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2019-106 Major Systems Replacement ProgramDate: May 24, 2019 Report No. 2019-106 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: On May 7, 2019 during a City Council meeting, a request was made to provide information on the new Major Systems Replacement Program developed by Community Development and recommended for funding for FY2019-20 CDBG funds. BACKGROUND: The City of Denton Community Development Department uses citizen comments and service agencies’ guidance to develop and implement programs and projects that provide decent housing, a suitable living environment and expand economic opportunity, principally for persons of low to moderate income. The City utilizes Community Development Block Grant (CDBG) and HOME Investment partnership funds to assist first-time homebuyers and homeowners with home repair programs. Housing Programs currently managed by Community Development include: • Homebuyers Assistance Program – Providing up to $14,999 in down payment assistance and closing costs to buy a first home. • Home Improvement Program – Providing assistance to homeowners for major repairs, including rehabilitation or reconstruction. • Minor Repair Program – Provides up to $10,000 to make essential repairs or add structural accessibility modifications when homeowners lack sufficient resources. DISCUSSION: The Major Systems Replacement Program is a new program that will provide up to $25,000 as a deferred loan to low- and moderate‐income homebuyers or homeowners. The program will help repair major systems that can include: • Electrical system, • Plumbing system, • Roof repairs or replacement, • Heating, Ventilation, and Air Conditioning (HVAC); and • Pier and Beam foundation stabilization. The primary purpose of the program will be to increase the amount of affordable housing units available to low-income buyers in the Homebuyer Assistance Program and provide much need repair assistance to homeowners when repair costs are higher than the $10,000 Minor Repair Program maximum limit, but less than the Home Improvement Program $25,000 minimum limit. These current program limits are in place based on federal requirements that must be met at the different thresholds of financial assistance. The Major Systems Replacement Program will help to address gaps identified through the experience of the Homebuyer Assistance Program and Minor Repair Program as summarized below. Date: May 24, 2019 Report No. 2019-106 Homebuyer Assistance Program The Homebuyer Assistance Program (HAP) has been hard hit for the last several years, due to the lack of affordable homes for sale in Denton. The maximum sales price for the program has recently increased to $225,000; however, not many houses are currently available in the city limits of Denton at that price or below. According to the Building Inspection Division, the average value for a Single-Family dwelling is $321,143. Denton’s housing market is currently a seller’s market that includes multiple offers on homes and offers with conventional financing regularly do not win the bid on a house. Many times cash offers are above asking offers and win the bid on the house. The homes that are available in the market at a price that would qualify for the program are being sold as-is and typically do not meet the property standards as required by HUD to receive down payment and closing cost assistance, such as major systems with a life expectancy of five years. Replacing major systems will allow older homes to be eligible for the Homebuyer Assistance Program, thereby helping more households become first-time homebuyers. Minor Repair Program The Minor Repair Program (MRP) currently provides repair assistance of up to $10,000, but sometimes this amount is not enough to assist an older home that needs major systems replaced. About 15% of homeowners assisted in MRP return the following year to discuss another critically needed repair. The Major System Replacement Program will be able to address more than one major system replacement at one time. For example, a roof replacement ($7,500), HVAC replacement ($6,500) and sewer line replacement ($1,600) would be a total cost of $15,600. It would provide critical health and safety repairs for the homeowner to ensure long-term safe, stable housing. It will also improve efficiency in program delivery by grouping projects, resulting in streamlining the client application and reducing the number of site visits, work write ups, and final inspections. Replacing major systems will help address much needed repairs not currently eligible under MRP. Draft Major Systems Replacement Program Guidelines Staff has drafted program guidelines for the new program to address general program requirements to apply. The program guidelines will be brought forward for adoption by City Council this summer following the adoption of the 2019 Action Plan, which is planned for consideration at the June 4, 2019 City Council meeting. CONCLUSION The Major Systems Replacement Program will increase the number of affordable housing units available in the Denton that meet the property standards set by HUD that will be available to first-time homebuyers going through HAP and address a gap in MRP. Date: May 24, 2019 Report No. 2019-106 ATTACHMENT(S): Exhibit 1 - Draft Major Systems Replacement Program Guidelines. STAFF CONTACT: Alma Espino Housing Programs Manager 940-349-7756 Alma.Espino@CityofDenton.com 1 of 4 Effective 10/1/2019                                      The Major Systems Replacement Program provides assistance to low and moderate‐income homeowners to make  essential repairs to some or all the home’s major systems.     This program is not designed as a complete home renovation, but rather a program  to repair the major systems in a home. Repairs are prioritized with an emphasis on  structural and systems repairs. As part of the assessment process, staff will  determine the services that will need to be completed on the property. During the  inspection, staff will evaluate the condition of the home as well as the impact of not  addressing some of the needed repairs. As such, it may be determined that the  home’s necessary repairs exceed available funding and therefore may lead to denial  of the project.    Who is Eligible?  As a homeowner, you may be eligible for assistance under this program, if you meet all the following conditions:   Your home is a single‐family dwelling unit located in the city limits of Denton, Texas.   Your home requires a major system replacement, which if left unattended, would jeopardize the health and/or  safety of the occupants.     You must hold fee simple title to the property for not less than one year.    You must be a United States citizen or legal resident alien.   Household income cannot exceed 80 percent of the Area Median Income Limits, adjusted for family size. The  current eligible income limits are:   Family  Size  Maximum  Income  Family  Size  Maximum  Income  Family  Size  Maximum  Income  Family  Size  Maximum  Income  1 $43,250 2 $49,400 3 $55,600 4 $61,750  5 $66,700 6 $71,650 7 $76,600 8 $81,550  Income Limit Source:  U.S. Department of Housing and Urban Development   ‐ Effective:  10/01/2018   You must not be delinquent on any property taxes to any taxing entity in Denton County. This applies only to  applications for a repair subsequent to the first one, and does not include accounts where payment  arrangements are up to date, proof of arrangement must be provide. Elderly/disabled who have established  payment plans or have signed up for tax deferral are not subject to this requirement.   • Your home must not be newer than fifteen years old.  • You must complete the application process and your application and the   requested repair must be approved.  • Your property must meet all environmental restrictions and regulations including floodplain, historical, lead‐ based paint, etc.  Properties in the 100‐year floodplain or floodway are not eligible for this assistance.   Major Systems Replacement Program assistance may be denied to any applicant that has not met the requirements  under any other Community Development Program.  Major Systems Replacement   Program Guidelines  Effective: October 1, 2019 2 of 4 Effective 10/1/2019   What Type of Repairs is Eligible?  Generally, repairs or modifications to achieve accessibility that are urgently needed  to make the housing safe, sanitary or habitable that can be completed for $25,000 or  less are eligible for assistance. Community Development staff will inspect the unit to  determine if the following major systems are needed:   Electrical systems   Plumbing systems, including water and/or sewer lines   Roof repairs or replacement   Heating, Ventilation, and Air Conditioning (HVAC)   Pier and Beam foundation stabilization, approved on a case‐by‐case basis    Eligible Repairs: Repairs necessary to protect the health and safety of the household include repair and/or  replacement of failed plumbing fixtures, clogged/broken sewer lines, damaged or exposed electrical wiring, switches,  outlets, leaking roofs, etc.     Ineligible Repairs:   Repairs that are only cosmetic in nature are not eligible. However, some cosmetic repairs may be carried out under the program in small areas where a repair has been completed and only when necessary to make the immediate areas match (as close as possible) the surrounding area. The program will not provide for cosmetic repairs that are not a part of the repair. Example: floor covering to a complete room when a repair disturbed only a small section of flooring.  Perils covered by insurance claims are not eligible for funding from this Program except as described in the "Note"  section above.     Unsafe and substandard structures that cannot be made safe for habitation for $25,000 or less will not be eligible  for assistance. The owner will receive a letter notifying of the hazards and why assistance is being denied. Under  such circumstances, Community Development Division will recommend a household seek safe housing as soon as  possible.     What are the Maximum limits for the Program?   Eligible housing units may be approved for assistance only one time. There is no guarantee that the full amount will  be awarded. The amount of the award will solely be determined by the city. If the bid for the approved repair is more  than the maximum allowable funds, the project will not be eligible.    Maximum funding per application for owner‐occupied single‐family structures:    Up to $25,000 per application may be available for approved, eligible repairs. Repair(s) costing over $25,000 are  not eligible.  Once completed, no additional assistance may be requested with this program.  Once the approved repairs are completed and the contractor(s) receives payment, no additional repairs can be  requested or approved.  Limited Funds: Staff responds to requests for repairs on a first‐come‐first‐served basis from the date the completed  application is received. A specific amount of funding has been set up for each program year quarter beginning August  1st.   3 of 4 Effective 10/1/2019 Will the Repairs need to be Paid Back?  Deferred loan will be provided that will be forgiven on a monthly basis over 5‐10  years.  No payment is required as long as you remain in the home as required and  meet all deed requirements.    How do I Apply?  1. Contact our office for an application and inspection of the repair  2. Complete the application process    3. Submit required documentation    What Happens After I Apply?   Community Development Division staff will complete an inspection to determine if project is eligible. If eligible,  you will receive information and forms to apply.   Community Development Division staff will verify all the application information and environmental restrictions  and regulations. Application and repair request will be submitted for review to the Community Development  Administrator. If any information is found to be intentionally falsified, the application will be rejected and the  applicant will not be allowed to reapply to this program.   You will receive verbal and/or written notice of the date application is accepted or rejected along with details of  the decision if application is rejected.   In the event your house is 45 years old or older, the Texas Historical Commission may have to be notified.   When painted surfaces will be affected in a house built before 1978, the area will be tested for lead based paint.  A lead based paint inspection and/or risk assessment shall be conducted by a licensed risk assessor. If your house  is found to have lead‐based paint hazards, hazard reduction techniques will be utilized.   A bid document will be written up for the repairs needed to correct the health or safety‐related problem. A cost  estimate will be completed before bids are sought. Only contractors who carry a minimum of $100,000 liability  insurance may perform the work. This program maintains a list of contractors who meet the insurance  requirements. This is not a reference list. Any interested contractor who can document appropriate insurance  coverage and is not on the most recent list of contractors that are ineligible to work on projects involving federal  funds.      Note:  If the bid for the approved repair is more than the maximum allowable funds, the project will not be eligible  and the City of Denton will be unable to complete the repair.   The contractor/repair company will provide a one‐year warranty for work completed, if possible.    Upon final inspection approval, contractor may submit invoice. The payment request will be processed upon  project approval and contractor can expect payment within 15 working days from date invoice was approved.    What the Program is Not   Although the Major Systems Replacement Program is designed to respond to a wide variety of problems, it has limits  and should not be confused with other programs offered by the City of Denton Community Development Division.        4 of 4 Effective 10/1/2019  It is not a Rehabilitation program. Many times the most recent item,  system, or structure to fail in a home may prompt the homeowner to seek  assistance from the Major Systems Replacement Program while many other  items are also in need of repair. The Major Systems Replacement Program  is designed to respond to the most urgent need, that if left unrepaired,  would lead to further deterioration or to the house becoming unlivable. The  City of Denton, Community Development Division also offers a Home  Improvement Loan Program that can address many more issues than this  program.   It is not assistance for home sellers. The homeowner must affirm that they  intend to live in the home for the next 12 months as far as foreseeable. The funds are intended to keep a  homeowner living in their home; not to assist them in selling it.     It is not a remodel service. To extend assistance to as many households as possible, systems and items must be  repaired rather than replaced, if possible. The main goal of the program is to provide approximately one  additional year of life to the item, to give the homeowner time in which to make arrangements for a more  permanent solution.    Other Provisions  Dispute: The contractor’s work will be monitored by the applicant, City of Denton staff that may include Community  Development staff or/and the City of Denton building code inspector.  If the applicant considers any work done by  the contractor to be unsatisfactory or incomplete, the applicant should advise the contractor of the discrepancy and  ask that it be corrected.  In the event a dispute exists between the applicant and the contractor with respect to the  work, the City shall take appropriate action in accordance with the provisions of the construction contract to assure  that the applicant is satisfied before making any payment to the contractor.  In the event a dispute cannot be  resolved, the Division Director shall consider all pertinent facts and shall decide an appropriate course of action to  resolve the dispute.  Contact Information: The program is administered by the City of Denton Community Development Division and  federally funded by Community Development Block Grant. Questions about this program can be addressed to:    City of Denton  Community Development Division  601 E. Hickory St., Suite B  Denton, Texas 76205  Or by calling:  (940) 349‐7726 or (940) 349‐7236  ADA/EOE/ADEA ~ TDD (800) 735‐2989   Applicants are subject to all program requirements and  guideline changes. Guidelines are subject to change  without notice.    The Major Systems Replacement Program is subject to  availability of funds.  If there are no funds available,  potential applicants will be placed on a waiting list.