The Mayor’s Office of Housing Below Market Rate (BMR) homeownership program was established to offer “low to moderate income” households “the option of purchasing homes that are priced below the typical market rate price” but are restricted in terms of resale price and the qualified buyer pool.
One such unit is 888 7th Street #351, a 691 square foot one-bedroom which was purchased for $267,000 in May 2008 and is now listed on the MLS for $299,000 or $305,200 on the Mayor’s Office of Housing site. As noted, eligible single buyers for this unit can make no more than $69,600, a two person household no more than $79,500.
Also noted on the Mayor’s site, “due to a pending lawsuit in the building…only all-cash buyers will be able to purchase the unit.” That’s right, per the terms of the program, the low to moderate income buyers for this unit will need to have three-hundred thousand dollars of disposable cash on hand.
∙ BMR Resale: 888 7th St. #351 – $305,200 (cash) [sf-moh.org]
∙ Listing: 888 7th Street #351 (1/1) 691 sqft – $299,000 [MLS]
∙ Below Market Rate (BMR) Homeownership Programs [sf-moh.org]
i don’t follow BMR’s, but it would make sense that if BMR’s can rise in value by some forced metric, that they should be able to fall in value. and if the City is to have these kinds of whacky arrangements, should a condition that prevents a building from getting loans occur, then maybe the city ought to be on the hook for it.
the other thing i don’t know about is whether there are rental restrictions – litigation won’t last forever, so one should be able to rent their unit at market rate which should cover the mortgage in this case.
anyone know the details of how BMR’s work?
I think we have just entered Wonderland, along with Alice, the White Rabbit and the Mad Hatter.
All Cash is also frequently interpreted as no financing contingency. So it’s possible that a buyer could get pre-qualified for a loan here and purchase the home with an effective All Cash purchase. No? That said, the irony is not lost on me.
BMR requirements also have asset limits, right? If you have 300K cash, would you qualify?
Believe it or not, there are plenty people who would qualify for this BMR who also have the $300K in cash. Many working class people work hard and are frugal savers. And of course, there are many retired folks with limited income sitting on a healthy nest egg.
Plus there are a lot of rich 20 to 40 year old kids in SF who don’t really have jobs per se.
Better than Rags to Riches
Better even yet than Riches to Rags
The BMR is now shooting for Rags AND Riches!
I knew that marketing a place was all about finding that “special” buyer, but this is going a bit far.
Not only must you be income poor + cash rich, but you need to be blind to the fact that $450/sf is not much of a discount to justify these pain in the a$$ BMR rules!
Bring it down to 200K and this will be a much more decent deal…
“Ten percent (10%) of all assets between $30,001 and 130,000 will be added to the total household income; and thirty-five percent (35%) of assets above $130,000 will be added to the total household income.”
http://sf-moh.org/index.aspx?page=268
$299k savings is equivalent to $69,150 income. Price seems like more than a coincidence.
So as long as you have $299,000 in cash and make less than $449 a year, you’re in!
I’m with eddy here; I get the snark and I realize that the socketsite editor has a special mode of snarking when it comes to the mayor’s BMR program. It is not the BMR program’s fault that there’s a lawsuit pending against the building and that therefore mortgages are hard to come by.
I’m not going to waste previous pixels defending the details of this BMR program, but the underlying motivation is sound: a two person household earning $79,500 is a solid upper working-class to middle class household and they shouldn’t be locked out of owning just because the much vaunted “free market” developers in this city want to cater to the “Luxe”, Luxury and Überluxury market almost exclusively. Especially since large numbers of the buyers of those units don’t live and work in S.F.
^^^ This means roughly $0 income and 300K in cash?
How do you pay the HOA?
This doesn’t even start to make sense.
Yeah, actually you’d also need a little extra saved up to cover closing costs. That means a > 2 person household would be required in this case.
So then we have > 2 person household in a 1 bedroom apartment? Absurd.
BMRs are a waste of taxpayer money.
Let developers build as many units as they want in designated high density zones. Watch them prosper, build more units, get way over their heads in a condo bubble, then watch distressed property become affordable to median income SF dwellers.
Plenty of BMR condos in Vegas. Brought to you by the market.
“due to a pending lawsuit in the building…only all-cash buyers will be able to purchase the unit.”
Why would a pending lawsuit require all cash buyers?
“Why would a pending lawsuit require all cash buyers?”
Traditional lenders will not lend when lawsuits are pending that they feel will jeopardize their security interest. They don’t want to foreclose on a unit then get hit with a large judgement or special assessment.
If they note the lawsuit on the Mayors site, I think the above is more probably the case then the situation eddy mentions above where “all cash” just indicates “no finance contingencies”.
Even with a lawsuit it could be possible to find a non-traditional lender (hard-money, employer,…) willing to lend.
“This means roughly $0 income and 300K in cash?”
You’d not just need ~$300k in cash, but that would have to represent nearly all your assets! If you had much more then that the 35% of assets rule would push you over the limit. Even the extra $10k a 2 person HH gets only allows you $28k more assets.
Where’s the wisdom in encouraging someone with only $300k to sink their entire net worth into a condo?
OMG that’s fugly!
Plenty of BMR condos in Vegas. Brought to you by the market.
Good point actually.
tc_sf,
I have a friend trying to finance in another infamous condo building that is currently in litigation. FNM said they wouldn’t back the mortgage and he could find no other lender. Litigation is a value killer.
“Believe it or not, there are plenty people who would qualify for this BMR who also have the $300K in cash. Many working class people work hard and are frugal savers. And of course, there are many retired folks with limited income sitting on a healthy nest egg.”
I would say that is definitely the exception and not the norm.
Either way, if you have 300K tucked away in a Wells Fargo checking account you ain’t buying a unit in this building. Lets be serious…
The hidden evil in a BMR condo are the HOA dues. HOA dues are beyond the reach of the City and can rise at will by a vote of the residents.
For someone truly at the edge of their finances who gets a BMR condo, they can easily be forced out by the rest of the residents when the HOA dues are raised repeatedly over a short period of time.
I confirmed this with Mirkarimi a few years ago in email.
Does anyone know what the lawsuit is about?
This is really designed for people who don’t have “reportable” income. We should build more of these. Drug dealers and gangsters should get subsidized housing, no?
If anyone is interested in buying this, I would be happy to put down the 300K cash, only require 10% down from you and write you a loan for the balance at 7.5%.
Editor, please feel free to give out my email to anyone intersted.
Brahma, there are a lot of couples making $80,000 a year who will be locked out of ownership, even though they may have health-insurance costs that lower their take-home pay below that of the qualifying couple. It’s not right for government to choose who does and doesn’t get homeownership. Plus, the subsidies for ownership are already so outrageous, they virtually negate the meaning of private property.
By the way, I know a BMR owner who made $45,000 when she bought 12 years ago. Now she makes $180,000, and she inherited some cash from her dad. Owns 2 rentals in the city, lives in her BMR and whines constantly about rent control! She’s got a lot of nerve.
Also, echoing prior posts, there are a lot of people who can hide income and qualify. People in cash businesses already get away with murder on taxes.
The couple making a fully reported $80,000 will be screwed twice by the $79,000 couple with $15,000 in cash on the side. They pay more taxes, which help advance the cash couple into ownership. The whole thing is a farce.
IIRC about 20% of the units are non-BMR. Does the all cash only requirement still apply there?
I literally just choked on my saliva laughing.
“IIRC about 20% of the units are non-BMR. Does the all cash only requirement still apply there?”
You’d have to ask a lender to be sure, but my guess would be yes.
Yeah, the BMR units can have some troublesome issues. There are income/asset restrictions at time of purchase, but then only a residency requirement beyond. A young grad-school couple could buy one and then make a mint as professionals while still only paying a minimal mortgage. Or a working-class buyer with slight savings could leverage it all to get in and find themselves overwhelmed by HOA fees.
I would argue that those are fringe cases though. Realistically, the young couple isn’t going to want to lock themselves into a purchase with minimal upside. As for working-class buyers, all applicants for BMR units are required to attend a “homeowner’s education” course which explicitly addresses concerns like maintenance and HOA costs (along with other basics). So there is a concerted effort to avoid getting the buyer into a bad situation.
Whether or not you like the politics of the various Office of Housing programs, I believe they are very well structured to accomplish what they set out to do. They literally assist thousands to become homeowners, and inevitably run into a few issues over time (like falling asset prices making the set resale basis humorous). Overall though, this is a government program that has never been implicated in losing/misusing funds, shady practices, or nepotism. If only the same could be said of most of the other efforts this City engages in.
This really is the funniest Socket posting I’ve seen in quite sometime. Would anyone with 300k put the cash into an asset that can’t (by law) appreciate? We already know the answer to that question.
Once again……the magic bureaucrats fail to anticipate a market related variant.
But this being San Francisco…….and there being plenty of dolts willing to vote for dullards like Ross Mirkarimi…..we will continue to be treated to similar spectacles for years to come.
The asset can appreciate, it’s just that the rate of appreciation is controlled via the mechanism of controlling the maximum resale price.
Eric in SF, you’re correct, in principle, that the HOA can be a stumbling block for long-term, working-class owners of condos, but as a practical matter, the answer that was/is thrown out at the planning commission is that your high maintenance/high living type folks who impose their will on the association to put in a common-area hot tub, for example, tend to not buy 691 ft² one-bedroom units, BMR or not. I’m not aware of any studies that document the typical rate of increase in HOAs and how lower-priced or BMR units compare to up market or market-rate units.
I am a BMR owner and think the program is excellent. The program is strict and requires a mountain of paperwork when you apply for a unit just to have your name in the lottery. They’re very good at weading out the unqualified. I would never have realized homeownership in the city without the program. I bring in a moderate income of $65K a year but feel I have similar disposable income as my neighbors who make 2-3 times that but spend most of it in mortgage and property tax. And before you get too critical about BMR owners moving into the new developments, we are offered the least desireable units. We’re not complaining, beggars can’t be choosers.
Brahma – I actually asked Mirkarimi about this after a Chronicle story on a working class owner of a BMR condo that had to sell because her HOA dues rose above her monthly budget.
If my memory serves me, one of the points in the article was that developers intentionally under priced their HOA dues to sell the units. Once the building realized they were severely under capitalized for general maintenance and repairs the dues were raised quite a bit.
Anon BMR owner, something i’ve been curious about: are your property taxes based on your BMR value or the regular market value?
Not sure if this was mentioned earlier but this building is rather unusual in that it is majority BMR. So most likely, a new BMR owner will have other existing owners who be similarly motivated to keep the HOA costs down.
Although the HOA budget is prepared by the developer, it must meet DRE guidelines and use cost estimates from approved sources. While developers have incentive to keep the dues as low as possible to attract sales, Mirkarimi and conspiracy theorists will rail at the intentional deception of evil real estate interests.
If you can’t trust developer don’t buy, or buy in a building with established track record for stable HOA.
“… or buy in a building with established track record for stable HOA.”
How does a retail condo buyer learn about a developer’s established stable HOA fee track record? Is that info tracked somewhere?
Milkshake, I’m pretty sure a buyer of a condo is entitled to see certain records of the HOA before closing escrow (I read that in a textbook, I’m sure one of the real estate agents on this site will let me know if I’m mistaken). That’s how you’d find out how often the HOA dues are raised.
And yes, HOA fees go up over time in ALL condos that I am aware of, so the issue for the person Eric mentioned and future buyers in that situation is not whether or not the HOA fees will go up, but if the rate at which it increases is higher than the amount your household income increases.
I wasn’t aware that some developers deliberately underprice the HOA at initial offering to juice sales, though.
molly wrote:
Well, I’d say that this objection depends on a peculiar construction of the word “choose”. Anybody in The City who qualifies can apply for a BMR unit as long as they’re willing to comply with the constraints imposed by the program. The buyers are chosen by lottery from among the applicants, so I don’t see how that’s unfair.
One thing it does do is use “the heavy hand of government” (as Libertarians like to say) to keep out flippers and speculators from one small sliver of “the market”, and for that reason among others, I think the BMR program is a good thing, the above-mentioned ironic situation with 888 7th Street #351 notwithstanding. Some people just want a place to live.
Some people just want a place to live.
And they can rent, or live according to their means, or fight for a better job. Did I miss anything?
re: lol’s “live according to their means” retort…The Mayor’s Office of Housing verifies that applicants to the BMR program can actually afford the mortgages taken against BMR units. In addition to disallowing total mortgage packages that are more than the sales price, the MOH will not accept loans in which the total household debt-to-income (e.g. housing, plus credit cards, plus student loans, etc) is higher than 45%, which is more than anyone can say for the righteous “free market”, which right up until the year before last let anybody with a pulse with access to the right fly-by-night unscrupulous mortgage broker buy a place with a NINJA loan that they could not “afford” by any definition.
Brahma – yes, I realize that a buyer can look into a condo HOAs finances before signing the contract. What I was referring to was formerly%whatever’s suggestion that a buyer should educate themselves about the developer’s track record rather than just a single building.
This comes into play when buying a new unit from the sales office. Since the building is brand new it has no track record itself so the next best thing is to look at the developer’s record of initial HOA fee pricing. If it was built by a developer who has a history of underpricing then it would be wise to factor in a large fee increase into your cost of ownership calculations.
This sort of due diligence is good advice though I don’t know where you’d find such information. A buyer’s agent might have some information though it would be a lot more efficient if someone compiled a spreadsheet of different building’s HOA fee histories and then organized it by developer: a “fee jackup” predictive index perhaps.
And they can rent, or live according to their means, or fight for a better job. Did I miss anything?
You missed how your knee-jerk ideology makes you sound like an ass. They are in fact living according to their means! They are purchasing a home at a much much lower price and therefore their cost of ownership is much lower, and thus, the home is more affordable for them. They are far less leveraged than many people who got hijacked by the fraudulent crony capitalist system you advocate for. We are talking people making 100% to 110% of the median income here. Paying a $300,000 mortgage is a lot more manageable for a family like this than paying a $600,000 mortgage. In fact, it may be even cheaper than renting, which is probably the other option for most BMR purchasers, and indeed may represent the best option for a family like this in San Francisco. In other words, BMR purchasers seem like frugal and practical people making the best housing choice.
And as far as character goes, your slurs are not justified: BMR purchasers have demonstrated they aren’t greedy. They are just looking for a modest place to live and are willing to limit their future upside potential in order to have a reasonable monthly cost of ownership. They could have qualified for the Wild-West unregulated fraudulent loans lol advocates for–during the heyday and probably even now. But they want modest and reasonable monthly costs so they don’t want to gamble.
So the slurs that they need to fight for a better job (as if families making median income have something to apologize for), or are living above their means, or are taking something they don’t deserve, is very offensive.
earlier, I wrote:
As I recall, the buyer has the ability to access records from the HOA before the close of escrow as a result of the Davis-Stirling Common Interest Development Act and some resulting follow-on case law. But I am not a lawyer so I can’t quite cite chapter and verse on that.
SFHawkguy, Brahma
Nope, not buying it.
They are in fact living according to their means!
Not without a subsidy. Which means they’re asking to the city to take money from Joe Schmoe #1 to indirectly put into their own pockets for the sole reason they don’t make the cut to own in SF.
You can force income diversity, but that doesn’t make it a honest or sustainable system.
But the subsidies the BMR owner gets are minimal compared to the other subsidies in our system. Like many right-winger or libertarians you only level a critical eye at one side of the equation–those with the least power. How much of a “subsidy” went into all home prices during the last 10 years because of the crimes of the bankers and their representatives in Congress? They privatized the profits and socialized the losses and we all paid a “subsidy” to these rich bankers. You aren’t focusing on that.
All economic systems allocate resources and there are winners and losers. The median household has been on the losing end for decades. Our system has been rigged so the subsidies flow one way–to the rich. I’m not going to start crying because some “subsidy” flows to the benefit of average folks. And this is far more sustainable! This is what you’re not getting. Limiting leverage to historic and reasonable levels is good for the homeowner, and good for society. It means we all pay less of a “housing tax” to the FIRE sector. This is one area where smart regulations like limiting the ability of housing to rise beyond worker pay is a good idea.
SFHawkguy,
I guess I’m your worst possible opponent.
I am rather left wing, for universal health care, a fair and equal umbrella retirement system, and I want to tax the heck out the fat cats. I would repeal ALL the Bush tax cuts in a heartbeat. Also in my crosshair are the Oil subsidies, which should be reverted to fund a Marshall plan for renewable energy and conservation.
But when it comes to housing, politicos have managed to create a perfect monster. Environment does influence behavior and expectation of permanent subsidized life does not encourage self-improvement. Society should encourage moving up. With thieves in WS and bubbleboys on the bottom it doesn’t.
Milkshake, thanks for the clarification, I think I understand now.
I totally agree that a compilation of different building’s HOA fee histories, organized by developer, would be a good thing that would assist buyers in perhaps predicting rapid HOA fee increases shortly after the complex/building sells out.
The problem is that if this information was readily available it would help buyers and hurt condo developers (by depressing offers on new units built by developers with deliberately underpriced HOA fees; if you believe in efficient markets, the amount of offer depression would be close to the amount the initial HOA fee was strategically underpriced). So it’d have to be a buyer’s agent (or agency) perhaps that would have to gather this information and maintain it. Even if we just assume that buyers would pay for this information while they were shopping for a condo (and that therefore there’d be an economic incentive for the buyer’s agency to gather and distribute it), it’d be subject to all kinds of gamesmanship by condo developers.
I kind of doubt that an agency would do this at all, given that some agents don’t even want to quote the floor area of a condo in a listing due to vague concerns about “liability”. Agencies don’t really care, at the end of the day, if a buyer can pay the HOA fee two years out after the agency gets its commission.
So that would leave The City to gather it and tax condo developers via fees to finance maintenance of it. So much for the invisible hand of the market.
This why Communism failed.
HOA fees are much more regulated than you would think. Association is required to have a reserve study done by an accredited organization. They project maintenance, repair, and replacement costs out on a 5, 10, and 20 year basis. This is then pro-rated per unit per month and kept in a reserve fund. The problems occur when non-reserve costs like concierge or utilities are underestimated or large repair expenses are incurred prior to their predicted dates. Also, when there are large numbers of delinqencies in HOA dues (think Beacon) the reserve is funded only after the monthly bills are paid. Thus, reserves do not accrue. On foreclosed units the bank is only responsible from when they actually take possesion, so it’s not unusual for unpaid dues of 12 months or more to never be collected on a foreclosed unit.
The big question to ask is not have HOA fees been raised, but at what % of projection is reserve fee funded? Also, is this cash? It is common to “borrow” from the reserve fund to finance construction defect litigation expenses. If HOA does not prevail in litigation, reserve funds are lost.
Let’s not get into this demonizing “communist/socialism/capitalism” discussion that reduces everything into very basic unpractical discussions.
Social programs can be good when properly put in place. Health care NEEDs a distribution between the healthy and the sick, because healthy people rarely plan for when they’ll be sick, and randomness kills any good planning anyway. A pure market doesn’t solve everything but it creates a good environment to go beyond pure competition. Personal interest is what makes the world move forward and the prospect of making profits makes you push forward and pull the rest along.
“On foreclosed units the bank is only responsible from when they actually take possesion…”
You bring up a great point OneEyedMan. Whenever a condo owner walks, the other building owners end up taking up their slack on the HOA fees in the interim before the bank takes possession. Banks probably drag their feet on possession until they ready to go and when they do, they’ll turn it over on the market ASAP to minimize their expenses.
This situation could avalanche in a building owned by struggling owners. Each time an owner stops paying their HOA the burden gets heavier for the rest. HOA fees don’t adjust frequently but in a building with a large number of deadbeat owners there could be a surprise jump in fees.
I wonder whether the reserves at 1RH are meeting their projections?
Brahma – I think you’re right that no-one is motivated to compile stats on developer HOA fee trends. Hopefully formerly%whatever can clarify what he/she expects a buyer to do to check up on the developer’s record.
HOAs do not always collect late dues from REO sales. Sometimes they’ll decide to “forgive” some or all of the previous deadbeat’s debt for the sake of getting a freakin warm (and paying) body in a foreclosed unit.
HOAs do not always collect late dues from REO sales.
How about never in California. Just to be clear (as One Eyed Man also said):
When a bank forecloses on a condo in California, it is not liable for past-due association fees.
^^^ True, I got REOs and short sales confused. HOAs are more eager to negotiate amount dues precisely because they’re willing to collect anything from a buyer because they’re shafted by a foreclosure.
@Milkshake, it’d be near darn impossible to keep track of a particular developer’s track record in setting dues as the developer identity changes (in part to limit liability), so a database would probably have little value. Of course exceptions exist, Martin Building, for example, makes its brand a feature in their marketing.
My point was more general in that HOA dues in a new building are estimates, whereas in an existing building there is a track record. BTW, for new building sales, the developer is required to guarantee something like 2 yrs worth of HOA dues by escrowing the funds or posting a bond.
“BTW, for new building sales, the developer is required to guarantee something like 2 yrs worth of HOA dues by escrowing the funds or posting a bond.”
There’s another reason to shoot for a low HOA fee estimate: less cash at risk of slow sales. The developer’s HOA expense is basically fee * averageSalesTime. Since fees also affect how long it takes to sell this is a quadratic effect. No wonder there’s an organization that must approve initial HOA fees. Hopefully they’re independent.
The BMR is not necessarily a subsidized unit that takes from the pocket of Joe Schmoe no.1. to give to the working class schmoe no.2 (the one who actually performs ordinary chores which allow a community to function.) The city controls development based upon the interest of the city, implementing fees, height limits, usage restrictions, etc. If a developer wants a project go ahead, he must cooperate with the city. One way of cooperating is to assure that the property will meet a common need, like promoting housing for people the city finds desirable to keep, like a working class population, without whom we’d all drown in chaos. By assuring a few BMR units in an already lucrative project, the developer’s costs are lowered. So Joe Schmoe no.1 actually profits from the deal. The investor in the market rate condo pays no more and no less that he otherwise would, because the developer, who is maximizing profits, is selling at whatever rate the market will bear. Participants who buy into the BMR units may be thrilled to be dignified home owners, but they actually get the short end of the stick as one can see in the case of 888 7th Street, where they are left taking all the risk with no hope of profit.
And no,they can’t just rent their condo at market rates, that would be prohibited by one of the many restrictions placed on the buyer of the BMR.
^Um, you do realize that if, say, there are 18 market-rate units and 2 BMR units that the “price that the market will bear” will clearly be higher than if there were 20 market-rate units, right? Reducing the supply of the market-rate units will absolutely have a direct impact on the price paid for the remaining units, and therefore the BMR units have a direct impact on increasing the cost of the market-rate units.