Hundreds of Denver residents will soon get mail from the city telling them that they may be living in homes they shouldn't — and asking for their cooperation.
Office of Economic Development spokesman Derek Woodbury said at a Friday press conference that the city would attempt to find "remedies" for each affected homeowner in hopes of bringing them back into compliance with the affordable homeownership program’s original terms.
Woodbury said forcing homeowners to sell their homes could be among those remedies, but he couldn't say for sure if it would come to that.
Woodbury said the city of Denver started sending notices out to residents of 306 properties that have been flagged for having potential violations of the rules in the affordable homeownership program. These people may have occupied homes even though they didn't meet the income restrictions for the houses.
These resolutions are being sent instead of city violation notices; since this is a problem the city hasn’t faced before, Woodbury said the city decided to bypass the usual violation notice process.
The packages include a request to participate in a compliance resolution program, which Woodbury said will give property owners six months to work with the OED to come in compliance with the original terms. Residents will get the packages within the next few days.
The city has added six people to its compliance staff — it used to be just one person. Each case will be looked at individually and, the city hopes, with cooperation with the homeowners.
Properties in the low-to-moderate income homeownership program are concentrated in Green Valley Ranch, Montbello and Stapleton. There are 1,302 total units in all, Woodbury said. Each one has "covenant restrictions," which are legally binding documents that outline what can and cannot be done in each property.
"Denver absolutely wants people who need and are eligible for affordable housing to stay in their homes and our office wants to, at the same time, work to ensure the preservation of these units as well," Woodbury said.
Woodbury said some people may say the city could have done more to monitor these properties, but it comes "at a cost with resources and staff" involved.
"We have covenant restrictions on each and every one of these 1,302 properties, and in our mind's eye we have fulfilled our obligations under the ordinance as far as monitoring for those units, in terms of mailings that we have sent out to confirm the ownership and occupancy of those units," Woodbury said.
Though there was federal money involved in this program, the U.S. Department of Housing and Urban Development isn't planning on getting involved at the moment.
“They’re looking into if they need to look into this further in our community planning and development office. For now, we’re saying this up to the city,” said Christine Baumann, a spokeswoman for federal Housing and Urban Development’s regional office.
The properties flagged for non-compliance fall into three categories.
Woodbury broke down three main categories of houses in noncompliance for the homes, saying each case is unique. This means those resolutions the city wants would vary from person-to-person. The possible violations for the 306 properties include:
- Affordability is not in the paperwork or deed (196 households).
- Difference in mailing address (86 households).
- Illegal transfers of the deed (24 households).
The violations exist across seven city council districts in the city, though Woodbury said there’s a concentration of them in northeast Denver.
“Our intent is not necessarily to put deserving homeowners out of their homes, but our intent is also at, the same time, to preserve these affordable units as well,” Woodbury said.
Woodbury added that he knows there are individuals who were unaware of the restrictions. But the city said that there are likely some intentional bad actors, who they want to hold accountable.
“We clearly know that there’s others that are trying to cheat the system, if you will,” Woodbury said.
He repeated said that the city will need to look at each issue on a case-by-case basis. Depending on the situation, the city may request information like a asking for income qualification to ensure compliance.
"Because each case is different, there's no real one solution," City Attorney Kristin M. Bronson said. "But obviously, through a compliance resolution program, our hope is that everybody will come into compliance,"
One example: Transferring a deed to an LLC could be done as part of estate planning purposes. In these cases, that would be a violation of terms, and the solution would be transferring the property back to the homeowner.
Bronson mentioned possible repercussions for people who tried "cheating the system." She said that won't be the vast majority of property owners.
"We have seen that in the past," Bronson said. "In the event of that, we would need to, we would be wanting to — we wouldn't let them get away with that."
"That is not our expectation, that we're going to find rampant fraud or any of those concerns, but even one case cause concern for us and we do need to look at each case carefully," Bronson said.
Mayor Michael Hancock sent letters to state and private agencies requesting reviews of best practices.
Woodbury said there are "systematic failures" that needed to be addressed that are related to the situation — and involve, to some extent, things that were out of the city's hand.
Bronson said one of the reasons this entire situation happened was because the housing terms weren't brought up -- intentionally or not -- by people involved in transactions. These terms weren't raised by anyone involved; Bronson said it's not really clear who should have raised those concerns (the seller or title insurance, for example).
Addressing those additional concerns is why Bronson said Hancock has sent out appeal letters to the state Insurance Commissioner and the Land Title Association of Colorado.
Bronson said the letters are "a request to try, to get them to review the best practices and due diligence efforts on title insurance companies, as well as real estate brokers, that are involved in these transactions involving affordable homes."
"If our market is working correctly, this affordable housing program works," Bronson said. "The problem is we have folks at closing tables that may or may not have complete information and unfortunately, we have title companies that are not properly identifying these types of encumbrances on property."
