Surplus Cash Note
1. 5/24/2016
If a Public Agency approves the execution of the 5.3 Rider/Amendment to Restrictive Covenants and also approves the execution of the HUD required Subordination Agreement for Agency secondary financing (for instance, the HOME program Promissory Note, Deed of Trust and Regulatory Agreement) does the agency still need to use the HUD form Surplus Cash Note or can the Agency use its own form of Note which provides for the extension of the term of that Agency Note to be at least terminus with the HUD-insured Note?
With respect to a subordinate secured loan from a public agency, there is no particular HUD form that is required for the associated note, although it is recommended that a document with terms similar to the HUD-92223M be used. At a minimum, the associated note will need to contain the following language from MAP Guide Section 8.7(E): "So long as the Secretary of Housing and Urban Development or his/her successors or assigns, are the insurers or holders of the first mortgage on (insert project name and FHA Project No.), payment(s) due under this Note, any secondary debt instruments shall be payable from up to 75% of available surplus cash. Non-project sources that are outside the Mortgaged Property may also be used to repay subordinate financing. The term surplus cash is defined in the Regulatory Agreement dated (insert date) between HUD and (insert name of borrower). The restriction on payment(s) imposed by this paragraph shall not excuse any default caused by the failure of the maker to pay the indebtedness evidenced by this Note." Note that the parties will need to execute and record a Subordination Agreement (Form HUD-92420-M) and the note will need to conform to the terms in Section 3 of the Subordination Agreement.
Back to Multifamily Document Reform Implementation Frequently Asked Questions