Denver has a new strategy to keep track of a troubled affordable housing program: City staff will personally attend future sale closings for the 1,302 homes that are intended for people with lower incomes.
The new strategy is a reaction to this year’s revelation that the owners of 306 properties were potentially breaking the rules of Denver’s affordable housing program. The homes were only supposed to be sold to people with low-enough incomes, but a new auditor’s report released Thursday shows that they slipped through cracks in city processes.
Auditor Tim O’Brien’s team found that the city’s Office of Economic Development was “not ensuring housing affordability.” Among other shortcomings, the office failed to properly check people’s income for the program and recently failed to correctly monitor federally funded rental projects.
Some buyers were unaware that they had violated income restrictions when they bought their homes, which were built under the city’s old affordable housing law. Others were flouting the rules by renting out the properties, and others were simply missing paperwork.
So far, the city has cleared up about half the cases. In most of those cases, the solution was simply to add or fix documents. But about 30 people also agreed to sell their homes to qualified buyers; those owners exceeded income limits when they originally bought the homes.
The changes
The Office of Economic Development has promised reforms to keep better track of the program, including:
- Consider creating a new “secondary” deed that will make it easier to keep track of restricted homes
- Update the city’s patchwork property software into a “more robust data management system”
The office already has expanded its housing compliance team from one to seven people and launched a “resolution” program to work with homeowners.
The findings
In its report, the auditor found that the economic development office failed to catch mistakes and missing documents for some homes.
For example, there were errors in calculating the maximum sale prices for eight of 19 homes in one sample, according to the report. As a result, the price limit for one home was set $5,700 too low, potentially shortchanging the owner. “We determined that these errors occurred because the Office of Economic Development lacks a review process,” said audit supervisor Jared Miller.
The audit also found errors in the documents that ensure new buyers are aware of the program. In eight from a sample of 21, there were misspelled names, mis-categorizations or missing numbers.
The report suggested that the city consider introducing a new legal document for the sales, known as a secondary lien, that would make the restrictions more obvious to buyers and to the city. The economic development office is working now to do so.
“It’s an extra protective layer so that the homeowner knows they’re buying an affordable home,” said Eric Hiraga, executive director of the Office of Economic Development.
The office also failed to ensure that people could actually afford their new homes. The office was not checking whether housing costs would exceed 30 percent of a family’s income, as required.
And, more recently, city staff didn’t complete required annual checks of federally funded rental projects, according to the auditor’s report. That mistake was a result of the recent reorganization of the office, staff said. “During that time we missed the annual re-certification,” said Doug Selbee, acting chief housing officer.
The office agreed to fixes for all of the auditor’s points.
What’s next?
The Office of Economic Development’s leadership said the findings were “important,” and that the office already had identified some of the problems.
“From Day One one of my tenure, I have focused on improving our operating standards across the organization,” Hiraga said in a meeting with the city’s audit committee Thursday. “…We are committed to being the best stewards possible of the Denver home-ownership program.”
Hiraga has led the economic development office for about 15 months — coming in only a few months before the long-running problems became public. The questions came to light in part because of news reports on the case of Cynthia Lopez, who didn’t know she was in the program until she tried to sell her home.
“We depended on our private partners, whether it’s the title companies, title insurance, real estate agents to help enforce (the rules),” Hiraga said. “Since that point, we are doing everything we can to strengthen the … language in the covenants, educate the communities, educate the people buying the affordable homes.”
But the problem still isn’t resolved for some homeowners.
Mark Eggert and his wife bought a home in 2015 for $213,000, but learned this year from a city letter that it was part of the affordable housing program. Because of the program’s limits, they can only sell it now for $220,000 — a much smaller gain than the market-rate investment they thought they were making, he said on Thursday.
They’ve agreed to work with the city in a resolution program, since they aren’t income qualified for the program, but haven’t heard anything further, he said. The city has offered one general option for people like them: They can stay in their homes indefinitely, but they will have to sell to an income-qualified buyer at a limited price.
“There is no real solution right now,” Eggert said. “The only option would be to sell at the affordable housing limit. We’re kind of stuck, where we have to stay in our house and just continue to kind of live until a decision is made.”
Attorney Rob McGough said that he had about a dozen clients enroll in the resolution program, but none have yet seen any progress — unless they dealt with the problems with their sellers or other parties.
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“I don’t know what it is. There hasn’t been any effort on the part of the city to reach out to me on behalf of my clients,” he said. “It seems like once again they’re relying on the homeowners to do all the work.”
Derek Woodbury, spokesman for the Office of Economic Development, said the resolution program was still underway.
Meanwhile, the city also is taking a harder edge for other “flagrant violations,” Woodbury said.
The city recently sent out notices of violation to five property owners that initiates a more intense legal process that could end in district court. That tougher enforcement will focus first on people who “knowingly bought affordable homes to rent for profit,” Hiraga said.
“The whole objective is to maintain the integrity of the program,” said Rick Padilla, director of housing compliance. In some cases, he said, “we have to take a more aggressive approach.”
