Chapter 3: Ownership as a Means of Consumer Control
Home ownership is a dream for many people, but of little interest or even a nightmare to others. Before committing to home ownership, it's important to make sure that ownership contributes to the person's desired lifestyle (e.g., it's usually a poor option for people who like to try new surroundings and have more flexibility). Even when personal preferences and desired lifestyle support a person's goal of purchasing a home, some considerations should be addressed in the planning strategies. But before getting to the "heavy" considerations and the major housing options, it's good to reflect on why people go to all that trouble. Mike Hansen's comments on the following page are very helpful in that regard. Mike lived in apartments for many years but in late November 1993 he moved into his own house.
Deciding About Home Ownership
Deciding who will be the legal owner(s) of a house being purchased by and &Mac218; or for a person with developmental disabilities sometimes requires consideration of many possibilities. The factors may have significant implications concerning obtaining necessary financing, fulfilling individual desires, securing the support of family and friends, and other issues that vary for different people and situations. After reviewing the eligibility requirements of the various programs and services that the individual may need to support him- or herself, consideration can be given to selecting the appropriate party and approach to purchasing and owning the dwelling.
The following considerations may prove useful.
Advantages & Disadvantages of Certain Types of Ownership
- Pride of ownership - it's really the person's house.
- Control over the living environment.
- Equity build up.
- Possible difficulty in coming up with down payment, as well as monthly mortgage payments.
- Potential for needing a great deal of support with the responsibilities of home ownership and home maintenance.
Parent- or Relative-Owned
- Promotes relatives' taking a more active role in the support of a loved one.
- Parents may have greater potential for making a down payment.
- Minnesota law allows for homestead classification for property taxes when property is occupied by an immediate family member. (See page 34.)
- Potential for increased tax liabilities for families if property increases in value or if there are increased assessments.
- Less control by the consumer.
- Extra work for parents due to the responsibility of property ownership.
Ownership is assigned to a "living trust" set up by parents (see Chapter 7 for more details).
- Parents can set aside and protect a portion of their assets for the benefit of their son or daughter who has developmental disabilities, while maintaining their eligibility for governmental programs.
- Laws affecting trusts may change over time.
- Legal expenses are incurred in setting up and maintaining a trust.
- Tax consequences require advice and planning.
Family members and others, including family members of other tenants, set up a corporation to purchase, own, and maintain the housing.
- Potentially the most durable instrument.
- The owners can limit their liability.
- Combined resources can yield greater purchasing power.
- Loss of consumer or family control to a board of directors.
- Red tape and legal expenses are involved in setting up the corporation.
- Less consumer control.
Consumers and/or parents combine resources with others to purchase the dwelling.
- Combined resources yield greater purchasing power.
- Upon the exit of a partner, the remaining partners may be left to support a substantially increased financial burden.
- Loss of consumer and/or family control to other partner(s).
The individual makes the purchase with another party - e.g., parent, friend, housemate, investor - and gradually buys out the other party over time.
- Combined resources yield greater purchasing power.
- Allows the financial obligations of ownership to be achieved gradually.
- Allows the individual to get into a home with less initial expense.
- Control of property by resident may be diminished by the relatively lower equity.
A housing cooperative - a coop - is a group of people organized for the purpose of owning, building, or rehabilitating housing for its members. The group legally incorporates itself and owns all property, as provided in its articles of incorporation and bylaws. A member (shareholder) does not own his or her own dwelling unit; he or she owns a membership certificate that entitles him or her to occupy a dwelling unit and to have a vote in the operation of the corporation. All decisions affecting the coop are made in a democratic manner.
See the section "Nonconventional Approaches to Housing" later in this chapter for more details.
- Opportunity for ownership could occur with less money for a down payment.
- Opportunities for social interaction and integration can be structured based on how the coop is established.
- Costs of upkeep are shared.
- Less individual control over property.
- Tax advantage of home ownership is lost since a coop share is classified for tax purposes as personal rather than real property. (However, for Medical Assistance eligibility purposes, a share of a coop in which an applicant lives would be considered exempt personal property like a home.)
- A shareholder can be "voted out" of a coop by his or her fellow shareholders.
- In "limited equity" coops (see description in this chapter) members do not realize benefits from any increase in the property's value.
Home-Buyer, Home-Ownership Education
Deciding to buy a house can be a complicated decision. The process can be confusing. Other people want to give advice and tell stories about their experience buying a house or working with a lender. Not understanding the home-buying process can prevent many people from even thinking that they can buy their own home.
Home-buyer training is available throughout Minnesota. Through training, people are provided with the information that they need to make sound decisions about their home purchase, as well as to remain successful homeowners. Home-buyer training includes two parts. Education is the part offered by a set of housing professionals in a workshop setting. A group of people interested in learning about home ownership come together for a class. Topics included in the class are: basic "how-to's" of budgeting, saving for the home purchase and after home ownership, shopping for a house, working with different housing professionals, the mortgage application process, different mortgage products, and expectations of home ownership.
The second part of home-buyer training is counseling. Counseling offers the chance for potential home buyers to meet with and work individually with a mortgage loan counselor to determine when they might be ready for home ownership. The counselors help to prepare people for the mortgage loan application by looking at income, credit, debt, savings, and all the necessary documents needed. Counselors will work with people to identify barriers to home ownership and to assist in discovering solutions to overcoming those barriers. Counselors are available to help with credit decision making and procedures to developing a corrective action plan.
Why is home-buyer training an important part of the home-buying process? The housing marketplace is changing rapidly. Mortgage loan counselors and educators keep up to date with the latest information. The classes and counseling can help to de-mistify the process by teaching the facts of mortgage lending and real estate. A potential home buyer gains the confidence to evaluate "how much house" is affordable, so as to be successful in the long term and to go about finding the best house. When consumers are informed and knowledgeable about an investment, they are less likely to walk away from that investment or to be taken advantage of by others.
Home-buyer training provides a path and the opportunity for successful home ownership for potential home buyers throughout Minnesota. Potential buyers increase their knowledge of the home-buying process and the responsibilities of home ownership through education and counseling that is of a consistent quality. Potential home buyers that complete the education will receive a certificate of completion. Many of the quality, preferred mortgage products require the education and the certificate. In addition, to receive many of the down-payment, closing-cost, or entry-cost assistance products, the certificate is required. For a potential home buyer, it is best to take the class before looking at houses or beginning to work with a real estate professional. With the knowledge gained in a class, an informed decision can be made if home ownership is best at this time, some time in the future, or not at all.
Deciding About Housing Structures
Consideration of physical structure is largely a matter of preference and availability of financial resources. For persons who have developmental disabilities, though, other factors are also important, such as opportunities for integration with non-disabled persons, proximity to services, and, for those who also have physical disabilities, accessibility.
Types of Physical Structures in Owned Housing
Duplexes and Other Multiple Dwellings
- Other unit(s) in the structure can be rented to someone responsible for supporting the person with developmental disability.
- Rental income from other units offset some costs of ownership.
- Responsibility for upkeep of both owner's and other tenants' units.
- Relatively high costs of purchase and upkeep.
- Usually, all units must be occupied to meet mortgage payments.
- Rental income may cause problems with income limits for certain social service benefits (SSI, MA, etc.)
- A wide range of locations, styles, and structures is available.
- Privacy is maximized, depending on how many people live in the home.
- Greater responsibility for upkeep.
- Distance between homes may reduce natural encounters with neighbors.
- Often have higher "front end" purchase costs than condominiums.
Condominiums are ownership arrangements in which several households occupy one property (as is the case most commonly associated with rental units) with each dweller owning a housing unit and having an equity in the common areas. Each housing unit is owned solely by its occupant (or by its owner/landlord). Condominiums are built on land that is either owned by the tenants' association, an outside corporation, or is leased to the condo by the land owner. Upkeep on condominiums' building exteriors and grounds is paid for and arranged by an organization of individual owners.
- Condominium owners have more individual control over their dwellings than do coop members.
- Opportunities for social integration may be increased through proximity to neighbors and participation in the owner's association.
- Purchase can be made with less money down than most single-family dwellings.
- Owner does not have the personal responsibility for yard work, snow removal, etc.
- Opportunities for privacy are lessened compared to single family dwellings.
- Owner is responsible for interior upkeep and a share of the costs for upkeep of common areas and exterior.
Who Shall Live in the Dwelling?
Persons with developmental disabilities are living successfully in their own homes in a variety of ways. Some live alone; some live with housemates - who may or may not have disabilities. Sometimes the housemate is paid to provide support to the consumer. However, many persons with disabilities have needs that must be met with live-in assistance. Such assistance is currently being provided to Minnesotans in ways such as:
- A man disabled by a closed-head injury shares a house with a non-disabled man. Each has his own room while the rest of the house is shared equally. The non-disabled man assists his housemate with daily living skills but they are also friends.
- Four men share a two-story house. Two men with developmental disabilities share the first floor while the second floor is occupied by a man with developmental disabilities and a non-disabled man. The latter provides needed support by being in the house overnight and occasionally at other times.
- A young woman with developmental disabilities has gotten the assistance she needs by moving into an apartment with two non-disabled women. The woman with disabilities has developed a peer relationship with her roommates and has been included in activities with their families and friends.
- Two women who have been friends for many years recently purchased a condominium together. One woman has physical disabilities and the other has epilepsy. They provide each other with the assistance they need to live independently.
How Can Integration Be Achieved?
Integration is an important consideration in the selection of housemates as well as the location of the residence. John O'Brien, in his book The Principle of Normalization: A Foundation for Effective Services, outlines different ways in which programs can be structured for people to overcome physical and social isolation.
O'Brien observed that full community membership requires people to be active participants in a variety of individual and group relationships. Persons whose capacities for communication and mobility are limited can and need to be part of a network of relationships with valued people. Some guidelines that promote full community membership include:
Individual support should allow opportunities for participation in community events and activities, such as entertainment, recreation religious services, and so forth.
People shouldn't spend their days in the same area they call home. Except when individual needs or choice dictate otherwise, work or school should take place outside the home in community settings.
People should use generic health care and other services. Only the minimum amount of services consistent with individual needs should be provided within the walls of the home.
Individual supports make social participation a reality, regardless of ability. Inclusion should never be made available to only those who earn it.
Nonconventional Approaches to Housing That Build and Support a Community
Not all approaches to consumer ownership involve the direct purchase of a typical housing unit. Some very beneficial approaches may involve the individual as part of community ownership. Such approaches provide not only personal and economic benefits of ownership but also the social benefits of community memberships. Cooperative housing and co-housing are two models of community ownership.
Cooperative housing is based on a simple set of principles: ownership and control by members, democratic control (one member, one vote), limited equity (individuals cannot take control by purchasing more shares), and limited liability. Cooperative traditions encourage mutual assistance and individual growth. As such, cooperative housing can help to overcome the lack of consumer control in most residential services. It also can help break the patterns of isolation experienced by many people with developmental disabilities who may live in community housing but remain estranged from their neighbors. Cooperative housing has the potential to provide security of tenure, to separate services and housing, and to involve community members with and without disabilities in shared efforts that contribute to friendship.
The people who develop housing cooperatives form a special type of corporation (the "cooperative" or "co-op"). Each member owns one share and has one vote at general membership meetings. The members elect a board of directors from among themselves. In turn, the board may hire a property manager or may contract for the needed services, or the members may manage the property themselves on a volunteer basis.
The cooperative (as a corporation) develops or purchases housing, often with financial assistance or low-cost loans from the government. Nonprofit housing co-ops are often eligible for public assistance with financing provided under municipal, regional, state, or federal housing programs. Members occupy individual housing units based on an occupancy agreement but don't "own" their individual units; rather, they own a share in the cooperative and when they move out they sell the share back.
Housing cooperatives provide important opportunities for members to get to know each other intimately, to work collaboratively on complex projects, to gain an understanding of each others' strengths and gifts, and to decide what kind of a community they want to create. Every inclusive cooperative (i.e., one that has purposely included persons with disabilities) is an experiment in community building and the possibilities for enduring friendship and mutual support among people with disabilities and their neighbors.
In order for inclusive cooperatives to work, several things must be "true":
- There must be a high ratio of people without disabilities to people with disabilities, because it's important for the community to maintain a balance of skills, connections, capacities, and income.
- All members must be people who are willing to share activities, interests, and connections, and to help out in practical ways.
- The cooperative must "take care of business" in terms of finances and cooperative management, and the housing association must provide education and support in these areas.
- Building supportive friendships in an inclusive community must be a conscious effort. Because this is something new, people actually must sit down together and talk about things, make commitments, follow through on those commitments, and stay accountable to each other; and they must celebrate the small victories, the growth of community, and the deepening of friendship.
- It's crucial to remember that communities are built on capacities and gifts, not on limitations, so that effective inclusive cooperatives recognize that everyone has a gift, and they talk about, think about, and celebrate the gifts of the members, especially those who have disabilities.
The cooperative community must develop a sense of shared leadership and shared responsibility if it will meet the inevitable challenges involved in such an enterprise. The organizational and personal tasks that face the community are challenging; and members must face those experiences with a conviction of shared responsibility. Cooperative housing is not a "solution" for the housing and community needs of people with developmental disabilities; it's a means of creating a community that chooses to include them.
The shape of American society is changing. Extended families with multiple generations living within a few blocks of each other, children spending their entire childhoods in a single house, and neighbors who know and actually look out for each other are increasingly rare. Co-housing focuses on recreating some of the positive aspects of traditional community life within modern communities. Typically, a co-housing community includes a number of individual units (apartments, townhouses, or single family homes) clustered around a common space. The common space usually includes a kitchen and a dining room and other leisure areas and is large enough to accommodate all the community members. It's around this space that community life revolves.
Co-housing communities are not communes. Individual units are complete residences, often smaller than average, with the saved space included in the common area. Privacy and individual autonomy are thus preserved. Co-housing is usually a special form of cooperative housing.
Most co-housing communities have several common characteristics: decision-making by consensus using a process designed to involve all participants, intentional design of a positive and livable neighborhood, and focus on community living centered on the extensive common facilities. Management of the co-housing facility involves all the residents.
Each co-housing community approaches community issues differently. Some plan dinners together five days a week, some only two. People can always have dinner in their own homes if they choose. There are no hard-and-fast rules.
Co-housing communities present unique challenges. For one thing, the individuality of each community means the "blueprints" of existing communities may not be of great help to new communities. Creating a model and sorting out the particulars can take years. Group members must find a common vision for how they want to live together and a way of maintaining the vision through the practicalities of designing, building, and financing the project.
Financing is often a problem. Communities in Europe often receive government support, whereas co-housing projects in the U.S. must often struggle to find even private financing. Because it's a new concept without a "track record," it's often difficult to find ways of financing a large capital investment that will be co-owned by many households. Another complicating factor is the estimated ten percent that must be added to the cost of each individual unit to finance the common area. Although still a new movement, co-housing seems to offer much potential for the recreation of communities. When these communities include persons with developmental disabilities, the potential to improve their inclusion and empowerment seems enormous.
How Will the Housing Be Financed?
Home ownership almost always involves securing a mortgage. Good sources of information on financing options are Arc Minnesota's Housing Consultant, mortgage bankers, licensed real estate brokers, and attorneys who specialize in real estate. For beginners, many publications are available in bookstores and libraries. Several free publications are available from Housing and Urban Development, Rural Development, Fannie Mae, and the Minnesota Housing Finance Agency (see contact information in Chapter 9). They are excellent sources of information on the mortgage market and how to obtain access to it. The brief descriptions here only suggest what housing consumers and families should know about financing options.
Traditional mortgages from a local lender are the common mortgage options that most people explore first. These include Conventional, FHA, and VA type loans. A mortgage lender's willingness to loan funds, of course, is dependent on its internal lending policies. In Minnesota, some banks have specific mortgage products which can be of benefit for individuals with disabilities and their families. These "products" may include below-market mortgage rates and/or special terms or financing assistance. Check with major mortgage lenders in your area, such as Firstar, Wells Fargo, Marquette, and US Bank. Also check with your local Housing and Redevelopment Authority (HRA). Block grant funds, such as "Home" or "Community Development Block Grant" (CBDG), may be available through your HRA. Information is available from them on request.
In addition to a bank's internal lending policies, certain external standards also may have a definite effect on the mortgages a bank will approve. These external standards come from three basic sources:
- National programs that insure loans against default, e.g., the Federal Housing Administration.
- National agencies, such as Fannie Mae and Freddie Mac, that purchase mortgages from lenders (to enable banks to loan out the recycled funds) and then pool these mortgages for sale as a type of investment security.
- The U.S. Department of Agriculture (USDA), which serves rural areas or a community with a population of 25,000 or less with a home-loan program. The program often is the most affordable, with terms up to 38 years. Loans can be made with participation from local lenders. Applications are filed with participating local lenders or with Rural Development Area Offices. More details can be obtained by contacting Arc Minnesota's Housing Consultant.
If a lender participates in any of these programs, mortgage lending activities may be predominantly tailored to serve applicants who readily meet the lender's external criteria.
A second funding option to consider is the resources available through state and local public agencies, such as the Minnesota Housing Finance Agency (MHFA) and local housing and redevelopment authorities. MHFA and some public agencies secure funding for various types of housing programs by selling bonds on the national investment market. The standards of what investors will conventionally buy in this market set certain limits on the funds the agencies can raise, which ultimately affects the types of mortgages they can make available.
Since these agencies are, in essence, a type of bank, their internal lending policies also affect the mortgages they write. Additionally, tax reform, coupled with the congressional and Internal Revenue Service actions of the last few years, have greatly restricted the total amount of public bonds that can be raised within each state, as well as the borrowers and properties that may qualify for a mortgage. All these factors definitely limit the ready availability of the funds for innovative housing options. Consumers and families should keep current on the mortgage market and on the availability of special housing grants and subsidized mortgages for individuals with disabilities. To stay current with this information, maintain contacts with Arc Minnesota, the Department of Human Services Community Supports for Minnesotans with Disabilities Division, or local social service agency personnel. One such program is called "HomeChoice," discussed below.
Many individuals with developmental disabilities do not have the financial resources for a down payment on a house. Indeed, federal laws (SSI, Medicaid) governing income and medical assistance entitlements present major obstacles to consumer controlled housing by limiting (to less than $2,000) the financial assets which can be accumulated by people enrolled in those programs. Proposals have been made to permit individuals with disabilities to set aside financial assets above the current limits into funds that are specifically earmarked for housing. As of this writing, no congressional action has been taken on these proposals. Of course, even if the rules eventually permit setting aside assets specifically for housing, individuals with developmental disabilities who have low incomes will still be challenged to accumulate sufficient resources for down payments. For this reason, families often play a significant role.
Some people may have parents or other family members who can provide funds for a down payment and closing costs (which together are called entry costs and can run ten percent of the sale price of a home). Parents who do not have the cash on hand but whose own homes have market values substantially above what they presently owe on them may consider a home equity loan to raise the down payment. In a home equity loan, the home owner's house is the collateral.
Another source of down payment is gifts from relatives or other benefactors such as the family's church or synagogue. Groups of parents in the same community who are interested in securing housing for their sons and daughters sometimes have successfully approached churches, service clubs, and charitable organizations with the idea of creating funding pools to make down payments available. Such pools also may be created by grants from corporate and community foundations. Local advocacy organizations can provide guidance and assistance in approaching foundations. Again, individuals and families should keep informed about the availability of special grant funds to support down payments.
Minnesota HomeChoice Mortgage Program for Persons with Disabilities
Minnesota has been selected to participate in a unique mortgage program called HomeChoice. HomeChoice contains lending policies that are structured to increase the home-buying opportunities for people with disabilities (mental or physical impairments). The program offers:
- Low down payment... As little as 5%
- Down payment and closing cost assistance... Loans to cover down-payment and closing costs may be available to eligible home buyers. These loans are interest-free and no payments are made on them; they may even be forgiven after a period of time.
- Larger mortgage potential... To produce greater mortgage potential for the size of a household's income, all social service incomes are recognized, as well as the use of larger income-to-debt ratios.
- Non-traditional approach to credit requirements... Alternate payment histories can be considered for credit establishment.
- Support services... To help assure home-ownership success, home-buyer education, counseling, and support teams prepare the buyer for home ownership.
HomeChoice is a demonstration program sponsored by Fannie Mae (the Federal National Mortgage Association). The program was designed to be a three-year program but has been extended two additional years and now is available through 2002.
For more details regarding this program and your eligibility, contact Arc Minnesota at 800-582-5256 or visit http://www.arcmn.com and click on HomeChoice.
The Minnesota Homestead Law
Minnesota has amended its Homestead Law by enacting Minnesota Statute 273.124, subdivision (c), to allow parents to homestead the home in which they live as the primary residence, and also to homestead a second home that is the primary residence of a qualifying relative. The latter may be their child, stepchild, daughter-in-law, son-in law, parent, stepparent, brother, brother in-law, sister, sister-in-law, grandchild, grandparent, aunt, uncle, husband, or wife. To obtain a homestead exemption for the home of a qualifying relative, contact the Assessor's Office and request a "Relative Occupant Form" for Homestead.
Another possible homestead benefit comes from the Special Homestead Classification Program. This program operates within Minnesota Statue 273.13, sudivision 22. The program offers $150.00 of real estate tax reduction to qualifying households of homeowners with a disability. To determine if you are eligible for this program, you can obtain an application by calling the State Homestead Disability Program at 651-296-0204.
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A Guidebook on Consumer Controlled Housing for Minnesotans with Developmental Disabilities, a joint publication of Arc Minnesota and the Research and Training Center on Community Living, Institute on Community Integration (UAP), University of Minnesota.