Land trust homes offer built-in foreclosure protection

Resale restrictions give buyers access to below-market prices

At a time when everyone is looking for stability in the housing market, perhaps some attention should be directed to community land trusts (CLTs).

What? You’ve never heard of them? Don’t feel badly. I hadn’t heard of them either until I recently came across a news item on the Internet that read, "Delinquencies and foreclosures remain low in community land trusts."

Good news in the housing market always catches my eye, so I decided to investigate further.

First, the basics. A community land trust holds working land in a trust format to ensure the land is put to public use, usually serving a disenfranchised population. About 80 percent of all CLT organizations across the country (and there are about 250 of these groups) work in the affordable housing arena. At last count, about 10,000 homes are in CLTs.

CLTs work in different ways, but the most common approach is the one that makes CLT unique: a CLT separates home and "land underneath" ownership.

There are couple of reasons for this. First, a low- to moderate-income buyer needs only to purchase the improvement — i.e., the house — which makes the purchase more affordable.

"The nice thing about CLTs is that they don’t really stop at the purchase — they continue to provide stewardship to ensure that homeownership is successfully sustained over time," said Emily Thaden, a program manager for Our House, the shared-equity homeownership program of The Housing Fund Inc. in Nashville, Tenn.

Secondly, there is an operating-organization economic reason for separating land and house.

Under the old housing aid model, communities subsidizing homeownership helped low- and moderate-income families get into new housing. If housing prices suddenly took off, only the homeowner benefited although all the cost of getting into the new house was through public monies.

"I don’t know of any corporation that makes an investment of tens of thousands of dollars and just throws it away after five years," said Roger Lewis, executive director of the National CLT Network. "The CLT model allows organizations to keep some of the appreciation by attaching conditions of permanent affordability within the homeownership."

The key condition being the homeowner can’t resell the home at any price.

"You are getting a house at a low price and it has to be sold at a low price," said Lewis. "The rights of the private market are restricted in a community land trust house. That’s the trade-off."

Restricting the sale price allows the current homeowner to realize some wealth from owning the home, while the opportunity to buy affordable housing is then passed on to the next owner, said Thaden.

Besides being a good explainer, Thaden is also a fine researcher. She was the person who undertook the study to determine how CLT homeownership numbers stacked up against the general market.

Her findings showed:

  • 1.3 percent of the mortgage loans held by CLT homeowners were seriously delinquent (defined as loans at least 90 days delinquent or in foreclosure proceedings) at the end of 2010, compared with a delinquency rate of 8.57 percent of the mortgage loans in the conventional market as reported by the Mortgage Bankers Association (MBA).
  • 0.46 percent of the mortgage loans held by CLT homeowners were in foreclosure proceedings at the end of 2010, compared with a foreclosure rate of 4.63 percent reported by the MBA among the owners of market-rate homes.
  • While the rate of delinquent mortgages and foreclosures climbed every year from 2008 through the end of 2010, serious delinquency and foreclosure rates steadily declined every year between 2008 and 2010 in mortgages held by CLT homeowners.

"The findings make sense, as CLTs are ensuring that homeowners obtain sound, affordable, fixed-rate mortgages," said Thaden. "And because of the stewardship model, the homeowners in CLT homes are ending up with better outcomes if they are becoming delinquent."

A CLT measure of success is different from the general market, Lewis said. "It isn’t how many people get into homes. The measure of success is the homeowner.

CLT works with people on the front end. You just can’t get a mortgage — it has to be approved. Secondly, when people are delinquent, CLT finds out and works with them, developing options and understanding the situation. Success is based on where the homeowner ends up."

The City of Lakes Community Land Trust (CLCLT) in Minneapolis has purchased 130 properties since being formed in 2004. It has had only three foreclosures to date.

As can be expected, the housing bust has turned into a great opportunity for CLCLT. With houses cheaper, more people can enter the program. "We have been able to help people that we would not have been able to help four years ago," said Staci Horowitz, CLCLT’s program director.

CLCLT focuses on helping individuals and families at 80 percent or below the Minneapolis area’s median income through what it calls a buyer-initiated program.

"The homebuyers select the brokers they want to work with and then we have a meeting with them to talk through the parameters of the program," said Horowitz. "Part of the reason we have that meeting is that the broker needs to have an understanding of what the program is about."

To which, Horowitz added, "For a majority of Realtors, especially after they have gone through a transaction with us, it gives them an opportunity to have a larger customer base because they have a way to help individuals who they might not have been able to help before."

One other benefit for the Realtors and the general market: "Over 60 percent of CLT households eventually go into the general market. We are talking about a housing market solution," said Lewis.

Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "Growing Up Levittown: In a Time of Conformity, Controversy and Cultural Crisis," is now available for sale on Amazon.com.

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