Are Community Land Trusts permitted to charge monthly ground lease fees to HOME-assisted homeowners?

Date Published: August 2015

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Yes. Generally, Community Land Trusts (CLTs) may charge ground lease fees to HOME-assisted homeowners. However, HOME funds may not be used to pay for these fees because the ongoing costs of homeownership are not eligible HOME program costs.

Ownership in fee simple title of a dwelling with a ground or land lease of 50 years or longer from a CLT meets the definition of Homeownership in §92.2 of the HOME rule. CLTs commonly charge monthly ground lease fees to homeowners who lease from the CLT the land on which their homes are situated. The definition and structure of a CLT inherently require that there be ground lease payments, and this monthly fee is expected to be paid by HOME-assisted homeowners who purchase their homes through a CLT. 

Pursuant to the requirements of 24 CFR 92.254(f), each Participating Jurisdiction (PJ) must have and follow homebuyer underwriting policies that support sustainable homeownership for HOME-assisted homebuyers. As a recurring monthly cost of maintaining housing, the CLT ground lease fee must be considered a housing cost to be included in the underwriting of the homebuyer. Greater monthly ground lease fees also typically reduce the borrowing power of homeowners for a mortgage, or could increase the cost burden for borrowers, thereby requiring a greater initial HOME subsidy. Depending on the PJ’s homebuyer underwriting policies and its standards for evaluating the appropriateness of the amount of the HOME assistance, there may be situations in which the lease fee, in combination with other monthly debt obligations, would be considered by a PJ to be too expensive for a particular homebuyer.

Tags: HOME Homebuyer Assistance - Lease-Purchase