Sample NSP Developer Agreement

Sample Agreement Between an
NSP Grantee and Developer

for Development and Lease-Purchase Operations for Single-Family Homes

About this Tool

Description:

This document was prepared for the NSP toolkit. It applies to NSP 1 and NSP 2. It is intended for use by NSP Grantees as a template for preparing an Agreement with Developers for use of NSP funds to acquire, rehabilitate and lease with option to purchase homes; to demolish blighted single family homes and replace with new construction; and/or to acquire vacant land for redevelopment. It is intended to be used with the following companion documents: Sample NSP Single-Family Development and Sales Program Manual, Exhibit A to Single-Family Developer Agreement, Sample Lease Purchase Pro Forma and Sample Lease Purchase Policies and Procedures Manual.

How to Adapt this Document:

This document addresses major NSP regulatory provisions and represents one approach to entering into agreements with developers. However, it should not be used as-is.

Italicized and shaded comments in brackets are notes to Grantees and should be deleted when using this template as the basis for an agreement with one or more Developers. Automatic formatting protocols have been removed to the maximum extent possible. Users of this example agreement should feel free to insert their own formatting according to their preferences and software.

Source of Document:

Substantial portions of this document come from the Sample Agreement for Development and Sales of Single-Family Homes

Disclaimer:

This document is not an official HUD document and has not been reviewed by HUD counsel. It is provided for informational purposes only. Any binding agreement should be reviewed by attorneys for the parties to the agreement and must conform to state and local laws.

This resource is part of the NSP Toolkits. Additional toolkit resources may be found at www.hud.gov/nspta

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Sample NSP Developer Agreement

AGREEMENT BETWEEN

[Grantee]

AND

______[Developer]

FOR THE

Neighborhood Stabilization Program

THIS AGREEMENT, is entered this _____ day of ______, 20____ by and between the NSP Grantee of (herein called “Grantee”) and ______(herein called “Developer”).

WHEREAS, the Grantee has applied for and has been awarded funds from the United States Department of Housing and Urban Development (HUD) for a Neighborhood Stabilization Program, which is referred to herein as “NSP”; and

WHEREAS, the Grantee wishes to engage the Developer to assist the Grantee in using a portion of the NSP award in accordance with applicable notices, regulations and guidance from HUD;

NOW, THEREFORE, it is agreed between the parties hereto that;

I. SCOPE OF SERVICE

Developer will be responsible for carrying out NSP activities in a manner satisfactory to the Grantee and consistent with all standards required as a condition of providing these funds. Program activities will include the following uses and corresponding activities eligible under NSP:

A. Developer Responsibilities [Note: delete activities that do not apply]

1. Developer will carry out this program in accordance with the policies, procedures and other provisions of the Single-Family Development and Sales Program Manual (“Single-Family Program Manual”) and Single-Family Lease Purchase Program Manual (“Lease Purchase Program Manual”), provided to Developer by Grantee, and incorporated herein by reference. Developer hereby agrees to accept and follow any written amendments to the Program Manual by Grantee that are made as a direct result of additional guidance or regulations provided by HUD, as well as any written amendments that are mutually agreed upon by Grantee and Developer.

2. This program activity may include the acquisition and development of residential property that is foreclosed upon, abandoned, blighted or vacant in accordance with the definitions and requirements of the NSP program, to the extent that these activities are incorporated in this Section I and in Exhibit A

3. Developer is responsible for providing the deliverables that are described in Exhibit A, Lease Purchase Activities and Detailed Budget, within the time periods and for the approximate average budget amounts described therein. The total use of NSP funds provided under this Agreement may not exceed the total amount of NSP funds indicated in Section II(A) below.

4. Developer’s expenditures for program delivery will be limited as follows, unless changes to the limits are agreed to in writing by the Grantee and Developer for a particular property:

a. Minimum number of homes to be acquired, developed and operated under the lease purchase program: [enter applicable number covered by this Agreement]

b. Eligible properties: Developer will acquire only properties in designated NSP target areas that are eligible under NSP for rehabilitation or redevelopment as affordable residential properties. Properties acquired must be abandoned or foreclosed upon, blighted, vacant lots, or vacant residential structures, as defined in the NSP program guidelines. Residential structures that are not blighted will be rehabilitated. A new home may be reconstructed on a vacant lot acquired or a vacant lot resulting from the acquisition and demolition of a building.

c. Designated target areas: Developer may carry out this activity only in the following NSP target area census tracts: ______[identify these]

d. Foreclosed and/or abandoned homes to be developed for very low-income homebuyers: [Enter applicable number covered by this Agreement]

e. Prior approval of acquisitions by Grantee: Developer may not execute a purchase agreement for a property to be acquired and developed or contribute a Developer-owned property to this program without first obtaining written approval by Grantee. To request this approval, Developer will provide Grantee with a property description; proof of abandoned, foreclosed, or vacant status as applicable; preliminary plans and specifications for rehabilitation or construction work; a preliminary development cost; an estimate of sale price; and an estimate of net sales proceeds including line item estimates of sales and marketing costs, closing costs and financing to be provided to the buyer. The preliminary cost estimate will be provided in a form similar to the development cost estimates in Exhibit A herein. Grantee will base its approval upon an assessment of NSP compliance, financial feasibility, conformity to expenditure limits described herein, and the potential marketability of the property. In addition, properties must be located in NSP target areas as described herein.

f. Approval and funding of demolition costs: Primary structures on properties acquired or contributed may not be demolished unless they are declared as blighted by Grantee. Unless otherwise agreed to in writing, Developer must fund the cost of demolition (if any) out of the funding that is made available in this Agreement or from the developer’s own resources.

g. Maximum NSP expenditure per dwelling unit: Developer may spend no more than $______[enter maximum amount] on any single dwelling unit, unless Grantee gives written approval for an additional amount due to the strategic value of a property for the NSP program or unforeseen costs that were beyond the control of Developer. [Note: Setting this at less than the total cost conserves NSP funds and helps leverage private funds. A higher number may be necessary if no other acquisition/construction financing is available. This limit is not necessary if separate limits are set for acquisition, rehabilitation, soft costs and developer fees as indicated below.]

h. Average NSP expenditure per dwelling unit: The average NSP expenditure per dwelling unit may not exceed $______. [enter amount] Grantee encourages Developer to develop additional homes at a lower average NSP cost if it is feasible. [It may be useful to set a target average expenditure in order to ensure achieving the volumes of acquisitions called for in Exhibit A]

i. Developer fee allowed per dwelling unit: The allowed developer fee is $______. [enter amount] Of this amount, $______[enter amount] will be payable upon acquisition of an NSP qualified property, $______[enter amount] payable upon final completion of rehabilitation/construction work, and $______[enter amount] payable upon leasing in a lease-purchase contract. Developer may earn no other fee or profit from sale of an NSP-assisted dwelling unit, other than the general contractor fee, and sales fee, described below. [A developer fee is commonly established as a percentage of total development cost. However, absent other limitations, this can be a disincentive to containing development costs and limiting NSP subsidies. Therefore, fixed fees such as those described here might be considered.]

j. General contractor fee allowed: If Developer is acting as general contractor and thus hiring and managing subcontractors, Developer may charge an additional fee in the form of a 10% mark-up of subcontractor costs. Developer’s reimbursement requests for construction costs may include a 10% mark-up of all valid, documented costs of subcontractors who have performed construction work. However, such mark-up may not be applied to non-construction costs such as taxes, insurance, security, general requirement, or working capital costs. No such fees will be paid to Developer for any NSP property that is rehabilitated or built by a third-party general contractor. All general contractors performing work on NSP-assisted projects must be properly licensed.

k. Allowed sales fee or commission and marketing costs: Developer may pay no more than 8% of the sale price as a commission to a licensed third-party real estate broker or may earn an additional fee in the same amount if Developer sells the home without a broker’s assistance. Additionally, Developer may expend up to $______[enter amount] per home in NSP funds for marketing costs such as advertisements and flyers. If marketing is funded for multiple NSP homes, the costs of such marketing must be allocated to each home.

l. Allowed amount of NSP mortgage assistance per lease-purchaser and subsequent buyer: The allowed amount of NSP mortgage assistance per Buyer will be $______[enter amount] plus the amount of cash down payment assistance (see below). In addition to NSP development subsidies that may fund costs in excess of market value, this financial assistance for each NSP home buyer further increases the affordability of the home purchase by offering a “soft second mortgage” that provides permanent financing for a portion of the costs that were funded by NSP during the development period. The total amount of mortgage assistance will be secured by a promissory note and mortgage deed with the Grantee named as lien holder, as a loan made at 0% interest with all payments deferred and the principal amount forgiven over 15 years (from leasing date). Any balance remaining will be due upon sale or transfer of the property within that 15 year period.

m. Maximum amount of NSP cash down payment assistance per buyer and minimum cash contribution by buyer: In addition to the based amount of mortgage assistance described above, Developer may advance up to $______[enter amount], or half of the required down payment amount, whichever is less, to each NSP-qualified buyer. NSP cash down payment assistance is defined as NSP funding provided to the homebuyer by Developer for down payment and/or closing costs. Notwithstanding the foregoing, each buyer of an NSP home will provide a minimum of $1,000.00 in buyer’s own cash or family gifts toward the combined down payment and closing costs.

n. Other limits on expenditures: Other acquisition, rehabilitation/construction and soft costs described in Exhibit A are not subject to per-home cost limits on a line-item basis, but must be reasonable and ordinary costs of development and, in the aggregate, must conform to the per-home cost limits and average costs described elsewhere in this Section I(A)(4).

o. Accounting for expenditures: Developer will account for total NSP expenditures per home by means of assigning an accounting code for NSP-funded or reimbursed expenses for each property and another accounting code, if applicable, for non-NSP funded expenditures (if any). At the time of the sale of an NSP-assisted home, Developer will provide Grantee with a complete accounting of NSP expenditures for that home and non-NSP expenditures, if any. The separate accounting of NSP and other funds used is required for establishing the maximum allowed sale price and will provide necessary financial data on NSP-funded expenditures in the event of a HUD audit of program activities.

p. Lease payment Rates and Maximum sale price: Lease payment will be set according to the lease purchase program manual. The sale price may not exceed the after-construction market value of the home or the total amount of NSP and non-NSP expenditures, whichever is less. The market value of a home and when sale price is set will be determined in accordance with the provisions in the Program Manual.

q. Maximum lease period: the initial rental period shall be set according to the lease purchase program manual as well as maximum renewal period(s).

r. Establishment of a lien in favor of Grantee: Upon lease and subsequent sale of an NSP-funded home, Developer will cause the homebuyer(s) to execute a promissory note and mortgage deed in favor of Grantee for the combined amount of the mortgage assistance and down payment assistance as defined herein. The note and mortgage deed must be prepared by Developer using forms provided by Grantee. Grantee must review and approve the language inserted in these form documents prior to their being executed by the homebuyer(s). Should the lease-purchaser to exercise their purchase option then the disposition of the property may changed the lien terms as determined by the program manual.

s. If lease-purchaser fails to purchase: The lease purchase program manual outlines alternatives available should this occur.

t. Repayment of net proceeds of sale to nonprofit housing fund: Upon sale of an NSP-funded home, Developer will return the net proceeds of sale to the grantee. Net proceeds of sale are defined as follows:

i. The sale price of the home;

ii. (Minus) the amount of any mortgage assistance and down payment assistance provided to buyer, as defined herein and described on the settlement statement;

iii. (Minus) Developer costs of sale as documented by the settlement statement, including but not limited to real estate broker fees and seller-paid closing costs;

iv. (Plus) Any reimbursements to Developer of costs previously paid or reimbursed with NSP funds, such as pro-rated taxes and assessments.

5. NSP-assisted homes must be leased and subsequently sold only to income-qualified households in the categories described in and the lease purchase program manual in at least the minimum numbers of households described.

B. Grantee Responsibilities