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HomeMy WebLinkAboutHousing Appeals Committee Decision Hudson BOA v Delphic Assoc.2002.12.23 - Decision - 0000 Meetinghouse Road 12/23/2002 i HOUSING APPEALS COMMI'CTEE DELPHIC ASSOCIATES, LLC Page 1 of 5 HOUSING APPEALS COMMITTEE DELPHIC ASSOCIATES, LLC I Decision 1i No. 02-11 I Appellant; gELPHIC ASSOCXATES, LLC Appellee. HUDSON HOARD OF APPEALS I Date: December 23, 2002 DECISION I. INTRODUCTION In August 2001, Delphic Associates, LLC, submitted an application to the Hudson Zoning Board of Appeals for a Comprehensive Permit pursuant to G.L. c. 408, s.s. 20--23 to build affordable housing financed under the Housing Starts Program of. the Massachusetts Housing Finance Agency (MassHousing) . The developer initially proposed to build 52 condominium units on a ten-acre site off Tower Street in Hudson. By decision of May 6, 2002, the Board granted a comprehensive permit for the construction of 32 units, of which eight will be set aside for low- or moderate-income families. The decision included a condition requiring that the sale of the affordable units be subject to resale restrictions that would survive bankruptcy of the owners or foreclosure of their mortgage loans. On May 20, 2002, the developer appealed the decision to the Housing Appeals Committee, which opened its hearing with a conference of counsel held on June 5, 2002. Because of policy implications of the issues raised, the Committee requested the participation of MassHousing as amicus curiae. MassHousi.ng has in fact participated as amicus, filing a statement of its position. In addition, the Hudson dousing Authority moved to intervene, stating that it is interested in the matter since it has been designated by the Town of Hudson to oversee administration of the proposed development if it is in fact built. in July and August, the parties filed cross motions for summary judgment. Briefs were filed, and evidence was presented and Argument heard on November 13, 2002. II. MOTION TO INTERVSSNE The Hudson Housing Authority has moved to intervene in the proceedings before the Committee. It asserts that it. will oversee administration of the proposed development on behalf of the town, and therefore has an interest in the appeal. Motion to Intervene (filed Jul. 25, 2002) . Section 30.04 of our regulations provides that: 11(2) [Intervention may be granted tol any person showing that he or she may be substantially and specifically affected by the proceedings. . . . The Committee shall not allow a person to intervene if his or her interests are substantially similar to those of any party and no showing is made that: one or more of the parties will not diligently represent those interests. " In overseeing the administration of the proposed housing, the Authority is presumably acting to protect the interests of the town and of all of its residents. This is substantially similar to the role of the Board in the comprehensive permit process. There is no indication that the Authority and the Board are in conflict with regard to the condition that is at issue. Rather, we have seen every indication that the Board has and will continue to diligently represent the interests of the entire town. We therefore deny the Authority's motion to intervene. Further, we are confident that the interests of the Authority 1 are sufficiently protected by the Committee's long--standing practice of permitting it to participate fully in the hearing as ,amicus, examining witnesses, presenting hitp://socialaw.gvpi.net/sll/lpext,dll/sil/hac/hac-0001984?f=templates&fn=document-fra... 10/1312004 HOUSING APPEALS COMMITTEE DELPHIC ASSOCIATES,LLC Page 2 of 5 argument, and submitting a brief, which it did jointly with the Board. ITT. THE DEED RESTRICTIONS As is common in affordable homeownership developments, in the proposed development, long-term affordability will be assured by means of deed restrictions. Prior to construction, a regulatory agreement will be executed by the developer, the town's chief elected official, and massHousing. That agreement obligates the parties to ensure that an affordable housing deed rider will be executed by the initial purchasers of each affordable unit and by all future purchasers of the unit. Exh. 1 (Attachment # 3, Housing Starts Program Regulatory Agreement, s. 5) . Because each new purchaser will execute a deed rider, the effect of the documents is to ensure that in most cases the unit will remain affordable in perpetuity. The initial purchasers of the affordable unit will receive a purchase-money loan from massHousing (or possibly another lender) , which will be secured by a mortgage. The form deed rider used by MassHousing contains provisions that extinguish the affordable housing restriction if the holder of the first mortgage acquires the property by foreclosure. See attachment to Applicant's Summary ,judgment, Motion, "Exhibit 5, " Housing Starts Program Deed Rider, s. 7 (filed Jul. 24, 2002) . The Board objects to this provision, and believes that the deed rider should be restructured so as to unequivocally preserve affordability in perpetuity. Therefore in its decision it included a condition stating, "The regulatory agreement and deed rider on the affordable units shall contain provisions with regard to bankruptcy and foreclosure survivability to the extent permissible by the applicable law. " Exh. 1, Condition 16. It also attached to its decision a modified version of the need Rider, which states, "The Affordability Use Restrictions shall survive any foreclosure action." Exh. 1 (Attachment # 3, EXHIBIT C, modified Housing Starts Program Deed Rider, s. 7) . IV. DISCUSSION When a permit is granted with conditions, the burden initially is upon the developer to show that the conditions make building or operation of the housing uneconomic. 760 CMR 31.06(3) . The developer can meet this burden by showing that it has approached the subsidizing agency, and that the agency has indicated that it will not fund the project because of the condition. See 760 CMR 31.06(3) (c) , 31.07 (1) (f) . In this case, negotiations over the condition were actually conducted between the Board and the subsidizing agency, but the result is clearly the same-- the parties are at impasse, and the development will not go forward since they cannot agree on foreclosure provisions. Exh. 2, 5, 3, 6. There is clearly sufficient evidence to establish under 760 CMR 31.07(1) (f) that the condition imposed by the Board has made building of the housing uneconomic. [1[ Wherefore, under 760 CMR 31.06(7) , the burden shifts to the Board to prove that there is a valid local concern supporting the condition. This Committee is generally sympathetic to the imposition of legal restrictions that preserve affordability in perpetuity. We upheld such restrictions for rental housing in Lexington Ridge Assoc. V. Lexington, No. 93--13 (Jun. 15, 1992), and more recently filed briefs in support of perpetual affordability in Zoning Board of Appeals of Wellesley v. Ardemore Apartments Limited Partnership, 436_Mass, 811, 767 N.E.2d 584 (2002). The Board argues that the precedent in Ardemore Apartments is so clear that we should simply declare the condition here to be legal and proper. But we believe that assessing the effect of the Ardemore Apartments decision on this case is more difficult. (21 There can be no doubt that it implies a strong general public policy-both as a matter of statutory construction and common law land-use principles-in favor of perpetual affordability. [3] But the affordable housing restrictions on individual homes here will operate very differently from the http://socialaw.gvpi.net/sll/lpext.diI/sll/hac/hac-0001.984?f=templates&fn-document-fra.., 10/13/2004 E i HOUSING APPEALS COMMITTEE DELPHIC ASSOCIATES, LLC Puge 3 of S restriction on the single large rental development in Ardemore Apartments. In addition, that case was decided in the context of a completed development it) which affordable units were in immanent danger of being lost, while we are faced with an as-yet-unbuilt proposal and a condition whose ramifications may not be fully known for some time. 'Therefore, we believe that the condition imposed here must be examined in the light of public policy as articulated by MassHousing as well as the facts presented to us. MassHousing takes the position that extinguishments of the affordability restriction upon foreclosure has been standard practice in homeownership programs for more than fifteen years, and should be continued. it notes specifically (in Exhibit 4) that: "MassHousing's longstanding policy the deed riders for single family home ownership units do not survive foreclosure was designed to accommodate the interests and concerns of affordable buyers, local communities and lenders. . . .the reasons for its implementation continue today. "First, _ _ . it is essential to the viability of these developments in the broader market. . . . secondary lending market and standard commercial lending practice generally require that such deed restrictions be extinguished upon foreclosure. Mortgage insurers, moreover, typically will not insure. . , unless . . . deed restrictions terminate upon foreclosure. . . . "Second, rights given . . . to the town provide numerous safeguards for the local community, . . . For example, under the Housing Starts Program, not only does the town have the right of first refusal to purchase an affordable unit or to find an affordable buyer, but also, if it declines to exercise this right , it has the right to receive the windfall if the unit is sold, or foreclosed, at market rate. . . .We have also talked with private mortgage insurers, secondary market purchasers, private lenders and bond rating agencies to determine whether the market had changed as to how such deed restricted units would be viewed. To a person, they told us that it had not changed. " Lending support to MassHousing's position are the ,policies of Fanni.eMae and FreddieMac, two of the institutions to whom MassHousing is likely to sell its mortgages in the secondary market. Fannie Mae guidelines state that "(w]hen we acquire a restricted unit through foreclosure or acceptance of a deed-in-lieu of foreclosure, future sales of the unit must not be subject to any resale restrictions," Exh. 8 (Fannie Mae Single Family Selling Guide, Part V11, 102.09, page 719 06/30/02) . Similarly, Freddie Mac will only purchase mortgages if "[i]n the event of foreclosure or deed-in-lieu ,of foreclosure, any resale restrictions will cease' to be effective. . . ." Exh. 9 (Freddie Mac Underwriting Guideline 22.25 (b) ) • The Board hoped to refute, though testimony, MassHousing's position, and show that financing can be obtained under the Housing Starts Program with the condition in place. It was unable to do so, however. The developer's consultant, Kenneth Jameson, testified that he had been unsuccessful in convincing two banks-the Hudson Savings Bank and the Community National Sank-to provide purchase money loans to buyers. of affordable units if the units were to be sold without the foreclosure protection. Tr. 16, 18, 21. Robert Barrell, Executive Director of the Hudson Housing Authority, also testified concerning negotiations with the Hudson Savings Bank. He was more sanguine about the possibility of negotiating a workable financing arrangement, but it remains the case that at this point the most the bank will commit to is to consider participating in a loan pool program with at least one other local lender. (4] Exh. 11. Similarly, a housing expert presented by the Board, Edward Marchant, testified that he was very optimistic that financing could be secured using one of four different options. See Tr. 49-59, 70-71. But in fact, Mr. Marchant's testimony was that various people are "willing to discuss" alternatives, and that his advice is that " [he] would continue to speak to [the two local banks]. " Tr. 57, 77. That is, although the parties have been in Negotiation http://socialaw.gvpi.net/sll/tpext.dl l/sl l/liac/hac-0001984?f=templates&fn=document-fra,,. 10/13/2004 HOUSING APPEALS COMMITTEE DELPHIC ASSOCIATES, LLC Page 4 of 5 for a considerable period of time, none of the options has yet borne fruit. This not only reinforces our finding that the condition has made the project uneconomic, but also indicates that the factual basis for the policy stated by MassHousing is solid. In short, everyone involved in this matter recognizes that it is desirable to provide for long-term affordability and would support the condition imposed by the town if it were practical. in fact, if the town were able to prove definitively that such financing were available anywhere in the marketplace this appeal would not have been necessary. Nevertheless, if the town had absolutely no protection in cases of foreclosure, we might well conclude that the town's interest in long-term affordability is great enough (for the reasons articulated in Ardemore Apartments) to outweigh the regional need for housing. That is, having found that financing is not available with the condition in place, even if the result were that the housing development could not be built, we might find the condition justifiable and consistent with local needs. But in fact, the situation is not that dire. First, there is no evidence that foreclosure is a common occurrence. Second, whenever an affordable home is sold, under the Deed Rider the town has a right of first refusal that permits it to step in and purchase the unit if no affordable purchaser can be located. Exh. 1 (Attachment # 3, EXHIBIT C, modified Housing Starts Deed Rider, s. 4) . MassHousing has agreed to apply this right of first refusal to foreclosures, to routinely extend the notification period from 30 to 60 days, and to consider extending it further on a case-by-case basis, Exh. 2, 3. And, even if the unit is lost, the town is compensated, since it receives the windfall generated by the sale, which can put that to use for other affordable housing purposes. Exh. 1 (Attachment 0 3, EXHIBIT C, Housing Starts Deed Rider, S. 4(j) ) , 4. we find that although the Board's interest in ensuring long-term affordability is a legitimate local concern, the Board has not met its burden of proving that protection from extinguishment of the affordability restriction on foreclosure outweighs the regional need for affordable housing. see 760 CMR 31.06(7) ; Board of Appeals of Hanover v. Housing Appeals Committee, 363 Mass. 339, 367, 294 N.E.2d 393, 413 (1973) (articulating the strong presumption that the regional housing need outweighs objections to the proposal) . V. CONCLUSION AND ORDER Based upon review of the entire record and upon the findings of fact and discussion above, the Housing Appeals Committee concludes that the decision of the Hudson Board of Appeals renders the housing proposal uneconomic and is not consistent with local needs. As authorized by G.L. c. 40B, s. 23, we order the Board to remove from the comprehensive permit the condition that requires that the affordable housing restrictions in the Regulatory Agreement and Deed Rider survive bankruptcy and foreclosure. This decision may be reviewed in accordance with the provisions of G.L. c. 40D, s. 22 and G.L. c. 30A by instituting an action in the Superior Court within 30 days of receipt of the decision. Housing Appeals Committee Issued: December 23, 2002 /s/ Werner Lohe, Chairman /s/ Joseph P. Henefield /s/ Marion V. McEttrick f /s/ Mark Siegenthaler http://social aw,gvpi.net/sll/ipext.dll/sll/hae/htic-0001984?f=templates&fn=documont-fra,,. 10/13/2004 HOUSING APPEALS COMMITTEE DELPHIC ASSOCIATES, LLC Page 5 of 5 /s/ Frances C. Volkmann --------------------------- [1,] The regulation provides that proof that a subsidizing agency will not fund a development due to a locally imposed condition creates a presumption that the condition has rendered the proposal uneconomic. This is a clear indication of the major role such agencies are to have in establishing policy in cases such as the one before us. [2] The Ardemore Apartments decision was rendered after the appeal to the Committee was filed in this cake, and the Board filed a motion that we remand the matter so that the Board could be "fully grounded on the issues with the benefit of the Ardmore [Apartments] decision." It would appear unlikely, however, that the Court's decision would do anything other than strengthen the Board's resolve to seek perpetual affordability, and we therefore deny the motion. [31 The holding in Ardemoze Apartments was that the owner must maintain the housing as affordable for as long as the development is not in compliance with local zoning requirements. [4] Mr. Bartell responded affirmatively when asked if he knew that the bank "is willing to consider and participate in a loan pool program. . . ." Tr. 100. in the context of all the testimony, this cannot be interpreted as an assertion that the bank is willing to participate, but only that it is walling to consider participating. End Of Decision http://socialaw,gvpi.net/slOpext.dll/sll/hac/hac-0001984?f templates&fn=document-fra... 10/13/2004