception to this rule will be applied for a Borrower who has had only nominal, non- controlling interest in a residence consistent with the goals of the Program Guidelines. In such cases, an interest yield which is established and published by the United States Housing and Urban Development (HUD) division, will be applied towards the value of the percentage ownership that the Borrower maintains. This yield will then be applied towards the Borrower's income in determining the Borrower's eligibility as based on the Program Guidelines. For example, if a Borrower has a 50% interest in an exempt property that is worth $250,000 the Lender/Agency will apply an interest yield of 6% (for this example) to 50% of the ownership, or 6% towards $125,000. This would equate to an additional $7,500 of income added to the Borrower's income for program eligibility purposes. Program Hicapdoc-CHIP final "Program" shall mean to the "Some City" Countywide Home Investment Partnership (CHIP) (March 2002) 12 f. "Program Guidelines" shall mean the Program Guidelines dated Agency, as may be amended from time to time by the Agency. , and approved by g. "Dwelling" shall mean the real property commonly known and described in the attached Exhibit "A" and more commonly known as , California, which will be the Principal Residence of the Borrower. h. "Principal Residence" shall mean the place where the Borrower resides on a substantially full- time basis, for not less than ten (10) months in each calendar year. i. "Note" shall mean the Promissory Note made by the Borrower payable to Lender/Agency secured by the Junior Deed of Trust upon the Dwelling. j. "Senior Deed of Trust" shall mean the Deed of Trust made by the Borrower to a lender which is a prior lien upon the Dwelling senior to the Junior Deed of Trust, commonly referred to as the first lender. Disqualifying Events shall include but not be limited to: (I) Lease of the Dwelling for a period of more than two months in any one calendar year. (ii) Sale, conveyance, or other alienation of the Dwelling (including a sale under a deed of trust in the event of foreclosure), if the remaining ownership interest of the Borrower in the Dwelling is less than fifty pement (50%). (iii) Borrower ceases to reside in the Dwelling as his or her or their Principal Residence. (iv) A default shall occur under the terms of the Senior Deed of Trust and said default shall not be cured within sixty (60) days following the recordation of notice of default by the trustee under the Senior Deed of Trust. (v) Borrower incurs additional indebtedness, either through a senior or junior loan, on the >roperty in excess of the principal balance of the existing loans secured against the property at the original pumhase of the ~roperty. ($ 2. Loan. Lender/Agency agrees to lend and the Borrower agrees to borrow the sum of Dollars ). The loan will be evidenced by the Note and will be secured by the Junior Deed of Trust upon the Dwelling. 3. Disqualifying Event. Upon the first day of the calendar month following a Disqualifying Event, notwithstanding anything to the contrary contained in the Note or the Junior Deed of Trust, the following shall occur. a. Interest on the Note shall accrue at a rate equal to the Eleventh District Cost of Funds plus 2.5% per annum, and the principal balance of the Note shall be amortized in equal monthly installments including interest and principal over a period of thirty (30) years commencing upon the first day of the second month following the Disqualifying Event. b. At the option of the holder of the Note, the entire remaining balance of the principal and accrued interest shall become immediately due and payable. 4.. Refinancing. Lender/Agency shall not be required to subordinate to the lien of a new Senior Deed of Trust in the event that the loan initially obtained by the Borrower is to be refinanced. Provided, however, Lender/Agency will consent to such refinancing if all of the following conditions are met: (a) the proceeds of such loan do not exceed the amount of the remaining principal secured by the Senior Deed of Trust, plus the reasonable cost of refinancing, (b) the interest rate payable under the note given in connection with the refinancing is less than the interest rate payable under the note secured by the Senior Deed of Trust prior to refinancing, and (c) the Borrower does not obtain an additional junior loan which will create an indebtedness over the current balance of the existing loans on the property, and c) no Disqualifying Event has ">ccurred. 5. Shared Appreciation. In addition to the repayment of the principal and payment of interest as provided in the Note and this Agreement, Borrower agrees to pay Lender/Agency a share of any appreciation in the value of the Dwelling between the date of its purchase by the Borrower and the date of its sale, repayment of the Note prior to sale of the Hicapdoc-CHIP final (March 2002) 13 Dwelling, or upon the happening of any Disqualifying Event. The amount of shared appreciation payment required shall be based upon the Value of the Dwelling less the Cost of the Dwelling and any Additional Costs and Closing Costs as those terms are defined herein below and the formula as defined herein below. The share appreciation calculation applied towards the loan is outlined in the Shared Appreciation Disclosure Statement as part of the Truth in Lending Disclosure Statement. "Cost of the Dwelling" shall mean the purchase price paid by the Borrower plus any escrow fees and the cost of title insurance paid by them at the time the Dwelling is purchased. The parties agree that the Cost of the Dwelling is $ "Additional Costs" shall mean the verified cost of any capital improvement made to the Dwelling by the Borrower which is in excess of $2,000, and the cost of which may be added to the basis of the Dwelling for federal income tax purposes under the Internal Revenue Code ("Code"). It shall be the responsibility of Borrower to retain all records and to substantiate any Additional Costs. "Closing Costs" shall mean the verified cost which the Borrower is responsible for as related to the sale of the property, including the real estate sales commissions, and sellers allocation of transfer tax, if any. Closing costs shall not include credits provided by the seller to pay for the new buyers closing costs, commonly referred to as a seller's credit and shall not include costs associated with refinance. "Value" shall mean: a) if the Dwelling is sold at fair market value in a bona fide sale transaction to a third party, the gross sales price less a reasonable real estate commission and costs of sale which would be deductible in determining the gain under the Code, or b) if the Dwelling is not sold, the fair market value (without the deduction of any anticipated costs of sale) as determined by the appraiser selected by Borrower in accordance with this agreement. If the Dwelling is not sold or not sold at fair market value in a bona fide sales transaction to a third party, "Value" shall mean and be determined as follows: Borrower and Agency shall mutually select a licensed and certified Appraiser and said Appraiser shall make the appraisal. The appraisal shall be binding upon both parties. In the event that the Borrower and Lender cannot agree on an appraiser within twenty (20) days after the request by the Agency, then Agency may select a licensed and certified appraiser who shall make the appraisal. Both parties shall cooperate with the appraiser in the making of such appraisal. The cost of the appraisal shall be shared between the parties in the proportion in which they are entitled to share in the Shared Appreciation. Lender/Agency's share of the Shared Appreciation shall be payable in cash upon the sale of the Dwelling, or within twenty (20) days following delivery of the appraisal to the parties by the appraiser selected. 6. Shared Appreciation Formula. Shared Appreciation shall be calculated by multiplying a share of any appreciation in the value of the Dwelling times a proportion represented by one half of the Agency's loan to Cost of the Dwelling. For example, if the Cost of the Dwelling is $ 400,000 and the Lender/Agency's loan is $ 80,000, this proportion would be 10% ($40,000/$400,000). Therefore, to calculate the Shared Appreciation payment owed to the Agency, one would multiply 10% times any appreciation in the value of the Dwelling (based on original Cost of Dwelling plus Additional Costs as defined above). In this example, if the Dwelling sold for $600,000, (that is an appreciation of $200,000) the Borrower would repay the Lender/Agency 10% times the Appreciation of $200,000 which is $ $20,000 The Borrower's Cost of the Dwelling is $__ and the Lender/Agency's loan is in the amount of $ , thus the proportion represented by the Agency's loan to the Cost of the Dwelling is __% ($ /$ ). The Borrowers Shared Appreciation payment, until such time that the shared appreciation is paid for in full, is calculated by multiplying ~% times any appreciation in the value of the Dwelling. Repayment will be required irrespective if the loan has been paid off to a zero dollar ($0) balance during or before the term of the loan. Hicapdoc~CHIP final 14 (March 2002) IN WITNESS WHEREOF, the parties have executed this Shared Appreciation Agreement upon the date above written. THE REDEVELOPMENT AGENCY OF Some City By: Borrower Dated Co-Borrower Dated Hicapdoc-CHIP final 15 (March 2002)