State and local agencies are turning to buyout programs more frequently in light of multiple disasters occurring repeatedly in the same vulnerable area. This has been particularly true for coastal hurricane-prone states such as Texas, Louisiana, Florida, and North and South Carolina, and more recently California with its rash of wildfire disasters. Buyout programs purchase vulnerable properties with the goal of relocating occupants to safer housing and removing the disaster-prone housing from future risk. Once properties are purchased, the structures are demolished, leaving the properties as permanent open space—thus mitigating future disaster impacts to residents in those areas.
Once your community has determined a buyout program will meet your long-term recovery and mitigation needs, it is important to think through all the steps to implement. Buyout programs can be locally or state funded—or more likely federally funded through Federal Emergency Management Agency (FEMA), the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), or another federal agency. If the buyout is locally or state funded, the guidelines for using these funds will be provided by that entity. If the buyout is federally funded, then compliance with the Uniform Relocation Assistance and Real Property Acquisition Act (URA) must be factored into your program design.
URA is a federal law that establishes minimum standards for federally funded programs and projects that require the acquisition of property or relocating people from their homes. For the purpose of this article, we assume that you are administering a “voluntary” buyout program, meaning property owners are selling their property voluntarily. If the property owner is leasing the property to be sold, then any tenants are eligible for URA assistance. Note: if you are using your eminent domain authority, then this is an “involuntary” acquisition and URA assistance will apply to the property owners as well as any tenants.
What are the different structure, ownership, and occupancy types to consider in determining program design?
Housing comes in many different structures and types of ownership or occupancy. For example, homes can be single family or multifamily, condominiums, townhomes, or co-housing. Structures can be stand-alone or attached. Some home structures are manufactured or mobile homes where the home or land is either owned or leased or a combination of ownership and leasing. Each of these factors will affect the eligibility to purchase a home structure for buyout and can trigger differing levels of URA assistance. Below are some examples of housing structure types, their suitability for buyout, and URA requirements (if any) that are triggered.
Single-family site-built home: One owner
Single-family homes can have one to four units according the HUD’s definition of single-family. The entire structure is usually owned by one person with other units rented. However, there are situations in which the units are all individually owned (more on this below). If the single-family structure has just one owner, then the buyout process is fairly straightforward, requiring a clear title to sell the property.
The owner is voluntarily selling the property and therefore not eligible for relocation assistance under URA. However, if the owner is renting the property or if the property is duplex, tri-plex, or four-plex with rented units, then the tenants are considered involuntarily displaced and are eligible for full URA benefits. As soon as the owner applies to the program, all tenants will need to receive the General Information Notice (GIN) informing them of their URA rights. Failure to properly notify tenants and provide URA assistance can result in an audit finding by the federal agency.
Single-family site-built home: Multiple owners
A single-family home can have multiple owners even if only one owner occupies the home. In order to be able to purchase the property through a buyout program, all owners must agree to and participate in the sale of the property. If all owners do not agree to participate, then the home will be ineligible for a buyout program. If other owners live outside the home, it is possible for them to execute a power of attorney to allow the occupying owner to sell the property on their behalf. Identifying all owners is a critical detail that needs to be identified during the application intake to ensure acquiring a clean title at close on the property and to be able to transfer the property to the unit of local government.
Although there are multiple owners for the property, they have all voluntarily agreed to the purchase of the property and therefore are not eligible for URA. If the buyout property is rented or contains tenants, then the tenants are considered involuntarily displaced and are eligible for full URA benefits. As soon as the owner applies to the program, all tenants will need to receive the General Information Notice (GIN) informing them of the URA rights. Failure to properly notify tenants and provide URA assistance can result in an audit finding by the federal agency.
Single-family manufactured (mobile) home: Home and property same owner(s)
Manufactured or mobile homes are eligible for most buyout programs when both the mobile home and the land the mobile home sits on are owned by the same person. The housing structure and the land are both factored into the offer price for the buyout. If the mobile home or property have multiple owners, then all owners must agree to and participate in the sale of the property. The purchase price will be based on the value of the land and the housing structure.
The owner(s) of the property are voluntarily selling and are not eligible for URA. If the buyout property is rented or contains tenants, then the tenants are considered involuntarily displaced and are eligible for full URA benefits. As soon as the owner applies to the program, all tenants will need to receive the General Information Notice (GIN) informing them of the URA rights. Failure to properly notify tenants and provide URA assistance can result in an audit finding by the federal agency.
Single-family manufactured (mobile) home: Home owned, property leased
A typical scenario for persons living in manufactured (mobile) homes is that they own the housing structure but lease the land where the mobile home is located. An example may be where the housing structure is owned by a relative of the property owner and leases the portion of the land where the housing unit sits. This scenario does not lend itself to a straightforward buyout. A buyout requires obtaining both the housing structure and the land so that after the purchase of the property it can remain as open space into perpetuity. Depending on the relationship of the housing structure owner and the property owner, there is the potential for them to apply together to sell the housing unit and land with an agreement to split the proceeds. However, this scenario does not work where the housing structure is located in a mobile home park with small, leased lots.
If the owner of the housing unit and the land jointly apply to sell together through the buyout program, then both are considered voluntary and not eligible for URA. Although the owner of the housing structure is leasing the land, the owner will not be treated as displaced if they jointly apply for buyout with the property owner. If the property owner applies to the program without the housing structure owner, then the housing structure owner would be considered displaced and would be eligible for full URA benefits.
Mobile home park participates in buyout program
A mobile home park is generally privately-owned property that has been divided into multiple small lots, which are then rented or leased to mobile homeowners. If the buyout policy allows mobile home parks to apply for the buyout program, which is a common practice, the property owner is able to sell the land. But if the mobile homes are owned by the lot tenants, then the mobile home park cannot sell the units. The mobile homeowners who are renting lots will be considered displaced tenants.
In this scenario, the fact that the mobile home is owned does not keep the occupants from being considered tenants. The occupants are renting the lot where their home sits and therefore the occupants are tenants. When the property is sold, the tenants will be displaced and will be eligible for full URA benefits. URA is somewhat flexible in assisting tenants who relocate. In the case of a mobile home that can be moved, URA can pay for moving the unit to a new location. The mobile homeowner will have the option of either 42 months of lot rent assistance or taking that assistance to put toward the purchase of a property to place the mobile home. URA professionals will be able to advise the mobile homeowner of their options and help them with the best solution for their needs.
Multifamily housing: One owner
Housing structures with more than five units are considered multifamily. It is not uncommon for one person or entity to own all the units, which are then used for rental property. If the program allows for multifamily housing units to apply, then the owner of the property would apply for all the units and the property to be purchased together with the land. After purchase, the housing units will be demolished, and the property left as open space.
This scenario requires extensive URA consultation with the tenants to determine comparable housing and arrange for all tenants to be relocated prior to purchasing the property. It is possible that comparable housing will exceed the URA limits, which now stands at $7,200 for 42 months of assistance. If this is the case, you will have to take the additional step of locating “housing of last resort,” This means that comparable housing cannot be found that meets the $7,200 limit and to adequately ensure that the household is not paying more than 30% of their monthly income toward housing, so additional funding will be added that covers the last resort housing costs.
Multifamily housing: Multiple owners
Multifamily housing can also have multiple owners. For example, condominiums and townhouses may have multiple joined units of housing that are each individually owned. These types of properties are generally not eligible for buyout programs because it can be a very lengthy and difficult process to get all owners to agree to sell. Another challenge is determining adequate appraisal values as some aspects of ownership likely include common areas. If the program allows these types of housing structures to apply for the program, there is a need to have all owners apply at once so that the program can ensure the ability to purchase the entire property and all structures.
If all owners agree to voluntarily sell their property to the buyout program, then these owners will not be eligible for URA. If any of the property owners are renting these units, then the tenants are considered involuntarily displaced and are eligible for full URA benefits. As soon as the owner applies to the program, all tenants will need to receive the General Information Notice (GIN) informing them of the URA rights. Failure to properly notify tenants and provide URA assistance can result in an audit finding by the federal agency.
Comprehensive policies are critical for URA compliance
Buyout programs are complex and require extensive planning for all the different scenarios that are likely to come up in the course of implementation. Developing comprehensive disaster mitigation policies that clearly identify the types of structures eligible to be purchased and eligible ownership requirements will be critical to establishing a robust program. It’s important to always factor URA into your program. Any property that has a tenant—through either leasing the housing unit or the property—will be required to provide full URA benefits, which can include moving and storage expenses and compensation for comparable replacement housing.
With proper planning and expert guidance, you can set your buyout program up for success—providing residents with safer housing while mitigating risk throughout the community.