FAQ (Frequently Asked Questions)
- What is a Community Land Trust?
- Why does the ICLT sell the house but never the land?
- What is the resale formula?
- What is a ground lease?
- Who is eligible to buy a home from ICLT?
- What are the costs of leasing the land from the ICLT?
- Can an ICLT home be passed on to one’s heirs?
- Should a household still consider conventional homeownership?
- Do CLT homeowners pay property taxes?
- Can a homeowner access mortgage financing for a CLT home?
- May a CLT homeowner rent out the home?
- Why does Orange County need a CLT?
- What happens if an ICLT homeowner wants to sell their home?
- Can CLT homeowners make major improvements after purchasing their homes?
- Does ICLT offer affordable rental units?
What is a Community Land Trust?
A community land trust (CLT) is an independent, non-profit organization that acquires and holds title to land for the purpose of providing affordable housing opportunities. A CLT uses a 99-year, renewable ground lease to give owners of the homes exclusive use of the land. The ground lease is the mechanism for preserving affordability of the housing. The ground lease contains certain restrictions on the use of the home and specifically a limit on the amount the home can be resold for. The future sales price is determined by the resale formula which is designed to provide a fair return on the homeowner’s investment, but keep the price sufficiently below market rate prices so that the home will be affordable to the next income-eligible buyer.
Why does the ICLT sell the house but never the land?
Owning the land underneath each home is the way that the ICLT maintains the affordability of the home permanently and ensures that there will always be affordable homes available. Because the land trust owns the land, each homeowner must enter into a ground lease contract with the land trust. The ground lease is an enforceable legal mechanism to ensure that homeowners abide by the restrictions in the ground lease, particularly the restrictions on occupancy and resale of homes.
What is the resale formula?
A resale formula limits the rate at which CLT home prices rise over time.
The ICLT resale formula allows the value of a home to appreciate at the same rate as incomes. It is described in detail in the ground lease. Essentially the initial purchase price of the home may increase by the percentage change in the Area Median Income for Orange County from the date of purchase to the date that the ICLT is notified that the buyer wishes to sell the unit. Credits can be added to this base appreciation to account for capital improvement investment or special assessments.
The Area Median Income for Orange County is published annually by the California Department of Housing and Community Development.
What is a ground lease?
The ground lease is an agreement between the ICLT and individual home owners which grants the home owners exclusive use of the land for a period of 99 years. The ground lease assigns other rights and responsibilities to both the individual owners and the ICLT. A sample ICLT ground lease can be viewed here.
Who is eligible to buy a home from ICLT?
While each unit will have its own specific requirements, all applicants must meet the following criteria:
• The head of the household must be at least 18 years of age
• Pre-qualify for prime mortgage financing
• Contribute at least 5% to the total purchase price, including closing costs
• Understand and agree to the restrictions of CLT ownership, particularly the limited equity resale formula.
Most units will be limited to households earning less than 120% of the Area Median Income (AMI) and many will be limited to those earning less than 80% of AMI. ICLT may offer some units for households earning more than 120% of AMI.
What are the costs of leasing the land from the ICLT?
The monthly ground lease fee is initially projected to be $50/month. This fee will increase over time along with the cost of living.
What are the advantages of owning a land trust house versus renting?
ICLT homeownership provides the majority of the benefits of traditional homeownership: housing stability and security and opportunity to generate equity on financial investment in the home. While CLT ownership limits the appreciation a homeowner may realize, this investment is still likely to provide a significant return relative to renting. In addition to this limited appreciation, Land Trust homeowners will also earn equity by paying down their mortgages over time.
Can an ICLT home be passed on to one’s heirs?
Yes, an ICLT homeowner may leave his or her home to any heir, however only heirs who meet the ICLT income qualifications may permanently occupy the unit. Heirs who choose to remain in the unit must sign a letter of acknowledgement accepting the resale and other restrictions of the unit. Heirs who are ineligible must sell the unit according to the terms of the ground lease within 12 months. Heirs who sell the unit will be able to keep the homeowners equity according to the resale formula.
Should a household still consider conventional homeownership?
Yes, if a household has the means to purchase a market rate home in the area, then homeownership with no restrictions may be a better financial decision. Potential homeowners should make sure that they can actually afford the home over time and be cautious of what types of mortgage products they accept. For more information on the responsibilities of owning a home, consider attending a general homebuyer education class.
Do CLT homeowners pay property taxes?
Yes, CLT homeowners pay property taxes on both the homes and the underlying land to which they have permanent, exclusive use. CLT homeowners are expected to pay taxes directly to the Orange County Tax Assessor. The ICLT is working with the local assessor to ensure fair taxation of the properties with a recognition of the limitations imposed by the resale price restrictions.
Can a homeowner access mortgage financing for a CLT home?
Yes, many lenders offer mortgage financing for the CLT homes. The ICLT has worked to educate a number of local lenders about this model of homeownership. Please consult the Accessing Mortgage Financing page of this website to learn more about working with lenders who meet ICLT’s requirements.
May a CLT homeowner rent out the home?
Under most circumstances, a CLT homeowner may not rent out their home. ICLT homes are intended to provide stable housing opportunities for eligible buyers and these buyers commit to occupy the home as their permanent residence.
Under extenuating circumstances, with written permission from the ICLT, homeowners may be allowed to rent out the home for a limited period of time. During these rare occasions, the rent that a homeowner may charge may be limited.
Why does Orange County need a CLT?
Because housing prices have been rising faster than incomes in recent decades, there is a growing need for both affordable rental and homeownership opportunities. Today households of moderate incomes often find it very difficult to secure affordable housing close to their jobs and schools. Orange County needs to produce more affordable housing and ensure that this housing remains affordable for generations to come. The ICLT will act as a conscious steward and enforcer of the long term restrictions on affordability for all housing located on land owned by the ICLT.
What happens if an ICLT homeowner wants to sell their home?
When an ICLT homeowner decides to sell his/her home, the homeowner must
• Notify the ICLT of intent to sell the home.
• Obtain a written pest control report within 10 days.
• Allow a representative from the ICLT to inspect the home or to hire an approved home inspector.
The ICLT has the right to purchase the home from the homeowner at the resale formula price or the appraised market value if this is lower. The homeowner must wait until the ICLT has responded to this purchase option or a period of 60 days has passed before contracting with a real estate broker. If the ICLT does not purchase the home, the homeowner must sell the home to a qualified buyer for no more than the resale formula price.
The ICLT is responsible for:
• Contracting for a home appraisal within 10 days of receiving the Notice of Intent to sell and the pest control report.
• Responding to the Notice of Intent to Sell within 60 days of receipt.
Homeowners should consult the ground lease and the Homeowner Handbook for more detailed instructions on steps to take when they want to sell their home.
Can CLT homeowners make major improvements after purchasing their homes?
CLT homeowners may make, and are even encouraged to make, necessary capital improvements. All CLT homeowners must notify ICLT before undertaking any work that requires a building permit. At resale, owners may receive a credit for qualified capital improvements which will increase their maximum resale price. To be eligible, improvements must be approved for credit by the ICLT in advance of commencement of work according to the ICLT maintenance and improvement policies and procedures.
Does ICLT offer affordable rental units?
The ICLT will also own land underneath affordable rental housing developments and has the same commitment to the preservation of affordability of these units as it does for homeownership units. The ICLT owns a small amount of rental units that they manage.
To be alerted about future affordable rental opportunities, please add your name to our interest list and be sure check the box that says Rental.