The PeopleTrust Shared Appreciation Program was created to provide a long-term mechanism for implementing, supporting and providing funds for certain public purposes and benefits that derive from PeopleTrust’s community vision and goals. PeopleTrust is a Texas nonprofit 501(c)(3) tax-exempt corporation.
Why Shared Appreciation?
PeopleTrust, in conjunction with private and public partners, makes homes affordable to buyers now and into the future. In an effort to provide funding for long-term affordability, PeopleTrust utilizes a shared appreciation approach which is secured by a second lien and purchase option.
This approach allows the homebuyer to realize appreciation on his or her investment, while providing that PeopleTrust also realizes appreciation, on the assistance provided, to support the long-term benefit of affordability. Upon the re-sale of the home, the shared appreciation mortgage fairly allocates between the original homebuyer and PeopleTrust any increase in value of the home. This sharing will help fund the protection of home affordability for future generations of buyers.
The Program
Shared Appreciation
A home is typically a good investment because the home’s value can increase over time. When the day comes that a homeowner decides to sell his or her home, it may have appreciated in value resulting in a sales price higher than the original purchase price. The PeopleTrust Shared Appreciation Program is designed so that the homeowner will benefit from any appreciation over the price he or she paid for the home. However, because the price paid was less than the market value of the home, the PeopleTrust Shared Appreciation Program also requires that the homeowner, upon sale of their home, i) pay PeopleTrust the difference between their initial purchase price and the market value as well as ii) share a portion of the increase in value (appreciation gained) on a proportional basis with PeopleTrust. PeopleTrust’s portion of the shared funds will be used to assist other income-qualified homeowners and homebuyers in purchasing homes. It also will support other programs that provide assistance for affordable housing in our community consistent with the PeopleTrust vision.
How the Program Works
The amount of PeopleTrust’s contribution is established at the time of the initial purchase of the home at PeopleTrust. The amount is calculated by subtracting the fair market appraised value at the time of the initial sale from the actual initial purchase price of the home. When the home is resold, PeopleTrust’s contribution is recaptured from any gain, and any additional increase in equity is partially shared between the homeowner and PeopleTrust.
At the closing of the sale of the owner’s home to another buyer, the title company will be responsible for making sure that everyone is paid correctly. In accordance with the purchase agreement and the legal documents:
- The title company will first pay the transaction costs and then, out of the Funds from Resale, the homeowner’s primary mortgage.
- The title company will then pay the homeowner back its equity invested out of the Funds from Resale.
- Then the title company will pay the second lien held by PeopleTrust out of the Funds from Resale.
- The amount left over is the appreciation that will be shared between the homeowner and PeopleTrust.
The sharing of appreciation in many ways is like a partnership — PeopleTrust partners with the homeowner to buy the home. When the homeowner sells the home the profit is shared with PeopleTrust in exchange for the assistance received when the homeowner initially purchased the home.
Other Considerations
The funds from resale of the home are defined as the greater of the actual sales price or the appraised value in order to determine the true value of the home. This helps ensure PeopleTrust receives its fair proportion of appreciation in connection with any sale, and helps prevent abuse of the Program.
Homeowners cannot rent their homes for investment purposes.
PeopleTrust has a First Right of Refusal to purchase the home. Should the homeowner need to sell it during the first year of occupancy, PeopleTrust’s purchase price is the amount that was paid for the property, the initial affordable price. After the first year of occupancy, PeopleTrust may repurchase the home at the then appraised value.
Refinancing (without PeopleTrust’s consent), renting out the house or defaulting on the primary mortgage may cause PeopleTrust’s contribution to become due and payable, and may also trigger PeopleTrust’s First Right of Refusal.
