Notice to Borrowers

State of Oregon

NOTICE TO BORROWERS

REGARDING RECAPTURE PROVISION

Residential Loan Program

Oregon Housing and Community Services Department

(the Approved Lender) is providing mortgage financing to you available through the Department's Residential Loan Program. Your Loan will be funded with the proceeds of tax exempt mortgage revenue bonds issued by Oregon Housing and Community Services Department.

Your qualification for such financing is subject to restrictions contained in Section 143 of the Internal Revenue Code of 1986, as amended (the “Code”). Those restrictions are contained in the Addendum to Residential Loan Application (SFMP 7) and Addendum to the Deed of Trust (SFMP 9A) which you are required to execute.

In addition, Section 143 of the Code imposes on you as homeowner, and on any person who assumes your Loan, an income tax surcharge (the "recapture" tax) in the year that you or your assignee dispose of the home. Factors that influence the actual amount of the "recapture" tax include: (1) the duration of time from the date of Loan closing to the date of disposition; (2) the amount of gain from the disposition of the home; and (3) your "modified adjusted gross income" in the taxable year of home disposition.

This tax applies only if you dispose of your home at a profit ("gain" for tax purposes) over your Acquisition Cost, and only to dispositions that occur in the first 9 years after the date of Loan closing. Further, this tax does not apply to dispositions to a spouse, or to a former spouse in divorce proceedings, by reason of death or, in certain circumstances, involuntary conversion due to fire, storm or other casualty.

The amount of the "recapture" tax increases each year after Loan closing until the fifth year and then decreases each year to zero after nine years. The highest amount of the tax (as a result of the holding period percentage) is in the fifth year and is equal to 6.25% of the Loan's original federally subsidized amount (original Loan balance plus CashAdvantage Home Loan assistance, if applicable). Applicable holding period percentages by year of disposition follow:

CHART ONE

HOLDING PERIOD PERCENTAGES

Year of Disposition / Holding Period Percentage
1st and 9th year / 20%
2nd and 8th year / 40%
3rd and 7th year / 60%
4th and 6th year / 80%
5th year / 100%

In your case, the highest amount of the "recapture" tax is .0625 times $ (your original federally subsidized amount, which is the Loan balance plus 3% assistance, if applicable) which equals $ . In no event, however, may the tax exceed 50% of the gain from disposition of the home.

A pay off of the Loan without a disposition of the home will not release you or your assignee from this "recapture" tax when the home is eventually sold.

Certain families qualify for a reduction or waiver of the "recapture" tax. If in the taxable year the home is disposed of, your "modified adjusted gross income" is less than the following applicable amounts, the "recapture" tax is waived. The "recapture" tax is partially reduced for incomes within $5,000 above these amounts (Example on page 6).

"Modified adjusted gross income" is defined as adjusted gross income for tax purposes, plus any interest received or accrued on investments in tax exempt bonds, less any gain on disposition of the home recognized as income, and not deferred, for tax purposes.

CHART TWO

ADJUSTED QUALIFYING INCOME BY YEAR AND HOUSEHOLD SIZE

(Years are based on anniversary dates. Year 1 is before the first anniversary of your loan closing; Year 2 is on or after the first anniversary but before the second anniversary of your loan closing; etc.)

Bend MSA

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $71,280 / $74,844 / $78,586 / $82,516 / $86,641 / $90,973 / $95,522 / $100,298 / $105,313
3 or more / $82,486 / $86,610 / $90,941 / $95,488 / $100,262 / $105,275 / $110,539 / $116,066 / $121,869

Corvallis MSA (Benton County)

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $78,500 / $82,425 / $86,546 / $90,874 / $95,417 / $100,188 / $105,198 / $110,457 / $115,980
3 or more / $90,275 / $94,789 / $99,528 / $104,505 / $109,730 / $115,216 / $120,977 / $127,026 / $133,377
Targeted / 1-2 Persons / $94,200 / $98,910 / $103,856 / $109,048 / $114,501 / $120,226 / $126,237 / $132,549 / $139,176
3 or more / $109,900 / $115,395 / $121,165 / $127,223 / $133,584 / $140,263 / $147,277 / $154,640 / $162,372

Eugene-Springfield MSA

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $63,022 / $66,173 / $69,482 / $72,956 / $76,604 / $80,434 / $84,456 / $88,678 / $93,112
3 or more / $72,475 / $76,099 / $79,904 / $83,899 / $88,094 / $92,499 / $97,124 / $101,980 / $107,079
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Medford (Jackson) MSA

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $65,198 / $68,458 / $71,881 / $75,475 / $79,248 / $83,211 / $87,371 / $91,740 / $96,327
3 or more / $74,977 / $78,726 / $82,663 / $86,796 / $91,136 / $95,692 / $100,477 / $105,501 / $110,776
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Portland-Vancouver-Hillsboro MSA

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $84,308 / $88,524 / $92,950 / $97,597 / $102,477 / $107,601 / $112,981 / $118,630 / $124,562
3 or more / $96,954 / $101,802 / $106,892 / $112,237 / $117,849 / $123,741 / $129,928 / $136,425 / $143,246
Targeted / 1-2 Persons / $88,200 / $92,610 / $97,241 / $102,103 / $107,208 / $112,568 / $118,196 / $124,106 / $130,312
3 or more / $102,900 / $108,045 / $113,447 / $119,120 / $125,076 / $131,329 / $137,896 / $144,791 / $152,030

Salem MSA

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,642 / $65,774 / $69,063 / $72,516 / $76,142 / $79,949 / $83,946 / $88,144 / $92,551
3 or more / $72,038 / $75,640 / $79,422 / $83,393 / $87,563 / $91,941 / $96,538 / $101,365 / $106,434
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Curry County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $64,680 / $67,914 / $71,310 / $74,875 / $78,619 / $82,550 / $86,677 / $91,011 / $95,562
3 or more / $75,460 / $79,233 / $83,195 / $87,354 / $91,722 / $96,308 / $101,124 / $106,180 / $111,489
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Gilliam County

Hood River County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $80,760 / $84,798 / $89,038 / $93,490 / $98,164 / $103,072 / $108,226 / $113,637 / $119,319
3 or more / $94,220 / $98,931 / $103,878 / $109,071 / $114,525 / $120,251 / $126,264 / $132,577 / $139,206

Lincoln County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $63,875 / $67,069 / $70,422 / $73,943 / $77,640 / $81,522 / $85,599 / $89,878 / $94,372
3 or more / $73,456 / $77,129 / $80,985 / $85,035 / $89,286 / $93,751 / $98,438 / $103,360 / $108,528

Linn County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,842 / $65,984 / $69,283 / $72,748 / $76,385 / $80,204 / $84,214 / $88,425 / $92,846
3 or more / $72,268 / $75,882 / $79,676 / $83,660 / $87,843 / $92,235 / $96,847 / $101,689 / $106,773
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Morrow County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,982 / $66,131 / $69,438 / $72,910 / $76,555 / $80,383 / $84,402 / $88,622 / $93,053
3 or more / $72,429 / $76,051 / $79,853 / $83,846 / $88,038 / $92,440 / $97,062 / $101,915 / $107,011

Sherman County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,622 / $65,753 / $69,041 / $72,493 / $76,118 / $79,923 / $83,920 / $88,116 / $92,521
3 or more / $72,015 / $75,616 / $79,397 / $83,367 / $87,535 / $91,912 / $96,508 / $101,333 / $106,400

Umatilla County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,600 / $65,730 / $69,017 / $72,467 / $76,091 / $79,895 / $83,890 / $88,084 / $92,489
3 or more / $71,990 / $75,590 / $79,369 / $83,337 / $87,504 / $91,880 / $96,473 / $101,297 / $106,362
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Wasco County

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Non-Targeted / 1-2 Persons / $62,902 / $66,047 / $69,350 / $72,817 / $76,458 / $80,281 / $84,295 / $88,510 / $92,935
3 or more / $72,337 / $75,954 / $79,752 / $83,740 / $87,927 / $92,323 / $96,939 / $101,786 / $106,875

All Other Non-Targeted Area (Douglas, Grant, and Tillamook Counties)

All Other Targeted Area (Baker, Clatsop, Coos, Crook, Douglas, Harney, Jefferson, Josephine, Klamath, Lake, Malheur, Union, Wallowa, and Wheeler Counties)

Area / Household Size / Year 1 / Year 2 / Year 3 / Year 4 / Year 5 / Year 6 / Year 7 / Year 8 / Year 9
Targeted / 1-2 Persons / $75,120 / $78,876 / $82,820 / $86,961 / $91,309 / $95,874 / $100,668 / $105,701 / $110,986
3 or more / $87,640 / $92,022 / $96,623 / $101,454 / $106,527 / $111,853 / $117,446 / $123,318 / $129,484

Figures in Chart Two are based upon statewide and area median incomes effective 3/06/2015.
RECAPTURE EXAMPLE

Details with respect to this "recapture" tax are available from a tax adviser. The IRS Form 8828 provides additional details for "recapture" tax calculations. The following example is provided as general information to assist your assessment of the "recapture" tax impact.

These Example figures are hypothetical: Home is located in Marion County in a non-target area; $189,000 federally subsidized amount; sellers' income at time of sale is $100,000 with a household size of 4; the home is held 6 years and 2 months; and the gain on the sale is $30,000.

The recapture is the lesser of: 1) one half the gain on the sale; 2) the maximum recapture; or 3) the adjusted recapture. NOTE: If the income at the time of sale falls below the figure on Chart Two, no recapture is due. For the above figures, the recapture calculations are:

1. One half the gain on the sale is: $30,000 x .5 = $15,000

2. Maximum recapture is

$189,000.00 / (original federally subsidized amount)
x .0625 / (maximum recapture percentage)
x .6 / (holding period percentage, Chart One-6 years, 2 months is in year 7)
$7,088.00 / (rounding up)

3. Adjusted recapture for income adjustment is:

$ 100,000.00
minus / $ 96,538.00 / (from Chart Two)
$ 3,462.00
divided by / $ 5,000.00
.692 / round to .69 (adjusted percentage – in no case will the applicable figure exceed 1.0)
$ 7,088.00 / (adjusted recapture is maximum recapture)
times / .69 / (adjusted percentage)
$4,891.00 / (rounded up)

REMEMBER: If the annualized gross household income at the time of sale falls below the amount in Chart Two, by household size and year of disposition, no recapture is due. See IRS Form 8828, "Recapture of Federal Mortgage Subsidy" for additional details.

Acknowledged:
Borrower / Date
Co-Borrower / Date

(Revised 3/18/16)Page 1 of 6SFMP 25