Frequently Asked Questions
Answers relate to the CLT model rather than specifics within Garfield as our organization is still being developed.
How does a CLT get its funding?
During the early years CLTs rely on things like grants from foundations, individual donations, and funding from federal, state and local government sources to cover their start-up and operating. Once their holdings reach a substantial scale, some CLTs have been able to generate enough revenue internally (via ground lease fees, lease re-issuance fees, membership dues, and fees for service) to cover most of their stewardship responsibilities, especially the cost of monitoring and enforcing the occupancy, eligibility and affordability controls that encumber a CLT’s housing.
Where does a CLT get its land and houses?
CLTs acquire land in three ways. (1) They purchase land at its market price using funds they receive from public sources or funds that are donated or loaned from private sources (i.e. foundations, individuals gifts or financial institutions) (2) CLTs receive land as a gift from a private donor or the city government (3) CLTs acquire land for a below-market price through a mechanism known as a “bargain sale,” where the seller accepts cash for a portion of the land’s value and claims a tax deductions for the remainder of the land’s value.
What/Who is the “community” in Community Land Trust?
The community in Community Land Trust is most often a geographically designated area. It is up to the members of the CLT to determine where those boundaries are drawn. The CLT is accountable to everyone in those boundaries and everyone within those boundaries can be a member of the CLT.
How is a CLT accountable to the community?
A CLT is responsible directly to its members. Members of the CLT affect the decisions of the CLT through representatives on the board. Some CLTs put larger decisions (i.e. how to use a parcel of land) to a referendum that all members vote on.
What does it mean to be a member of a CLT?
To be a member you must live within the boundaries of the community where the CLT is operating. CLTs are democratic organizations accountable to its membership. How much members are involved in decision making in the CLT is up to the membership. Some CLTs have membership primarily elect a representative board, while others conduct frequent referendums where every member gets 1 vote to make large decisions. Some CLTs have a nominal membership fee. Other CLTs charge no fee and consider every resident within the boundaries of the CLT to be an automatic member.
Who makes up the board of a CLT?
The board of a CLT is made up of three types of representatives: 1) People who live in a CLT house (2) CLT members who live in the community but not in a CLT house. (3) Non-CLT members that represent society at large.
Who gets to buy CLT homes?
Every CLT determines its own priorities for who will be the principle beneficiaries of the CLT’s activities. Many CLTs only sell to people with incomes below a percentage of the Area Median Income or first time buyers.
How do CLT homes remain affordable over time?
CLTs preserve the affordability of homes over long stretches of time through a number of mechanisms.
1) CLTs control the price for which a CLT home can be resold. Every CLT crafts its own resale formula, tailoring it to meet the social priorities of the organization, the social needs of its community, and the economic realities of its real estate market. Regardless of the formula that is used, the sale price is usually lower than the home’s market value. This below-market price is passed on to the next homebuyer maintaining the relative affordability of the CLT home one resale after another.
2) The land on which they are built is protected from fluctuations in land market valuations by a legal ‘asset lock’ that is a fundamental part of a CLT’s structure.
Why does a land trust sell the house but not the land under it?
Retaining ownership of the land accomplishes several goals. First, it means that the buyer does not have to finance the cost of the land when purchasing the home. Second, it ensures that the land trust will have the right to repurchase the home whenever it comes up for sale at the resale formula price. When a person purchases a house from the CLT the specifics of this relationship are defined in the ground lease.
What is a ground lease?
A ground lease is a document the CLT and a homeowner sign that defines the roles and responsibilities of both the CLT and the homeowner. There are two key elements of a ground lease: (1) The purchaser buys the house, but not the land under the house. The land is leased from the CLT. (2) If a homeowner decides to sell their land trust home, the sale price will be based on a resale formula designed to maintain affordability for future owners while providing some equity growth to the seller. The ground lease allows the homeowner secure, long-term rights to use the land. CLT homeowners have exclusive use of the land, and they have full responsibility for the property. The homeowner must pay a nominal lease rate. The lease rates are different for each CLT, but are typically nominal, ranging from $1 a year to $100/month. With all CLTs the ground lease gives the homeowner full use of the land and support services from the CLT. The ground lease is renewable, can be transferred to the family’s heirs, and ensures full rights of privacy.
If I own a CLT house will my equity in the house grow?
Yes. All CLTs use a Resale Formula to determine the max price for which a CLT homeowner can sell the house. This Resale Formula guarantees a growth in equity without allowing home prices balloon in the community.
What is a Resale Formula – and how does it work?
The Resale Formula is a mechanism decided on by the members of the CLT for limiting the inflation of housing prices in the CLT’s community. Typically an initial Resale Formula will be decided on in the community process of building a CLT. After that, the CLT, the board and/or the general membership can adjust the Resale Formula when it’s deemed appropriate. Two examples of resale formulas used by some CLTs across the country are “indexed formula” or a “shared appreciation formula.” In the first, the resale price of a CLT home increases at a rate that is pegged to annual changes in area median income, blue collar wages, consumer prices, or some other index. In the second, the resale price of a CLT home is determined by adding a percentage of the home’s appreciated market value to the price initially paid by the homeowner. For example, if the home appreciates in value by $40,000 between the time of initial purchase and the time of eventual resale, the seller would be paid $10,000 over and above the purchase price if the CLT’s Resale Formula limited the sale price to 25% of the house’s appreciation
Can CLT homeowners make major improvements after purchasing their homes?
Yes. Most CLTs allow, even encourage, their homeowners to make capital improvements to their homes as long as the CLT is notified in advance of the proposed improvement and as long as the improvements are designed and constructed in compliance with local zoning and building codes.
Will the cost of major improvements done to a CLT house be added to the selling price?
Yes. With most CLTs the amount of money a CLT homeowner puts into major improvements to the house (i.e. remodeling the house, adding an addition, modernizing the electrical system) is added to the re-sale price in the resale formula.
How do individuals who want to buy CLT housing obtain financing?
Although homes for sale through a CLT are nearly always more affordable than market-rate housing, very few low-income or moderate-income households will be able to buy a CLT home out of their own savings. They will need mortgage financing. Consequently, CLTs work with local lenders to secure mortgages for their homeowners. Often, banks are more willing to lend to people than they otherwise would have been if they know the potential homeowner has the support structure of a CLT.
What happens if a CLT homeowner defaults on his/her mortgage?
Under the “standard permitted mortgage” used by most CLTs, the CLT must be notified by a lender whenever a CLT mortgage holder is in default. The CLT is then given 60 days to cure the default on the homeowner’s behalf. If the CLT does not cure and the lender proceeds to foreclosure, the CLT is then given an opportunity to purchase the foreclosed building. Even in a mortgage meltdown, the CLT retains ownership of the underlying land. This places the CLT in a strong bargaining position with respect to both the homeowner and the lender.
What happens if CLT homeowners want to resell their homes and move away?
The CLTs often have a preemptive option to purchase any homes that are located upon its land. The CLT may exercise this option itself, purchasing the home and reselling it to another income eligible buyer. Alternatively, the CLT may waive its option to purchase and allow the homeowner to sell her home directly to another income eligible qualified buyer. In either event, the CLT homeowner is obliged to sell the home for no more than the maximum price determined by resale formula stipulated in the homeowner’s ground lease.
Can the buyers of CLT homes become absentee owners, subletting for a profit?
No. Embedded in the CLT ground lease is an occupancy requirement stipulating that a CLT home must be continually used and occupied by the owner as his/her primary residence. Under special circumstances, with prior approval of the CLT, a homeowner may sublet all or part of the home. The duration of this sublet, however, and the amount of rent a homeowner may charge are both controlled by the ground lease (and the CLT).
Will a CLT remove land from the market and just sit on it?
CLTs acquire land specifically for the purpose of developing housing, services and facilities as identified by the community. CLTs are not land conservation organizations. CLTs neither remove land from the development process nor exclude individuals from using the land for residential, commercial or recreational purposes.
Will a CLT remove land and buildings from local tax rolls?
No. CLT homeowner/leaseholders pay property taxes.
Would someone in a CLT house be able to pass the house onto a person of their choosing?
Yes. Often CLTs will include a stipulation in the ground lease that allows for the passage of the house as inheritance to a new owner. The land however, remains the property of the CLT and the new owner would take on the original ground lease.
Who pays the property taxes?
CLT homeowners are typically responsible for the payment of all real estate taxes – on both the home they own and the land they lease. CLT homeowners typically qualify for the same homestead exemptions, rebates or deductions that are made available to any other homeowner, since CLT homeowners have “beneficial title” to their property. Some municipal tax assessors take account of the permanent cap that is placed on the resale price of CLT homes and, accordingly, tax these homes at a lower rate than unrestricted, market-rate homes.
Information in this document compiled from information from the following sources: