The purpose of the MinnDocs project is to finance affordable rental housing more efficiently by streamlining financing procedures. The current system of multiple layers of public financing results in unnecessary expense and delays, which drives up total project costs. Through the MinnDocs project, the City of Minneapolis is working with Minnesota Housing and other Minnesota lenders who make subordinate loans for affordable housing (specifically at this time Hennepin County, the City of St. Paul, the Family Housing Fund, and the Greater Minnesota Housing Fund) to develop and implement a set of common loan documents for affordable housing developments that have multiple sources. MinnDocs is largely based on a successful joint loan system developed by the State of Massachusetts’ partnership of housing agencies. Created in 2006, MassDocs has been used in over 165 affordable rental housing developments, saving thousands of dollars in legal costs. In 2008, Harvard University’s Ash Institute named MassDocs one of the nation’s top government innovations.

The first step to implementing MinnDocs is for the lenders to enter into a Global Participation Agreement (see attached Exhibit A). This agreement sets out the terms under which a joint lending process will work if and when a public or philanthropic lender wants to participate. It describes the closing process, priority of security, and workout procedures if there is a default.  Each of the participating lenders shall hold its own promissory note, but each of the participating lenders shall have equal security in the development on a pro rata basis based on each lender’s percentage of the overall loan amount. All participating lenders are required to engage in a workout process if there is a problem, concern, or event of default related to the development. Each Lender will use its own underwriting standards to make loans. If a decision is made to lend, the Lender can decide on each loan if it will participate in the MinnDocs program.

The McKnight Foundation awarded Minnesota Housing a grant for $70,000 for Phase I of the MinnDocs project, which will fund the hiring of a third party attorney and a project management consultant to complete the legal work and manage the project from start to finish. All participating lenders have committed in-kind staff and attorney time to leverage this grant. 

The benefits of the MinnDocs approach to the City of Minneapolis and the affordable housing production system include:

1. Benefits to borrowers
   1. Rather than reviewing anywhere between two and 12 separate sets of loan documents, borrowers and their attorneys will only have to review one standard set. If the MinnDocs project achieves all of its goals, legal fees will be reduced from $10,000-$20,000 per funding source to $10,000-$20,000 total. This will result in a direct reduction in total development costs.
   2. Management and compliance efficiencies will be gained by having all rent and income restrictions set forth in a single document. This will result in a direct reduction in operating costs.
2. Benefits to lenders
   1. Standardized form documents will reduce staff and legal costs by reducing case-by-case negotiations on every project.
   2. Typically improved overall loan security through sharing a single joint lien position rather than the traditional waterfall.
   3. Reduced total development costs translates into reduced levels of project subsidy.

At this time, staff is seeking authorization for the City to enter into a Global Participation Agreement for the MinnDocs Project and to commit CPED and CAO staff time toward the future development and implementation of a set of common loan documents for affordable rental housing projects that employ a variety of state and local funds.