1.  Paragraph 29 of the Healthcare Regulatory Agreement - Borrower (HUD-92466-ORCF) refers to the Management Agent Certification by the wrong title and wrong form number.  The reference should be to "Management Agent Certification – Residential Care Facilities (form HUD-9839-ORCF, or successor form)."  (10/21/13)

 

2.  Is an owner-operator permitted to change the 60-day period in subparagraph 20(c) of the Operator’s Regulatory Agreement to 90 days, in order to match the corresponding 90-day period in the Borrower’s Regulatory Agreement?  (12/13/13)

 

3.  Is there a scrivener's error in Section 26(e) of the Healthcare Regulatory Agreement - Borrower? (6/19/14)

 

4.  The Borrower's Regulatory Agreement contains the following language in paragraph 25:  "Unless otherwise requested by HUD, the reporting requirements of this provision shall not encompass regulators’ communications relating solely to Licensed Nursing Facility surveys where the most severe citation level is at the “G” level or its equivalent (pursuant to CMS State Operations Manual, Chapter 7, as may hereafter be edited or updated, or any successor guidance) . . . .”  The term “Licensed Nursing Facility survey” is not defined in the Operator’s Regulatory Agreement, the Security Instrument, or the CMS State Operations Manual Chapter 7 from CMS’ website.  Can you please tell me where this term is defined?  (9/3/14)

 

5.  Section 23 of the Healthcare Regulatory Agreement - Borrower (rev. 06/2014) includes the line: "Consistent with Program Obligations, to the extent that Borrower obtain, or cause to be obtained, contracts for goods, materials, supplies, and services ("Goods and Services") at costs, amounts, and terms that do not exceed reasonable and necessary levels and those customarily paid in the vicinity of the Land for Goods and Services received."  This does not appear to be a complete sentence.  (9/3/14)

 

6.  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)

 

7.  I’m working on a 223(f) refi of a project that is owner-operated (with no Master Lease), and am looking for suggestions on how to appropriately modify the first sentence of paragraph 26(e) of the Borrower’s Regulatory Agreement, given that there is no Operator Lease in the present case.  

Paragraph 26(e) reads:

Without prior approval of HUD, [the Operator Lease shall not, and may not be amended to,] OR [neither the Operator Lease nor the Master Lease shall or shall be amended to,] contain any provisions that cause such lease to be characterized as other than an “operating lease” pursuant to Generally Accepted Accounting Principles and FASB Standard 13 (or its successor), including without limitation provisions that convey an ownership interest in the Project to Operator [or Master Tenant, as applicable], or grant Operator [or Master Tenant, as applicable] a bargain purchase option during or after the lease term.   

Would it be acceptable to amend the first alternative to read “any Operator Lease shall not, and may not be amended to…”? 

 

 

We agree.  The scrivener's error has been corrected, and the corrected document will be posted soon.

  

 

No, this change would be impermissible without a waiver of HUD regulations.  As specified in paragraph 20 of the Borrower’s Regulatory Agreement, the Borrower’s annual financial report must be audited and submitted to HUD and the lender no later than 90 days after the end of the fiscal year.  By contrast, under paragraph 20(c) of the Operator’s Regulatory Agreement, Operator    year-end reports can generally be operator-certified and must be submitted within 60 calendar days of the end of the fiscal year. The 90-day and 60-day periods come directly from Section 5.801(c) of Title 24 of the Code of Federal Regulations.  Accordingly, changing the 60-day period in the Operator’s Regulatory Agreement to a 90-day period would require a regulatory waiver.  Modifications to the new Section 232 closing documents of this sort must also go through the OGC Procedures for Changes to 232 Closing Document Forms posted on the 232 Document Reform Implementation Committee Sharepoint site.  

   
It is important to note that HUD’s regulations require separate year-end financial statements from the owner and operator of every healthcare facility with a HUD-insured mortgage, even when the owner and operator are the same entity.  Specifically, 24 CFR Section 5.801(c)(4)(i) provides that “if the operator is also the borrower, then that entity’s obligation to submit an annual audited financial statement (in addition to its obligation as an operator to submit financial information on a quarterly and year-to-date basis) remains and is not obviated.”

3.  Is there a scrivener's error in Section 26(e) of the Healthcare Regulatory Agreement - Borrower? (6/19/14)

This is not a scrivener’s error.  The sentence reads: “Without prior approval of HUD, [the Operator Lease shall not, and may not be amended to] OR [neither the Operator Lease nor the Master Lease shall or shall be amended to] contain any provisions that cause such lease to be characterized as…”  This means that neither lease shall contain, and neither shall either lease be amended to contain… The language is intended to address both the present and future state.

4.  The Borrower's Regulatory Agreement contains the following language in paragraph 25:  "Unless otherwise requested by HUD, the reporting requirements of this provision shall not encompass regulators’ communications relating solely to Licensed Nursing Facility surveys where the most severe citation level is at the “G” level or its equivalent (pursuant to CMS State Operations Manual, Chapter 7, as may hereafter be edited or updated, or any successor guidance) . . . .”  The term “Licensed Nursing Facility survey” is not defined in the Operator’s Regulatory Agreement, the Security Instrument, or the CMS State Operations Manual Chapter 7 from CMS’ website.  Can you please tell me where this term is defined?  (9/3/14) 

 HUD unintentionally capitalized “Licensed Nursing Facility survey” when drafting paragraph 25 of the Borrower’s Regulatory Agreement.  The term should be “licensed nursing facility survey”, meaning any survey made pursuant to the CMS Manual.  A corrected document will be posted soon; in the meantime, please make the change manually.  This change impacts HUD-92466-ORCF, with revision dates of 3/13 and 6/2014. 

5.  Section 23 of the Healthcare Regulatory Agreement - Borrower (rev. 06/2014) includes the line: "Consistent with Program Obligations, to the extent that Borrower obtain, or cause to be obtained, contracts for goods, materials, supplies, and services ("Goods and Services") at costs, amounts, and terms that do not exceed reasonable and necessary levels and those customarily paid in the vicinity of the Land for Goods and Services received."  This does not appear to be a complete sentence.  (9/3/14)

We agree.  That sentence should be modified as follows: "Consistent with Program Obligations, to the extent that Borrower obtains, or causes to be obtained, contracts for goods, materials, supplies, and services ("Goods and Services"), it shall do so at costs, amounts, and terms that do not exceed reasonable and necessary levels and those customarily paid in the vicinity of the Land for Goods and Services received."  This change affects HUD-92466-ORCF with a revision date of 06/2014.  Until the form is updated, please ensure this change is made for each transaction.

6.  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.