Frequently Asked Questions
Very simply, you buy the house but you 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.
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 below.
The resale formula outlines how we calculate the maximum price at which a MACLT homeowner can resell their home. Essentially, in exchange for buying a home at an affordable price, the homeowner agrees to sell the home at an affordable price. The resale formula is a way to provide our homeowners a way to capture a portion of a home’s appreciated value, while ensuring the home remains affordable for future buyers. Therefore, when you sell your land trust home, you get (a) 100% of the equity you have gained by paying down your mortgage, plus (b) 25% of the increase in the market value of your home. *(See note below)
- EXAMPLE: You buy a home from the land trust for $100,000. At that time, the house had an appraised value (i.e. market value) of $115,000. Ten years later, you want to sell the home, and now it has an appraised value of $155,000. Plugging these numbers into the resale formula, this house could be resold for (a) original purchase price ($100,000) plus (b) 25% of the increase in appraised value ($40,000 x 0.25 = $10,000) for a total resale price of $110,000.
*NOTE: The resale formula sets a maximum sale price, and does not guarantee a certain sale price. While many MACLT homes have sold at the price calculated using the resale formula, the actual sale price may vary depending on housing market conditions.
We sell our homes to homebuyers with household incomes that do not exceed certain limits set by the federal government. For example, in 2015 a family of 4 could have an income up to $65,800 and be eligible to purchase a land trust house. For more information, go to our Home Buyer Guide and view “Step 2: Do You Qualify”.
The monthly Ground Lease fee is $75 for single family homes and $50 for condos.
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!
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.
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.
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.
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 are 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. If you are not able to locate an attorney on your own, contact MACLT for a list of attorneys who have recently worked with our buyers.