I always wonder what happens later if life circumstances change? Do they always have to be below median income? What if they marry someone higher income later, or what if their natural career progression later puts them above the income limit? Are they forced to sell? For low-income rental programs, they verify income every year.
they can probably keep the house. But if they were to sell, they can only sell it at the below-market-rate (BMR); it will never(*) be worth the million that other buyers may believe a townhouse in Los Gatos is worth.
There are different ways how a property can be restricted to be BMR. Over in Santa Cruz, there are properties restricted as “measure J” or “measure O”. There may be other types of BMR.
The interesting thing is that some of those restriction types can be removed in the event of a foreclosure. I believe a “measure J” BMR property becomes “market rate” through foreclosure auction. It may even matter if the sale is back to the lender or to a 3rd party.
I believe that the “measure O restriction” survives the foreclosure. Not legal advice.
My friend bought a unit in this complex at trustee sale, and was able to sell without the low-income restriction:
https://www.redfin.com/CA/Santa-Cruz/216-Vista-Prieta-Ct-95062/home/2244037
EDIT: (*) not “never”. Maybe in 50 years, BMR units may sell for a million.
now, here’s a thought. I always wonder how the government wants to enforce their rules upon deed transfer. Like the requirement of a sewer lateral inspection upon sale. Or income restrictions.
Whoever gets that $274k townhouse in Los Gatos, what would happen if I approach them with a $1m cashier’s check, have my grant deed prepared, they sign it at the UPS store in my presence and I hand over the $1m check. Afterwards I pay off their mortgage.
How could the government prevent this? Especially if I don’t record my grant deed?
I think you have answered your own question. You won’t be able to record the deed. Government can sue to void the transaction.
BMR sale price is typically indexed to CPI. For that town house to 4x in price in 50 years inflation has to run at around 3% for 50 years straight. Not impossible but pretty hard in our lowflation environment.
I always feel that BMR program is a poverty trap. Buyers can’t enjoy the appreciation and can only save on rent. On the other hand all the minuses of owning like interests payment and maintenance still apply. And you can’t rent out the property either. People are much better off buying in farther away but more affordable places and build wealth the old fashion way.
Well said. A trap like Section-8. Few ever leave that program.
It’s also a “feel-good” action, as there will be 10,000 people applying for that townhouse.
Seems like a massive loophole if the government doesn’t do annual income limit checks. I don’t agree that it’s a poverty trap. They can pay under market rate for primary and save up to buy rentals.
In theory they can live in a BMR house and buy rentals, but in practice I don’t think many do. It’s a mindset thing. That’s why I called it a trap. Few have the willpower to get out.
Why do you assume they want to get out? 
The purpose of the program to get them to become owners. So they can enjoy the benefits as other home owners like housing stability, fixed housing costs, pride of ownership, etc, with some amount of appreciation potential. The government did not promise the same level of appreciation potential as market rate housing.
So the purpose is achieved. Just don’t misunderstand its purpose.