A costly design flaw in Denver affordable housing program
In 2016 you bought your dream home. You settled in, painted the walls, planted some flowers, and started a family. It’s a work in progress but you love your home. Imagine the shock you feel when you open a letter from the City of Denver telling you that you were not qualified to buy the house. You must now sell it for less than you bought it and move out within six months.
That’s basically what happened to Juan Carlos Penalver and other homeowners who bought designated “affordable” homes in the Green Valley Ranch area. Homeowners unknowingly purchased income-restricted homes at market price and now must prove income eligibility or sell at below market price. Owners stand to lose tens of thousands of dollars in equity and the place they call home. In Penalver’s case, he and his wife will lose at least $9,000 in cash, the difference between the price they paid for the home and the price they would have to sell it.
How did this happen? Mistakes occurred because declarations explaining the income/price restrictions were not listed on the title commitment or were overlooked by buyers, real estate agents, title companies, and mortgage lenders. No one was the wiser. Potentially hundreds of homeowners bought their homes without any knowledge of the restrictions or that they were ineligible to make the purchase.
Denver’s Office of Economic Development (OED) is trying to restore the integrity of its affordable housing program, which has about 1,500 properties across the city. The Green Valley Ranch homes are under income and price restrictions for the duration of 20 years. The city sent letters to homeowners violating income restrictions and other regulations back in January. The office has since offered homeowners the “opportunity to return the home to compliance” by participating in the Compliance Resolution Program (CRP). This harmless-sounding resolution means homeowners must prove income eligibility or sell their homes by the end of the year at below market prices, even if it means taking a financial loss. Participation in CRP is voluntary in a “your money or your life” sort of way. Homeowners who do not comply will likely be investigated and “subject to further legal recourse,” according to the latest OED letter.
This enforcement action seems to violate one of the four tenets of rule of law that laws be “fair, publicized, broadly understood (and) stable” in the words of the World Justice Project, an organization founded by American Bar Association Commissioner William Neukom. The rules of this affordable housing program were not well publicized or understood. Buyers didn’t know. Professional real estate agents, title company specialists, and lenders missed it. Even the original sellers may not have understood the details of the program or had forgotten they had taken part in it when they bought the home new years ago.
The lack of a clear mechanism for informing parties of the program’s restrictions is clearly a design flaw. Unfortunately, it’s a design flaw that disproportionally impacts the lives of hundreds of homeowners who did not know of or intend to break the rules.
While it is understandable that the city is trying to enforce rules governing its affordable housing program, it is doing so by penalizing people who did not knowingly break the law. The City of Denver needs to find a solution that does not force homeowners to lose house and home. There is more at stake than achieving program compliance.