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Temporary Waiver of Methodology for Calculating Replacement Housing Payment for Negative Equity

Attachment A: Other Tools

Other available tools, unaffected by this waiver, include Administrative Settlements as authorized by 49 CFR 24.102(i) and Housing of Last Resort as authorized by 49 CFR 24.404. While extensive discussion of these other tools is beyond the scope of this Memorandum, they are addressed within the documents referenced below. However, the following comments should be considered in evaluating how best to take into account specific facts of a particular situation.

Administrative Settlement

The State DOT may, when appropriate and justified, utilize an "Administrative Settlement" as indicated 49 CFR 24.102(i):

The purchase price for the property may exceed the amount offered as just compensation when reasonable efforts to negotiate an agreement at that amount have failed and an authorized Agency official approves such Administrative Settlement as being reasonable, prudent and in the public interest. When Federal funds pay for or participate in acquisition costs, a written justification shall be prepared, which states what available information, including trial risks, supports such a settlement.

Accordingly, the amount paid for an Administrative Settlement must be documented and justified, and based upon the value of the acquired property, taking into account such factors as valuation information, trial risks, and litigation costs. It is not intended to be a substitute for relocation benefits. Under this waiver, the amount of the Administrative Settlement will not be taken into consideration in determining a RHP, which would otherwise offset funds available to the homeowner to acquire a comparable replacement home.

Housing of Last Resort

The State DOT may, when appropriate and justified, utilize "Replacement Housing of Last Resort". The purpose of Housing of Last Resort is to provide the assistance necessary to ensure that a comparable replacement dwelling is available when no comparable replacement housing is available within the limits specified in 49 CFR 24.401. However, Housing of Last Resort is not intended to be used as a method to provide financial relief to those with negative equity. A comparable replacement dwelling may be "housing of last resort" if there are no comparables available within the specified limits in 49 CFR 24.401. The additional tools under Housing of Last Resort are only available in specific instances where use of Housing of Last Resort is otherwise required for the reasons described at 49 CFR 24.404. These additional tools are incidental to providing a RHP and are not meant to augment the RHP.

Attachment B: Example Calculation

Example 1:

An owner owes $200,000 on the mortgage for a home purchased 3 years ago1. The real estate market has rapidly declined over the last several months. The State DOT needs the property for a project, appraises the property and presents the owner a written offer in the amount of $150,000. The State DOT finds a comparable replacement dwelling on the market for $170,000 because of the market decline. The price differential payment eligibility is $20,000. The owner and State DOT agree to a settlement of $200,000 for the purchase of the property. Normally the $20,000 price differential eligibility is zeroed, per the regulations, because the appropriately justified $50,000 administrative settlement exceeds the price differential eligibility. However, this waiver allows the State DOT to pay $200,000 to the owner to acquire the property and allows the owner to retain the $20,000 RHP as a downpayment on the comparable, provided the remaining requirements of 49 CFR Part 24 are met.

$170,000 (Comparable Replacement Dwelling) $200,000 (Agreement Amount)
- $150,000 (Just Compensation Offer) - $150,000 (Just Compensation Offer)
$ 20,000 (RHP Eligibility) $ 50,000 (Increase-Administrative Settlement)
Normal RHP Payment Determination Waiver RHP Payment Determiniation
$50,000 (Increase-Administrative Settlement) is greater than the $20,000 (RHP Eligibility) resulting in a $0 RHP Payment. $50,000 (Increase-Administrative Settlement) is greater than the $20,000 (RHP Eligibility) so the waiver allows a $20,000 RHP Payment.

Example 2:

An owner owes $300,000 for a home purchased 2 years ago1. The real estate market has rapidly declined over the last several months. The State DOT needs the property for a project, appraises the property and presents the owner a written offer in the amount of $225,000. The State DOT finds a comparable replacement dwelling on the market for $260,000 because of the market decline. The price differential payment eligibility is $35,000. Because a comparable replacement dwelling is not available within the specified limits of 49 CFR 24.401, the comparable is made available under Housing of Last Resort. The owner and State DOT agree to a settlement of $300,000 for the purchase of the property. Normally the $35,000 price differential eligibility is zeroed, per the regulations, because the appropriately justified $75,000 administrative settlement exceeds the price differential eligibility. However, this waiver allows the State DOT to pay $300,000 to the owner to acquire the property and allows the owner to retain the $35,000 RHP as a downpayment on the comparable, provided the remaining requirements of 49 CFR Part 24 are met.

$260,000 (Comparable Replacement Dwelling) $300,000 (Agreement Amount)
-$225,000 (Just Compensation Offer) -$225,000 (Just Compensation Offer)
$ 35,000 (RHP Eligibility) $ 75,000 (Increase-Administrative Settlement)
Normal RHP Payment Determination Waiver RHP Payment Determiniation
$75,000 (Increase-Administrative Settlement) is greater than the $35,000 (RHP Eligibility) resulting in a $0 RHP Payment. $75,000 (Increase-Administrative Settlement) is greater than the $35,000 (RHP Eligibility) so the waiver allows a $35,000 RHP Payment.

1 NOTE: The original purchase price is not a factor in these calculations.

Updated: 04/02/2013
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