1) BMR Agreement Between City and Developer:
During the entitlement review process, a BMR agreement is prepared between the City and the Developer.  Compliance with the BMR program agreement is included as one of the project's conditions of Approval.  Generally, a letter agreement is drafted, signed by the Developer and the Director of Planning and Community Environment and included in the staff report packets sent to the Boards, Commission, and Council decision makers, as applicable.  A final BMR Agreement, in a form that will be recorded against the land, is prepared prior to the final entitlement approval for the project.  This formal document must be executed by the appropriate officers of the Developer and by the legal owners of the land (if different than the Developer).  A consent and subordination to the BMR Agreement is also required from any lender with a secured interest in the land.

Most projects with for-sale housing units will involve a subdivision map application.  In such situation, the formal BMR Agreement is prepared, executed and recorded prior to City approval of the final subdivision map agreement.  The formal BMR Agreement may be a separate legal document or may be incorporated into the text of the subdivision agreement.  The BMR Agreement (both the initial letter agreement and the formal, recorded agreement) will include complete descriptions of the BMR units and will reference the units' floor plans, features, sizes and locations.  The BMR units must also be designated on the site plans that are part of the subdivision map.

2) Sale of BMR Units to a Qualified Purchaser Designated by the City:
The BMR Agreement provides the City with a right to purchase the BMR units from the Developer for the specified below market price(s) at completion of the Project.  The standard practice is for the City to assign its right to purchase to a BMR buyer that has been selected and qualified by our contract program administrator, the Palo Alto Housing Corporation (PAHC).  The Developer does not have the right, or the responsibility to select and qualify buyers for the BMR units.  It is a violation of the BMR Agreement for the Developer to sell a BMR unit directly to a buyer of its own choosing (even if that buyer meets the program's qualifications) without the prior express written consent of the City which would need to include the City's assignment of its legal right to purchase.  After the BMR units' initial sales, as provided in these procedures, the Developer has met its responsibilities regarding the BMR program.  The provisions of the BMR Deed Restrictions, which are enforced by PAHC and the City, control resales of the BMR units.

The sales process begins with the Developer notifying the City and PAHC of its intention to begin the marketing and sales of units in the Project.  The Developer should inform PAHC as early as possible of the amount of the final monthly homeowners association dues because this is a critical piece of information for the buyer information packets and the qualifying process.  PAHC must also be informed when the BMR unit(s) are legally available for binding purchase contracts to be signed.  PAHC selects the buyer for each BMR unit (the "Designated BMR Buyer") according to program preferences (preference for applicants that live or work in Palo Alto), income, asset and household requirements and order on the waiting list.

The Developer must then execute a real estate purchase contract approved by the California Department of Real Estate (DRE) with the Designated BMR Buyer for each BMR unit within two (2) weeks of notice from PAHC of the buyer's selection.  Should the first Designated BMR Buyer not be able to obtain financing or close escrow for whatever reason, PAHC shall provide a substitute buyer, or buyers, as necessary.  The Developer shall execute a purchase agreement with any number of substitute buyers designated by PAHC as necessary in order to sell each BMR unit to a qualified buyer.

3) Comparability of BMR Unit, Features and Upgrades:
Except as provided in the BMR Agreement and related official correspondence from the City, the design, construction, materials, finishes, windows, hardware, light fixtures, landscaping, irrigation, appliances, and like features of each BMR unit shall be comparable to all other units in the Project.  The owner of each BMR unit shall have access to all facilities, amenities, parking and storage as will be available, or provided, to owners of other units in the Project.  Each Designated BMR Buyer shall be offered the opportunity to select colors, finishing materials, add-ons, upgrades or other features on the same terms and pricing as buyers of market rate units.  However, the cost upgrades, contracted for by a Designated BMR Buyer must be shown separately in the purchase contract and escrow statement and not added to the purchase price of the BMR unit because of the limitation on the BMR unit's price in the BMR Agreement.

4) Inspection & Acceptance of BMR Unit(s):
Representatives of the City and PAHC shall be allowed to inspect each BMR unit, and a sample of the other units in the Project, immediately prior to issuance of a certificate of occupancy, or final approval of the building permit by the City's Building Division in order to determine that each BMR unit meets the standards of construction and finishing as required by the BMR Agreement.  This inspection is independent of the City's inspections for Building Codes and other Planning Conditions.  The City shall specify in writing any deficiencies in the BMR unit(s) and such deficiencies shall be corrected by the Developer to the satisfaction of the City within 2 weeks of receipt of such notice or by such other deadline that is acceptable to the City.   Prior to close of escrow on the sale of each BMR unit, the City Manager, on behalf of the City of Palo Alto, shall execute a "Certificate of Acceptance".  This document, which is the City's official approval and acceptance of each BMR unit, shall be recorded as an exhibit to the Grant Deed from the Developer to the Designated BMR Buyer, as described below.

5) Recording of Documents:
Prior to close of escrow for each sale, the Developer must execute the Grant Deed that will transfer title of each BMR unit from the Developer to the Designated BMR Buyer.  Also, prior to closing PAHC obtains the Designated BMR Buyer's signature on the City of Palo Alto Below Market Rate Deed Restriction (the "BMR Deed Restrictions") and the City executes the "Certificate of Acceptance".  After these documents are properly executed, PAHC transmits them to the Escrow Agent.  The Developer shall instruct the Escrow Agent to attach both the Certificate of Acceptance and the BMR Deed Restrictions as exhibits to the Grant Deed prior to its recording.  The Developer shall also instruct the Escrow Agent to reference these documents on the face of the Grant Deed in the manner specified by PAHC.  In general, the Developer shall cooperate fully with the City, PAHC and the purchaser in the escrow process.

The City may develop new or revised legal documents (including revisions to the BMR Deed Restrictions) in order to secure its BMR deed restrictions and implement the program's goals and objectives.  The Developer agrees to assist the City as necessary in the closing and recording of the City's BMR documents.

6) Provision of Project Information:
The Developer, and its sales and marketing agents, shall cooperate fully with the City and PAHC to accomplish the sale of each BMR unit to a Designated BMR Buyer.  The Developer, or its sales agent, shall provide to PAHC, (for distribution to interested BMR purchasers) all sales information and services normally provided to prospective purchasers including, but not limited to:

• Copies of sales brochures including unit plans with square footages, descriptions of standard and optional features & price lists for optional features;
• Information and documentation, as required by State law, regarding the condominium association, the association dues or fees, association by-laws and an estimate of real property taxes including any special assessments or bond costs;
• All warranties, guarantees and insurance as are provided for the market units in the Project;
• Completion of "punch list" work and performance of repairs on the BMR units, as provided for the market units in the Project;
• Cooperation with PAHC in scheduling and holding an open house(s) specifically for interested BMR purchasers to view and inspect the BMR unit(s).

7.) Representation:
Neither the Developer, nor its sales organization or real estate agent, shall charge any commission or fees to the BMR buyers, or the City, in connection with the sales transaction for the BMR units.  Typically, the BMR buyers are not represented by a real estate agent.  However, if a buyer chooses to be represented by an agent or attorney, the buyer is responsible for the cost of those services.  PAHC is not a licensed real estate agent or broker and does not receive any commission on the sales of BMR units.  PAHC administers certain aspects of the BMR program on behalf of the City of Palo Alto and is compensated under an annual contract with the City for those services.  PAHC staff shall be the primary contact for the developer and Escrow Agent in the sales process for each BMR unit.

8) Seller's and Buyer's Closing Costs:
The Developer is responsible for the payment of closing costs such as transfer taxes, title insurance, escrow and other closing costs typically paid by the seller of residential real property in Palo Alto.  Developers shall pay the following costs in all sales of new BMR units:

• County transfer taxes
• One-half of City of Palo Alto transfer taxes
• CLTA Title Insurance
• Prorated real property taxes accrued prior to the closing date
• Escrow charges and fees

Developer shall provide PAHC information (for inclusion in the information packets sent to the waiting list) describing the estimated amount of typical closing, title, document preparation, recording, ALTA title insurance, share of transfer taxes and other costs that buyers will need to pay at close of escrow.

9) Timing:
The BMR buyer selection and qualification process (from the mailing of information packets to the execution of a purchase contract) takes approximately 5 weeks.  The time period from opening of escrow to closing of the purchase, generally takes 45 to 90 days.  Thus, the total time from initiation of the sales process by PAHC to close of escrow could extend from four to five months.  Close cooperation between the Developer, the Developer's sales agent and PAHC is necessary in order for the process to proceed smoothly.

10) Waiting List for BMR Ownership Units:
PAHC maintains a waiting list of persons interested in purchasing BMR ownership units.  The waiting list is used for the sales of both new and resale units.  There are usually over 300 households on the list, which is updated annually.  Past experience has shown a strong demand for BMR units from qualified waiting list buyers, especially for newly constructed BMR units.  However, if a buyer cannot be found from he waiting list, PAHC advertises the unit directly to the public in order to find qualified buyers.  For a project with a larger number of new BMR units becoming available at the same time, PAHC and the Developer may undertake a special advertising and marketing effort while the project is under construction to recruit a sufficient pool of qualified BMR buyers.

11) Sales Process:
The following steps describe in more detail the general process involved in selecting and qualifying a buyer for each BMR unit.

a) The Developer provides PAHC with a schedule for completion of construction of the Project and an estimated date for completion and availability of the BMR units.  The Developer provides PAHC with contacts with its sales staff or real estate agent and with its escrow company.

b) Often a preliminary meeting at the Project site is held prior to completion between PAHC, the City, the Developer, the general contractor and the sales/marketing agent to discuss process and timing, to tour the project and inspect the BMR units and other units.

c) The Developer provides PAHC with all reports and documents required by law including, the condominium reports and documents, preliminary title report(s) on the BMR units, inspection reports and disclosure statements.  Marketing brochures including floor plans of the BMR units with square footages, lists and description of standard optional features with prices for optional features must also be provided.  The amount of the monthly homeowners association dues for each BMR unit is also needed.

d) PAHC prepares an information and application packet about each BMR unit and mails it to all households (this may go to a large number of households) on the waiting list that appear eligible for that size and price of unit.

e) An open house exclusively for prospective BMR buyers is held and the Developer's sales agent cooperates with PAHC to schedule the date and time for this open house.  The Developer's sales agent conducts the open house.  For a very large project, or one completed in phases, more than one open house may be necessary.

f) Interested buyers must comply with several deadlines including submitting a complete application, attending the open house, formally indicating an intention to buy, proving their qualifications for the program (verifying income, assets, household size and Palo Alto preferences) and verifying that they have the down payment funds and can obtain financing to buy the unit.  The selected household (Designated BMR Buyer) for each BMR unit is the household with the highest position on the waiting list who is qualified by income and household size limitations and other criteria and who completes the application process within the specified time deadlines.

g) A number of local mortgage lenders are familiar with the BMR program and offer advantageous financing terms to our buyers.  Lenders must originate and directly fund loans on BMR units.  Mortgage brokers are not permitted to originate loans on BMR units.  As of March 2008, the Palo Alto BMR deed restrictions have not been approved by Fannie Mae or by CalHFA.  PAHC maintains a list of approved local lenders that are familiar with the rules and procedures of the program.  Loan "pre-approvals" are only accepted from these lenders.  However, the buyer may choose another lender to finance the purchase, provided the lender's legal department has reviewed and accepted the City of Palo Alto BMR deed restrictions.  The Designated BMR Buyer usually finalizes their loan application and secures loan approval after being selected by PAHC, although many buyers will have already been pre-approved for a loan.  The typical BMR buyer needs a low down payment loan, but some buyers make substantial down payments.

h) Once PAHC has qualified and designated a buyer, the Designated BMR Buyer and the Developer, or its Agent, meet to negotiate the purchase contract.  The purchase price must not exceed the price specified in the BMR agreement with the City.  The cost of any additional features or upgrades purchased by the BMR buyer must be paid for separately and is not included in the purchase price.  The purchase contract terms should be typical for home purchases in the area such as standard times for obtaining approval of a mortgage and closing escrow, amount of the "good faith" deposit, inspection of the completed unit, division of closing costs, etc.  PAHC staff reviews the purchase contract before and after signing to verify that the contract meets the above terms and guidelines.

i) PAHC coordinates the closing process and the execution of the necessary documents, as described above, with the Escrow Agent.  Often the BMR units are among the first completed sales in a Project.