Subsidy Recapture Procedures

For any property that received Affordable Housing Program (AHP), Carol M. Peterson Housing Fund (CMPHF), Disaster Reconstruction Program (DRP) or Welcome Home Program (WHP) grant assistance, the homeowner may be required to repay part of the remaining balance of the grant if the property is sold, transferred, its title or deed is assigned, or refinanced prior to the end of the retention period.

In the event of a sale, transfer, assignment of title or deed, refinance, foreclosure or deed- in-lieu of foreclosure, the FHLB must be given notice in writing. To facilitate the notification process, the FHLB Payoff Request form should be used. The required Subsidy Payoff Request form is posted at www.fhlbcin.com. Once completed, the form may be emailed to welcomehome@fhlbcin.com or faxed to 513-852-7647.

The Member has no responsibility to monitor the homebuyer or property during the five-year retention period. The original Member should only contact the FHLB about a sale or refinance of a property if they are providing the new financing. It is the responsibility of the new lender or closing agent to submit the Payoff Request form and any additional information required.

Once the completed Subsidy Payoff Request form is received a Payoff/Recapture Statement will be generated listing a prorated subsidy balance (if applicable) and the conditions in which FHLB requires full, partial or no recapture.

Rental subsidy recaptures

The FHLB will investigate whether the project will continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism incorporating the income-eligibility and affordability restrictions committed to in the approved AHP application for the duration of the retention period.

  • If the project will continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism, there is no recapture required.
  • If the project will not continue to be subject to a deed restriction or other legally enforceable retention agreement or mechanism, the FHLB will recapture the full amount of the subsidy disbursed.

Recapture on Advances

  • For any property assisted with a permanent mortgage loan funded by an Affordable Housing Program (AHP) Subsidized Advance, there is no recapture of amortized subsidy required. The unamortized portion will be recaptured upon repayment of the advance. Please contact the Housing and Community Investment Department directly for assistance with recapture on advances at 888-345-2246.

Ownership subsidy recaptures

Recapture on sale

No repayment is due for a homeowner receiving a grant through the Carol M. Peterson Housing Fund. However, FHLB Cincinnati must still be notified of the pending sales transaction and additional information regarding the sales transaction (i.e., Closing Disclosure) may be required.

The grant is prorated monthly for the Welcome Home and Disaster Reconstruction Programs based on the amount of assistance received. For example, a homebuyer who received a $5,000 grant from the Welcome Home Program would potentially owe $83.33 multiplied by the number of months remaining in the retention period ($5,000/60 months = $83.33).

  • If the property is sold to another income-eligible household, no recapture is required and the retention language can be removed from the deed. A Certification of Household Income Eligibility form will be included with the Payoff/Recapture Statement. To allow the FHLB to properly determine whether the purchasing household is income eligible the Certification of Household Income Eligibility must be completed by the new lender and sent via email to welcomehome@fhlbcin.com or faxed to 513-852-7647.
  • If the FHLB is unable to determine whether or not the household purchasing the property is very low- or low- or moderate-income, the FHLB assumes that the household is not and will follow the steps below to determine the required recapture amount.

Step 1: If the current sales price is less than or equal to the original purchase price, as indicated by the Payoff Request form, no recapture of funds is required. A copy of the fully executed Closing Disclosure signed by both the buyer and seller must be submitted to confirm the final sales price and verify the details of the transaction.

Step 2: If the current sales price listed on the Payoff Request form is greater than the original purchase price, a review of both the original Closing Disclosure (at the time of initial purchase) and current Closing Disclosure are required. Additional calculations may be necessary to determine if a recapture is due. Proceed to Step #4.

Note: For properties that received grant funding through the FHLB rehabilitation programs, such as CMPHF or DRP, additional documentation may be required to determine the need for recapture as the original Closing Disclosure may not be available.

Step 3: If the current Closing Disclosure indicates there are no sales proceeds being disbursed to the seller, no recapture of funds is required. If there are sales proceeds to the seller, proceed to Step #4.

Step 4: Determine the Seller’s Household Investment. Review the original Closing Disclosure (at the time of initial purchase) to determine the household’s investment in the property. Household investment is defined to mean reasonable and customary transaction costs paid in connection with the purchase of the unit, down payment, cost of capital improvements made, and any mortgage principal repaid since the purchase of the unit until the time of sale or refinancing during the AHP five-year retention period where the household documents these costs to the Bank or its designee. For example, a household could produce documentation of its expenditures associated with the installation of a new roof. Customary transaction costs could include, but are not limited to, down payment, closing costs, earnest money deposit, appraisal fees, inspections fees, and credit report fees. Funding from other sources (seller paid costs, other grants or loans) should not be considered as part of the seller’s household investment. If the seller’s household investment exceeds the amount of sales proceeds being disbursed to the seller it is assumed that the net proceeds are zero and no recapture of funds is required. Otherwise the seller has net proceeds.

Step 5: Compare the net proceeds to the prorated required recapture. If the net proceeds minus the household’s investment exceed the required recapture, the seller must repay the FHLB the full amount of the required recapture. If the net proceeds minus the household’s investment are less than the required recapture, the seller must repay the amount of the net proceeds minus the household’s investment to the FHLB and the remainder of the required recapture is forgiven.

Below are examples:

Example 1:

Assumptions

 

Original Purchase Price

$110,000

Current Sale Price

$120,000

Seller’s Original Investment (incl. closing costs, down payment, earnest money, etc.)

$15,000

Prorated Grant Amount

$3,000

Sale Proceeds

$25,000

First calculation:

 

Sale Proceeds

$25,000

Less the Sum of Seller’s Original Investment

($15,000)

Plus Documented Capital Improvements

$7,000

Net Proceeds

$17,000

Second Calculation:

 

Net Proceeds

$17,000

Less the Sum of Prorated Grant Amount

($3,000)

Total Net Proceeds

$14,000

Result:

 

Required Recapture

$3,000

In Example 1, the Total Net Proceeds ($14,000) are sufficient to cover the total prorated grant amount ($3,000); therefore, the full prorated grant amount is due to FHLB and the Seller’s Net Proceeds are ($17,000).                

Example 2:

Assumptions

 

Original Purchase Price

$110,000

Current Sale Price

$112,000

Seller’s Original Investment (incl. closing costs, down payment, earnest money, etc.)

$1,000

Prorated Grant Amount

$3,000

Sale Proceeds

$4,000

First calculation:

 

Sale Proceeds

$4,000

Less the Sum of Seller’s Original Investment

($1,000)

Net Proceeds

$3,000

Second calculation:

 

Net Proceeds

$3,000

Less the Sum of Prorated Grant Amount

($3,000)

Total Net Proceeds

$0.00

Result:

 

Required Recapture

$3,000

In Example 2, the Net Proceeds ($3,000) are equal to the prorated grant amount ($3,000). The Net Proceeds are sufficient to cover the full prorated grant amount; therefore, the full prorated amount is due. In this example, there are no Total Net Proceeds for the Seller.

Example 3:

Assumptions

 

Original Purchase Price

$110,000

Sale Price

$120,000

Seller’s Original Investment (incl. closing costs, down payment, earnest money, etc.)

$20,000

Prorated Grant Amount

$3,000

Sale Proceeds

$19,000

First calculation:

 

Sales Proceeds

$19,000

Less the Sum of Seller’s Original Investment

($20,000)

Net Proceeds

($1,000)

Second calculation:

 

Net Proceeds

($1,000)

Less the Sum of Prorated Grant Amount

($3,000)

Total Net Proceeds

($4,000)

Result:

 

Required Recapture

$0.00

In Example 3, the Net Proceeds are actually a loss ($-1,000). The negative total is insufficient to cover the prorated grant amount; therefore, no recapture to the FHLB is required.

Example 4:

Assumptions

 

Original Purchase Price

$150,000

Sale Price

$175,000

Seller’s Original Investment (incl. closing costs, Down payment, Earnest Money, etc.)

$5,000

Prorated Grant Amount

$3,000

Sale Proceeds

$6,000

First calculation:

 

Sale Proceeds

$6,000

Less the Sum of Seller’s Original Investment

($5,000)

Net Proceeds

$1,000

Second calculation:

 

Net Proceeds

$1,000

Less the Sum of Prorated Grant Amount

($3,000)

Total Net Proceeds

($2,000)

Result:

 

Required Recapture

$1,000

In Example 4, the Net Proceeds ($1,000) are less than the prorated grant amount ($3,000). The Net Proceeds are insufficient to cover the full prorated grant amount; therefore, only the amount of the Net Proceeds ($1,000) are due to FHLB. The remaining balance ($2,000) is forgiven.

Recapture on refinancing

  • If the property is refinanced and the retention language remains in or attached to the recorded deed, no recapture is required, regardless of whether there are proceeds from the refinancing.
  • If the property is refinanced and the retention language is removed from the recorded deed, a recapture is required based on the prorated subsidy balance listed on the Payoff/Recapture Statement.

Note: The FHLB does not provide or file Release/Satisfaction of Obligation documentation if the grant is repaid prior to the end of the retention period or upon expiration of the retention period. If a Release/Satisfaction of Obligation is required, the document must be prepared and submitted to the FHLB for review. It is the responsibility of the new lender or closing agent to request and file the Release/Satisfaction of Obligation document.

Recapture on foreclosure or assignment

  • Any obligation to repay grant funds terminates in the event of foreclosure, deed-in-lieu of foreclosure, or assignment of the title or deed. FHLB requires legal documentation (i.e., copy of the entered Judgement, Notice of Sale, Report of Sale, Deed-in-Lieu, etc.) to verify the details of the foreclosure, deed-in-lieu of foreclosure, or transfer transaction. The lender/agent should send the documents along with the completed Payoff Request form directly to the FHLB.

Other transaction types

In the event the property receiving grant funds is no longer occupied or maintained by the grant recipient for reasons other than sale, foreclosure, deed-in-lieu of foreclosure, or transfer of title or deed, written notification is required and additional supporting documentation may be necessary. The FHLB will review the details of the situation on a case by case basis and determine the need for recapture.

Assumption

  • If ownership of the property is transferred from the original grant recipient to a spouse, family member or other individual not originally included on the loan at the time of initial grant receipt, the transaction is viewed as a sale and all applicable steps are followed.

Death

  • Any obligation to repay grant funds terminates in the event of the death of the grant recipient prior to the expiration of the retention period. FHLB must be notified and official documentation to determine the date of death is required (i.e., Death Certificate).

Destruction

  • Any obligation to repay grant funds terminates in the event the property is destroyed/ determined damaged beyond repair through an unintentional act or event (fire, natural disaster, etc.). The homeowner should send documentation sufficient to verify the destruction event and damage to the property.