1. Federal Housing Administration
  2. Healthcare Facilities
  3. Office Of Residential Care Facilities
  4. ORCF Knowledgebase Table Of Contents
  5. ORCF Knowledgebase: Eligibility
232 Program Knowledgebase

Eligibility

 

  1. Are upfront entrance/life care fees allowed to be charged to residents?
  2. Would ORCF consider a refinance of a transaction under Section 232 whereby the Mortgagor acquired the property in the form of a land contract? Would it be treated as a refinance or a purchase?
  3. Are FHA loans that were originated under the 542(c) Program eligible for 223(a)7 or 223f?
  4. Is there any possibility that ORCF will be able to process 231 loans which will be associated with a 232?
  5. Can a project originally closed as a 221(d)(4) loan be refinanced using a 223(a)(7) loan?
  6. Can a non-profit foundation provide subsidies to a SNF sufficient to allow the facility to meet HUD underwriting criteria?
  7. Are Cooperative Residential Care facilities eligible for Section 232 Mortgage Insurance?
  8. How are Delaware Statutory Trusts (DSTs) treated in the Section 232 Program?
  9. Are transactions involving land condos eligible for Section 232 financing?
  10. Are Veterans' Preferences permissible in a Section 232 project?
  11. Is a detoxification facility eligible for Section 232 HUD mortgage insurance?
  12. Does ORCF allow Triple Net Leases?
  13. Does the conversion of unit types (e.g. Independent Living to Assisted Living) trigger any seasoning requirements?
  14. Does ORCF prohibit a Section 232 project from having multiple 241(a) loans?
  15. Are Long Term Acute Care (LTAC) facilities eligible under 232 program?
  16. Will HUD permit an FHA lender to subordinate its first lien position on a Section 232 facility’s major movables and other personal property to facilitate equipment financing?
  17. Is it permissible for a 232 skilled nursing facility to utilize/rely upon a central commercial kitchen from an adjacent facility on the same campus, if the adjacent facility is not part of this parcel, nor will it be under an FHA-insured mortgage?
  18. What is HUDs definition of Frail Elderly persons?
  19. For 223(f) properties that already have a recognized ORCF green building certification under 15 years of age, does the Borrower need to further reduce energy by 15% and 10% for water to be eligible for the Green MIP rate reduction?
  20. Does ORCF approve transactions involving the C-PACE Program?
  21. Does ORCF accept facilities for Mortgage Insurance that have Ground Leases?
  22. Does ORCF allow EB-5 investments?
  23. Can a Residential Care Facility that is under 3 years old refinance with ORCF?
  24. Can a facility currently designated as a “candidate” on the Special Facility Focus (SFF) list be considered eligible for HUD financing?
  25. Would HUD entertain a waiver over the 25% Independent Living (IL) requirement?
  26. Does retrofits necessary to comply with the bathroom requirements at 24 CFR 232.7 need to be listed as a critical or non-critical repair with the application submission?

 

 

  1. Are upfront entrance/life care fees allowed to be charged to residents?
    No. The restriction against these fees are found in the Regulatory Agreement (see Section 14 & 15 of the RA)
    On previous applications that have come to ORCF where they had charged entrance/life care fees to current residents but had agreed to cease the charges in order to be eligible under Section 232 – the facilities were required to establish escrow accounts for refunds to those original residents, to ensure they were refunded, if and when necessary. if the escrow is established (rather than an immediate refund prior to closing), this requirement would also need to be documented in the final documents that will survive loan closing, to ensure compliance going forward, as residents leave the facility. Future entrance/life care fees will not be allowed. -- Dec 18
  2. Would ORCF consider a refinance of a transaction under Section 232 whereby the Mortgagor acquired the property in the form of a land contract? Would it be treated as a refinance or a purchase?
    Please reference Handbook 4232.1 REV-1, Section II, Production, Chapter 2.5.L for real estate requirements.  HUD will not approve a deal with a land contract.  The Mortgagor must own the property – in the event of a default/foreclosure, HUD must have clear title to the property.   -- Dec-16
  3. Are FHA loans that were originated under the 542(c) Program eligible for 223(a)7 or 223f?
    The Section 232/223(a)(7) Program is only available for FHA insured loans under the National Housing Act. Risk Sharing deals are not part of that statutory authority, so an FHA refinance would need to be under 232/223(f). -- Sep-14
  4. Is there any possibility that ORCF will be able to process 231 loans which will be associated with a 232?
    The 231 loan would need to be a separate loan, and would be processed by HUD's Office of Multifamily Housing; ORCF can only process Section 232 projects. In all possible situations, ORCF and Multifamily will try to coordinate processing (e.g. the environmental review and closing).  It will ultimately be the lender's responsibility to coordinate the timing of closing between the two loans. -- Dec-17
  5. Can a project originally closed as a 221(d)(4) loan be refinanced using a 223(a)(7) loan?
    No, ORCF can only process 223a7’s on Section 232 loans. The project would need to enter the program as 232/223(f) refinance; however, if a sub rehab is contemplated, and the cost of improvements exceed 15% of the value, or two major building systems are being replaced, then the facility would need to enter the program as a 232 Substantial Rehab.  Additionally, the facility must demonstrate the ability to be licensed appropriately to meet the Section 232 requirements, prior to closing. -- Dec-18
  6. Can a non-profit foundation provide subsidies to a SNF sufficient to allow the facility to meet HUD underwriting criteria?
    The proposal does not fit with non-recourse financing on Section 232’s – ORCF would not be able to insure such a property. -- Sep-14
  7. Are Cooperative Residential Care facilities eligible for Section 232 Mortgage Insurance?
    No. Cooperatives are not eligible for Section 232 Mortgage Insurance. Eligible projects are discussed in the Handbook 4232.1 REV -1, Section II, Production, Chapter 2.2 -- Dec-16
  8. How are Delaware Statutory Trusts (DSTs) treated in the Section 232 Program?
    HUD’s regulations at 24 CFR § 200.5, with limited exceptions (see regulation for exceptions),  require that an eligible mortgagor be a single asset mortgagor entity acceptable to the Commissioner. A loan structure in which the DST would be the mortgagor raises concerns since in HUD's experience a DST would not be able to meet our requirements. Organizational structures involving DSTs that would be considered for approval include a parent of the mortgagor or operator as a DST , or a DST as a member of a single asset entity mortgagor or operator. -- Dec-18
  9. Are transactions involving land condos eligible for Section 232 financing?
    A land condo would be eligible provided that the borrower has fee simple ownership of its unit and can give the FHA Lender a first lien on the entire FHA-insured parcel. -- Jul-15
  10. Are Veterans' Preferences permissible in a Section 232 project?
    The Assisted Living Facility requirements outlined in Section 232 of the National Housing Act do not address the type of resident that may occupy such a facility. According to HUD's Office of Fair Housing, Section 232 projects are subject to the Fair Housing Act, Section 504, and Titles II or III of the ADA. Therefore, tenant preferences for veterans may be permissible as long as the preference does not operate to exclude a protected class (e.g., sex, familial status, etc.). -- Sep-14
  11. Is a detoxification facility eligible for Section 232 HUD mortgage insurance?
    No, a detoxification facility is not an eligible use under Section 232. -- Sep-14
  12. Does ORCF allow Triple Net Leases?
    Yes. In our most recent revisions to the ORCF document collection, a change was made in paragraph 7a of the Security Instrument/Mortgage/Deed of Trust (HUD-94000-ORCF), to allow the Borrower to “cause Operator to pay or deposit with the Lender” the amounts for taxes, insurance, and other charges. ORCF does not provide specific direction as to a particular organizational structure. It would be the responsibility of the applicant to provide us with a compliant submission, along with an explanation of the structure. It would be the responsibility of the applicant to provide ORCF with a compliant submission, along with an explanation of the structure. -- Aug-23
  13. Does the conversion of unit types (e.g. Independent Living to Assisted Living) trigger any seasoning requirements?
    No. There are seasoning requirements for the debt of a project, and for the time since construction (for a refinance); however a change in the use of a unit would not require additional seasoning.  Please be aware that ORCF may request evidence of a track record for performance under the new unit type and/or appropriate mitigation. Additionally, please note that if the project is converting from an independent living facility to a residential healthcare facility, the project must be licensed and must meet all other program requirements prior to closing. Jul-16
  14. Does ORCF prohibit a Section 232 project from having multiple 241(a) loans?
    The statute doesn't prohibit more than one supplemental loan on a project.  Multiple 241(a) Loans are allowable. However, the 241(a) Loans must meet ORCF underwriting guidelines, and the Maximum Insurable Loan Calculation. -- Mar-15
  15. Are Long Term Acute Care (LTAC) facilities eligible under 232 program?
    No.LTAC facilities do not meet the statutory definition of an eligible facility pursuant to Section 232. -- Mar-15
  16. Will HUD permit an FHA lender to subordinate its first lien position on a Section 232 facility’s major movables and other personal property to facilitate equipment financing?  
    The security interests created by the Section 232 loan documents extend to all of the personal property, whether owned at the time of closing or thereafter acquired, needed for a facility’s operation.  Generally, these security interests must remain in first priority position and must be perfected in accordance with Article IX of the Uniform Commercial Code (“UCC”) as adopted in the facility’s jurisdiction.  Nonetheless, owners and operators may occasionally require third-party financing to acquire replacement or other new equipment.  HUD recognizes the purchase money security interest (“PMSI”) rules of the UCC may afford this third-party financing a first priority lien on the acquired equipment.  HUD will not permit an extension of the PMSI lien’s special priority to any other property of the owner or operator and will not enter into subordination or similar agreements for this purpose.  Further, HUD expects any PMSI liens to be fully disclosed and evaluated for underwriting purposes prior to issuing a firm commitment.  Any subsequent purchases giving rise to a PMSI lien will similarly require HUD’s prior consent and approval. --Jul-15
  17. Is it permissible for a 232 skilled nursing facility to utilize/rely upon a central commercial kitchen from an adjacent facility on the same campus, if the adjacent facility is not part of this parcel, nor will it be under an FHA-insured mortgage?
    Although the 232 Handbook does not delineate that a central kitchen is a requirement for a SNF, an absolute assurance of long-term access to a commercial kitchen is essential in order for a SNF to serve its residents. Moreover, the lack of a commercial kitchen within the confines of the SNF itself is obviously a very substantial concern from a valuation, marketing and resident care standpoint.
    There is no absolute bar to consideration of a transaction that relies on an off-site, adjacent facility for kitchen access, via an appropriate use agreement that runs beyond the mortgage term and is assumable by future borrowers/owners. In addition, ORCF would want assurance that there is sufficient space and a dedicated funding source available to construct a commercial kitchen should the need arise.
    Such an arrangement would be closely scrutinized, would unfavorably impact value, and is not encouraged. ORCF expects that a project with this situation would be fully vetted by LeanThinking@hud.gov ahead of application submission to assure that proper mitigation in place. --Dec-22
  18. What is HUDs definition of Frail Elderly persons?
    The definition of “frail elderly person” used by OHP is statutory. Section 232 of the National Housing Act uses that term with reference to an assisted living facility, authorizing “the development of assisted living facilities for the care of frail elderly persons.” Section 232 defines the term by reference to another statute, stating, “the term ‘frail elderly person’ has the meaning given the term in section 802(k) of the Cranston-Gonzalez National Affordable Housing Act.” Section 802(k) in turn defines “frail elderly” as a person at least 62 years of age who is unable to perform at least three activities of daily living. An “activity of daily living” is also defined in 802(k). Specifically, the term means “an activity regularly necessary for personal care and includes bathing, dressing, eating, getting in and out of bed and chairs, walking, going outdoors, and using the toilet.” --Dec-19
  19. For 223(f) properties that already have a recognized ORCF green building certification under 15 years of age, does the Borrower need to further reduce energy by 15% and 10% for water to be eligible for the Green MIP rate reduction?
    Yes. If, within 15 years prior to application date a facility has already achieved an acceptable green building certification (either a HUD recognized certification or, pursuant to 1.3.3, a non-recognized certification), then the Borrower is not required to obtain an additional green building certification, but must further reduce energy consumption at the site by at least 15% and water consumption by at least 10% (not energy or water costs) prospectively, and meet all other requirements in the Mortgagee Letter 2022-13 for obtaining a Section 223(f) Green MIP rate. See ML 1.6.A.3.” --Dec-24
  20. Does ORCF approve transactions involving the C-PACE Program?
    ORCF does not approve transactions involving C-PACE for residential care facilities.  ORCF has, however, approved Section 232 transactions in which proceeds are used to satisfy an existing C-PACE obligation.  ORCF requires that the Section 232 loan be in first position, we would not anticipate approving a transaction in which existing C-PACE debt continues to exist in an equal or higher priority position than the FHA-insured debt.  Additionally, on a 223(f) transaction, we would allow the C-PACE debt ("special assessment") to be paid off as part of the application's eligible debt, assuming your transaction meets the requirement of eligible existing indebtedness as defined in Section II, Chapter 3 of ORCF's Section 232 Handbook. --Aug-23
  21. Does ORCF accept facilities for Mortgage Insurance that have Ground Leases? 
    ORCF will accept a facility for insurance with a ground lease, provided it meets the criteria outlined in HUD Handbook 4232.1, REV I, Section II, Chapter 5.4, and other conditions imposed by the handbook and regulations. Form HUD 92070-ORCF, Lease Addendum must be executed at Closing. --Aug-23
  22. Does ORCF allow EB-5 investments?
    The EB-5 program is not administered by HUD, any inquiries about that program must be addressed to the US Citizenship and Immigration Services (USCIS). We have encountered underwriting difficulties with the EB-5 program in the past, so we would caution you moving forward. ORCF is not in a position to discuss other borrowers’ equity sources, but the FHA lender would want to assure that if the client wishes to procure funds through the program as an equity position, then the investor(s) must fully comply with any and all EB-5 requirements, and the EB-5 program must not conflict with ORCF’s Section 232 underwriting criteria. ORCF anticipates that the lender would thoroughly review the equity investor(s) and USCIS provisions, to make sure the EB-5 structure and participants will not put HUD at risk. For a Firm Commitment, ORCF would need documentation in the Lenders’ Narrative on how the lender had vetted the equity investor(s), detailed comments on the organization structure, how the funding is structured and how it will be acquired for the equity position, and any IOI’s, and assurances/certifications provided by the USCIS on the qualified investor(s). --Aug-23
  23. Can a Residential Care Facility that is under 3 years old refinance with ORCF? 
    Such a project does not currently qualify for an application due to the “Three-Year Rule” set forth at 24 CFR Sec. 232.902. That regulation states in pertinent part: “The project must not require substantial rehabilitation and three years must have elapsed from the date of completion of construction or substantial rehabilitation of the project, or from the beginning of occupancy, whichever is later, to the date of application for insurance.” --Aug-23
  24. Can a facility currently designated as a “candidate” on the Special Facility Focus (SFF) list be considered eligible for HUD financing?
    The Office of Residential Care Facilities (ORCF) has a longstanding practice of not processing projects while on the SFF Candidate list. Applications on the SFF Candidate list can be put on hold if they are in underwriting or in the queue. Once the project graduates off of the SFF Candidate list, ORCF is generally amenable to start or resume processing. A Special Focus Facility is discussed in Handbook 4232.1 REV -1, Section III, Asset Management, Chapter 3.10.4. --Aug-23
  25. Would HUD entertain a waiver over the 25% Independent Living (IL) requirement? 
    No. Independent Living (IL) units do not meet ORCF’s Statutory definition of eligible units. Therefore, a waiver request to exceed the 25% of IL units would not be granted, regardless of the proposed underwriting scenario.  See the definition of the eligible project types outlined in the Section 232 Handbook, Section II, Production, Section 2.2. Also see Handbook 4232.1 REV-1, Section II, Production, Chapter 2.5.F for further guidance. --Aug-23
  26. Does retrofits necessary to comply with the bathroom requirements at 24 CFR 232.7 need to be listed as a critical or non-critical repair with the application submission?
    The borrower will need to list those retrofits as a critical repair and will need to be in compliance with the applicable regulations before final closing.--Dec-23