Loss Mitigation Policy
The City First Homes (CFH) program was intended to help low to moderate income individuals purchase properties in the District of Columbia through a 0% interest, second trust loan (the “CFH Loan”). The CFH Loan did not require any monthly payments and was only repayable upon the borrower’s sale of the property. The CHF Loan provided the borrowers with the ability to purchase homes in the District of Columbia that might otherwise have been out of reach. The monthly savings provided by the CFH Loan generally allowed homeowners to purchase a home for a price that was significantly less than renting, while also enjoying the benefits of homeownership.
Improving access to homeownership for low- and moderate-income households is a core principle behind the CFH program.
Before a CFH homeowner decides to sell their home, it is important for the homeowner to consider how their finances will be impacted. All homeowners, regardless of whether they participate in the CFH program, must consider market conditions, the current first trust loan balance, and potential closing costs (including, realtor fees, transfer taxes, etc.) when deciding to sell. Prior to listing a home for sale, it is vital the homeowner contact CFH to obtain a resale estimate. CFH will assist in walking the borrower through the above financial factors if necessary. The resale estimate considers the following items to determine the seller’s proceeds:
- Listing price (usually set by an appraisal)
- 1st trust loan balance
- CFH 2nd trust loan balance
- Any additional support received (EPAP, HPAP, etc.)
- Shared appreciation (contract price at sale minus appraised value at purchase)
- Closing costs
Under the CFH Program the sales price of the property is set by the appraised value and/or thorough examination of comps in the area. Each homeowner should communicate with CFH regarding the listing price of their home prior to listing on the market. After notification of the borrower’s intent to sell, CFH prepares the resale calculation for discussion with each homeowner.
If during the process of drafting the resale calculation for the unit, CFH discovers that a homeowner may not be able to cover their first trust loan and/or the CFH Loan, the Borrower may request that CFH accept a discounted, or “short” payoff of the CFH Loan in order to facilitate the sale. In such instances, City First Homes may, but is not required to, consider the request. In so doing, CFH will take the following steps to assess the extent of any loss mitigation for both the seller and CFH.
- CFH will have an initial conversation with the seller to discuss the resale calculation and advise the homeowner of the possibility of negative equity.
- CFH will analyze the loan documentation from inception of the loan; this includes the loan type the borrower received from the 1st trust lender, amount of down payment and the amount of the CFH 2nd trust loan.
- CFH will request that the homeowner submit a hardship letter and financial documentation including last three months of personal bank statements, last two years of tax returns, a current statement of assets and liabilities, and a current mortgage statement from your 1st trust lender.
- CFH will review the borrower’s financials based on the documents provided. We will discuss potential solutions to minimize any financial distress the homeowner may potentially face in selling at a loss. Items that will also be considered include length of time in the property and the ability to sell the unit at a price that would cover both the first and second trust mortgages.
- In a potential short sale scenario, it is important for the homeowner to work with CFH to determine the best sales price for the property. Should the property fail to sell, CFH may work with the borrower for a price reduction. This should be done in conjunction with City First Homes. If the borrower chooses to list the property without consulting CFH, CFH’s options to remedy will be limited.
CFH will work directly with the borrower to discuss the possible paths forward to minimize the risk to the borrower and to CFH. CFH will take a proactive approach to addressing any potential short sale scenario and will take several factors into consideration including the sales price of the unit, market conditions, closing costs, etc. to identify the appropriate solution for each borrower and homeowner. Each homeowner’s financial condition will vary as will the tools and guidance that CFH will provide in each scenario. Due to the unique nature of each situation, there is not a single solution that will work for every homeowner. CFH is committed to working with our homeowners to find a solution that fits each unique circumstance.
For questions about this policy or for additional information, each homeowner is advised to reach out to us. We are here to support our homeowners through the sale process and will continue to remain active in assisting CFH homeowners in the resale process as the program changes.