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41 <br />portion of the HOME - assistance provided to the original homebuyer. Two key <br />concepts in the recapture requirements — direct subsidy to the homebuyer and net <br />proceeds - must be understood in order to determine the amount of HOME <br />assistance subject to recapture, and the applicable period of affordability on the unit. <br />The recapture approach requires that all or a portion of the direct subsidy provided <br />to the homebuyer be recaptured from the net proceeds of the sale. <br />Direct HOME subsidy is the amount of HOME assistance, including any program <br />income that enabled the homebuyer to buy the unit. The direct subsidy includes <br />down payment, closing costs, interest subsidies, or other HOME assistance provided <br />directly to the homebuyer. In addition, direct subsidy includes any assistance that <br />reduced the purchase price from fair market value to an affordable price. If HOME <br />funds are used for the cost of developing a property and the unit is sold below fair <br />market value the difference between the fair market value and the purchase price is <br />considered to be directly attributable to the HOME subsidy. <br />Net proceeds are defined as the sales price minus superior loan repayment (other <br />than HOME funds) and any closing costs. Under no circumstances can the PJ <br />recapture more than is available from the net proceeds of the sale. <br />Recapture provisions cannot be used when a project receives only a development <br />subsidy and is sold at fair market value, because there is no direct HOME subsidy to <br />recapture from the homebuyer. Instead, resale provisions must be used. <br />The recapture option is used by most PJs because it is generally easier to administer <br />than the resale option. The recapture option works well when the sale of the <br />property will most likely preserve affordability without the imposition of resale <br />restriction. <br />Homebuyer housing with a recapture agreement is not subject to the affordability <br />requirements after the PJ has recaptured the HOME funds in accordance with its <br />written agreement. If the ownership of the housing is conveyed pursuant to a <br />foreclosure or other involuntary sale, the PJ must attempt to recoup any net <br />proceeds that may be available through the foreclosure sale. Because all recapture <br />provisions must be limited to net proceeds, the PJ's repayment obligation is limited <br />to the amount of the HOME subsidy, if any, that it is able to recover. <br />The written agreement between the homebuyer and the PJ, as well as mortgage and <br />lien documents are typically used to impose the recapture requirements in HOME - <br />assisted homebuyer projects under recapture provisions. The purpose of these <br />enforcement mechanisms is to ensure that the PJ recaptures the direct subsidy to <br />the HOME - assisted homebuyer if the HOME - assisted property is transferred. Unlike <br />the resale option, deed restrictions, covenants running with the land, or other similar <br />mechanisms are not required by the HOME rule to be used in homebuyer projects <br />under the recapture option. However, many PJ's choose to use these mechanisms for <br />enforcing the affordability period and as notification of the transfer of the property. <br />Orange County HOME Consortium Response: <br />The Consortium does not propose to use HOME Program funds to refinance existing <br />debt (including debt secured by multi - family housing rehabilitated with HOME funds); <br />this question is not applicable. <br />4. If the PJ is going to receive American Dream Down payment Initiative (ADDI) <br />funds, please complete the following narratives: <br />