Frequently Asked Questions about the Madison Area CLT

  • How does buying a house from a Community Land Trust work?
    Very simply, you buy the house (at a price below market-rate) but don’t buy the land. You rent the land from Madison Area Community Land Trust under a 98-year (renewable) ground lease, which provides long-term protection to the homeowner. This makes the home less expensive to purchase, because you don't have to finance the cost of the land. And in exchange for getting a good deal on your land trust home, we ask that you pass along the deal to the next homeowner, so that the home continues to be affordable for generations to come.
  • How do land trust homes remain affordable over time?
    A land trust home is a good deal - not just for the first buyer but for each successive buyer also. The buyer of a land trust home promises to “pass along the good deal” to the next homeowner. They do this by sharing the increase in the home’s value with the next buyer through something called the Resale Formula.
  • What is the Resale Formula - and how does it work?
    This is the formula that describes the "good deal" that each land trust homeowner passes along if they ever sell their home. The formula is set so that the resale prices of our homes increase at the same rate as wages. Therefore, when you sell your land trust home, you get (a) what you paid for it, plus (b) 25% of the increase in the market value of your home.
    • EXAMPLE: You buy a home from the land trust in 2001 for $100,000. At that time, the house had an appraised value (i.e. market value) of $115,000. In 2007, you want to sell the home -- and now it has an appraised value of $215,000. Plugging these numbers into the resale formula, this house could be resold in 2007 for (a) original purchase price ($100,000) plus (b) 25% of the increase in appraised value ($100,000 divided by 4 = $25,000) for a total resale price of $125,000.
  • Who is eligible to buy a land trust house?
    We sell our homes to first-time homebuyers with household incomes that do not exceed certain limits set by the federal government. For example, a family of 4 could have an income up to $58,000 and be eligible to purchase a land trust house. For more information, go to our Do I Qualify page.
  • What are the costs of renting the land?
    In 2006, the total monthly land charges (ground rent plus property taxes) were $110 for single family homes and $73 for condos. Annual increases in land charges are quite modest -- in fact, the increase from 2004 to 2005 was less than 1%.
  • What are the advantages of owning a land trust house verus renting?
    You get all the tax advantages of home ownership. All mortgage principal payments build your equity in your house. You get 25% of the increase in appraised value of your house. And no one can make you move -- it is your home!
  • Should I still consider conventional homeownership?
    Land trust houses are for people with modest incomes who simply cannot afford a house in the high-priced Madison market. If you can afford to buy a house on the conventional market – go for it! You would keep 100% of the increase in the value of your house.
  • What is a ground lease - and how does it work?
    The ground lease is a very long document that describes all the rights conveyed to the homebuyer when they purchase a land trust home. It states that as a land trust homeowner, you have full use of the land for 98 years, which is renewable at the option of the homeowner for another 98 years -- which is a very long time! And it is a lengthy document because it has to cover all the different things that can come up over 200 years. And it also contains language to make sure that the house remains affordable to future generations of homeowners.

    The key element of the ground lease is that the purchaser buys the house, but not the land under the house. The land is leased from the Community Land Trust. If you ever sell your land trust home, the sale price will be based on a resale formula designed to maintain affordability for future owners. The resale formula is pretty simple -- if you ever sell your land trust home, you will get (a) what you paid for the house when you bought it, plus (b) 25% of the increase in market value of your home.

    The Community Land Trust has a three page summary of the ground lease available. The summary has some of the legalese translated into plain English. In addition, the Community Land Trust requires that you go over the ground lease with a lawyer of your own choosing to make sure that the agreement is entered into with full understanding.

    Links

  • Why does the land trust sell the house but not the land under it?
    Retaining ownership of the land accomplishes several goals. First, it means that the buyer does not have to finance the cost of the land when purchasing the home. Second, it ensures that the land trust will have the right to repurchase the home whenever it comes up for sale, at the resale formula price.
  • Why does the community land trust require buyers to retain an attorney?
    There are a lot of documents to review when you buy a land trust house. There is the ground lease. There is the offer to purchase. There loan documents. And there are other forms that HUD requires as a condition of the funding that helps make these homes so affordable. We therefore require all land trust homebuyers to retain an attorney, to make sure they understand all the terms and conditions of the purchase. We can refer you to several attorneys who have been rated highly by our homebuyers, who are well-versed on land trust transactions, and who have agreed to represent land trust buyers on a reduced-fee basis.