Spokesmen for the Island Housing Trust found themselves on the hot seat Monday when they appeared before the West Tisbury planning board to ask for an amendment to a special permit for the eight-unit project nearing completion at 250 State Road. Required under bank lending rules, the amendment adds language that will allow the homes to be sold at market rates if they ever go into foreclosure.

The trust wants to amend the special permit to conform with the selling guidelines of the government-subsidized Federal National Mortgage Association (Fannie Mae), the nation’s biggest underwriter of home mortgages.

And while trust spokesmen said several layers of protection exist to prevent the homes from ever being sold at market rates, they conceded it could happen if all other options failed.

Some planning board members and residents expressed concern about even the remote possibility of an affordable home being sold at market rates. Some noted that the town has committed $570,000 in Community Preservation Act funds for 250 State Road under the impression that all the homes would remain affordable in perpetuity.

“It was very explicit on the town meeting floor. These monies were being made available for this particular affordable housing project on the basis the homes would be forever affordable,” planning board member Leah Smith said.

“For as long as I’ve been on this committee, rule number one has been that affordable housing cannot be resold at market rates,” said planning board member Eileen Maley.

The planning board approved the special permit for 250 State Road in September of 2008; the permit requires the Island Housing Trust to provide a ground lease for the eight homes and maintain affordability restrictions. The trust uses a 99-year renewable ground lease.

The ground lease the trust holds for 250 State Road and other affordable home developments it has built, contains the correct language, but in an oversight by the trust, the language was not included in the special permit for 250 State Road.

Mr. Jordi told the planning board on Monday the language is standard; it gives buyers more flexibility and better financing products, and cuts the need for private mortgage insurance.

“It’s been used in other projects and other properties. And we have worked successfully with Island banks as we did with Fannie Mae, to approve this ground lease,” he said, adding:

“Not to [amend the special permit] would be to change the terms of this project . . . what we are asking for is nothing different than what was in place the first day this organization was created.”

Mr. Jordi enumerated several protective measures built into the ground lease that would likely prevent an affordable unit from ever being sold at market rates, beginning with the fact that the trust has 120 days in the event of a first mortgage default to work with the homeowner and cure the default.

If it could not be cured, the trust has 30 days to purchase the mortgage. Finally, if foreclosure is inevitable, the trust is given 60 days to find a new owner or buy the property outright.

“An important consideration here is not just the restrictions in the ground lease — which are important — but that it allows someone to be there to actually respond to anything that comes up. If something goes wrong and someone cannot make their mortgage payments, there are options laid out. The ground lease does speak to that ongoing continuity,” Mr. Jordi said.

Not everyone was convinced.

Planning board member Virginia Jones noted the current Fannie Mae selling guidelines were approved in March 2006; since that time the trust has asked for, and received, $400,000 in community preservation funds at the 2008 annual town meeting and another $170,000 at town meeting last year. The provision in the ground lease that may lift the affordable restrictions was not mentioned at either of those meetings, she said.

“The people of this town voted to spend that money predicated on the premise that these properties be permanently affordable. . . and now that seems to be changing,” she said.

“That’s not the model we presented to you when this project was approved,” Mr. Jordi replied. “The restrictions and the ground lease provided were part of the application . . . it was always part of the ground lease. It was part of the record when you reviewed the application,” he said.

West Tisbury affordable housing committee chairman Michael Colaneri said that because the trust depends on banks to lend them money, it is nearly impossible to create affordable housing in perpetuity without exception.

“In the early days we tried to do exactly what you are concerned about here tonight. We tried to say okay, these are affordable forever, these can never come out of the affordable housing pool . . . but we found the banks would not loan any money unless there was language in the deed riders,” Mr. Colaneri said.

He later added: “The banks are a key player in all this. The only way to make these 100 per cent in perpetuity is for us to actually be the bank. That’s the only other way to do it. Without the help and cooperation of the banks none of these projects could get done.”

Selectman Richard Knabel, also a board member for the Island Housing Trust, noted the town just finished taking costly legal action to stop a bank from breaking affordability covenants on a property under foreclosure.

The town recently agreed to execute a settlement with the mortgage company in that case with the understanding that the town has 90 days to sell the house to an income-eligible recipient.

Mr. Knabel said he worried that changing the special permit might lead to similar problems in the future.

“That person went into default, and the covenants that were supposed to protect the property and keep it in the affordable pool were wiped out by the foreclosure, because the restrictions were subordinated to the mortgage. That resulted in a very lengthy, tedious and eventually expensive process,” he said.

Mr. Knabel questioned what might happen if the trust went out of business: “Island Housing Trust is a private nonprofit corporation. It is not a private entity as such, at least not yet. And it can go out of business. I think that needs to be addressed by the trust itself: what happens to all the ground leases if the Trust ceases to exist? I think we have to proceed very carefully here.”

Juleanne VanBelle said she worried about the broader principles.

“Is this a rider that will be used by the housing trust for every single town and every single project moving forward? Are we really talking about a sea change here? And is this just the beginning; do we need to have a broader discussion, and not just limit it to 250 State Road?” she said.

The board voted to refer the matter to town counsel; the public hearing is continued for two weeks.