More Information

For more detailed information about important aspects of land trust and Home Inc. housing, click on the following topics:

The Community Land Trust Model

The Community Land Trust (CLT model was developed by the Institute for Community Economics (ICE) in the 1960s. Since that time, more than 120 CLTs have been established in the U.S. with assistance from ICE. The 1992 Federal Housing and Community Development Act defined the CLT and provided specifically for funding and technical assistance through HUD. With this support, ICE is currently assisting a growing number of CLT start-ups, including Yellow Springs Home, Inc.

In brief, Community Land Trusts are community-based membership organizations whose missions include permanent stewardship of land for community benefit and perpetual preservation of the affordability of housing on that land. CLTs make it possible for lower income people to own homes on land that is leased from the CLT through long-term (typically, 99-year) renewable ground leases. The lessee leases the land but owns and holds the deed to his or her home. One way to understand this concept is to think about condominiums. Residents buy and own the condominium, but own neither the building nor the land on which it is located.

In recent years, local municipalities have recognized the usefulness of CLTs in meeting escalating housing needs. Some CLTs have been established with strong initiative and support from local governments. A number of municipalities have allocated Community Development Block Grants and HOME funds as well as other available resources to CLT programs. Some have allocated city-owned land. State housing financing agencies are increasingly interested in making financing available for housing on CLT land, and several state legislatures have appropriated special funds to finance acquisitions by land trusts.

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Key Components of the Ground Lease

The ground lease is the legally binding agreement that gives the lessee/homeowner the right to use the land. It describes in full the rights and responsibilities of the lessee and the CLT, as well as the restrictions that govern the relationship. The lease is designed to balance the interests of the lessee as a home owner with the long-term interests of the CLT and the community in which it is located. There are a number of critical agreements that are defined by the ground lease. These include:
 

  • 99-year term - the lease is for 99 years, providing long-term security and access for the lessee. The lease is also renewable by the lessee - or his/her heirs - for an additional 99-year term.
  • Owner occupancy - the lessee must live in the house a majority of time each year, typically 8 months or more; the house may be sublet for up to 4 months.
  • Lease Fee - The lessee pays a modest monthly ground lease fee— typically about $25 - to the CLT in exchange for access too and use of the leased premises.
  • Taxes and assessments - The lessee is responsible for the payment of all real estate taxes on the house and land.
  • Construction and alteration - the lessee is allowed to make build additions to the house only with written permission of the CLT. The lessee pays the costs of any improvements.
  • Resale of the house - the lessee may sell his/her home only to the CLT or to an income-qualified buyer, meaning one who is in the same income category as the seller was when he/she bought the house. The resale price is limited by a formula which allows the seller to recover the cost of the house plus a modest profit. The CLT has a first right of refusal.

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The Resale Formula

Each CLT designs its own resale formula in an effort to strike a balance of allowing a fair return for the seller of a home and the goal of limiting resale prices to a level that will ensure continued affordability. There are a number of formulas used by CLTs to determine the resale price and the amount of appreciation that is allowed to the CLT lessee selling his/her home. Home Inc. has decided to use the most commonly used resale formula, the appraisal-based formula. Using this method, the maximum resale price is established by allowing a homeowner to recover the original purchase price of the house plus 25% of the accrued market value at the time of the resale. It works like this:

 

  • When the home owner first buys the house, the CLT will have the house and land appraised to determine the market value of the entire property.
  • The owner may have bought the house for $85,000. The market value of the house (with property) may be $115,000.
  • At the time of the resale, the property will be appraised again. At that time, its market value may have risen to $135,000.
  • Thus the homeowner may recover the original price he/she paid for the house ($85,000) plus $5,000 (25% of the accrued market value).

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