74. 08/10/2020

           How should I handle personally identifiable information (“PII”), including such items as a home address or personal cell                   phone number, provided by a HUD closing attorney to facilitate the closing of an FHA multifamily or healthcare loan?

 

 

 

1.  Which documents should be used in the event of a TPA financed under the “old” documents?  Does it matter if it is a full or modified TPA?

All TPAs, whether full or modified, processed for Projects closed under the “old” documents will use the old documents in closing the transfer of physical assets.

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2.  Which documents are to be used if there is a conversion from rental to coop/condo?

In the event of a conversion from rental to cooperative or condominium ownership, the old multifamily closing documents are required.

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3.  Do we need special guidance for master lease deals?

Special guidance for master leases in rental projects is provided in the revised MAP Guide.  See Chapter 16 "Master Lease Structuring to Facilitate the use of Tax Credits," Appendix 2 "Lender Guidelines for Quality Control Plan," Appendix 4D “Firm Commitment Special Conditions for Tax Credit and Master Lease Applications,” and Appendix 16 “Sample Master Lease Ownership Structure.”

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4.  Can the Lender require the Borrower’s counsel to opine on items for Lender’s benefit?

The Lender is free to require the Borrower’s counsel to opine on items for Lender’s benefit, if it so desires.

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5.  Will there need to be a separate security agreement?  What other documents need to be filed for personal property? UCC procedures?  If the collateral description of personalty in the Security Instrument is less than what is normally used in security agreements and UCC financing statements can the Lender or the local HUD office require an expanded definition to meet local practice requirements or state or local law?

No separate security agreement is required.  It is the Lender’s responsibility to determine whether the collateral description of personalty contained in the Security Instrument is sufficient to use in UCC financing statements to perfect the interest in the jurisdiction or whether it needs to be modified.  If the Lender determines that it would need to be modified, then appropriately modified documents will need to be used.               

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6.  Will we allow change in format (e.g. double columns, small print) for recording?

HUD will only allow changes to the format of the new documents for recording purposes when the change is required by State recording requirements.

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7.  What about §241 deals?  Do we continue to use pending documents?  Will the documents be available in word format on line?

The new documents should be used for all 241 Supplemental loan transactions where the firm was issued on or after September 1, 2011.  Even though Section 241 loans are HUD insured second loans on a property that also has a HUD-insured first loan, the 241 loan is deemed a separate loan and the documentation utilized for that loan can be different than the documentation used for the HUD-insured first (in cases where the firm on the HUD-insured first was issued prior to September 1, 2011).  The new documents will be available on HUDClips in WORD format.

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8.  What about Mark to Market properties?  Do we continue to use pending documents?

Since most insured loans involving Mark-to-Market properties are 223(a)(7) loans, the answer to number 3 above applies to this question.

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9.  Will other than single asset entities be able to enter into (a)(7) loans since they are loans refinancing borrowers that have not been subject to this rule?  Should we use new or old documents for (a)(7) loans?

Only single asset entities will be able to enter into (a)(7) loans (which is the current requirement for (a)(7) loans pursuant to the terms of the current Regulatory Agreement).  Section 223(a)(7)(A)(iv) provides that “any multifamily mortgage that is refinanced under this paragraph shall be documented through amendments to the existing insurance contract and shall not be structured through the provisions of a new insurance contract.”  The existing insurance contract is evidenced on the endorsed Note panel.  Amendments to the existing insurance contract can include amendments to the regulations applicable to the insurance contract and can include the regulations published on May 2, 2011.  The new documents can be used for (a)(7) where a firm commitment is issued after September 1, 2011.  Other than the amendment to the Note panel for (a)(7)s, it is HUD requirement that the borrower execute all new documents; therefore, requiring the use of the new documents for firms issued after September 1, 2011 would not result in a conflict between old and new documents.

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10.  Surplus cash due date can be found in which publication?

The permissible time period for distribution of surplus cash can be found in Section 14(d) of the Regulatory Agreement.

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11. 

 Word versions of the new documents are posted on HUD Clips: /program_offices/administration/hudclips/forms/hud9

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12.  If the Lender requires the Borrower’s counsel to opine on items for the Lender’s benefit,  should the opinion provided to the lender on the additional items be made a part of the opinion submitted to HUD?

 No, borrower's counsel opinion to Lender on additional items required by the Lender should not be made part of the the Borrower's Counsel Opinion submitted to HUD.  Lender specific requirements which are in addition to the HUD mortgage insurance requirements should not be included in the package of documents submitted to HUD.

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13.  Is it possible to post the old versions of the forms on Sharepoint for archival/historical and TPA purposes?

 The old versions of the forms are available on HUD Clips.

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14. Both the Construction Contract and the Building Loan Agreement indicate that the drawings and specs are to be signed/initialed by various parties, including “Lender (if applicable).”  Under what circumstances would the lender sign/initial the drawings and specs?  The Closing Guide does not indicate that the lender needs to sign/initial the drawings and specs?

 The Lender is required to sign/initial the drawings and specs on all MAP processing deals.

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15. There appear to be 2 versions of the Multifamily Closing Documents, one dated 4/11 on HUDCLIPS and one dated 5/11.  Are they the same?  If not, which should we use?

 Just prior to the September 1st effective date of the new Multifamily Closing Documents HUD made some needed (but minor) edits to the documents. These edited documents are dated 4/11 and are the version available on HUDCLIPS. These are the official version of the documents and are to be used for all closings. We just learned that the documents that appear as links on the Multifamily hud.gov page listing the documents (this is not the Q&A page, which links to the HUDCLIPS version of the documents), even though dated 5/11, do not contain these edits. We are taking steps now to ensure that this page properly links to the HUDCLIPS documents, but this has not yet occurred. We understand, however, that some have been using these 5/11 documents as the model for closings now underway. This is understandable as they are dated 5/11, but they should not be used. Please use the 4/11 HUDCLIPS version of the documents. Thank you for your assistance.

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16.  Are liquidated damages required by HUD in new construction contracts for FHA insured projects?

Liquidated damages are a required part of the HUD form. Liquidated damages will be determined for each unit that remains incomplete as of the date of Date of Substantial Completion. Housing will also calculate the Actual Damages from the information submitted in the cost certification. The lesser of Liquidated Damages or Actual Damages will be applied.

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17.  What qualifies as a "significant hardship" for purposes of 24 CFR, permitting use of the "old" documents for loans with firm commitments issued on or after September 1, 2011?

The revised loan documents are easier to understand, more precise, more modern, and generally superior to the previous versions of the loan documents, so HUD does not anticipate many requests to use the prior versions of the loan documents. However, in instances where there has been a significant time and expense outlay in preparing the old versions of the documents, because at the time of such outlay it was reasonably anticipated that a Firm Commitment would be received prior to September 1, 2011, HUD will consider requests to utilize the old versions of the documents in such transaction. These requests require a waiver from the FHA Commissioner, and will be evaluated on a case by case basis based on the Borrower's representations around reasonble expectations of having closed prior to September and the specifics of the financial hardship.

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18. Should HUD set up a list serve or other mechanism for Borrowers to keep on top of changes to notices/handbooks? Should HUD issue "Borrower Letters" like Mortgagee Letters?

HUD will continue to issue "Mortgagee Letters" and Housing Notices as needed. In addition, HUD will implement revisions to the MAP Guide by issuing "change pages" to replace outdated or changed provisions of the MAP Guide as needed.

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19.  Will the audit handbook be changed to follow the project/project assets provisions?

 The audit handbook will be changed as appropriate to reflect the updated policies set forth in the revised loan documents and MAP Guide. No scheduled release date for an updated audit handbook is yet available.

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20.  What is the status of the LLC Notice? Will this be discussed in the MAP Guide?

Housing Notice 95-66 is no longer applicable. Terms related to limited liability companies are set forth within the revised loan documents and in the Multifamily Housing Closing Guide. Note that HUD seeks no recourse against entities in their capacity as managers or managing members of limited liability company borrowers. However, an entity identified by HUD in the Firm Commitment and required to acknowledge Section 50 of the Regulatory Agreeement may face liability in its individual capacity for the acts listed in Section 50.

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21.  Is private subordinate debt permitted? If not, will there be an exception made for LIHTC deals that need to have unrelated party debt and not mezzanine financing?

No changes have been made to the HUD policy regarding secondary financing. Secondary financing from a private entity is allowed, but must comply with the requirements set forth in MAP Guide §8.9 and 24 CFR §200.71. Unless approved by the Lender and HUD, no secondary financing may be secured by a lien encumbering the real property that is subject to the HUD-insured mortgage loan. Note that liens against the project real estate to secure secondary financing from a private entity are not allowed, except for (1) Section 223(f) transactions; (2) operating loss loans under Section 223(d); (3) supplemental loans under Section 241; and (4) when the HUD-insured loan accounts for less than 50% of the project cost. If private secondary financing is provided, a rider should be attached to the secondary financing mortgage.

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22.  Just finished my first closing with the new docs.
My lender's lawyer prepared the docs and did not know about any of this: we have to have Para 50 of the RA signed; we have to have the note changed; and we have to have the request for endorsement changed. I think we need something like the email blast to get changes out to the industry rapidly.
We did not have any trouble recording the RA even though the signatures in para 50 were not notarized. Other recorder's offices may require it so it is best to check with them in advance.
My surveyor put the ALTA cert on the survey. He refused to put the HUD cert on the survey but was induced to put it on a separate attached page. Healthcare folks allow the ALTA cert by itself, and have eliminated the Surveyor's Certificate. I think MF should follow that lead.
The checklist for 223f has a lender's cert which apparently only applies to new construction. It does not have enough room for the special conditions. It does not ask for the cost cert or the settlement statement. I got them anyway.
In a separate transaction, I dealt with a problem that arises in nearly every new construction project. The architect's agreement has a date on the first page. Somewhere around Section 11, the contract says the price will be held firm for (usually) 18 months and then payments will be made in accordance with some other paragraph. I always make them modify this provision to confirm that the price will be held firm until final closing or the 12-month inspection, whichever is later. I think we should put that in writing somewhere in our guidelines.

Thank you for sharing your experience. To respond to your specific points:
(i) We will try to communicate changes to the documents more effectively. Document corrections such as those needed for the Request for Endorsement will be made to the form documents and re-posted on HUD Clips so that going forward, the documents on HUD Clips will already contain the changes needed. Also, we are going to add a category to the Q&A website for scrivener's error corrections, which should be a easy way to stay on top of such changes to the documents and cover any lags between recognizing that changes are needed and being able to post the documents to HUD Clips.
(ii) Yes, folks should follow local recording offices practices. Thanks!
(iii) It is acceptable to have the complete surveyor's certificate on the survey.
(iv) We are working on revising the sample checklists in the Closing Guide. If the Lender's Certificate is only applicable to new construction, and you have a refinance, the Lender's Certificate should not be collected. In such instances, the Request for Endorsement is appropriate.
(v) The change to the architect's agreement is not necessary where a B108 form is used because the HUD Rider to the B108, paragraph 13, states that only HUD-approved costs will be paid from loan proceeds. Therefore, even if the pricing increases, the HUD-insured funds cannot be used to pay such additional costs without HUD's approval.

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23.  Should we continue to collect a certification of re-typed forms?

Because an itemized list of changes to loan documents is required by both the Request for Endorsement and the Lender’s Certificate, the Certificate of Retyped Forms is no longer required.  Please also see posting of 12/5/12 “How must changes to loan documents be shown?” in General Questions Category for additional guidance.

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24.  How do we submit changes to the state addenda form?

If changes are made to the state addenda form (that have general applicability) please submit them right away to Millie Potts, Assistant General Counsel, Multifamily Mortgage Division, for inclusion on HUDclips

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25.  Appendix 12.B.1 of the old MAP Guide required us to make certain changes to the Owner Architect Agreement (B181). Now that we’re using the B108 Owner Architect Agreement, do we still need to specifically state that supervisory services payments are to be made monthly based on the percentage of completion as determined by HUD, and add that neither mortgage proceeds, nor project funds (other than surplus cash) will serve as a source of payment for additional and optional services, and the architect waives lien rights for non-payment for those services? (These provisions were items G2 and I from Appendix 12.b.1 of the old MAP Guide.)

The HUD Amendment to the B108 should be used for all transactions and includes all the amendments to the B108 that are necessary. The HUD Closing Attorney is not required to make any other changes to the B108. The HUD Amendment to the B108 reflects the policy set forth in the revised MAP Guide Appendix 12A. Note that both revised MAP Guide Appendix 12A and the HUD Amendment to the B108, paragraph 13, provide that mortgage funds shall not be used for fees or services other than as approved and other than as accrued and as specified in the Building Loan Agreement and Capital Advance Agreement.

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26.  Are risk-share deals supposed to use new MF documents?

The new documents were not intended for use in risk share deals.

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27.  3/7/2012
HUD's reply to General Questions FAQ #23 states that a certification of re-typed forms should continue to be collected at closings. We request reconsideration of this reply, because the apparent intent of the new multifamily forms is that such a certification will not be required. In support, we note that (i) Section I.D.9 of the Request for Endorsement, and Section 29 of the Lender's Certificate, are new Lender certifications that the HUD-form documents submitted for closing have not been modified except as suitably identified and approved by HUD; and (ii) the new forms of closing checklists do not include a certification of re-typed forms.

 

Because an itemized list of changes to loan documents is required by both the Request for Endorsement and the Lender’s Certificate, the Certificate of Retyped Forms is no longer required.  Please also see posting of 12/5/12 “How must changes to loan documents be shown?” in the General Questions Category for additional guidance.

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28.  3/14/2012
This questions/comment relates to the closing attorney certification of the Washington docket as found in MAP Guide Appendix 11E. The schedule of documents included in the Washington docket in the November 2011 MAP Guide uses old form numbers. Our Program Center staff have not been making changes to the schedule when they prepare the Washington docket. I don't wish to certify that the docket includes old forms when it actually includes new ones. So beneath my certification I noted that the docket includes new closing documents. Since attorneys are being asked to sign this certification, perhaps OGC can urge Housing to update the schedule of documents contained in Appendix 11E to reflect the new closing documents. Is there a recommended way of dealing with the certification until then?

 

The Washington Docket instructions will be updated in the next revisions of the MAP Guide. In the interim,  please refer to the instructions for the Washington Docket, the “Completion Instructions” at the end of Appendix 11, such as instructions numbers 3, 4, 5, 6, and 11. Please feel free to correct the list of documents, to refer to a closing checklist with the appropriate names and form numbers of included documents, and/or to make a note in the certification identifying any deviation from the document list included with the Washington Docket, as appropriate.

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29.  3/15/2012
If a 221d4 project initial closed with "old" documents, do they use the "old" documents for final closing? Or would they use the new documents?

 

 All projects closed with the "old" documents at initial closing should continue to use the "old" documents for final closing.

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30.  3/19/2012
In the past we have allowed Housing Authorities to own MF insured projects. Is this still acceptable under the new regulations at 24 CFR § 200.5?

 
Housing has stated that it expects Housing Authorities to create single asset entities to hold properties financed with FHA insured mortgages. If a Housing Authority is unable to do so, Housing may consider a waiver of 24 CFR § 200.5, and related revisions to closing documents.

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31.  4/13/2012
Is there a specific Offsite Construction Contract we are supposed to be using for new construction closings? The new closing documents have an Offsite Bond that is required, but there is not an Offsite Construction Contract. Please advise if HUD has any requirement for this contract.

 
HUD does not have a standard form contract for off-site construction, nor does it have specific requirements for this contract.

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32.  4/16/2012
It would seem to be advantageous for a purchaser of a defaulted HUD-insured mortgage to be able to foreclose a Deed of Trust by advertisement and sale, rather than go through the extended and complex process of foreclosing on a Mortgage. In those states that allow either a mortgage or a deed of trust, should the agency establish a preference for a deed of trust?

 
No. We have conferred with Housing and it was determined that HUD should not express a preference in favor of a deed of trust in jurisdictions where both a deed of trust and a mortgage are permissible. If no model form exists for the particular instrument in question, the lender and its attorney should consult field counsel.

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33.  4/16/2012
At the pre-construction conference at Closing, what is the required method of initialing the official sets of construction documents? This is beyond the requirement of signatures on the cover sheets of the plans and specs.

 
 Please refer to Section 5.7.C of the MAP Guide for general information concerning the requirements for signing and initialing construction documents. Please note, however, that local law or custom may require deviation from MAP standards. For this reason it is recommended that you consult with the applicable field office for further guidance on any local requirements.

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34.  4/24/2012
The following forms have been omitted on the HUD 223f closing checklist. Have they been incorporated into another closing document or do we just need to "remember" to include these in the closing package: EEOC certification; Title IV certification; mortgagor's and mortgagee's Byrd amendment; LIHTC certification (not applicable to Sterling); and re-typed HUD form certification.

  

No, the forms have not been omitted. Please see the revised checklists posted on the Sharepoint site, under Multifamily Closing Checklists in the Additional Resources section. These forms are listed at the end of the checklist.

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35.   5/02/2012
I was looking at the 3/1/12 checklist for a 223(f) and noticed that #11--Assurance of Utility Service is still listed. The closing guide at 2.11(L) states that "it can be assumed that an existing project has access to the appropriate utilities, unless the Firm Commitment specifically requires evidence of utilities at closing." Is it safe to assume (as seems logical) that if the Commitment does not require evidence that we can disregard this checklist item? Would this be true for (a)(7) closings as well?

 
You are correct; unless the Firm Commitment specifically requires evidence of utilities, it can be assumed that an existing project has appropriate utilities. The closing checklists for both the 223(f)'s and the (a)(7)'s will be adjusted to indicate that evidence of utilities is only required if specifically required by the Firm Commitment.

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36.  5/9/2012
Are all the closing checklists on the Multifamily Closing Documents Checklist webpage the most current checklists?
The "Insurance upon completion closing checklist (revised 4-4-12)" was updated 4/4/12 and wanted to know if the closing checklists for the other programs were also updated and where I would be able to find them.

 
Eventually, the most current checklists are posted on the checklist page of the Multifamily
Closing Documents Q&A website. As with all content, however, there is about a week delay in posting.

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37.  5/14/2012
Paragraph 5 of the HUD Amendment to the AIA B108 Owner-Architect Agreement appears to incorrectly reference Article 7 of the AIA B108. HUD Amendment Paragraph 5 addresses rights to use project plans and specs, however Article 7.2 of the AIA B108 deals with mediation. The AIA B108 Article 6 addresses the use of architect's drawings, plans and specifications. May I address this error through crossing out the incorrect reference and inserting Article
6 instead?

 
No change is required. Section 7 of the AIA B108 addresses matters of copyrights and licenses.
Therefore, the reference is correct. Article 7 of the old B181 deals with arbitration and mediation.

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38.  5/16/2012
What checklist do we use in a Section 231 initial closing? How about for a 231 final closing?

 
It is suggested that you use the checklists in Section 4.1 (initial closing) and Section 4.2 (final
closing) of the Closing Guide, making appropriate modifications for a Section 231 loan where
warranted.

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39.  55/16/2012
The documents on HUDclips are dated (REV. 04/2011), but the some documents on the sharepoint site or in the bound volume of the closing documents from the 2011 OGC Closing School have a 05/2011 date. In addition, some documents have been modified with approved scriveners' edits or have dates other than 04/2011. How can we tell which document is the official version?

The official versions of all the revised documents are posted on HUDclips and are all marked (REV. 04/2011) since that was the official OMB date for the revised documents.  There has been some confusion about whether the documents were dated 04/2011 or 05/2011 because the documents collected in the bound volume for the HUD 2011 OGC Closing School have a 05/2011 date.  The official date, however, is 04/2011.  Documents that have been modified to reflect scriveners' edits are still marked (REV. 04/2011) and are not redated when a scrivener's edit is made.  To ensure that you have the most up-to-date language, first look to the HUDclips version of the document.  As of 05/17/2012 all document in HUDclips include all approved scriveners' edits.  For closings after 05/17/2012, you should check the General - Scriveners' Corrections category on the sharepoint site to see if any additional scriveners' edits have been approved after 05/17/2012 (all entries are dated) and confirm that these new edits have been added to the HUDclips documents.  If they have not, you may add them for your closing.  You should not have to edit the document often, however, as we are making the needed edits as soon as possible.  All new scrivener's edits will be highlighted in the announcement section of the sharepoint site and we will also announce when the revised document is posted in HUDclips.
 

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40.  5/16/2012
The parties to a 223(f)-202 Refinance Loan have added the following language to Paragraph 1 of the Use Agreement: "HUD will not unreasonably withhold consideration for relief of the rental assistance requirements of the Use Agreement if there is a termination of the rental assistance program and/or no appropriation for the rental assistance program associated with this project." Is this acceptable? I believe this addition should be allowed. If the rental assistance funding ceases, then the owner may need to accept market rate tenants in order to keep the project solvent.

 
Inquiries about specific provisions of the 202 prepayment use agreement should be sent to the OGC
Office of Assisted Housing. Please note that Housing recently issued Notice 2012-8, which updates
the requirements for prepayment and refinance of Section 202 Direct Loans. The notice includes
an updated Use Agreement (see Attachment 1).

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41.  6/07/2012
If there is an Affordable Housing Agreement which is recorded and contains a covenant that low income affordability must be maintained on the property except in the case of an assignment to HUD or foreclosure by the HUD insured Lender, then is it required that the Restrictive Covenants Rider be attached to that Affordable Housing
Agreement (which essentially modifies that Agreement and would have to be approved by the City Council)? If the Rider is not required, would the local HUD office be required to submit a waiver to HUD HQ to permit the Affordable Housing Agreement containing the Affordability Restrictions (only for 12 units) to remain in first priority position at closing of the 223f loan?

 If an Affordable Housing Agreement or any other local government use restriction or declaration
of covenants and restrictions, contain all provisions found in the HUD Rider/Amendment to
Restrictive Covenants (Closing Guide, Part 5.3), it is not necessary to use the sample HUD
Rider/Amendment to Restrictive Covenants.

The HUD Rider/Amendment to Restrictive Covenants may be modified in order to comply with
the requirements of the governmental program, subject to approval by the Multifamily
Development Field Staff and HUD Closing Attorney. Multifamily Development Field Staff and
Regional Counsel’s Office should negotiate a standard form of HUD Rider/Amendment to
Restrictive Covenants with each state and local government agency that will become the
template for all future deals with the respective state or local governmental entity.

 The final negotiated form of HUD Rider/Amendment to Restrictive Covenants (Closing Guide, Part
5.3) and any requests for modifications, must receive the prior concurrence of Multifamily
Housing and the Associate General Counsel for Insured Housing.

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42.  6/22/2012
Mortgagee Letter 11-40 requires certain cash out proceeds (usually from the value of the appreciated land) to be escrowed until a certain amount of time after completion. Please advise 1) do we document this, 2) if so, have we agreed on a standardized form; and 3) if so, can the documentation wait until final closing or does an escrow need to be in place at initial closing? The relevant paragraph is: "iv. Delayed release of cash out on loans under Sections 220, 221(d)(3), 221(d)(4) and 231. The release of any cash out proceeds for the excess value of the property contributed for a new construction or substantial rehabilitation development must not occur until the
completed project has operated at breakeven occupancy for 12 consecutive months. Release of such proceeds will otherwise be in accordance with applicable MAP Guide requirements."

 
 HUD does not have a standardized escrow form for the described situation. Rather, MAP
Guide section 12.15.F.1., instructs that “[t]he Lender will have discretion as to the form of
escrow to use to hold back any cash out from land equity. . . .” This guidance also applies to the
delayed release of cash out from land equity contained in Mortgagee Letter 2011-40. With
regard to whether the cash out from land equity is escrowed at initial or final closing, the
duction to section 12.15.F. provides that it “must be held by the Lender at initial closing . . .
.” (Emphasis added.)

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43.  6/27/2012
I am seeking clarification on when a TPA is enacted in the following scenario: An existing HUD asset is changing borrowing entity name simultaneously with a 223f refinancing to a new HUD loan. Is a TPA required? If yes, does the lender incur a fee on top of a refinancing fee for the transfer?

 
So long as the transaction meets the requirements for a 223(f), the 223(f) should be treated
as a new mortgage made in conjunction with the acquisition of the property by a new entity.
Therefore, neither a TPA nor a substitution of mortgagor fee is triggered. The new 223(f) is a
new mortgage. The new entity is purchasing the property. There may, however, be prepayment
penalties or prohibitions on the existing mortgage that may need to be resolved.

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44.  7/25/2012
The new checklist is asking for an estoppels certificate for commercial spaces. Can you please advise what form we are to use? Or what language is to be included?

 
No, there is not a form. Lender should obtain what Lender deems acceptable based on local custom
and practice.

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45.  8/01/2012
Housing may have a need to tweak a final closing requirement. This raised the question whether the Firm Commitment should include a provision that "this Special Condition will survive initial closing." In particular, our questions are: (1) Does the Firm Commitment survive for the term of the loan or is it superseded at an earlier point?; and (2) If superseded at an earlier point, would that be initial or final endorsement?

 
The regulations controlling firm commitments may be found at 24 C.F.R 200.46, 200.47 and
200.100. The commitment does not survive for the term of the loan. The firm commitment is a
contract whereby HUD agrees to proceed to initial and final endorsement of a loan for insurance when the Borrower fulfills the terms and conditions of the commitment. During the course of processing a loan for mortgage insurance, special conditions may be required. We recommend that any requirements included in the special conditions that must survive the closing be included in the
appropriate documents at initial or initial/final closing.

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46.  8/20/2012
During closing school, we were informed that inapplicable provisions in the Note and, I believe, the Security Instrument should be struck through instead of deleted. Is that accurate?

 
Please see the answer in the General Questions Category dated 12/5/12 and titled “How must changes to loan  documents be shown?,” which answers this question.

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47.  10/16/2012
1.HUD guidance about property insurance requirements appears to be contradictory because some sources have been updated very recently while others have not.
HUD Housing Handbook 4350.1, Rev-2, Multifamily Asset Management and Project Servicing says at Chapter 21, Section 21-7 that project insurance policies must make “… all losses payable to the mortgagee and the Secretary as their interests may appear …” but that portion of the handbook dates from 1996 and has not been updated since the MAP Guide and accompanying new forms were issued. All the forms referenced therein are now obsolete and have been replaced or deleted. For instance, that section references the property insurance requirements in FHA-2447, which was long ago replaced by HUD-922447 Property Insurance Requirements. That form also says “…any of the aforementioned types of insurance overages shall always include the Mortgagee and the Assistant Secretary for Housing-Federal Housing Commissioner as payees.” But the newest version of that form dates from 07/2005 before the new MAP process. It does not apply to projects under the new MAP procedures and no equivalent form has been issued to replace it.
That is because the new MAP process shifted responsibility for project insurance requirements from HUD to the lenders. The lenders must now certify on HUD-92434M (Rev. 04/11) Lender’s Certification at Paragraph 35 that “…insurance policies have attached thereto a standard mortgagee clause making the loss payable to Lender, as its interest may appear, and where applicable, the Lender is shown as an additional insured.” It does not require anything about making HUD an additional insured. Furthermore, that form references Section 19 of HUD-94000M (Rev. 04/11) the Mortgage for the basic insurance requirements. Subsection “b” says all project insurance policies “…shall name as loss payee Lender, its successors and assigns” but does not include HUD in this. So currently HUD’s own required forms (which may not be altered) do not provide for what seems to be required in the referenced handbook provision above. We must go with HUD’s newer policy as reflected in MAP and the new MAP forms.

2. That said, the mortgagor is still required to have corporate dishonesty insurance coverage. Subsection “c” of the Mortgage cited above does say “borrower shall maintain at all times commercial general liability insurance,workers’ compensation insurance and such other liability, errors and omissions and fidelity insurance coverages as Lender may from time to time require, or shall require any appropriate party to maintain at all times commercial general liability insurance, workers’ compensation insurance and such other liability, errors and omissions and fidelity insurance coverages as Lender may from time to time require or such other insurance coverage as required by Program Obligations.” But again, the lender is only required to certify to HUD that such policies “…name as loss payee Lender, its successors and assigns” as noted above.

3. So, to address the various questions below, this mortgagor (borrower) must have corporate liability insurance including coverage for employee dishonesty; and that policy must name the mortgagee (lender) as an additional loss payee; and the mortgagee (lender) must certify to HUD that it required the mortgagor (borrower) to do so; but the policy no longer need name HUD as an additional insured either as loss payee or otherwise. Transfer of those rights under the policy will be addressed at such time as the note and mortgage are, if ever, assigned to HUD pursuant to a claim by the lender.

 
[Corrected 4/11/13.] HUD should not be named as loss payee. The provisions in the asset management handbook are in the process of being revised. HUD should continue to be named as a mortgagee (as its interests may appear) on both property and general liability insurance and as a certificate holder.

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48.  10/17/2012
This came up at a closing today. The owner's attorney brought in a redline and a scrubbed version of his opinion. I was glad to have them both. Do you agree we should get a clean version?

 
 

Per confirmation (h) on the last page of the opinion form, the opining attorney is required to attach a comparison copy of the opinion, redlined against the standard form HUD-91725, as an exhibit to the opinion. Therefore, the final opinion would include both a clean copy and a redline.  [NOTE: see also posting of 12/5/2012 “How must changes to loan documents be shown?” in the General Questions Category for additional guidance.]

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49.  10/17/2012
I have a 221(d)(4) substantial rehab project with 9% Low Income Tax credits. The tax credit investor is the Bridge Loan Lender, which is not a problem except that the Bridge Loan Lender is using the Bridge Loan Agreement to have a greater control over construction of the property. They originally had lien requirements for Design Specs plans and Building Loan contract between Developer and Contractor. When I saw this description of the collateral,I reviewed more closely the loan documents. In reviewing them, I noticed approval requirements for change orders and other similar construction requirements. I have told FHA lender's counsel the bridge loan documents are unacceptable as presently provided. He stated they have used these documents in other deals and I must admit I did not pay much attention to these documents in previous deals, as long as the collateral descriptions excluded the Project and had the HUD Rider. However, I think we need to pay greater attention to the documents, especially if the Bridge Loan lender is the Tax Credit Investor, who is trying to exert more control over the Project than would be allowed through partnership documents. In the Bridge Loan documents, Lender has approval power whether there is a default or no default. In order to get to closing as Borrower was losing their option on the Development, FHA Counsel and I forced the Bridge Loan Lender/Investor to agree to language which stated in the HUD Rider that all construction notices and requirements were not enforceable so long as the FHA Loan was insured or held by HUD. The Investor/Lender admitted that if Borrower defaulted they would pay off the FHA loan.

 
Housing will issue additional guidance on bridge loans in a forthcoming revision to the MAP
Guide, including rights of lenders, the draw processes, and other similar items. As a general
matter, HUD as the first lien lender must be in control of the draw process, which should be
detailed in as much certainty and mutually agreeable to other funding sources at the time of
underwriting. HUD has indicated flexibility in keeping other lenders informed or receiving input
from other lenders in the draw process, but must retain authority for decisions about draw
approvals, change orders, and lender decisions involved in resolution of construction problems.
Housing will consider waivers granting additional rights to subordinate lenders as their share of
the total financing increases, particularly if other lenders' share of the financing exceeds HUD's
share. For example, if HUD is in a situation where it is providing less than 30% of the total
financing, Housing has discretion and may be flexible in granting rights to and deferring to other
lenders except to the extent of any regulatory or statutory prohibitions.

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50.  12/5/2012
How must changes to the documents be reflected in (1) drafts provided for closing review and (2) final forms submitted at closing? How must document changes be listed in the memoranda required pursuant to Section 29 of the Lender's Certificate and Section 9 of the Request for Endorsement?

 Draft Submissions

Any draft documents submitted to the HUD office for review must include clean versions of
the documents as well as redlines of those drafts to show any and all changes to the
documents, including any changes required by the HUD firm commitment.

Closing Submissions

Documents submitted at the closing table shall include redlines of any changes approved
through the HUD document waiver process. Similarly,(1) inapplicable provisions, such as the
construction provisions in documents presented in many refinance transactions, and (2) any
changes required by the HUD firm commitment must be presented in a redline format. This
policy will prevent shifts in numbering within documents and alert HUD and the Lender of
alterations to the documents during the loan servicing period.
If a HUD document provides alternatives, the preparer may remove the alternatives that do
not apply; striking through the remaining alternatives is not required. For example, sections
of the note provide alternatives for interest rate definitions, payment provisions, and
prepayment provisions. Also, information inserted into blanks on the form and changes
required by the applicable state addenda are not required to be presented in a redline format.

Attorney’s Opinion

The requirements Opinion of Counsel vary from the protocol described above. Both a clean
copy and a redline copy of the opinion must be provided in the drafts submitted to HUD for
review. Pursuant to confirmation (h) on the last page of the opinion form, the opinion
provided to HUD at the closing table must include a complete redline as an exhibit to the
clean opinion.

Subordination Agreement
Changes to the HUD Subordination Agreement have different requirements than those
described above. Please see Subordination Agreement Questions and Answers for
instructions on changes to that document.

Request for Endorsement and Lender’s Certificate: Memoranda of Document Changes
Section 29 of the Lender’s Certificate and Section 9 of the Request for Endorsement require
the Lender to certify that the closing documents submitted to HUD, with the exception of the
Borrower’s Opinion of Counsel, conform to other documents provided by HUD and that those
documents have not been “changed or modified in any manner except as suitably identified
and approved by HUD as evidenced by the attached memorandum.” There has been some
confusion concerning the required content of this memorandum. It must include an itemized
list of changes to the HUD loans documents, excluding selections of alternatives.

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51.  12/5/2012
Many of the forms contain blanks and brackets indicating options, such as in the Security Instrument, "[among][between]", and in the Note, "[month before first amortized payment]". Should the forms be completed to indicate that changes have been made, e.g. by completing the blanks in bold and underlined text, or striking
though the inapplicable bracketed terms, or should the documents be completed "clean" without indication of changes? Some combination of the two? We are receiving different comments from different HUD counsel: one office will not accept "redline" versions, only clean final documents, and from another office a requirement that even bracketed items be shown as stuck through text.

 
Please see the answer in the General Questions category dated 12/5/2012 and titled "How must
changes to loan documents be shown?", which answers this question.

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52.  12/5/2012
Pertaining to a (d)(4) project, under the 2011 revised catch-all "HUD Provisions" section to be included in a borrower's limited partnership agreement is the following provision: "None of the following will have any force or effect without the prior written consent of HUD" ... (e) A change that is subject to the HUD TPA requirements contained in Chapter 13 of HUD Handbook 4350.1 REV-1, or that requires a vote of those who control the Partnership." Since any change to a partnership agreement (no matter how small or unrelated to HUD concerns) necessarily requires the vote of those who control the partnership, the effect of this provision is to require the prior written consent of HUD for any change to a partnership agreement. As this creates an overly-burdensome
situation for both the partners and for HUD, as every item of minutia would have to be approved by HUD, I rather imagine that this is not the intent of the provision. However, as an attorney being asked to provide an opinion on the necessity of obtaining HUD approval for an amendment to a limited partnership agreement, without clarification from HUD, the above provision leaves me no alternative but to opine that every amendment requires HUD approval. Does HUD require that every amendment to a limited partnership agreement receive prior written consent of HUD?

 
A revision to the closing guide is forthcoming and paragraph 3(e) of Section 5.2 (which contains the HUD-required organizational document provisions) will be revised "e. A change that is subject to the HUD TPA requirements contained in Chapter 13 4350.1 REV-1, or that requires a vote of those who control the Borrower entity; or..."

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53.  2/5/2013
Please note there is a typo on the initial closing checklist at 32. Certification of Architectural/Engineering Fees. It incorrectly refers to section 5.1 of the Closing Guide. It should reference Closing Guide section 5.6.

 
Thank you for bringing this to our attention. The correction will be made in the next issuance of the Closing Guide

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54.  2/22/2013
Are Building Department and Fire Marshall Letters required for 223 A7 processing when the PCNA is waived?

 
As the Building Department and Fire Marshall Letters are required by the MAP Guide Section 5.25 and is a separate deliverable from the PCNA, each would require a separate waiver. Note that this is a question for the Office of Housing and should more appropriately be posed before them versus this FAQ.

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55.  4/11/2013
We had a follow-up question to the answer to FAQ #47 issued 10/16/2012 that indicates HUD should NOT be named as a mortgagee or loss payee on insurance certificates. Please advise how such guidance may be reconciled with the requirement in Section 19(b) of the Security Agreement that HUD be listed as mortgagee on property insurance: "All policies of property damage insurance shall include a non-contributing, non-reporting mortgage clause in a form approved by Lender, and in favor of Lender (and HUD, as their interests appear) and shall name as loss payee Lender, its successors and assigns." Please note, that Request for Endorsement and Mortgagee's Certificate require the Lender to certify that all insurance policies comply with the requirements in the Security Instrument. If HUD is not listed as mortgagee on the Property ACCORD Certificate, the Lender's certification in the Request for Endorsement, or Mortgagee's Certificate as applicable, will not be accurate. Will HUD modify the Security Instrument to remove the requirement that HUD be listed as mortgagee on the Property ACCORD Certificate? If not, how should we reconcile these discrepancies on future transactions?

 
Thank you for bringing this confusion to our attention. The language in the Security Instrument is correct. Although HUD should not be named as a loss payee, HUD should nonetheless be named as a mortgagee (as its interests may appear) for property and general liability insurance. HUD should also continue to be a certificate holder. The revision to Section 19(b) of the Security Instrument through the Multifamily document reform effort in 2011 was meant to eliminate HUD as a loss payee only. We will correct the answer to Question #47 issued on 10/16/12.

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56.  5/2/2013
I am working on a new construction project (221(d)(4)) in Idaho. As we were approaching closing and reviewing closing documents, the issue of retainage has come up. The draft documents from lender's counsel changed HUD's 10% retainage to 5% in the Building Loan Agreement and Construction Contract, to comply with Idaho law (Idaho is one of a very few states, including Oregon and Montana and about three others, that mandate a 5% retainage in private construction deals). In this particular case, there is also an identity of interest between the owner and the general contractor. (See MAP Guide at 12.15.D). In the past, it is my understanding that this region has insisted on the 10% regardless of state law, and the borrower and contractor have always caved in. In the project we are working on now, however, borrower will not agree to the 10% retainage, and the lender has submitted a waiver to the MAP Guide. Based on an email from OGC containing instructions on document change protocols, I believe we are permitted to change loan documents to comport to local law. In addition, the MAP Guide provision regarding retainage is waivable under the MAP Guide by the Office of Multifamily Housing at the HUB Director level. Because this is a handbook/MAP Guide policy, not a regulation, I believe it can be waived and we do not reach the issue of federal preemption. Housing is also looking for guidance from their office in HQ but I thought I would pose this to OGC HQ as well. I have advised housing that I do not see any regulatory reason why they cannot waive this but they must do their own risk management analysis and come to their own decision. Do you know if this has come up before in any of the states that have the 5% retainage requirement? If yes, have we gone along with the state law and permitted changes to the retainage amount?

 
The Building Loan Agreement, Construction Contract, and MAP Guide requirement that imposes a 10% contractor holdback does not preempt any state law that unequivocally mandates a lesser amount in a given situation. The Building Loan Agreement and Construction Contract may be revised to include the lesser amount to complywith such state laws. These changes do not need to be submitted to Headquarters for review.

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57.  6/13/2013
For years there has been confusion over HUD's 2530/previous participation clearance requirements for direct investors and syndicators of Low-Income Housing Tax Credits (LIHTCs). Can you please clarify the policy for FHA-insured transactions?

 
Neither direct investors nor syndicators must submit form HUD-2530 for any Multifamily transaction involving LIHTCs in which their role is limited to a passive interest as a function of their investment in Tax Credits and they are not exercising day-to-day control over the ownership entity. (This situation is the case in the typical LIHTC ownership structure.) In connection with FHA’s pilot program to streamline processing of Low-Income Housing Tax Credit (LIHTC) transactions, FHA clarified its policies regarding previous participation clearance for LIHTC investors. Although there may be separate financial vetting requirements, neither direct investors nor syndicators must complete form HUD-2530 or the electronic APPS processing system. In lieu of form-2530 requirements or APPS processing, direct investors and syndicators may submit the certification titled “Identification and Certification of Eligible Limited Liability Investor Entities” (sometimes referred to within HUD as the “passive investor certification”). This certification is a revised version of a certification that began being used sporadically in 2006, known as the “LLCI” certificate. FHA has revised this certification to re-word and clarify certain certifications. This certification is available on both the Multifamily Q&A internal sharepoint site and external website under the heading “FHA-LIHTC documents.” This policy is now not limited to tax credit pilot transactions, it extends to any Multifamily transaction involving LIHTCs.

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58.  12/2/2013
Are there any requirements regarding using a servicer to service subordinate debt or surplus cash flow loans other than that the servicer complies with the underlying documents?

 
HUD does not have any requirements to use a servicer for non-insured subordinate debt or surplus cash loans.  HUD expects the concerned parties to fully comply with all Program Obligations for non-insured, secondary debt, including those found in the MAP Guide, in addition to the required HUD form documents used in connection with the secondary financing.

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59.  2/06/2014
 I had always assumed that the GNMA/other bond prepayment language controlled over other prepayment restrictions. However, upon a closer reading I discovered that MAP Guide Section 11.7.B.4 provides "Mortgages funded with the proceeds of GNMA Mortgage-Backed Securities or other bond obligations acceptable to HUD may include the following prepayment restrictions and prepayment penalty charges in place of those contained in the printed HUD form of the Note, subject to compliance with Section 11-10.D."

Question: While this provision speaks to allowing a change in prepayment restrictions from "those contained in the printed HUD form of the Note" it does not address whether this GNMA or other bond allowance also permits the borrower to avoid its nonprofit facilities requirements under Section 11.7.B.2, which requires that prior consent of the Commissioner before any prepayment. Section 11.7.B.2 for Nonprofits provides "Without the prior written consent of the Commissioner, the mortgage debt may not be prepaid in full." Does the GNMA/other bond provisions also control over Section 11.7.B.2?

Revision/Correction: Since the Note provides for an alternative A and B, should Map Guide Section 11.7.B.4 be revised to delete reference to "in place of those contained in the printed HUD form of the Note" as the Note states that it will be in paragraph 9(a) or Rider? I could not find Section 11-10.D referenced at the end of the provision above. Does anyone remember what that was a reference to?

 
Yes. Only the GNMA/other bond prepayment language should be used regardless of whether the project is a Proprietary (For-Profit) or Nonprofit Facility

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60.  3/05/2014
 

 ·         232/223(f) loans become “§ 232/§ 223(f) pursuant to § 223(a)(7)”;
 

·         207/223(f) loans become “§ 207/§ 223(f) pursuant to § 223(a)(7)”;

·         and 221(d)(4) loans becomes “§ 221(d)(4) pursuant to § 223(a)(7)”.   

 Use of these citations is necessary to satisfy Ginnie Mae investors and also to ensure the correct FHA project series is assigned in creating the new FHA project number.  These instructions will be incorporated into the next revision of both the MAP Guide and Closing Guide.  These instructions only apply to new loan closings; there is no need to go back and correct the endorsement panel on deals that have already closed.  

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61.  3/05/2014
 

 
In response to the issues arising over cell leases/licenses/agreements, we are working on forthcoming guidance in order to assist with uniform standards of review over these documents.  The scenario that you are describing regarding an unrecorded cell tower lease/license not on the title policy will likely not affect HUD’s review of the title policy, however, please contact your HUD program representative for review of the specific documentation on your project.

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62.  8/08/2014

 HUD has made the following non-substantive changes to the 2011 Closing Documents on HUDclips.  The suffix “-11” was added to the HUD form numbers to distinguish these documents from the 2014 MF Closing Documents on HUDclips and to prevent the system from deleting the 2011 versions.  In addition, the OMB expiration date was updated in order for the 2011 Closing Documents to remain effective for transactions that received a firm commitment on or after September 1, 2011 but before August 10, 2014.  These are the only changes that were made to the 2011 Closing Documents. We understand that there are transactions in process that are using the unrevised 2011 Closing Documents, i.e. without the “-11” suffix and revised OMB date, you can continue to use those documents or replace your existing documents with the “-11” versions.  Any transaction that is not in process must use the “-11” versions. 

 
Please note that we are working with the HUDclips staff to replace the pdf versions of certain 2011 and all 2014 documents with Word versions.  We are asking that you check HUDclips to verify if the document you are seeking is available in Word format.  If it is not, please use the following link to access the Word version of the form(s):   /program_offices/housing/mfh/mfhclosingdocuments.  Please do not use this link for any form that is available in Word format on HUDclips.  

As a reminder, the 2014 MF Closing Documents must be used for deals with firm commitments issued on or after August 10, 2014. [Editor’s note: This portion of the answer has been superseded by the September 16, 2014 clarification on grace periods and waivers.]
 

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63.  9/16/2014

A: Part 1) After further consideration, HUD will allow a grace period to permit the previous versions of the Multifamily closing documents (i.e., those in effect from September 1, 2011 to August 9, 2014, now designated with a “-11” suffix on HUDclips) to be used for transactions with a firm commitment issued on or after August 10 2014, provided: 1. the Multifamily loan application was in process for a period of 60 days or greater prior to August 10th; and 2. the loan closes within 180 days of August 10, 2014. Any project loans meeting these conditions will have the option of continuing to use the previous version of Multifamily loan closing documents. Loans with firm commitments issued on or after August 10, 2014, and not meeting these conditions must use the 2014 Multifamily loan documents, no exceptions allowed.

A: Part 2) Please see the answer provided in Part 1 above. If the Multifamily loan applications in question that have firm commitments issued on or after August 10, 2014 can meet the conditions set forth in Part 1 of this Q&A, the entire set of five multifamily projects can close under the old closing documents, however any project that cannot satisfy those criteria must use the new closing documents. Notwithstanding, you may voluntarily elect to use the new closing documents for all five projects without obtaining a waiver.

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64.  1/21/2015
The November 6, 2014 Memorandum on FHA Multifamily expedited process for IRR-only transactions stated the following: As a general matter, HUD does not require a title endorsement in connection with an IRR. It is up to the Lender to determine what diligence it needs in order to provide the required certification to HUD. The Q&A published on 12/18/2014 in the Security Instruments category implies that the title endorsement may be submitted in lieu of the certification. If this is correct, would a 11-06 endorsement be satisfactory? We had also been advised to use the same certification used in ORCF. Is there a separate certification form for Multifamily Housing?

 
The IRR-only OGC review process is generally intended to be identical for both Multifamily and ORCF. That process requires the Lender to certify to the continuing first lien priority of the FHA-insured mortgage and the Lender should be encouraged to use the sample Lender Certification that was distributed as part of the Section 232 IRR-only documents to provide the certification. If the Lender prefers to provide a title endorsement in lieu of the Lender Certification, the ALTA 11-06 endorsement is satisfactory.

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65.  6/11/2015
I have a substantial rehabilitation (D)(4) closing utilizing ALTA 9.7-06 instead of 9-06. Does HUD HQ have an opinion regarding allowing ALTA 9.7-06 in lieu of ALTA 9-06? The 9.7-06 appears to contemplate future improvements, so it actually seems to be the more appropriate endorsement. Am I missing anything?

 
HUD will accept the ALTA 9.7-06 instead of the 9-06 for new construction and substantial rehabilitation closings if it is available in the state and offered by the parties to the transaction.

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66.  6/18/2015
Can you provide clarification regarding bridge loans in LIHTC transactions? HUD principal staff speeches at both the ABA conference in May 2015 and the ELA conference in March 2015 asserted that HUD policy has always been and continues to prohibit the borrower from being the obligor in LIHTC Bridge Loans. However, 3.3E on page 61 of the Closing Guide requires the HUD Closing Attorney to perform a review of several provisions. Doesn't 3.3E necessarily contemplate that the Borrower is the obligor in a LIHTC bridge loan, rather than a lower tier entity?

 
You are correct in stating that it is Housing’s policy that the actual FHA borrower entity may not be the maker on a LIHTC bridge loan. See MAP section 8.9.E (Nov. 23, 2011). This has been reiterated more recently and more clearly in the January 30, 2015 memo from Benjamin T. Metcalf, DAS for Multifamily Programs, titled “Affordable Housing Clarifications”, as well as the proposed 2015 MAP Guide revisions (Chapter 14). While not explicitly mentioned, section 3.3.E. of the Closing Guide applies to LIHTC equity bridge loans, but not to LIHTC equity bridge loans exclusively. Nonetheless, we will revise this portion of the Closing Guide to reflect Housing’s policy regarding acceptable LIHTC equity bridge loan makers with the next version of the Closing Guide, once the revised MAP Guide is finalized and issued. Until such time, participants should continue to adhere to Housing’s policy cited in the first paragraph.

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67.  9/3/2015
Can you clarify when a surplus cash or residual receipts note should be used versus when the HUD rider to Note should be used? Per the FHA Closing Guide (Paragraph 3.3.A.1.c - p. 58), the HUD Rider to Note "must be used in the limited situations where secondary financing is provided by a private entity and is permitted to be secured." This is consistent with FAQ #5 [posted approx. 9/22/11] and #11 [posted approx. 12/9/11] in the Subordinate Financing Agreements category. However, some field offices have required a new surplus cash note for existing secured nongovernmental debt. Shouldn't the HUD Rider to Note be used exclusively when there is secured nongovernmental debt? Should a surplus cash or residual receipts note be used only for unsecured nongovernmental debt?

 
The HUD Secondary Financing Rider (Closing Guide, Section 5.1) is used when secondary financing is secured and from a private, nongovernmental source. No additional HUD documents should be used in these cases. The Surplus Cash Note (or Residual Receipts Note, as applicable) is only used for unsecured secondary financing, regardless of the source.

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68.  9/3/2015
HUD guidance for Full TPAs doesn't require new UCCs or an amendment to the Security Agreement for pre-2011 documents. Why is HUD concerned with securing the personalty of a project in financing transactions (221(d)(4), 223(a)(7), etc.) but not in subsequent transfer of ownership to a new entity, i.e., TPAs?

 
HUD is concerned about securing the personalty in all financing transactions, regardless of the program, the timing of the loan closing or TPA. When an FHA-insured loan is endorsed for insurance, HUD requires a perfected first lien security interest in the personalty, as evidenced by either the Opinion of Borrower’s Counsel (prior to 2011), or through the Lender’s Certificate (post 2011). Maintaining a perfected first lien security interest in the personalty while the loan is FHA insured is an ongoing obligation of the Lender. Failure to do so may jeopardize or delay processing of a claim for mortgage insurance benefits, pursuant to 24 CFR § 207.258(b)(4).

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69.  4/4/2016
What is meant by the requirement that funds do not become “HUD-insured Loan Funds” “until direct disbursement to the Borrower (or Borrower’s Designee)” in the HUD sample form Lender Certification for Tax Exempt Bonds and 4% LIHTC Transactions (“Lender Certification – Bonds/LIHTC)”)? Is it HUD’s position that the transfer of bond proceeds by the Bond Trustee from the Project Fund has to go to the Lender, who then must remit the same funds to title company for disbursement to the Borrower? Or may bond proceeds go from the Bond Trustee to the title company for disbursement in accordance with the terms of the Lender's closing instruction letter and approved closing/settlement statement?

 
 

“Direct disbursement to the Borrower (or Borrower’s Designee),” means that the Lender must disburse the HUD-insured Loan Funds directly to the Borrower or Borrower’s designee, such as a contractor but never the Bond Trustee or an agent of the Bond Trustee. This requirement does not limit the Lender’s ability to use an escrow or other agent to complete the disbursement of HUD-insured Loan Funds, as long as such agent is acting on behalf of, and under the control of, the Lender. For example, the Lender could disburse the HUD-insured Loan Funds to the Borrower or Borrower’s designee, through a title company or escrow agent who is legally authorized to act on behalf of the Lender, pursuant to Lender’s instructions (which must comply with HUD Program Obligations).  The Bond Trustee (or an agent of Bond Trustee) may not serve as Lender’s agent for disbursement of HUD-insured Loan Funds.

This requirement ensures that HUD-insured Loan Funds are only disbursed for the purpose of directly financing those activities authorized by the relevant section of the National Housing Act.

Note: In the near future we will be issuing a revised Lender Certification – Bond/LIHTC to clarify these matters.  [Editor’s note:  effective, May 18, 2016, this question is amended to include the underlined sentence beginning “[t]he Bond Trustee”.]

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70.  4/25/2016
Regarding the December 8, 2015 memo from Ted Toon to Multifamily field leadership concerning recording priority of HOME Program use restrictions, please clarify what was intended in the underlined sentence in the second to last paragraph, shown here. [Allowing HOME restrictions ahead of the FHA Security Instrument] will eliminate the need to consider amendments to the Rider/Amendment to Restrictive Covenants and associated waivers on a case by case basis, and at the same time remain consistent with the Department’s policy goals of preserving and expanding the supply of affordable housing. Additionally, state lending programs that provide secondary financing on terms similar to those under the HOME program may be considered for similar treatment but on a case by case basis.

 
 

The language in this question announces new Housing policy to allow other state and local program secondary financing programs with affordability restrictions that are similar to those in the HOME program to gain the advantages conferred to HOME program transactions through the memo.

As such, in order for the affordability restrictions to be recorded prior to the FHA Security Instrument, not only must they be similar to those of the HOME program, but the state or local program must also face threat of recapture (i.e., statutory or regulatory required payback to HUD or other original funding source, perhaps a state treasury) in the event the use restrictions are terminated prior to the mandated use period.

State or local programs should send written requests for what we are categorizing here as “HOME-like Program" use restriction treatment to the Multifamily Production staff in the Regional or Satellite Office with geographic jurisdiction and to HQs MF Technical Support Branch (currently, Tom Bernaciak) for consideration and a written response. Such requests must be accompanied by a detailed explanation of the state or local program and precisely how it is similar to the HOME program in terms of affordability restrictions and threat of recapture, including a discussion of the governing statutes and/or regulations. Further, HUD will not review and opine on such requests in connection with a specific project loan closing; they must be submitted with the project loan application. O

nce it is established that a state or local affordable financing program satisfies these conditions, as determined and approved by HUD in writing, HUD will permit the associated use restrictions to be recorded ahead of the FHA Security Instrument on an across the board basis for that specific program, without requiring deal-specific approval from HUD. In such situations, the use restrictions will survive foreclosure of the FHA lien in order to both preserve the project as an affordable housing resource, and also to prevent the state or local instrumentality from being forced to repay the amount of the subordinate debt.

Keep in mind that this recently created HOME-like Program use restriction policy for state and local programs is but one of two avenues by which HUD will allow FHA-insured project loans with state or local secondary financing affordable housing use restrictions to be recorded prior to the FHA Security Instrument. The other such avenue is the existing “case by case” approach that has been in place for several years, and is discussed in sections 3.3.B & C of the FHA Multifamily Program Closing Guide and 14.19.D of the 2016 MAP Guide. Individual deals with state or local secondary financing that meet Housing’s existing case by case criteria, as determined by Housing field staff, may have their use restrictions recorded prior to the FHA Security Instrument for that transaction only.

Please note that prior to even considering whether affordable use restrictions may be recorded in first position pursuant to one of the two means described above, lenders and Housing staff must properly underwrite all secondary financing and related use restrictions for their impact on the project loan's viability and collateral. The Ted Toon memo does not intend a blanket approval for a given deal by virtue of a commitment of HOME or HOME-like Program funding. If the transaction clears underwriting, however, the use restrictions may be recorded in superior position if the funding source is HOME, HOME-like (as determined by HUD), or on a case by case basis (also determined by HUD). O

ne last note: in all instances where use restrictions are permitted ahead of the FHA Security Instrument, the HUD Rider/Amendment to Restrictive Covenants must be used, with the appropriate modification to remove the requirement that the restrictions terminate upon foreclosure. A sample of the modified HUD Rider/Amendment can be found on this page or by clicking here. No exceptions are permitted, as the HUD Rider/Amendment serves other important objectives beside termination of use restrictions upon foreclosure. Also recall that only pure restrictive covenants without lien rights may be recorded prior to the FHA Security Instrument under the National Housing Act.

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71.  4/4/2016
May HUD insure multifamily mortgages under the National Housing Act in instances where the borrower entity does not directly own the requisite fee simple estate or eligible leasehold interest?

 
 

Yes, in certain limited situations and with appropriate closing documentation to ensure compliance with the National Housing Act, as set forth in this Q&A.

Certain states, including Tennessee, have statutorily authorized programs that provide tax abatements to residential rental projects. In order to take advantage of such programs, private developers will transfer fee simple ownership of their project to the state or local development agency, and then enter into a ground lease with the state or local development agency for a duration that is shorter than required under the National Housing Act. Tennessee’s PILOT program, for instance, limits the ground lease tax abatement duration to 15 years.

Through a joinder to the FHA-insured mortgage, as an accommodation to gain FHA-insured financing, the governmental agency agrees to allow its fee simple estate to serve as security for the FHA-insured loan. This arrangement is deemed a subordination of the fee (or “Joinder of the Fee”).

For FHA purposes, a document titled, Rider to the Security Instrument – Fee Joinder (the “Rider”), should be used in these situations. Through this document, the governmental agency/ground lessor agrees to subject its fee simple interest to the FHA-insured Security Instrument so that the FHA lender has a first mortgage on real estate in fee simple for the entire term of the FHA loan. If the FHA borrower defaults under its obligations, then the FHA lender, HUD, or other purchaser at foreclosure sale (as applicable) will acquire fee simple title to the project.

FHA transactions requesting HUD approval for Joinder of the Fee must meet the following requirements:

1. The project, borrower, and transaction must be administratively acceptable to Housing.
2. Ground lessor must be a state or local unit of government or public entity created pursuant to state law.
3. The project must benefit from a state or locally authorized tax abatement program.
4. Lender’s counsel and the HUD closing attorney must ensure that under state law, the FHA Security Instrument represents a first lien on the entire fee simple estate of the project for the duration of the FHA Note. To this end, the sample Rider should be used in the transaction and a title insurance policy satisfactory to the FHA lender and HUD must be provided. The Rider can be found on this page or by clicking here.

Note that the governmental agency/ground lessor must be added to the first paragraph of the Security Instrument as an accommodating “Joinder Party.” This addition is necessary to ensure the proper indexing of the fee simple security interest granted by the Rider. While the governmental agency/ground lessor is added as a party in the first paragraph of the Security Instrument, the governmental agency/ground lessor will not be a signatory to the Security Instrument itself. In terms of the Rider, both the governmental agency/ground lessor and the borrower must execute this document. As the Rider grants an interest in land, state-law specific signature and attestation requirements must be met. Further, lenders must ensure the Security Instrument is not referred to as a Leasehold Mortgage/Deed to Secure Debt, et al. In light of the Rider, the Security Instrument must encumber the entire fee simple estate.

Similarly, the title insurance policy must not be a “Leasehold Loan Policy.” Instead, Schedule A2 should list both the Fee Estate and Leasehold Estate. Schedule A3 should similarly list both the governmental agency/ground lessor and the borrower. In Schedule A4, where the Security Instrument is listed, the Rider must be appropriately referenced. Schedule B, Parts I and II, should list all lender and HUD-approved exceptions and encumbrances pertaining to both the fee simple and leasehold estates.

HUD OGC is deliberating the necessity of using form HUD-92070M, Lease Addendum, with these structures. Until a final determination is made, lenders must follow the document change process set forth in the FHA Closing Guide to waive use of the form. As required by this process, HUD must receive sufficient legal and business justification as to why the form is not needed.

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72.  6/15/2016
As a result of the MIP rate reductions announced on January 28, 2016, to take effect on April 2, 2016, requiring projects that have a rate reduction under the category of "Affordable Housing" to include a rider to the Regulatory Agreement (form HUD 92466 R-5), closing packages may now include the new Regulatory Agreement Rider and MIP Certification. Lender's counsel has indicated that a consistent approach is needed with regard to the MIP Certification (HUD 92013-d). Should inapplicable sections be deleted, stricken, or unbothered?

 
The sections of HUD form 92013-D (i.e., "Broadly Affordable Housing," "Affordable Housing," or "Green/Energy Efficient Housing") that are not applicable to a given loan transaction should be stricken through so that the signatory is only subject to the appropriate requirements qualifying the insured loan for lower MIP.

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73.  7/10/2017

[Editor’s Note:  Effective December 12, 2018, the following Q&A is revised as shown below.]

The American Institute of Architects (AIA) recently issued revised contract documents, including the A201 (General Conditions of the Contract for Construction) used in HUD Multifamily new construction/sub-rehab closings; and the B104 (Standard Abbreviated Form of Agreement between Owner and Architect) and the A104 (formerly the A107) (Standard Abbreviated Form of Agreement Between Owner and Contractor) that is are used in “heavy” 223(f) transactions. Can participants use the 2017 versions of these two forms?

The Office of Housing and the Office of General Counsel are currently reviewing both forms for legal and administrative acceptability. Until further notice, Housing requests parties use the 2007 versions.

With respect to the AIA A201, the 2017 version is acceptable, subject to the following:

Article 15 of the HUD Construction Contract (HUD-92442M) must be amended to indicate Section 15.3.3 of the General Conditions concerning waiver of binding dispute resolution proceedings is stricken and of no force or effect, and that the parties agree that the method of binding dispute resolution shall be litigation in a court of competent jurisdiction.

The 2017 versions of the AIA B104 and the A104 documents are acceptable for use in “heavy” 223(f) transactions without further modification.

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74. 8/10/2020

How should I handle personally identifiable information (“PII”), including such items as a home address or personal cell phone number, provided by a HUD closing attorney to facilitate the closing of an FHA multifamily or healthcare loan?

1. Unless advised otherwise by the providing party, FHA lenders and their counsel should assume any PII provided by a HUD closing attorney was intended for the sole purpose of facilitating the timely and efficient completion of a real estate transaction during a nationally declared pandemic.  The PII should not be used for any other purpose, including redisclosure to other parties, without the express consent of the individual providing the PII.  If the real estate transaction has concluded, please immediately delete the PII from all systems and records.  If the real estate transaction has yet to conclude, please ensure the information is deleted upon completion or, if earlier, at the request of the HUD employee. 

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