1.  Under item 19 of the HUD Attorney’s Closing Punchlist (/sites/documents/OGC_Closing_Punchlist-a7.docx), the requirements to be inserted into the Operator’s Organizational Documents state that “The Healthcare Facility shall be the sole asset of [Operator], and [Operator] shall not own any other real estate other than that associated with the Healthcare Facility.”  Since the property is owned by the Borrower, this sentence should not be applicable to the Operator.  The lease could be an asset to the Operator but not the Facility.  Should this be removed from the requirements of the Operator?

 

2.  If the owner operates the project, do we still need to have the HUD-required language for operator organizational documents in the owner's organizational documents?  Do we need to collect the documents twice?  (12/13/13)

 

3.  May HUD attorneys request litigation searches?  (7/1/14)

 

 

 

 

 

The quoted language will be removed from the next version of the punchlist and is no longer required to be included in the operator's organizational documents.

 

 

 

2.  If the owner operates the project, do we still need to have the HUD-required language for operator organizational documents in the owner's organizational documents?  Do we need to collect the documents twice?  (12/13/13)
 
To the extent the HUD-required language for the operator’s organizational documents adds to the language required for the borrower’s organizational documents, the added language must be included in an owner-operator’s organizational documents.  There is no need for the HUD closing attorney to include two copies of the owner-operator’s organizational documents in a closing docket, so long as the docket clearly indicates that the documents collected constitute both the owner’s and the operator’s organizational documents.

 

3.  May HUD attorneys continue to request litigation searches?  It appears the form opinion allows borrower’s counsel to simply provide a listing instead of the actual docket search.  Also, please explain the impact of this update from HUD-ORCF's Lean 232 / Email Blast, February 27, 2014. 
 

Litigation/Docket Searches
To clarify and highlight, ORCF no longer collects litigation searches (except where required by the Attorney’s Opinion as an Exhibit).  Please note that the Attorney’s Opinion form requires the attorney signing it to opine that, to such attorney’s knowledge, based on the Docket Searches and the Attorney’s Opinion Certification, there is no litigation or other claim pending before any court or administrative or other governmental body against the Borrower or General Partner/Managing Member, Operator or the Project except as has been disclosed in Exhibit F to the Opinion.
 
When there is “newly” discovered litigation (“newly” meaning not previously disclosed to ORCF in the application process), ORCF will ask that the Lender immediately address the following:
1. Name and discussion of each newly discovered lawsuit, including estimated potential liability;
2. Whether each newly discovered lawsuit is of the type covered by insurance or whether the lawsuit is for a claim not covered by insurance; 
3. The amount of liability insurance available to cover each newly discovered lawsuit and other pending claims and judgments and the estimated potential liability for such other lawsuits/judgments; and
4. Identify who bears the cost of defense of each newly discovered lawsuit and whether the insurance company is participating in the defense.
 
As required by the attorney’s opinions, litigation searches must be run within 30 days of endorsement.  While HUD will endeavor to promptly evaluate litigation, disclosure of litigation promptly to HUD will minimize the risks of delays in closing.

HUD counsel should not collect either the UCC or docket searches.  Instead, we rely on the lender’s certification that our security instrument constitutes a first lien on the Project.  We rely on the borrower’s attorney’s opinion to list any litigation that turned up in the docket search. 
 
The instructions in the email blast relate to the situation where borrower’s counsel runs a docket search and discovers litigation that was not previously disclosed to ORCF.  The email blast has no impact on the instruction that HUD counsel not collect docket or UCC searches.