Policy Name: Sweat Equity (SE) Credit

Domain: SHOP Program

Date of Adoption: February 21, 2012

Effective Date: February 21, 2012

Date(s) of Revision: June 27, 2012

Reference: SHOP Unit Sale Price Policy, Sweat Equity (SE) Labor Agreement Policy, Sweat Equity (SE) Valuation Policy

Sweat Equity (SE) Credit definition: The method by which the SE Value is provided to the homebuyer at closing as a cost reduction for the completed unit. The SE Credit may never be liened or otherwise restricted upon future resale.

Affiliate must reduce the total cost of the completed SHOP-funded unit by the homebuyer’s SE Value (see SE Valuation Policy), after meeting the first requirement that the SHOP Unit Sale Price is set below Prevailing Market Price (See SHOP Unit Sale Price Policy). Total liens to the homebuyer may not exceed the SHOP Unit Sale Price less the homebuyer’s SE Value (plus customary closing costs and prepaids). Acceptable means to assure transparent documentation that a homebuyer receives their full SE Value as an equity contribution towards the purchase of the homebuyer’s SHOP unit must be provided. Affiliate must determine which SE Valuation and Credit methods will be used prior to homebuyer purchase and this must be addressed in the SE Labor Agreement (See SE Labor Agreement Policy).

The following are accepted methods of providing SE Credit:

1.  HUD-1 Credit: The SE Value reduces the total homebuyer cost for the completed unit below the SHOP Unit Sale Price through a credit to the homebuyer at closing on the HUD-1 Settlement Statement.

·  May be listed as “Sweat Equity Credit” (preferred), or when homebuyer lender requirements dictate, may be listed as “Seller Credit” or “Credit”

2.  Sale Price Reduction: The SE Value reduces the total homebuyer cost for the completed unit below the SHOP Unit Sale Price through a reduction by of one of the following methods:

a)  Stipulation within the homebuyer’s SE Labor Agreement that the Purchase Price initially set forth within the Purchase and Sale Agreement reflects a reduction in the amount of the SE Value

OR

b)  Stipulation within a “SHOP Supplement to the Labor Agreement” that the Purchase Price initially set forth within the Purchase and Sale Agreement reflects a reduction in the amount of the SE Value

OR

c)  Addendum to or language within the homebuyer’s Purchase and Sale Agreement further reducing the Purchase Price by the SE Value

Note regarding CLT/Limited Equity Cooperative transactions:

The SHOP Unit Sale Price (commonly referred to as ‘base price’) at closing that will be used for the equity share formula at resale must include the SE Value, regardless of which SE Credit method is used. In the event an incrementally forgiven subsidy is used, documentation must be clear that the unforgiven portion of said subsidy will be included in the base price for the equity share resale formula.

Sweat Equity Credit Policy (Rev. 2/21/2012)