Notwithstanding any prepayment prohibition imposed and/or penalty required by this Note with respect to prepayments made prior to ____, the indebtedness may be prepaid in part or in full without the consent of the mortgagee and without prepayment penalty if HUD determines that prepayment will avoid a mortgage insurance claim and is, therefore, in the best interest of the United States government. (12/13/13)
2. The endorsement panel of the Note referred to “Deed of Trust [Mortgage] Note” whereas the title of the document is “Healthcare Facility Note [Multistate].” The endorsement panel should be corrected to use the title of the document. (1/14/14)
A corrected document will be posted soon.
3. Why is there no room for the name of the borrower on the first page of the note? The debtor should be named as well as the lender (there is room for the lender’s name). Given that it is a multipage document, to refer to the debtor only as the “undersigned” and have the name revealed for the first time only on the signature page seems a bit of a risk.
The form does not call for the Borrower's name on the front page of the Note, so the borrower's name should not be added there. The borrower is sufficiently identified on the signature page.
4. Scrivener's Errors in Security Instrument and Note Corrected (4/22/14)
The Department is making the following corrections to the Note and Security Instrument provisions governing Acceleration:
In Section 6 of the Note, in the first sentence, insert “for a period of thirty (30) days” immediately after “continuing”.
In Section 43 of the Security Instrument, in the first sentence, insert “for a period of thirty (30) days” immediately after “continuing.”
The revised Security Instrument will be posted to HUDclips. The revised Note has already been posted to HUDclips.
Security Instrument:
43. ACCELERATION; REMEDIES. If a Monetary Event of Default occurs and is continuing for a period of thirty (30) days, Lender, at Lender's option, may declare the Indebtedness to be immediately due and payable without further demand, and may invoke the power of sale and any other remedies permitted by applicable law or provided in this Security Instrument or in the Note. Following a Covenant Event of Default, Lender, at Lender's option, but so long as the Loan is insured or held by HUD, only after receipt of the prior written approval of HUD, may declare the Indebtedness to be immediately due and payable without further demand, and may invoke the power of sale and any other remedies permitted by applicable law or provided in this Security Instrument or in the Note. Borrower acknowledges that the power of sale granted in this Security Instrument may be exercised by Lender without prior judicial hearing. Lender shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including reasonable attorneys' fees (including but not limited to appellate litigation), costs of documentary evidence, abstracts and title reports.
5. Can the parties add prepayment override language in an allonge to the Note? (6/19/14)
No, this is not required by the form.
6. A question has arisen with regard to the new forms of HUD Housing Note and Healthcare Note. In both, there is language in Paragraph 2 providing that payments under the Notes shall be made in “immediately available funds”. Later in each Note, there is language that provides that any prepayment of principal, other than regularly scheduled payments, shall be made in “immediately available funds.”
As you may know, borrowers generally do not pay their monthly note payments in immediately available funds. These payments are usually made by check from the Project’s operating account, or sometimes via ACH debits. Immediately available funds, as we understand it, would require borrowers to either wire transfer their monthly payment to the lender, or pay it by cashier’s check, neither of which are currently happening.
I can understand the requirement that immediately available funds be used to cover prepayments, as these are not regularly scheduled payments under the Notes, and the lender wants to ensure that it has good funds for these. But I don’t understand why HUD would require immediately available funds for monthly mortgage payments. I am not aware of any prior HUD requirement or policy that required payments in immediately available funds, and this language was not in the “old” forms of Note.
I am hoping this is a scrivener’s error in the Note, that we may strike the language “immediately available funds” in Paragraph 2 of each of the Notes, and that HUD can confirm that lenders are not required to collect monthly payments under existing “new” Notes in immediately available funds, unless the lender chooses to require such payments (most, if not, of all lenders will not). (10/2/14)
HUD interprets the phrase immediately available funds to mean that funds should be available when payment is presented. If a check is presented and sufficient funds are available in the account and the check can be immediately deposited, we do not see a violation of the requirement that payment be made in immediately available funds. Typical methods of payment accepted by the FHA Lender are acceptable to HUD. It is not HUD’s intention to direct the FHA Lender policy and procedures for accepting payment through one three-word phrase. If the policies and procedures are acceptable to FHA Lenders, so long as they are consistent with broader lending standards, HUD does not have a problem with them.
7. In Section 8 of the Note and Section 6 of the Security Instrument would it be acceptable to reference Section 38 of the Borrower’s Regulatory Agreement to identify the individuals/entities listed therein? This change was made in the last revision to Multifamily documents and is helpful in when it is necessary to change the principals due to a TPA. (1/9/15)
In keeping with Multifamily and in order to eliminate the need to change the Note and Security Instrument when the principals change, ORCF will permit the following changes to the Note and Security Instrument. These changes are permitted on both the 03/13 and 06/2014 versions of the Note (HUD-94001-ORCF) and Security Instrument (HUD-94000-ORCF). The allowable changes are shown below:
Note:
8. Exculpation; Remedies.
(a) Except for personal liability expressly provided for in this Note or in the Borrower’s Security Instrument or in the Borrower’s Regulatory Agreement, the execution of this Note shall impose no personal liability upon Borrower and [LIST THE INDIVIDUALS/ENTITIES OF BORROWER AS LISTED IN THE BORROWER’S REGULATORY AGREEMENT] and those parties listed in Section 38 of the Borrower’s Regulatory Agreement for payment of the Indebtedness evidenced thereby and in the Event of Default, the holder of this Note shall look solely to the Mortgaged Property in satisfaction of the Indebtedness and will not seek or obtain any deficiency or personal judgment against Borrower and [LIST THE INDIVIDUALS/ENTITIES OF BORROWER AS LISTED IN THE BORROWER’S REGULATORY AGREEMENT] and those parties listed in Section 38 of the Borrower’s Regulatory Agreement except such judgment or decree as may be necessary to foreclose or bar its interest in the Mortgaged Property and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Indebtedness; provided, that nothing in this Section 8 and no action so taken shall operate to impair any obligation of Borrower under the Borrower’s Regulatory Agreement.
Security Instrument:
6. EXCULPATION. Except for personal liability expressly provided for in this Security Instrument or in the Note or in the Borrower’s Regulatory Agreement, the execution of the Note shall impose no personal liability upon Borrower and [LIST THE INDIVIDUALS/ENTITIES LISTED IN SECTION 38 OF THE BORROWER’S REGULATORY AGREEMENT] and those parties listed in Section 38 of the Borrower’s Regulatory Agreement for payment of the Indebtedness evidenced thereby and in the Event of Default, the holder of the Note shall look solely to the Mortgaged Property in satisfaction of the Indebtedness and will not seek or obtain any deficiency or personal judgment against Borrower and [LIST THE INDIVIDUALS/ENTITIES LISTED IN SECTION 38 OF THE BORROWER’S REGULATORY AGREEMENT] and those parties listed in Section 38 of the Borrower’s Regulatory Agreement, except such judgment or decree as may be necessary to foreclose or bar its interest in the Mortgaged Property and all other property mortgaged, pledged, conveyed or assigned to secure payment of the Indebtedness; provided, that nothing in this Section 6 of this Security Instrument and no action so taken shall operate to impair any obligation of Borrower under the Borrower’s Regulatory Agreement.
8. On a 232/223a7, if a closing was to occur in June, and the Note was dated June 1, 2017 on the first page of the Note, the endorsement panel on the last page of the Note for a 223a7 would read as follows:
“For purposes of compliance with Section 223(a)(7)(A)(iv) of the National Housing Act, as amended, the Contract of Insurance regarding HUD Project No. ___________ is transferred to HUD Project No. ___________, and said Contract of Insurance is hereby amended to reflect the terms, conditions and provisions of the National Housing Act, as amended, as evidenced by HUD’s endorsement for insurance of this Note dated June ___, 2017, executed by ____________________, and payable to _________________, in the amount of $____________________.”
Should the reference in this language be June 1, 2017, or should the date for June __, 2017 be the date of endorsement?
The date to insert in the blank space is the date of endorsement, which is not necessarily the date of the Note. The following excerpt from a Multifamily Documents FAQ is hereby made applicable to ORCF’s Note:
We agree that the syntax of this sentence is not particularly clear; however, because HUD's insurance obligations are effective as of the date of endorsement of the Note, the blank on the endorsement panel should state the date of the endorsement, not the date the Note was executed by the borrower. In other words, the "date of endorsement" is not the date of the Note (which may be dated the first day of the month or any other day prior to closing that is convenient for the parties), nor is it the date that the HUD personnel authorized to execute the endorsement panel physically signs the endorsement panel. Rather, it is the date of closing (which is the date that endorsement becomes effective because it is the date that HUD's requirements have been sufficiently met so as to allow the handing over of the endorsed Note). Therefore, to ensure that the correct information is inserted, the blanks in the endorsement panel should be filled in by the HUD attorney at closing.
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