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Understanding SHOP: An inclusive overview
By Mary Fleming, RCAC financial management specialist, housing
The Self-Help Home Ownership Opportunity Program (SHOP) is funded by the U.S. Department of Housing and Urban Development (HUD).
SHOP funds are restrictively granted to four nonprofit agencies that administer the funds as partially or fully forgivable loans to nonprofit organizations throughout the United States. In the western region, SHOP loans are serviced primarily by Housing Assistance Council (HAC), which operates nationwide and Community Frameworks, which serves the Northwest, including Washington, Oregon, Idaho and Montana.
The
purpose of SHOP
is to provide funding to eligible nonprofit organizations for the purchase of home sites to develop or improve infrastructure for sweat equity home ownership projects for low- and very low-income individuals and families who otherwise would not become homeowners.
Homebuyers must be willing to contribute significant amounts of their own sweat equity toward the construction of the housing units.
SHOP funds may not be used for actual construction or rehabilitation costs.
HAC and Community Frameworks use SHOP funds to provide zero-interest forgivable loans to nonprofit organizations and public agencies that sponsor self-help programs, including
523 grantees, Community Land Trusts, Acquisition Rehab, and non-523 self-help. Loan servicing fees are applicable and due upon loan closings.
Total land acquisition and infrastructure improvement costs together may not exceed an average of $15,000 in SHOP assistance per home. Costs such as program planning and management development are allowable uses of the funds but may not exceed 20 percent of the loan amount.
Applicants may expend funds for which they expect SHOP reimbursement to acquire sites prior to receipt of a HUD environmental review approval. However, the borrower accepts all risk in the event that an environmental problem is uncovered after acquisition. Applicants may not use anticipated SHOP funds for infrastructure improvement costs before receipt of HUD environmental review approval.
SHOP funds recovered from the sales and permanent financing of the properties may be used as revolving funds to support future sweat equity projects or may be redirected to self-help homebuyers as second mortgages.
When a SHOP borrower meets its production goals and all other loan requirements, up to 100 percent of its loan is forgiven. At that time, the organization can use those funds for additional SHOP-eligible purposes. Some groups have provided further subsidies to the same homebuyers, while others have established their own revolving loan funds or used the money for future self-help developments.
A financial system that fully complies with SHOP requirements should include a funding center for each SHOP loan. If an organization receives more than one SHOP loan, the transactions for each loan should be tracked separately. Additionally, because a maximum of $15,000 may be used for any one sweat equity home, the amount of each of the SHOP loans applied to individual lot purchases, infrastructure development and gap financing must be tracked. The general ledger transactions should be supported by documents in each SHOP loan file such as title statements from lot purchases, invoices and copies of checks written for eligible SHOP expenditures. Make sure that appropriate approvals are indicated on each document and the person(s) authorized to approve the use of SHOP funds is/are fully versed on allowable expenditures.
An area of confusion for many recipients of SHOP funding is recording the forgiven portion of the loan. Amortization of the forgivable portion of the loan is not allowed. SHOP loans should remain on an organization’s books as a term liability until the actual letter of forgiveness has been received. Assets such as cash in bank, land, improvements to land or accounts receivable from homeowners who have used SHOP funds for gap financing should be identifiable as the offsetting entries to the liability. When the letter of forgiveness has been received by an organization, the general ledger entry will be a debit to the SHOP notes payable and a credit to grant revenue.