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HomeMy WebLinkAbout1994-02-15; City Council; Resolution 94-56ll 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 9 4 - 5 6 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, APPROVING A COOPERATIVE AGREEMENT ADOPTING THE SAN DIEGO COUNTY REGIONAL MORTGAGE CREDIT CERTIFICATE PROGRAM IN THE CITY OF CARLSBAD IN COOPERATION WITH THE COUNTY OF SAN DTEGO WHEREAS, there is a continued need for affordable home ownership opportu within the City of Carlsbad (the "City") and the County of San Diego (the "County" qualified first time home buyers; and WHEREAS, the Tax Reform Act of 1984 established mortgage credit certifi ("MCC") as a means of assisting qualified first time home buyers with the acquisition oi and existing single family housing; and WHEREAS, Division 31, Part 1, Chapter 35, Article 4 of the California Healtl Safety Code Sections 50197 et seq (the "Act") authorizes counties, cities, and redeveloy agencies to create and participate in MCC Programs; and WHEREAS, the County has heretofore determined to engage in an MCC Pro pursuant to the Act in order to assist individual home purchasers in the City and the COUI afford both new and existing homes within the statutory limits as provided for in said Act WHEREAS, the City requests that mortgage credit certificates be available to eli first time home buyers within the corporate limits of the City when City participates wit County in receiving an MCC allocation; and WHEREAS, the City and County wish to cooperate with one another pursuant to thl in the exercise of their powers under the "Act" for the purposes of an MCC Program. ... It 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 0 0 NOW, THEREFORE, BE IT HEREBY RESOLVED, by the City Council of the of Carlsbad, California, as follows: 1. That the above recitations are true and correct. 2. That the City hereby adopts the San Diego County Regional Mortgage Credit Certif Program (the "Program") for the purpose of increasing home ownership opportunitie first time home buyers, and consents to the operation of said Program withir geographical boundaries of the City. 3. That the Cooperative Agreement, dated as of Lf bJD@,YeQ , 1994, bet1 the County and the City (the "Agreement"), a copy of which is attached as EXH "A" and incorporated herein by reference, is hereby approved, and that the Housini Redevelopment Director is hereby authorized and directed to execute and delive Agreement, for and in the name and on behalf of the City. The Housing Redevelopment Director, with the advice and consent of the City Attorney, is autho: to approve any additions to or changes in the form of the Agreement deemed nece: or advisable, approval of such additions or changes to be conclusively evidenced b: execution by the Housing and Redevelopment Director of the Agreement as so addl or changed. The Housing and Redevelopment Director, with the advice and come the City Attorney, is further authorized to enter in such additional agreements wit1 County, execute such other documents, or take such other actions as may be nece; or appropriate to carry out the purposes and intent of the Agreement or to coopera the implementation of the Program. ... ... ... ... ... ... ... e.. ... ... ... I/ 0 0 1 PASSED, APPROVED, AND ADOPTED at a regular meeting of 2 3 4 the City Council of the City of Carlsbad, California held on the 15th day of February , 1 by the following vote, to wit: 5 6 NOES: None AYES: Council Members Lewis, Stanton, Kulchin, Nygaard, Finn 7 ABSENT: None a 9 10 ABSTAIN: None ~ i 11 12 ATTEST: 13 14 I.5 ALETHA L. RAUTENKRANZ, City Clerk\ (SEAL) oztfa- bp u 16 17 18 19 20 21 22 23 24 25 26 27 28 e 0 EXHlBll COOPERATIVE AGREEMENT BETWEEN THE COUNTY OF SAN DIEGO AND THE CITY OF CAFUSBAD THIS COOPERATIVE AGREEMENT (the "Agreement") is hereby made and entered into as of , 1994 by and between the County of San Diego, a legal subdivision and body corporate and politic of the State of California (the "County"), and the City of Carlsbad, a political subdivision of the State of California (the Tity"). WITNESSETH WHEREAS, the County has determined to provide assistance in the financing of homes for qualified first-time homebuyers in the County and the City with a program to issue mortgage credit certificates pursuant to Part 1 and Part 5 of Division 31 of the Health and Safety Code of the State of California (the "Act"); and WHEREAS, the County, pursuant to the Act, has established the San Diego County Regional Mortgage Credit Certificate Program (the "Program"), and has determined to cooperate with the City pursuant to the Act and in the exercise of its powers under the Act for purposes of the Program; and WHEREAS, the City has adopted the Program and determined to cooperate with the County pursuant to the Act in the exercise of their powers under the Act for the purposes of the Program; NOW, THEREFORE, in consideration of the mutual covenants hereinafter provided, the parties hereto agree as follows: SECTION 1. The words and phrases of this Cooperative Agreement shall, for all purposes hereof unless otherwise defined herein, have the same meanings aligned to such words and phrases in the Act. SECTION 2. The County and the City agree to use their best efforts to undertake the Program and to issue mortgage credit certificates therefore pursuant to the Act to the extent that the County receives allocations from the California Debt Limit Allocation Committee ("CDLAC 'I). 0 0 SECTION 3. The City hereby agrees to cooperate with the County and other participating cities in the joint exercise of their powers for the purpose of issuing mortgage credit certificates pursuant to the Act by agreeing that the County shall exercise its powers to issue mortgage credit certificates under the Program, a more specifically set forth in the Act, with respect to property located within the geographic boundaries of the City. SECTION 4. The City agrees to undertake such further proceeding or actions as may be necessary in order to carry out the terms and the intent of this Agreement. The County has entered into cooperative agreements with other cities within the County, and nothing in this Agreement shall prevent the County from entering into one or more additional agreements with other cities within the County. SECTION 5. This Agreement shall expire and be of no further force and effect upon termination -of the Program. Furthermore, either the City or the County may terminate this Agreement by giving a 30 day written notice to the other party. The City, however, may elect, without terminating this Agreement, not to participate in any application by the County for an allocation from CDLAC. The City election to participate or not in an application shall be made to the County upon receipt of notice from the County of its intention to apply for allocation from CDLAC. SECTION 6. If the City elects to participate in an application by the County for a mortgage credit certificate allocation from CDLAC, then the City shall agree to share proportionately with the other participants any deposit required by CDLAC for the application. The City further agrees to pay the County, upon participation, its proportionate share (based upon the number of participants in the program) of administration costs applicable to each allocation received from CDLAC. SECTION 7. This Agreement may be amended only by a supplemental agreement executed by the City and the County at any time, except that no such amendment or supplement shall be made which shall adversely affect the rights of the owners of any mortgage credit certificates issued by the County in connection with the Program. SECTION 8. By entering into this Agreement, the City does not abrogate any of its legal duties imposed by State law or its Charter or Municipal Code. Any provisions of this Agreement, the terms of which provide for the payment of funds or provide for the services to be furnished by the parties hereto, shall be subject to the availability of funds for such purposes. 0 0 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and attested by the proper officers thereunto duly authorized and their official seals to be hereto affixed, all as of the day and year first above written. COUNTY OF SAN DIEGO CITY OF CARLSBAD By: By: (SEAL) (SEAL) ATTEST: ATTEST: By: By: .24?dt?kipk APPROVED AS TO FORM: By: Aletha L. Rautenkranz, CFt APPROVED AS TO FORM: n By: // " 2-i/'b/w. Ron Ball, City Attorney 0 0 EXHIBIT INFORMATION SUMMARY A. GENERAL OVERVIEW The Mortgage Credit Certificate Program, authorized by Congress in the Deficit Reduction Act of 1984, is an alternative to mortgage revenue bond-backed financing as a means of providing financial assistance for the purchase of single-family housing. In 1985, the State adopted legislation authorizing local bond issuing agencies to make Mortgage Credit Certificates (MCCs) available in California. This program is designed primarily to benefit first-time home buyers of new or existing housing units. WHAT IS AN MCC? The MCC operates as an IRS tax credit. With an MCC, the qualified home buyer becomes eligible to take a federal income tax credit of twenty percent (20%) of the annual interest paid on the mortgage. This credit reduces the federal income taxes of the buyer, resulting in an increase in the buyer's net earnings. Increased buyer income results in increased buyer capacity to qualify for the mortgage loan. WHAT IS THE DIFFERENCE BETWEEN A "TAX CREDIT" AND A "TAX DEDUCTION?" A "tax credit" entitles taxpayers to subtract the amount of the credit from their total federal income tax liability, receiving a dollar for dollar savings. A tax deduction is subtracted from the adjusted gross income before federal income taxes are computed. Therefore, with a deduction, only a percentage of the amount deducted is realized in savings. The following example illustrates how a credit is considerably more valuable than a deduction. TABLE 1-1 VALUE OF A TAX CREDIT VS. TAX DEDUCTION Total Income Deductions $35,000 $35,000 -0- -0- TOTAL TAXABLE INCOME $35 ,000 $33 ,000 Federal Income Tax Liability 5,776 5,216 Credit -2.000 -0- TAXES PAID $ 3,776 $ 5.216 Table 1-1 shows that for the same dollar value, a $2,000 credit reduces federal income taxes paid by $1,440 more than the $2,000 deduction. ($5,216 minus $3,776 equals $1,440). e 0 WHAT HAPPENS TO THE STANDARD MORTGAGE INTEREST TAX DEDUCTION WHEN THE HOME BUYER USES AN MCC? A taxpayer receiving an MCC credit loses 20% of his or her normal interest paid deduction with respect to interest paid on the mortgage loan. However, the home buyer may continue to deduct the remaining 80% of the annual mortgage interest payment not claimed as a credit. Although the interest deduction is reduced from 100% to 80%, the holder of the MCC still pays considerably less in taxes. See Table 1-2. Assume a taxpayer with a $30,000 annual income buys a home for $100,000 at an 8% interest rate. Interest paid the first year is approximately $8,000. An MCC tax credit of 20% interest paid would equal $1,600 (20% X $8,000 = $1,600). TABLE 1-2 With MCC Without MCC Annual Income $30,000 Personal Exemption - 2,350 Interest Deduction - 6.400 Taxable Earnings $21,250 $30,000 - 2,350 - 8.000 $19,650 Tax from Table MCC Credit 3,184 $2,944 - 1,600 -0- $ 1,584 $ 2,944 The same taxpayer owes $1,360 less with an MCC than without one ($2,944 - $1,584 = $1,360). The MCC will reduce the amount of federal income taxes otherwise due to the federal government for the home buyer; however, the IRS will not pay out more than should have been paid in. Therefore, the benefit to the home owner in any one year cannot exceed the amount of federal taxes owed for that year, after other credits and deductions have been taken into account. HOW DOES THE HOME BUYER REALIZE THE INCREASE IN HOME BUYING POWER? The home buyer should consider adjusting his or her income tax withholding to receive the benefit from the credit on a monthly basis. The home buyer may file a new W-4 form with his or her employer reflecting the MCC credit savings. By taking this action, the number of exemptions will increase reducing the amount of taxes withheld and increasing the buyer’s disposable income. The home buyer also has the option to wait until the end of the year and realize the tax credit savings in one lump sum when filing the federal income tax return. 0 Regardless of whether the home buyer adjusts the W-4 form or not, the tax credit must be listed by the home buyer when filing federal income tax return, in order to receive the tax credit savings. WHAT KIND OF PROPERTIES ARE ELIGIBLE? An MCC can only be used for new or resale single-family homes including single family detached homes, condominiums, half plexes, or townhouses. Duplexes, triplexes, or four plexes do-not qualify as eligible structures. Two-on-one-units are not eligible. WHAT LOANS CAN BE USED WITH THE MCC? MCC can be used with conventional fixed-rate or adjustable rate loans., FHA and VA loans, and privately insured loans. MCC’s are not available with bond-backed loans such as California Housing Finance Agency (CHFA) and Cal Vet loans. MCCs can only be used with original first mortgage financing. Lenders will process the underlying mortgages using standard procedures, with adjustments to those procedures as needed in order to utilized the tax credit in qualifying home buyers. WHAT ARE THE PURCHASE PRICE AND INCOME LIMITATIONS FOR MCC HOLDERS? Mortgage Credit Certificates will generally be made available to first-time home buyers. The Table 1-3 shows the current purchase price and income limitations for MCC Program participants as of September 1, 1993. TABLE 1-3. MORTGAGE CREDIT CERTIFICATE PROGRAM PURCHASE PRICE AND INCOME LIMITATIONS MAXIMUM BUYER INCOME (REVISED 6-1-92) (Figures represent 100% & 115% median area income respectively) 1-2 person household 3 + person household $41.300 $47,495 '. a MAXI" PURCHASE PRICE (Figures represent 90% average area purchase price) Resale: $148,230 New: $221,850 WHAT ARE THE OTHER PROGRAM REOUJREMENTS? Qualified applicants must be first-time home buyers. The home buyer cannot have had an ownership interest in a principal residence in the last three years preceding the date of application. Also, the home buyer must occupy the home as a principal residence. HOW DOES A HOME BUYER APPLY FOR AN MCC? The home buyer may obtain an MCC through any of the participating lenders. The home buyer should apply for the MCC at the same time helshe makes a formal application for a mortgage loan. The buyer should have a purchase offer in hand and should be ready to supply credit information, employment data and other information to the lender for both the mortgage and the MCC application. WHAT IS AN MCC RECAPTURE TAX? Buyers who receive loans closed with an MCC after January 1 , 1991, may be subject to a recapture tax if they sell their residence within nine years. The tax, if any, will always be the lesser of half the gain from the sale of the home, or a tax based on a somewhat complicated formula which takes into consideration: (1) the original principal amount of the home mortgage; (2) the number of complete years that pass before the home is sold; (3) the median family income for the buyer's area at the time he/she bought the home; and (4) the buyer's modified adjusted gross income at the time the home is sold. There are several conditions which can exempt the seller from the recapture tax. These include: (1) a cause-of-sale due to death or divorce; and (2) insufficient increase in the income of the seller (certificate holder) between the time of purchase and the time of sale. The home buyer will receive detailed information on the recapture tax from the lender and will be asked .to sign a statement at time of application that helshe is aware of the tax.