RE: The need for a definition of a First-time Homebuyer
by Georgina Valencia
(1) The issue:
Currently, the City of Davis Municipal Code does not define a first-time Homebuyer.
(2) Why is the definition of a first-time homebuyer important?
Without a definition of a first-time homebuyer, affordable for sale housing will continue to be sold to individuals and families that already own a home. This result is inconsistent with the HUD rules and the intent of the affordable for sale housing program.
(3) Why is Affordable for Sale Housing Important?
There is substantial evidence that a lack of available affordable for-sale housing may trap families in debt, preventing investment in home ownership and reinforcing generations-old patterns of housing segregation by race and class. (The Color of Law by Richard Rothstein, 2017.)
Generally, it is accepted that the intent of affordable for sale housing is to provide opportunity for individuals that would not or could not participate in home ownership, as stated in our Municipal Code.
Examples of individuals that have difficulty buying homes in Davis are: DJUSD teachers and staff, junior faculty, service industry, university staff, and the children of current Davis homeowners.
(4) What are the program requirements?
Housing and Urban Development (HUD) establishes the income and asset requirements that our local government must follow. These requirements are based on the Area Median Income. (See City of Davis Website Income Eligibility Requirements.)
The City of Davis has no definition beyond income and asset requirements for the buyer of an affordable home in Davis. The HUD definition is as follows:
“A first-time homebuyer is an individual who meets any of the following criteria:
1. An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time homebuyers).
2. A single parent who has only owned with a former spouse while married.
3. An individual who is a displaced homemaker and has only owned with a spouse.
4. An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.” (Example would be a mobile home.)
The HUD definition is used by most jurisdictions as good practice and ensures that the program is limited to the first time home buyer. If the Davis Housing Policy (Municipal Code 18, 18.04, 18.05) is changed to include the HUD definition of first-time homebuyer, Davis would have a well-managed, fair, and equitable for sale affordable housing program.
(5) Examples of Abuse:
Some homeowners sold their existing home in Davis or other cities in Yolo County and then purchased an affordable home in Davis. How did a seller of a home in Davis, or other cities in Yolo County, not exceed the asset limits of the Davis Affordable Housing Program and still qualify to purchase an affordable home? The equity in the home can be swallowed up by a phantom loan from a family member or a contractor lien for work that was never done or was overcharged for. These and other actions can convert the equity in a home to a recorded lien for debt owed, thus allowing the individual to move forward to purchase the affordable home and still meet asset requirements upon sale of their existing home. The actions described are legal and the city can do nothing to disqualify the individual selling their Davis home to buy the affordable home
Many jurisdictions adopted the HUD definition for a first-time homebuyer to prevent the kinds of abuses described (i.e., phantom loans, contractor liens). The HUD definition prohibits a current homeowner(s) from selling their home and then buying an affordable home in Davis.
(6) Fixing the problem:
The signers of this letter ask that the City Council and City Manager act on the recommendations made by the Social Services Commission to provide a clear first-time homebuyer definition. Further, we recommend that the city adopt the definition of first-time homebuyer used by HUD.
1 Municipal Code 18.04.010 #4
2 Social Services Commission – Meeting Minutes 12.17.18 and 7.15.19 discussion re First time homebuyer.