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Denver Homeowners Living In Affordable Houses
There are Denver homeowners living in affordable houses they make too much money to qualify for, and the problem is more prevalent than you might think
Denver officials are scrambling to address violations of rules around for-sale affordable housing, including a number of deed-restricted homes being sold at market rates to people who were never told what they were buying.
This could lead to Denver’s housing division forcing homeowners who make too much money to sell at a loss, and taking legal action to catch up with previous sellers and take back home-sale profits to which they were not legally entitled.
A review by Denver’s Office of Economic Development was launched last summer, covering 1,302 single- and multi-family units. Working from an initial list of 450, city staffers have zeroed in on as many as 300 homes believed to be breaking at least one covenant rule.
There are several potential violations. Some homeowners have listed their residences on home-sharing sites such as Airbnb. In other cases, homes reserved for sale to people earning a set percentage of the city’s median income have been purchased by companies. And then there are people who bought affordable homes but didn’t qualify under the income rules.
The people living in those 300 homes can expect to receive a letter from the city detailing potential violations by early next week, if it hasn’t come already.
“We are at a point where obviously it is time to be more proactive,” Denver economic development director Eric Hiraga said of the situation, first reported by 9News. “Our hope is to have empathy for those who had no idea they were buying an affordable home and come to the best resolution that we can. But at the same time, we don’t want to lose preservation of our affordable housing stock.”
The city’s portfolio of for-sale affordable housing — 1,569 units before 267 went into foreclosure — has largely been policed by a complaint basis. It has “relied on the good-faith efforts of the original affordable home buyers, real estate companies and title companies” to ensure resale rules — including income restrictions — were observed and communicated to new buyers, Hiraga said. Under city and federal rules, deed-restrictions are lifted from foreclosed homes.
The problem has prompted Hiraga to restructure his office, shifting more manpower to compliance work. He said Rick Padilla, the director of housing compliance, will soon have five or six people working under him.
Hiraga is also working with city attorney’s office to craft a program aimed specifically at the 300 or so homes believed to be in violation. It will be “nontraditional,” Hiraga said, and “give individuals ample time to bring their property into compliance.”
Juan Carlos Peñalver is among the Denver homeowners waiting on a letter. He didn’t know he was living in an income-restricted house until he received a “reminder” that his house was income-restricted in January, his attorney, Robert McGough, said.
Peñalver lives in Green Valley Ranch, a neighborhood loaded with affordable homes thanks to a large-scale development agreement — struck between the city and developer Oakwood Homes — that saw nearly 650 income-restricted houses built there between 2002 and 2005. The neighborhood also was hit hard by the foreclosure crisis.
The covenants covering the deed-restricted homes further dictate that they can only rise in value by 5 percent each year, meaning, in most cases, that they must be sold at below-market rates as long as the 20-year restrictions are in place.
Peñalver, who lives in the home with his wife and 1-year-old child, does not qualify to own his home under the income restriction. He wouldn’t have qualified when he bought the home in 2016 either, his attorney said. The two are now discussing their legal options.
“He paid market value for the home,” McGough said. “He paid $30,000 more than he should have, so in a perfect world, the city would release his property from the affordable-housing restrictions so he would be free to sell it at market price or rent it to a third party.”
McGough said he now has five clients who have received covenant violation notices from the city, three of whom purchased deed-restricted homes without knowing it. He estimated there could be dozens, if not hundreds, of Denver residents in the same boat.
“At this point in time, we’re not really clear on what the city intends to do about this except to hold the buyers and sellers responsible which is not real fair,” he said.
The situation begs the question of how many income-restricted homes have been sold at market rates — possibly even to a third or fourth owner by now — and how information regarding their affordability failed to be conveyed to buyers.
Wendy Aiello, a spokeswoman for Oakwood Homes, said the builder included the proper language regarding the affordable housing covenant in deeds for homes it sold.
“At some point, well beyond Oakwood Home’s involvement, the affordable housing language dropped off,” she said.
“If it was a covenant, it should have been recorded by the City of Denver, and then it would show up on the title report for the buyer and lender to see and investigate accordingly,” said Gary Kujawski, a manager with the Colorado Division of Real Estate.
If title companies failed to transmit information about the covenants with each sale, they could potentially be at fault. That would be a matter for the Colorado Division of Insurance to investigate, Kujawski said.
If the information was properly transmitted in the title, then liabilities could exist on several other fronts, said Lou Barnes, a senior loan officer with Premier Mortgage Group in Boulder.
“Sellers have an unlimited obligation to disclose and listing agents have a nearly unlimited duty to discover and disclose,” Barnes said. Buyers agents, if they are doing their job, should read title policies and refer buyers to proper legal guidance.
Appraisers offer another safeguard that appears to have failed. By missing the covenant restrictions that limited appreciation to 5 percent a year, they allowed buyers to take out loans for more than the homes were worth, putting lenders at risk.
The situation has given critics of the city’s affordable housing policies ammunition.
The volunteer organization All in Denver, which focuses on social equity, is pushing to get a $150 million to $200 million affordable housing bond on the November ballot in the city. A poll that it helped commission this year found that affordable housing is local voters’ top concern. The group plans to advocate for letting a public-private nonprofit manage the housing bond should the measure make the ballot and pass, co-founder Brad Segal said, in part because “we and others in the community are concerned about Denver’s overall management of affordable housing funds.”
Brad K. Evans, who frequently skewers the city’s housing priorities via his Denver FUGLY Facebook page, noted that 300 units is roughly a quarter of the city’s affordable housing stock.
“How did these all get out of compliance? Was it just a lack of oversight?” he asked Wednesday. “And who should have been paying attention to it all this time?”
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