RENTALREHABILITATION LOANPROGAM (RRLP)GUIDELINESPilot Program

9/29/2017CHFA/Version 13Karen Harkin

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Table of Contents PageChapter 1 Rental Rehabilitation Loan Program 3

Section 1.1 Purpose 3Section 1.2 Definitions 3Section 1.3 Program Partners 3Section 1.3.A Partner Roles and Responsibilities 3Section 1.4 Funding Sources 4Section 1.5 Pilot Program Area 4

Chapter 2 Overview 5Section 2.1 Initial Contact 5Section 2.2 Rehabilitation Specifications 5Section 2.3 Program Administration 6

Chapter 3 Program Requirements 7Section 3.1 Eligible Property Types 7Section 3.1.A Single Family Detached Homes 7Section 3.1.B Manufactured (Mobile) Homes Considered Real Estate 7Section 3.1.C Manufactured (Mobile) Homes Not Considered Real Estate 7Section 3.1.D Small Multifamily Properties (Duplexes, Tri-plexes, Quad-plexes) 7Section 3.2 Loan Terms 8Section 3.2.B Interest Rate and Term 8Section 3.2.C First Payment Due Date 8Section 3.3 Tenant Relocation 8Section 3.4 Loan Estimate and Closing Disclosure 8Section 3.5 RRLP Loan Fees 9Section 3.6 Broker’s Opinion of Value 9

Chapter 4 Underwriting Requirements 11Section 4.1 Property Owner(s) 11Section 4.2 Liens 11Section 4.3 Loan-to-Value Limits 11Section 4.4 Credit Analysis 11Section 4.4.A Credit Score Requirements 12Section 4.4.B Collection Accounts 12Section 4.4.C Mortgage Delinquencies 12Section 4.4.D Charge-Off Accounts 12Section 4.4.E Disputed Derogatory Credit 12Section 4.4.F Judgments 13Section 4.4.G Tax Liens 13Section 4.4.H Bankruptcy – Chapter Seven 13Section 4.4.I Bankruptcy – Chapter Eleven 14Section 4.4.J Foreclosure or Deed in Lieu of Foreclosure (DIL) 14Section 4.4.K Pre-Foreclosure or Short Sale 14Section 4.4.L Credit Counseling/Payment Plan 15Section 4.5 Income 15Section 4.6 Debt Service Coverage 16

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Section 4.7 Real Estate Taxes and Hazard Insurance 16Section 4.8 Flood Insurance 16

Chapter 5 Compliance 17Section 5.1 Maximum Rent 17Section 5.2 Income Eligible Tenants 18Section 5.3 Annual Proof of Paid Taxes and Hazard Insurance 18Section 5.4 Regulatory Agreement – Beneficiary and Rent Use Covenant 18Section 5.5 Fair Housing 18

Chapter 6 Loan Closing 19Section 6.1 Closing Procedures 19Section 6.2 Beneficiary and Rent Use Covenant 19Section 6.3 Promissory Note and Deed of Trust 19

Chapter 7 Loan Servicing 20Section 7.1 Collection and Remittance of Monthly Payments 20Section 7.2 Construction Period Servicing 20Section 7.3 Delinquencies 20Section 7.4 Loan Payoff and Release of Documents 21Section 7.4.A Loan Payoff Funds 21Section 7.4.B Release of Security Instruments 21Section 7.4.C Release of Beneficiary and Rent Use Covenant 21Section 7.5 Subordination of RRLP Loan 21

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CHAPTER 1 – RENTAL REHABILITATION LOAN PROGRAM (RRLP)- GENERAL

1.1 Purpose

The purpose of the RRLP is to provide affordable Loans to Landlords (renting to low- and moderate-income Tenants to make necessary repairs to their properties. This is a two-year pilot Program.This Program will mirror the existing Delta Housing Authority’s Housing Rehabilitation Loan ProgramManagement Policies, except it will serve Landlords instead of owner occupants. Any deviation will behighlighted in this Program guide; however any clarification will be made through the HousingRehabilitation Loan Program, whereby that Program’s guidelines will be the source of the final decision.

1.2 Definitions

For the purpose of this guide, “Landlords” will refer to all owners (including spouses and civil unionpartners) of rental properties who desire to use this Program to make necessary repairs to theirproperties and rent to income-eligible Tenants. “Tenant(s) is the occupant of the subject “Property” tobe rehabilitated. “Program” refers to the Rental Rehabilitation Loan Program. “Loan” refers to theamount of principal plus interest lent to the Landlord for the purpose of rehabilitating the Property.

1.3 Program Partners

Delta Housing Authority (DHA); Colorado Department of Local Affairs Division of Housing (CDOH); andColorado Housing and Finance Authority (CHFA).

1.3A Partner Roles and Responsibilities

DHA will:· Market the Program;· Loan application oversight;· Underwriting;· Qualification of Tenant(s) as Program beneficiaries;· Loan approval/denial;· Loan closing;· Rehabilitation – plan development and rehabilitation oversight;· Submit and approve draw requests for payment;· Collect lien waivers;· Ensure proper permitting and Certificate of Occupancy compliance;· Loan servicing – collect monthly payments and remit payments quarterly to CHFA;· Refer uncollectable Loans to CHFA for (potential) foreclosure;· Ongoing compliance with Program guidelines.

DHA on behalf of Delta County will receive an administrative fee for service at the time of Loanclosing for the Loan activities before and after closing, and ongoing servicing oversight, onCHFA’s and CDOH’s behalf.

CHFA will:

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· Market the Program;· Credit underwrite Loans in the pilot Program;· Transfer funds to DHA prior to Loan closing based on rehabilitation documentation and a

draw request submitted by DHA;· Receive quarterly remittance payments and applicable reports from DHA, based on the

monthly payments collected, to be recycled back into the HOF Loan fund;· CHFA will foreclose, if that service is deemed necessary, as the Loan is between CHFA and

the Landlord.

CDOH will:· Market the Program;· Provide the administrative fee at Loan closing;· Provide and require a Beneficiary and Rent Use Covenant to ensure affordability compliance

for a minimum of five (5) years or as long as the Loan is outstanding;· CDOH will release the Covenant at the end of the applicable affordability period.

1.3.1 Funding Sources

The Loan funds from CHFA will come from the Housing Opportunity Fund (HOF). CommunityDevelopment Block Grant (CDBG) from CDOH is the source for administrative expenses paid to DHA.

1.3.2 Pilot Program Area

The RRLP area will match DHA’s existing owner occupant rehabilitation Program (the HousingRehabilitation Program) area for six (6) adjacent counties. Those counties are Delta, Montrose,Gunnison, Hinsdale, Ouray and San Miguel. Local city/town and county staff can refer Landlords to theProgram as they encounter substandard housing situations or properties with code violations.

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CHAPTER 2 – OVERVIEW

2.1 Initial Contact

CDOH and CHFA are working in cooperation with DHA to create a single point of entry for the Program.Landlords interested in participating in the RRLP will contact DHA. DHA will review eligibility terms withthe Landlord, including the ongoing compliance requirements. Based on those terms, the Landlord willdecide whether or not they want to pursue the Program. DHA is the Landlord’s point of contactthroughout the entire process, from origination through servicing and pay-off.

2.2 Rehabilitation Specifications

DHA will create a detailed rehabilitation specification plan jointly with the Landlord and the contractors,focusing on health and safety issues (properties who fail HQS inspections), energy efficiency andProperty cosmetics (cosmetics can be no more than 20% of the total Loan) for the subject Property. ThisProgram will follow the Rehabilitation Program Management Policies wherever clarification is neededrelated to the rehabilitation specifications.

If the specifications include accessibility modifications, DHA will refer the Landlord and/or Tenants tothe Delta County Department of Health and Human Services (for Delta, Gunnison and Hinsdale counties)or Montrose County Department of Health and Human Services (for Montrose, Ouray and San Miguelcounties) for potential participation in the Colorado Department of Health Care Policy & Financing’sHome Modification Benefit Program. More information about this Program can be found athttps://www.colorado.gov/pacific/hcpf/single-entry-point-agenciesThe Delta and Montrose agencies are the point of contact for the six (6) counties in the pilot Program. Ifthe Landlord and/or Tenant are ineligible for the Home Modification Benefit Program, any accessibilityneeds will be included in the RRLP rehabilitation specifications.

The rehabilitation specifications will be placed for bids with no less than two (2) eligible contractors.However receiving a bid from only one (1) contractor will not cause the Property to be ineligible forparticipation in the Program.

Landlords can also perform the construction themselves, provided they have the applicablequalifications as outlined in the Housing Rehabilitation Management Policies. However Landlords willonly be reimbursed for materials after they are purchased and installed; Landlord labor is excluded. Allrehabilitation work is required to have the necessary permits and inspections. All materialreimbursement requests will be paid from detailed receipts and invoices. Materials and labor will bepaid for any subcontractors, not related to the Landlord, that the Landlord requires for the project.Landlords performing the rehabilitation work on properties that were built prior to 1978 are required tobe “Lead Safe Certified”. DHA can facilitate training and certification for the Landlord, if necessary.

Maximum construction time is ninety (90) days from the date of closing. Extensions will be granted onlyfor weather related delays or other unforeseen circumstances.

Lien waivers are required from any contractor, subcontractor or materials provider as determined bythe DHA.

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2.3 Program Administration

DHA, on behalf of Delta County, will act as an agent for CHFA and CDOH, for which they will receive aone (1)-time administrative fee paid by CDOH at Loan closing. DHA will perform the following services:

· Market and explain the Program to prospective Landlords;· Take and process Loan applications;· Ensure CDBG requirements including Tenant(s) eligibility as beneficiaries;· Prepare rehabilitation specifications and send out to bid to contractors;· Assist the Landlord in contractor selection and CDBG requirements;· Perform preliminary underwriting by the Applicant Review and Loan Advisory Committee

(ARLAC);· Send Loan packages to CHFA for final underwriting;· Issue Loan approvals/denials;· Conduct Loan closings;· Ensure proper permitting and Certificate of Occupancy compliance;· Ensure execution and recording of CDOH Beneficiary and Rent Use Covenant;· Oversee rehabilitation activities;· Review and approve the draw requests;· Obtain lien waivers;· Perform Loan servicing:

o Collecting monthly payments and remitting the payments to CHFA;o Ongoing compliance including payment of real estate taxes and adequate hazard

insurance coverage;o Monitor compliance with Program guidelines including on-going Tenant(s) occupancy

with annual lease receipt and review, compliance with CDOH Beneficiary and Rent UseCovenant including Maximum Rents, and other applicable CDBG requirements; and

· Escalate any non-payment or non-compliant Loans to CHFA for further action.

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CHAPTER 3 - PROGRAM REQUIREMENTS

3.1 Eligible Property TypesThe following property types are eligible for an RRLP Loan: single family detached homes; manufacturedhomes permanently affixed to foundations and on leased lots; multifamily properties less than four (4)units.

3.1.A Single Family Detached Homes

The RRLP provides funds for rehabilitation of single family detached homes or duplexes. In some cases,a small multi-family dwelling (less than four (4) units) may be eligible for a waiver, subject to approval byall the Program partners. The Property must be on land owned by the Landlord, except in the case of aland trust where the Landlord has a ninety-nine (99) year lease on the land. Modular housing will beconsidered single family detached housing.

3.1.B Manufactured (Mobile) Homes Considered Real Estate

All manufactured homes must be constructed after 1976.

Manufactured homes must be permanently affixed to their foundations, with the wheels and hitchremoved and the purged title to be considered real estate, regardless of their age. These properties willbe considered single family detached housing in accordance with Colorado law (C.R.S. 38-29-101 et.seq.)and are evidenced by either an Affidavit of Real Property for a Manufactured Home or a Certificate ofPermanent Location for a Manufactured Home. This documentation must be provided at time ofapplication but no later than before RRLP Loan Program closing. The Colorado Division of PropertyTaxation website has Manufactured Homes forms available.https://www.colorado.gov/pacific/dola/Property-taxation-forms

3.1.C Manufactured (Mobile) Homes Not Considered Real Estate

Manufactured homes not permanently affixed to a foundation, with wheels and hitch still intact andwithout a purged title but on owned ground will be eligible for up to $10,000 in repairs, if there issufficient value in the Property.

Mobile homes on rented lots are eligible for a limited amount for $5,000 in emergency repairs only,depending on the value of the home. Landlords of these properties must complete the full RRLPapplication and underwriting process.

3.1.D Small Multifamily Properties (Duplexes, Tri-plexes, Quad-plexes)

Small multifamily properties (less than four (4) units) are eligible for an RRLP Loan up the maximum loanamount of $24,999 per unit. If the Landlord occupies one (1) unit as their primary residence, that unit isineligible for an RRLP Loan, but may be eligible for the DHA administered Single Family Owner-OccupiedRehabilitation Program (SFOO).

Quad-plexes which have four (4) units will require a waiver to obtain an RRLP Loan.

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3.2 Loan TermsRRLP Loans are fully- amortizing, fixed rate, long term loans.

3.2.A Minimum and Maximum Loan Amounts

The minimum Loan amount is $1,000 regardless of Property type.

The maximum Loan is $24,999 for single family detached homes, modular homes and manufacturedhomes permanently affixed to their foundations with purged titles. Duplexes and other smallmultifamily properties are eligible for up to $24,999 per unit (if a waiver is granted for up to a four (4)unit Property).

All maximum Loan sizes are subject to the RRLP’s Loan-to-value requirements.Manufactured homes on rented lots (ie. In parks owned by a party other than the Landlord) are eligiblefor up to $5,000 in emergency repairs regardless of the value of the Property. These repairs areconsidered immediate health and safety concerns for the Tenants.

For all manufactured homes on rented lots, the lot rental agreement must be for at least fifteen (15)years to run concurrent with the term of the Loan.

3.2.B Interest Rate and Term

The interest rate on the fully amortizing Loan is three percent (3%).

The term of the Loan is fifteen (15) years or one hundred and eighty (180) months.

Monthly payments on a maximum $24,999 Loan, at 3% interest, for 15 years is $172.64/month.

3.2.C First Payment Due Date

The Landlord’s first (1st) payment on the RRLP Loan begins the first (1st) month after completion of theconstruction. Maximum construction period is ninety (90) days.

All payments are due on the first (1st) of the month and consider late after the fifteenth (15th) of themonth. All late payments are subject to a ten dollar ($10.00) per month late fee.

3.1.1 Tenant Relocation

The Uniform Relocation Act applies to the RRLP and all existing Tenants in the Property will receive aGeneral Notice. However the RRLP does not have funding available to provide relocation of any Tenantthat could be displaced by rehabilitation activities. If relocation is required, the Property is ineligible forthe RRLP. Tenants will be provided via certified mail or hand delivery, the Relocation Notification,confirming that the rehabilitation planned for their housing unit will not require their relocation.

3.4. Loan Estimate and Closing Disclosure

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All estimated costs should be disclosed to the Landlord on the Loan Estimate form, which must be givenwithin three (3) days of application. This form includes the amount being borrowed, the interest rate,and any prepayment penalties. This replaces the Truth In Lending Statement and the Good FaithEstimate.

Additionally, the Landlord should receive the Closing Disclosure which discloses their actual costs for theRRLP Loan and what, if any, is due at closing. This disclosure must be provided to the Landlord withinthree (3) days of closing.

Both of these documents must be resent to the Landlord if the Loan costs or Loan amount increases butdo not need to be resent if the Loan costs or Loan amount decreases.

3.5 RRLP Loan Fees

The following are the estimated Loan fees and costs associated with the RRLP Loan. These are subject tochange, addition or deletion at any time.

1. Tri-Merge Credit Report: $18.72 for individual; $39.90 for joint2. Title Insurance Policy: $325.003. Tax Certificate: $104. Broker’s Opinion of Value/Appraisal:

· Delta County: $150.00· Montrose County: $125.00· Gunnison County: $275.00· Hinsdale County: $275.00· Ouray County: $175.00· San Miguel County: $275.00

5. Recording Fee: $13 for the 1st page, $5 for each additional page· Deed of Trust: $38.00· Beneficiary and Rent Use Covenant: $18.00

6. Release Fees:· Deed of Trust: $28.00

7. Beneficiary and Rent Use Covenant: To be paid by the Landlord Coupon Book: $108. Mobile Home Title Registration Fees WITHOUT Transfer:

· Application: $7.20· Security Agreement (with extra page): $5.00

9. Mobile Home Title Registration Fees WITH Transfer:· Tax Authentication at Treasurer’s office: $10.00· Title Transfer at DMV : $12.20· Recording Fees: $18.00

Fees can be paid by the Landlord or included in the RRLP Loan and deducted from the total availableLoan proceeds (except for the Beneficiary and Rent Use Covenant release fee which is paid by theLandlord after the RRLP Loan is Paid In Full.

3.6 Broker’s Opinion of Value

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The RRLP will utilize a Broker’s Opinion of Value provided by Prestige Real Estate and PropertyManagement for all Properties except manufactured homes on rented lots. Those Properties have amaximum Loan amount of five thousand dollars ($5,000) and will have no other liens against them so novaluation service is required.

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CHAPTER 4 – UNDERWRITING REQUIREMENTS

4.1 Property Owner(s)

The Landlord must be the owner of record. All owners in title to the Property (as shown on thewarranty deed or manufactured home title) are considered Landlords and must be included in theunderwriting, including credit review, and executors of all documents on the RRLP Loan.All Landlords signing the Promissory Note and Deed of Trust are equally liable for the RRLP debt.

4.2 Liens

There must be no other liens on the Property other than one (1) standard mortgage or motor vehiclelien in a first (1st) lien position. Any outstanding mortgages against the Property must have a twelve (12)month pay history with no late payments.

The RRLP can only be in first (1st) or second (2nd) lien position for single family detached homes, modularhousing or manufactured housing permanently affixed to a foundation with its title purged. If the RRLPLoan will be in second (2nd) lien position, only a standard mortgage lien can occupy the first (1st) lienposition at time of application.

For manufactured homes not permanently affixed to a foundation and on owned land, the Property canhave no more than one other (1) standard motor vehicle lien on the Property.

For manufactured homes not permanently affixed to a foundation on rented land, the Property can haveno other liens against the Property.

4.3.A Loan-to-Value Limits

The maximum Loan-to-value of any existing first (1st) mortgage lien plus the proposed RRLP mortgage isninety percent (90%) of the after rehabilitated value of the Property based on a Broker’s Opinion ofValue or an appraisal. This applies to single family detached homes, duplexes, triplexes, four-plexes andany manufactured home permanently affixed to the foundation with wheels and hitch removed andhaving a purged title.

For manufactured homes on an owned lot and not permanently affixed to a foundation, the maximumLoan is the lessor of $10,000 or ninety percent (90%) of the after rehabilitated value of the Propertybased on the lessor of a Broker’s Opinion of Value.

For manufactured homes on rented lots, the Loan will not be subject to a Loan-to-value requirement,but will be subject to the maximum Loan amounts outlined in Section 3.2.A.

4.3.B Credit Analysis

All persons in title to the Property must be Landlords on the application and are subject to a tri-mergecredit report review. The Landlord’s overall pattern of credit behavior will be analyzed. For delinquentaccounts, the analysis will include whether or not the Landlord has a disregard for financial obligations,an inability to manage finances or extenuating circumstances. Additional documentation may berequested to assist in reaching a conclusion about derogatory credit. If there are balances on the credit

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report that are in dispute, the burden of proof as to the disputed balances and monthly payments is onthe Landlord.

4.4.A Credit Score Requirement

All Landlords must have a minimum 620 score as a middle score from the main credit bureaus: Equifax,Experian and TransUnion.

4.4.B Collection Accounts

A collection account is a loan or debt that has been submitted by a creditor to an agency for collection.The underwriting analysis will include whether or not the Landlord has a disregard for financialobligations, an inability to manage finances or extenuating circumstances. The Landlord must provide aletter or explanation and supporting documentation to explain why each collection occurred, proof thatit has been paid and/or an explanation why it has not been paid. If the balance on an individualcollection account is less than $250 or the balance of all accounts in collection is less than $1,000, thenthey do not need to be paid off prior to closing the RRLP Loan.

4.4.C Mortgage DelinquenciesLandlords who show any delinquent mortgage tradelines including first liens, second liens, homeimprovement loans, HELOCS and manufactured home loans for any property may be ineligible for anRRLP Loan. Loans that are more than 60 days past due on the date of the RRLP credit report areineligible for an RRLP Loan; loans may not be brought current to qualify for the RRLP Loan. Loans thathave been 30 days or more past due in the past 12 months but are current as of the date of the RRLPcredit report will require an explanation for the delinquency by the Landlord.

4.4.D Charge-Off Accounts

A charge-off account is a loan or debt that has been written off by a creditor. The underwriting analysiswill include whether or not the Landlord has a disregard for financial obligations, an inability to managefinances or extenuating circumstances. The Landlord must provide a letter or explanation andsupporting documentation to explain why each charge-off occurred. If the balance on an individualcharge-off account is less than $250 or the balance of all accounts in a charge-off status is less than$1,000, then they do not need to be paid off prior to closing the RRLP Loan.

Excessive collections and charge-offs can be grounds for denial from the RRLP program. Excessivecollections and charge-offs are those where there is a long pattern of this behavior that is not associatedwith a particular hardship as defined by the Landlord. Specific hardships typically have start and enddate. Collections and charge-offs during the hardship dates may be viewed with more leniency inunderwriting the RRLP Loan.

Charge-off of a mortgage related account including first liens, second liens, home improvement loans,HELOCs or manufactured home loans will follow the same guidelines for the RRLP Loan as in Section4.4.J. Foreclosure or Deed In Lieu of Foreclosure (DIL).

4.4.E Disputed Derogatory Credit

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Disputed derogatory credit refers to any disputed collections or charge-offs that occurred in the past 24months that may or may not belong to the Landlord. The same explanations and documentation appliesto disputed accounts as it does for collections and charge-offs. The following may be excluded from thecredit analysis, assuming there is adequate proof supporting these situations:

· Disputed medical accounts;

· Disputed derogatory credit resulting from identity theft, credit card theft or unauthorized usebalances. Supporting documentation must include a police report and all correspondence anddocumentation with the creditor.

4.4.F Judgments

Judgment refers to any debt or monetary liability of the Landlord. Judgments of the Landlord must bepaid off, and proof provided, prior to the RRLP Loan closing. Regardless of the amount, the underwritinganalysis will include whether or not the Landlord has a disregard for financial obligations, an inability tomanage finances or extenuating circumstances. There are only two acceptable resolutions to ajudgment: payment in full or a satisfactory repayment agreement.

A judgment is considered resolved if the Landlord enters into a repayment agreement with the creditorto make timely payments on the debt. A copy of the agreement and proof of three months of on-timepayments according to the repayment agreement may permit an exception to be granted. The Landlordmay not pre-pay the three months to expedite closing the RRLP Loan. Additionally, the Landlord mustprovide proof that the judgment will not supersede the RRLP Loan.

If the Landlord chooses to pay-off the judgment:

· If the judgment is paid prior to the RRLP Loan closing, the Landlord must provide proof (receipt,release of judgment) from the creditor that the debt was settled. DHA must review thisdocumentation prior to closing.

· If the judgment is paid at the RRLP Loan closing (not using RRLP funds), the Landlord mustprovide a pay-off statement and certified funds made payable to the creditor from theLandlord’s own funds or from another non-borrowed source. The title company will send thecertified funds to the creditor.

4.4.G Tax Liens

Tax liens will take precedence over any mortgage. Therefore, it is imperative that any federal or statetax liens for income taxes or real estate taxes be resolved before a Landlord is eligible for an RRLP Loan.All tax liens must be paid prior to processing an RRLP Loan. The Landlord must provide proof (receipt,release of lien) from the creditor that the lien has been satisfied.

4.4.H Bankruptcy – Chapter Seven

At least two years must have elapsed since the date of the bankruptcy discharged, during which timethe Landlord must have re-established good credit or chosen not to incur new credit obligations.

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If the time since bankruptcy discharge is greater than 12 months but less than two years, a Landlord maybe eligible for an RRLP Loan if:

· The Landlord can demonstrate that the bankruptcy was caused by extenuating circumstancesbeyond their control (such as medical); and

· Has since demonstrated the ability to responsibility manage their financial affairs.

Chapter Seven bankruptcies that are not discharged or are discharged for less than 12 months will resultin a RRLP Loan denial.

4.4.I Bankruptcy – Chapter Thirteen

A Landlord who experienced or is experiencing a Chapter Thirteen bankruptcy may still be eligible for anRRLP Loan if:

· At least twelve (12) months have expired under the Chapter Thirteen bankruptcy; and

· The Landlord’s performance under the repayment plan, meaning that all required paymentshave been made on time; and

· The Landlord has received written permission from the bankruptcy court to enter into themortgage transaction.

If the credit report does not verify the discharge date or what liabilities were discharged in thebankruptcy, the Landlord must provide the bankruptcy and discharge papers. The Landlord must alsoprovide documentation that the event that led to the bankruptcy is not likely to occur again.

4.4.J Foreclosure or Deed in Lieu of Foreclosure (DIL)

A Landlord who experienced a foreclosure or a deed in lieu (DIL) of foreclosure on ANY property theyowned may be eligible for an RRLP Loan if three (3) years has passed since the date of the DIL or thedate the Landlord transferred ownership of the property to the foreclosing entity.

An exception to the three (3) year rule may be granted if the foreclosure was the result of extenuatingcircumstances beyond the control of the Landlord, such as serious illness or death of a wage earner andthat the Landlord has re-established good credit.

Divorce is not an extenuating circumstance. An exception may be granted if the mortgage on theproperty was current at the time of the Landlord’s divorce, the ex-spouse/ex-civil union partner wasawarded the property in the divorce, and the mortgage against the property was later foreclosed.

The inabilities to sell a property due to a job transfer, relocation or loss in value due to marketconditions are not extenuating circumstances.

Any dates related to DILs and foreclosures that are not on the credit report must be documented usingother sources such as a closing disclosure, deed or any other legal document evidencing the date of theproperty transfer.

4.4.K Pre-Foreclosure or Short Sale

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A pre-foreclosure or short sale refers to the sale of real estate that generates proceeds that are less thanthe amount owed on a property and that the lien holders agree to release their liens and forgive thedeficiency balance on the real estate.

A Landlord may be eligible for an RRLP Loan if at least three (3) years have transpired since relinquishingANY property through a short sale. The three (3) year period begins on the date of transfer of title bythe short sale.

An exception may be granted if:

· All mortgage payments on the property were made on time for twelve (12) months prior to theshort sale; and

· All installment debt payments for other creditors were also made on time.

· The short sale was the result of extenuating circumstances beyond the control of the Landlord,such as serious illness or death of a wage earner and that the Landlord re-established goodcredit.

The inabilities to sell a property due to a job transfer, relocation or loss in value due to marketconditions are not extenuating circumstances. Divorce is not an extenuating circumstance. Anexception may be granted if the mortgage on the property was current at the time of the Landlord’sdivorce, the ex-spouse/ex-civil union partner was awarded the property in the divorce, and asubsequent short sale occurred.

If the date of the short sale is not on the credit report, the date must be documented using othersources such as a closing disclosure, deed or any other legal document evidencing the date of theproperty transfer.

4.4.L Credit Counseling/Payment Plan

Participating in a consumer credit counseling program does not disqualify a Landlord from obtaining anRRLP Loan. The following must have occurred:

· The Landlord has completed one (1) year of payments under the plan; and

· The Landlord has made all payments on-time and according to the plan; and

· The Landlord has received written permission from the counseling agency to apply for an RRLPLoan.

4.5 Income

The Landlord (includes all persons in title to the Property) must provide proof of at least two (2) monthsof income from all sources. If the Landlord is self-employed, the last two (2) years of tax returns and ayear-to-date Profit and Loss Statement will be used in lieu of income documentation.

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For Landlords who are unable to provide standard proof of income documentation (ie. Paystubs, awardletters, pension or retirement income), income verifications from the Landlords’ employers can be used.

4.6 Debt Service Coverage

The underwriting for the RRLP Loan is based on the cash flow of the Property. The minimum debtservice coverage is 1.10, ie. income derived from rent must cover all the costs associated with theProperty, including:

· Monthly principal and interest payment from any existing liens/mortgage;· Proposed RRLP principal and interest payment;· Real estate taxes;· Hazard insurance for the Property;· Lot rent, if applicable;· Utilities paid by the Landlord;· Regular maintenance not provided by the Tenants (ie. Snow removal, grass mowing);· Additional ten percent (10%) to cover any unexpected expenses.

The RRLP assumes that the Property to be rehabilitated will be rented no later than sixty (60) days aftercompletion of the rehabilitation, if the Property is vacant at time of application and rehabilitation. Thefirst (1st) payment due on the RRLP Loan is thirty (30) days after completion of the rehabilitation. If theProperty is vacant at the time of application, DHA will use the income information from all Landlords toensure that the Landlords have adequate personal cash flow to make the payments on the RRLP Loanuntil the Property is rented.

4.7 Real Estate Taxes and Hazard Insurance

The real estate taxes for the subject Property must be current at the time of application for the RRLPLoan. DHA will require proof of current taxes if the Property has a first (1 st) mortgage lien which doesnot escrow for taxes. Subject properties on rented land will have to provide proof that the real estatetaxes are current on the land only. If taxes are unpaid at the time of application, taxes must be paidbefore the application process will continue. If there are real estate taxes that are unpaid at the time ofthe RRLP closing, DHA will include payment of those taxes in the RRLP closing costs.

The subject Property must have hazard insurance coverage for at least the replacement value of theProperty or sufficient coverage for any first mortgage or lien plus the proposed RRLP Loan.At time of RRLP Loan closing, there must be proof that the Delta Housing Authority and the ColoradoHousing and Finance Authority (CHFA) Their Successors and/or assigns must be added to theMortgagee Clause of the existing hazard insurance policy.

4.8 Flood Insurance

Properties located in flood zones (A or V) or in a flood way require proof of flood insurance from theNational Flood Insurance (NFIP) Program. Flood insurance policies must name Delta Housing Authorityand Colorado Housing and Finance Authority (CHFA) Their Successors and/or Assigns at the time ofclosing.

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CHAPTER 5 – COMPLIANCE

5.1 Maximum Rent

The Landlord must agree that the rent charged on the subject Property cannot be greater than theMaximum Rent for the applicable county where the subject Property is located, which is expected to bethe Fair Market Rent (FMR) in most cases. However, for this Program, Maximum Rent is defined as thegreater of the applicable FMR or the sixty percent (60%) AMI rent levels. The allowable Maximum Rentfor the Property is adjusted for the number of bedrooms and payment of utilities by the Tenant(s)following a Utility Allowance schedule provided by the CDOH. The FMRs and sixty percent (60%) AMIrent levels are determined annually by the Department of Housing and Urban Development (HUD), andcan be increased or decreased each year.

A Landlord is prohibited from increasing the Tenant’s existing rent if it is less than the Maximum Rent attime of Loan application. The Landlord must provide a copy of the current lease at the time ofapplication. If the lease renews before closing, the Landlord must provide an updated copy at closing.

If the rent charged on the subject Property exceeds the Maximum Rent at the time of application, theLandlord must reduce the rent to the Maximum Rent by the time of the RRLP Loan closing and provide acopy of the amended lease to DHA.

Compliance with the Maximum Rent is required for a minimum of five (5) years or as long as the RRLPLoan is outstanding.

5.2 Income Eligible Tenants

The Landlord must agree to rent to low-to-moderate income Tenants, that is individuals or familieswhose gross annual income is less than or equal to eighty percent (80%) of the Area Median Income(AMI), per the applicable county where the subject Property is located and adjusted for family size. Attime of Loan application, Tenants must be income qualified for the Loan application to be accepted.

The Landlord must provide proof of the Tenant’s income to DHA at the time of application in compliancewith 24 CFR Part 5 requirements. DHA will calculate the Tenant’s qualifying income using the samemethod as used for qualifying an owner occupant applicant in the Housing Rehabilitation Program. Ifthe Tenant has a Section 8 voucher from a housing authority, the Landlord has only to provide a letterverifying that assistance and permission of release of information from the Tenant, as the applicablehousing authority has already performed the income eligibility.

If the Tenant is not income eligible at the time of Loan closing, the Landlord must re-rent the subjectProperty at lease expiration to an income qualified Tenant in compliance with the Beneficiary and RentUse Covenant. The Landlord must provide DHA with a copy of the new Tenant’s income and the newlease at the time of re-rent.

If an income qualified Tenant continues to reside in the Property, the Landlord does not need to provideannual proof of the Tenant’s income, but does need to provide a copy of the lease on the anniversary ofthe closing date of the RRLP Loan to verify compliance with the Maximum Rents, regardless of whether

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or not the Property is subject to an automatic lease renewal. A Landlord only needs to provide proof ofthe Tenant’s income at the time of re-rent and not lease extension/continuation.

Compliance with Income Eligible Tenancy is required for a minimum of five (5) years or as long as theRRLP Loan is outstanding.

5.3 Annual Proof of Paid Taxes and Hazard Insurance

On the anniversary date of the Loan closing, the Landlord will provide proof to DHA that the real estatetaxes are paid and current and the hazard insurance has adequate coverage and the proper mortgageeclause is shown on the policy. If the Property has a superior lien that collects for hazard insurance andreal estate tax escrow, the Landlord may provide their annual escrow statement from the mortgageLoan servicer in lieu of a copy of the hazard insurance policy and proof of tax payment.

5.4 Regulatory Agreement – Beneficiary and Rent Use Covenant

CDOH requires a Regulatory Agreement using a Beneficiary and Rent Use Covenant. The Covenant willbe recorded with the RRLP mortgage. This covenant stays in effect to ensure the Landlord’s compliancewith the required rental levels and the eligibility of the Tenants.

The covenant is binding and will end at the greater of the expiration of the Loan term, fifteen (15) years,or a minimum five (5) years in the case of an early Loan payoff.

Non-compliance with the covenant may accelerate the RRLP Loan and cause it to be due and payableimmediately. Failure to pay the accelerated RRLP Loan is a basis for foreclosure action.

5.5 Fair Housing

The Landlord agrees to comply with all Fair Housing requirements as related to Tenant selection.

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CHAPTER 6 - LOAN CLOSING

6.1 Closing Procedures

The RRLP will generally follow the Housing Rehabilitation Program Management Policies for thisProgram. The RRLP will require a different Promissory Note and Deed of Trust and the Beneficiary andRent Use Covenant.

6.2 Beneficiary and Rent Use Covenant

CDOH is utilizing CDBG funds for the administrative fee paid to DHA. Because of the CDBGrequirements, CDOH is requiring Landlords to execute a Beneficiary and Rent Use Covenant to ensurethat the Landlord complies with the Tenant’s income and rental restrictions. This Covenant is recordedwith the RRLP Deed of Trust and is enforceable for the greater of five (5) years or as long as the Loan isoutstanding. CDOH will release the Covenant at the later of five (5) years after the anniversary date ofthe Loan if the RRLP Loan is paid in full, or at the time of Loan payoff.

6.3 Promissory Note and Deed of Trust

Although CHFA is the funding source for the RRLP Loan, DHA will close the Loan in their name and act asthe servicer of record.

Closing documents will be prepared with the Delta Housing Authority as the “Note Holder” on thePromissory Note and the “Lender” on the Deed of Trust. DHA will transfer the documents to CHFA inthe event of a foreclosure.

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CHAPTER 7 - LOAN SERVICING

7.1 Collection and Remittance of Monthly Payments

DHA will collect monthly principal and interest payments from the Landlord. On a quarterly basis, DHAwill remit the collected principal and interest payments associated with the RRLP Loans to CHFA. CHFAwill provide DHA with a report which will include:

· Landlord’s name· Property address· Loan number· Monthly due dates for which remittances were collected· Monthly due dates for remittances that were not collected· Next payment due date· Principal reductions· Any demographic information for any new or re-verified Tenants that occurred during the

quarter.

7.2 Construction Period Servicing

DHA will send monthly reports to CHFA during the construction period indicating which draws were paidon which loans. Zero percent (0%) interest will be charged for the ninety (90) day construction period.Borrowers will be expected to begin making monthly beginning no later than the first of the monththirty (30) days following the end of the maximum ninety day (90) construction period.

Borrowers will be expected to begin making payment on their RRLP Loan even if the construction isincomplete.

Any unused Loan funds will be returned to CHFA and applied as a principal reduction on the loan.

7.3 Delinquencies

DHA will take appropriate actions when a Landlord fails to make timely mortgage payments.Landlords will receive a thirty (30) day delinquency letter from DHA if their RRLP is thirty-one (31) dayspast due.

On day sixty-one (61) past the payment due date, if the Landlord has not made a payment to bring theRRLP Loan current or made other repayment arrangements with DHA, the Landlord will receive a sixty(60) day delinquency letter and a reminder telephone call from DHA. Additionally, DHA will conduct asite visit at this time to verify if the Property is occupied and that the Property is in an acceptablecondition.

On day ninety-one (91), DHA will send a final ninety (90) day delinquency letter, including language thatthe Loan will be accelerated and foreclosure is eminent. The Landlord has thirty (30) days from the dateof this letter to cure the default or establish a reasonable repayment plan with DHA. The goal is to curethe Loan, but a repayment plan is an acceptable solution. DHA’s Executive Director should assist thestaff in preparing “stronger” letters and making calls to the Landlord if applicable. DHA will only acceptcertified funds from the Landlord to cure the Loan.

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On day one hundred twenty-two (122), DHA will transfer the Loan to CHFA to send the Notice ofElection and Demand (NED) to the Landlord for outstanding payments, plus any late charges andattorney’s fees. At this stage, only certified funds will be accepted from the Landlord to cure thedefault.

CHFA will make the determination on a case by case basis as to whether or not to initiate foreclosure orwhat appropriate action is needed to recover the outstanding balance on the RRLP Loan.

7.4 Loan Payoff and Release of Documents

DHA will accept the payoff funds from the Landlord and process the remittance of those funds to CHFA.DHA will manage the release of the RRLP Deed of Trust and notify CDOH to process a release for theBeneficiary and Rent Use Covenant.

7.4.A Loan Payoff Funds

Prior to quoting a payoff for an RRLP, DHA will verify the payoff amount with CHFA to ensure adequatefunds are collected and the payoff is able to be appropriately applied by both DHA and CHFA. Thepayoff will include any late fees legal fees, and release fees that were not already collected at Loanclosing.

At the time of payoff of the RRLP Loan, DHA will notify CHFA and CDOH of the payoff. The payoff fundsare wired to CHFA net the release fees if applicable. DHA will provide appropriate reporting as to theLoan details, including Landlord name, Property address, Loan number and itemization of the payofffees to ensure they are correctly applied against the Landlord’s outstanding RLLP balance.

7.4.B Release of Security Instruments

Within thirty (30) days of the payoff of the RRLP Loan, DHA will release the Deed of Trust. ThePromissory Note will be marked Paid in Full. The Landlord will receive the original documents and acopy of all documents will be kept by DHA in their file.

7.4.C Release of Beneficiary and Rent Use Covenant

CDOH will be notified upon payoff of the RRLP Loan. If the payoff occurs before the fifth (5 th)anniversary of the RRLP Loan, DHA will continue to service the Loan for compliance with the Tenantincome eligibility and FMR restrictions as described in Section 5.1 and 5.2. Any non-compliance issueswill be escalated to CHFA following one hundred and twenty two days (122) days of non-compliance andan active attempt by DHA to bring the Loan back into compliance.

If the RRLP Loan payoff occurs after the fifth (5th) anniversary of the Loan, CDOH will prepare a release ofthe Covenant and send it to the Landlord. It is the Landlord’s responsibility to record the document.

7.5 Subordination of RRLP Loan

Generally, RRLP Loans cannot be subordinated. On a case by case basis and with approval of allpartners, the RRLP Loan may be subordinated to a new first (1st) Deed of Trust, providing the new first

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(1st) Deed of Trust is being created only to reduce an interest rate or shorten a term. Any increase inprincipal for any reason (including cash out refinances, or closing costs being included in the newmortgage) will make subordination ineligible for that Landlord and Property. Landlords should reviewtheir RRLP situation prior to any refinance activities.This page intentionally left blank.

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