www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 January 31, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 94-6 TO: ALL APPROVED MORTGAGEES SUBJECT: Single Family Loan Production - Section 248 Mortgage Insurance Program for properties located on Indian Reservations and other restricted lands This Mortgagee Letter is to provide guidance to HUD Field Offices and Direct Endorsement lenders on the processing, underwriting, and insuring of loans under the Section 248 Mortgage Insurance Program for properties located on Indian Reservations and other restricted lands. The Section 248 program was originally implemented by Mortgagee Letter 88-11 . To expand further the affordable housing opportunities for Indian families, two major changes are now being made in the program; (1) the program is eligible for insurance endorsement under the Direct Endorsement Program and (2) lenders are able to originate construction/permanent mortgages that can be insured prior to the start of construction. A construction/permanent loan is a mortgage that provides funds during the construction period and then converts to a permanent loan upon completion of construction. Since there is only one closing, prior to the start of construction, it is considered a purchase transaction. Mortgages insured pursuant to Section 248, including construction/permanent loans, are eligible for GNMA pools for mortgage backed securities. The construction/permanent loan is made directly to an approved homebuyer. During construction the loan is HUD-insured. The Department believes that providing FHA insurance during construction will promote the construction and availability of new housing on Indian land and will enable more Native Americans to realize the dream of owning their own home. Updated processing instructions for the program are attached to this Mortgagee Letter and will replace Mortgagee Letter 88-11. Should you have any additional questions, please contact the Single Family Development Division, Mortgage Credit Branch at (202) 708-2700. Very sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing-Federal Housing Commissioner Attachment _____________________________________________________________________ 1 Processing Instructions Section 248 Mortgage Insurance Program on Indian Reservations and other Restricted Lands As a general principle, HUD insurance programs require that the lender convey marketable title to the property to HUD when filing a claim for mortgage insurance benefits. However, this is not possible for property on Indian Reservation Land and other restricted lands because many leases restrict ownership of housing on tribal land to only Indians. These restrictions have precluded non-Indian lenders from foreclosing on the property and conveying good, marketable title to the Department. Because of the inexperience of most lenders in dealing with tribal courts and tribal governments, lenders have been disinclined to lend money where alienation of the property is restricted and where mortgage insurance cannot be obtained. The enactment of Section 248 has removed the marketability of title restriction and has given HUD authority to waive any other limitation determined contrary to promoting the availability of HUD mortgage insurance on Indian reservations. Program Overview. The principal differences in the operation of this program and standard procedures are as follows. Most of these differences will be elaborated on elsewhere in these processing instructions. o Marketability of title. Lenders do not have to convey marketable title in order to get mortgage insurance benefits. Lenders will not be involved in foreclosure activities but will be permitted to assign the mortgage under this section to HUD once the borrower is more than 90 days in default. o First lien. Where the borrower cannot establish that the mortgage will be a first lien, he will have to establish that the tribal government has passed a law effecting the superiority of HUD-insured and HUD-held mortgages. o Mortgage and lease. The attached Section 248 rider to existing mortgage forms, the construction rider and the attached lease must be used for properties on Indian lands. Approval of these forms has been obtained from the Bureau of Indian Affairs (BIA). The lease may be modified through a rider if it is approved by the local HUD Field Office. o Eviction procedures. Lenders must submit evidence with the application for mortgage insurance that the tribe having jurisdiction over the mortgaged property has adopted eviction procedures to be used in the event of foreclosure. o Property Disposition. In the event HUD forecloses on an assigned mortgage, the tribe will exercise its eviction procedures and HUD will sell the property to a buyer approved by the tribe or may rent the property should selling prove to be difficult. _____________________________________________________________________ 2 Definitions. Indian means an individual member of any recognized Indian tribe and that member's family. Indian lands mean those lands that are held by Native Americans or tribes under some restriction or with some attribute peculiar to the legal status of its owners. Land that is held in trust by the United States government, which holds legal title, for the Native Americans who have a beneficial interest in the land is eligible for Section 248 mortgage insurance. Any Native American may purchase land on the private market and thereby acquire a "fee" title that is freely disposable. Land in this case is not considered Indian land and is not eligible for mortgage insurance under Section 248. The following types of Indian land are eligible for Section 248: Communally Held Lands. In this case, the United States government holds legal title and the undivided beneficial interest is held by the tribe as a single entity. When land is communally held by the tribe, individual members share the property but cannot claim specific pieces of land. Assignments. Although land is communally held, the tribe may confer a license on the individual to use a particular piece of land as desired. That license is usually referred to as an assignment and, while the terms of assignment may differ, it is usually passed on to heirs. Alaskan Native Lands. Alaskan Natives (Indians, Eskimos, and Aleuts) hold their land under a unique system imposed by the Alaska Natives Claims Settlement Act of 1971 (Act) and "Technical Amendments" passed in 1987 that extended the Act. This statute was a Congressional response to conflict between non-Indians seeking to develop Alaska and Natives who claimed extensive tracts of aboriginal territory. The Act expressly extinguished all aboriginal rights to lands in Alaska and established, under State law, village and regional corporations in which enrolled Natives would receive corporate stock. Those corporations then select lands set aside under the Act for the Alaska Natives and, through corporate by-laws, protect alienation of the land. The following types of Indian lands are not eligible for Section 248: Allotments. The concept of allotted land is different from the concept of communal ownership. Under various statutes, particularly the General Allotment Act of 1887 (Dawes Act), Congress provided for Indian lands to be allotted to individual Indians. _____________________________________________________________________ 3 The United State government holds title and the beneficiary is the allottee and the allottee's heirs. Over the years, many allotments have been shared not only by one heir, but by many, resulting in many people holding allotments simultaneously. All parties must be involved when decisions are made concerning the land. New Mexico Pueblos. Pueblo lands are held communally, but title is unique because the Pueblos hold their lands in fee, rather than having the United States government hold it for them. Indian tribe means any Indian or Alaska native tribe, band, nation, or other organized group or community of Indians or Alaska natives recognized as eligible for the services provided to Indians or Alaska natives by the Secretary of Interior because of its status as such an entity, or that is an eligible recipient under Chapter 67 of title 31, United State Code. SECTION 1. PROCESSING REQUIREMENTS 1-1 Tribal participation. While there is no explicit requirement for tribal consent to HUD's making this program available on a tribe's land, many of the program requirements cannot be fulfilled without the tribe's active participation. To participate, a tribe must take the following measures. A. Certify to HUD that it has adopted eviction procedures and will enforce them. B. Permit HUD access to tribal lands for the purpose of servicing properties. C. Agree to the lease form that HUD prescribes. D. Enact a law, where a tribal government's courts have jurisdiction to hear foreclosures, so that the HUD-insured or HUD-held mortgage can be assured a first lien. 1-2 Lease. The attached lease must be used for Section 248 mortgages. Modifications may be made by rider with the approval of the local Field Office. This lease is designed to protect the security interest of the lender and of HUD while at the same time ensure that the interests of the tribe are also protected. A. The term of the lease is twenty-five (25) years with a provision for an automatic extension of an additional twenty-five (25) years. Thus, effectively the term of the lease is fifty (50) years. _____________________________________________________________________ 4 B. Termination of the lease may not be executed by either or both parties if the leasehold is mortgaged under Section 248. Likewise, in the vent of foreclosure of a HUD-insured or HUD-held mortgage, the lease will not be subject to any forfeiture or reversion and will not be otherwise subject to termination. 1-3 Eligible Programs. The following HUD mortgage insurance programs may be used pursuant to Section 248. Section 248 cases can be processed under the Direct Endorsement (DE) program. A DE lender may request HUD processing of the first few Section 248 cases so that the lender fully understands the program requirements. ___________________________________________________________________ Program Section of the Act DE ADP Code ADP Code 203(b)/248 283 783 203(b)/248/ARM 288 788 203(b)/248/245(a)/GPM 287 787 203(b)/248/245(a)/GPM/ 282 782 GEM 203(k)/248/Improvements/ 202 702 First Lien 203(k)/248/ARM 230 730 203(k)/248/245(a)/GPM 254 754 ___________________________________________________________________ 1-4 Mortgage Insurance Premium (MIP). Mortgages insured under Section 248 are obligations of the General Insurance Fund and will require only monthly premiums (no upfront MIP). HUD, at this time, will not be exercising its option to charge a higher premium for cases insured under Section 248. 1-5 First Lien. Mortgages insured under Section 248 must constitute a first lien on the property. A mortgage can be established as a first lien by filing it with the State recording system and with the BIA, U.S. Department of Interior. 1-6 In the event that a tribal government has its own courts and these have jurisdiction to hear foreclosures, the tribal government must do one of the following to ensure that the HUD-insured mortgage is a first lien. A. The tribal government could enact a law acceptable to HUD Field Offices providing for the satisfaction of HUD-insured and HUD-held mortgages before other obligations are satisfied (other than tribal leasehold taxes against the property assessed after the property is mortgaged). _____________________________________________________________________ 5 B. Alternatively, the tribal government could enact a law providing that State law shall determine the priority of liens against the property. If the reservation spans two or more states, then the state in which the property is located is the applicable state law. 1-7 Tribal Leasehold and Taxes. The tribe must notify the lender of leasehold taxes so that the lender can include the payment of such taxes in the mortgage payment as is done with local property taxes. If a tribe wishes, tribal tax liens resulting from unpaid taxes may be recorded in the State recording system. The tribe may also intervene in any foreclosure proceeding to ask that the taxes be paid. 1-8 Principal Residence. To be eligible for mortgage insurance under Section 248, the borrower must intend to occupy the property as a principal residence. 1-9 The mortgage term must not be for more than thirty (30) years. 1-10 Valuation. Appraisal procedures will not differ from standard procedures except that the requirement for marketability will be waived. For new construction the Marshall and Swift square foot method will be used. The Marshall and Swift cost analysis must also be used to appraise existing homes when comparables are not available. A. When using Marshall and Swift, note that it includes in its cost figures a prorated amount of real estate commission in tract development. Since such an expense is unlikely on Indian land, it should be subtracted from the total. B. No value should be attributed to the land. This is because the land will remain under tribal ownership, is generally leased at a nominal cost, and the ownership of the leaseholds is restricted. 1-11 Mortgage Credit. Other than assuring that the borrower is an Indian qualified to participate in this program, there are no special mortgage credit considerations for Section 248. 1-12 Assumptions or Sale of Leasehold. The Indian borrower may sell his leasehold with the buyer assuming the insured mortgage. However, the lease requires that all purchasers be approved by the tribe and HUD requires that the borrower assuming the mortgage be creditworthy. Lenders are allowed to charge the approved assumption fee. 1-13 Secondary Market. Mortgages insured pursuant to Section 248 are eligible for GNMA pools for mortgage backed securities. _____________________________________________________________________ 6 SECTION 2. MORTGAGE SERVICING 2-1 Provision is made for forbearance relief and assignment of the mortgage to HUD. 2-2 Assignment for forbearance. 24 CFR 203.600 et seq. establishes requirements for lenders with regard to the Assignment Program. These requirements and those established in Handbook 4330.2 and supplementary instructions also apply to Section 248 mortgages. 2-3 Contact with the borrower. Pursuant to 24 CFR 200.604, the lender must have a face to face interview with the borrower, or make a reasonable effort to arrange such a meeting before the borrower becomes three months delinquent. If the borrower defaults during a repayment plan arranged other than during a personal interview, the lender must have a face to face interview or attempt to arrange such, within 30 days after the default or 30 days before assignment is requested. A. A reasonable effort to arrange such a meeting must include at least one trip to see the borrower at the mortgaged property, if the property is not more than 200 miles from the lender, its servicer, or a branch office of either. B. The lender must document that it has made at least one telephone call to the borrower for the purpose of trying to arrange a face to face interview. C. The lender may appoint an agent to perform the services of arranging and conducting the meeting. D. The lender must also: 1. Advise the borrower that information regarding the loan will be given to credit bureaus. 2. Advise the borrower of the availability of homeownership counseling as required by section 106(c)(5) of the Housing and Urban Development Act of 1968 12 USC 170/x(c)(5) . 3. Advise the borrower of other available assistance. 4. Notify the borrower that if the mortgage remains in default for more than 90 days, the lender will ask HUD to accept assignment of the mortgage. 5. Notify the borrower of the qualifications for forbearance relief from the lender, if any, and that forbearance relief may be available from HUD if the mortgage is assigned. 6. Provide the borrower with names and addresses of HUD officials to whom further communications may be addressed. _____________________________________________________________________ 7 2-4 Non-forbearance assignment. As indicated above, lenders will not be involved in the foreclosure of defaulted mortgages. Thus, notwithstanding the provisions of the assignment program, HUD will accept assignment of any Section 248 mortgage where the borrower has been in default more than 90 days. The lender must provide documentation showing that the conditions of 24 CFR 203.604 have been met. 2-5 Forbearance relief provided by HUD. 24 CFR 203.664 outlines prerequisites for HUD's providing forbearance relief on Section 248 mortgages. 2-6 Foreclosure by the Secretary. Subject to consideration of forbearance in accordance with 24 CFR 203.664, HUD may initiate foreclosure proceedings with respect to any mortgage acquired under this section in a tribal court, a court of competent jurisdiction or Federal district court. If the borrower remains on the property following foreclosure, HUD may seek an eviction order from the court hearing the foreclosure action. From an administrative perspective, such foreclosures will be handled as much as possible in the same manner as the foreclosure of other HUD-owned mortgages. SECTION 3. INSURED CONSTRUCTION/PERMANENT MORTGAGES 3-1 Insured construction/permanent mortgages. In addition to the standard Section 203(b) and Section 203(k) mortgages originated pursuant to Section 248, HUD will also insure Section 203(b) construction/permanent mortgages pursuant to Section 248. HUD has determined that no feasible financing alternative is available for construction. Under Section 248, the construction/permanent mortgage requires only one closing and may be insured prior to the construction period. In order to receive maximum financing, plans and specifications must be approved prior to the start of construction. The funds to construct the dwelling must be placed in an escrow account and will be drawn down as construction progresses. When construction is completed, the loan becomes a permanent mortgage. A. Construction Escrow Account. When the loan is closed the proceeds designated for construction (including the contingency reserve and mortgage payment reserve), are to be placed in an interest bearing account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for the paying of real estate taxes, insurance premiums, ground rents or assessments, and is not to be treated as such. 1. The lender or its agent will release escrowed funds upon completion of the proposed construction in accordance with the Construction _____________________________________________________________________ 8 Contract and the sample Draw Request. Release of funds for completed work cannot occur until one day following loan closing and generally only six draws should be made on the account. a. The net income earned by the Construction Escrow Account must be paid to the borrower. The method of payment is subject to agreement between the lender and the borrower. b. During construction the lender may not release funds from the Construction Escrow Account until the lender has received a Compliance Inspection Report (Form HUD-92051) and the Draw Request, certifying that the work has been completed in compliance with the accepted plans, specifications and architectural exhibits. c. The final release of the escrowed construction funds is to take place only after the local jurisdiction has provided its final acceptance of the work and HUD or the DE Underwriter has reviewed the final Compliance Inspection Report and the Draw Request form. d. The Final Release Notice can be issued authorizing final payment, which may include the interest earned on the escrow account and the total of all holdbacks. This notice also directs the prepayment of the mortgage by the amount remaining in the escrow account. e. A Construction Loan Agreement must be executed by the lender and the borrower. f. All inspections are performed by HUD-approved fee inspectors assigned by the HUD Field Office or the HUD-approved staff of the DE lender. Inspection fees are to be paid by builder. g. A ten (10) percent holdback is required on each release from the Construction Escrow Account. The total of all holdbacks may be released only after the final inspection of the construction and issuance of the Final Release. h. At the discretion of the Field Office or DE Underwriter the cost estimate may include a contingency reserve of no more than ten (10) percent. _____________________________________________________________________ 9 i. Funds not to exceed the amount of six (6) mortgage payments, including PITI and the monthly MIP, can be included in the cost of construction and deposited in the construction account to assist a borrower in making monthly mortgage payments during construction. The lender must make the monthly mortgage payments directly from the construction account. B. Construction Period. The fee inspector monitors the progress of the work during the construction period. The construction period begins when the mortgage loan is closed. If work is not started within 30 days, or if work ceases for more than 30 days, or is not progressing reasonably during the construction period, the lender may consider the loan to be in default. 1. The length of the construction period will be no longer than six (6) months. On a property using modular construction that is built in the factory and moved to the site, the construction period will be no longer than three (3) months. If the work is not completed within the time frame, the borrower and builder must request an extension of time on Change Order Request (Form HUD-92577), providing adequate reasons to justify the extension. If the work is not completed within the specified time period, the lender should verify the status of the work and notify the Field Office and request a Field Review of the property. The Field Office must concur on any time extension (over the 3 or 6 month period) submitted on Change Order Request. An extension can only be granted if the loan is current. 2. The Change Order Request is prepared by the borrower or builder and is submitted to HUD or the DE lender for acceptance. Work must be 100% complete on each change order item before release of any monies to the borrower or builder. If the change order results in an increase of costs, the borrower must place additional monies into the construction escrow account for payment upon acceptance of the change. If a change order results in a decrease of costs, the difference cannot be released and will be applied to prepay the mortgage principal after completion of the work. C. Release of Funds (Draw) from the Construction Escrow Account. Funds may be released under the following conditions. _____________________________________________________________________ 10 1. The initial draw may be released one day after loan closing. Allowable fees paid by the borrower, or on borrower's behalf, may be reimbursed provided they are listed on a separate letter. Under no circumstances is a construction draw request to be approved for work that is not yet complete, including materials that have been paid for but not yet installed. 2. Intermediate draws are inspected by the HUD assigned or DE staff inspector. The inspector visits the site with the accepted architectural exhibits. A construction draw request can only occur for each stage of construction as shown on the form. Improvements must be satisfactorily completed in compliance with industry standards, local practices and to the satisfaction of the fee inspector. If acceptable, the inspector completes a Compliance Inspection Report and the Draw Request, and sends it to the DE Underwriter or to HUD for review. A holdback of 10 percent will be made on all intermediate draws. The lender or HUD may determine that additional compliance inspections are required throughout the construction period to ensure that the work is progressing in a satisfactory manner. Release of funds is not authorized on this type of inspection. 3. Final Inspection will be approved when all work has been satisfactorily completed in compliance with industry standards, local practices and to the satisfaction of the fee inspector. The borrower must provide a letter to the lender requesting final inspection and indicating that the work is satisfactorily complete. Upon receipt, the lender will schedule the inspection with the inspector. The inspector visits the site, makes the inspection to determine whether the construction has been completed according to the accepted exhibits and completes the Compliance Inspection Report and the Draw Request. The inspector returns the report to HUD or the DE lender. 4. The Final Release Notice is issued by HUD or the DE Underwriter after reviewing the case file to ensure that all work has been completed. If an occupancy permit is required by the local jurisdiction, it must be provided prior to the issuance of the Final Release Notice. Acceptance of the final inspection report will authorize the release of all monies remaining in the Construction Escrow Account, including all holdbacks from previous draws. However, the lender may retain the holdback, for a period not to _____________________________________________________________________ 11 exceed 35 days (or the same time period required by law to file a lien, whichever is longer), to ensure compliance with state lien waiver laws or other state requirements. A copy of the final inspection report and Final Release Notice will be given to the borrower. If there are unused construction funds or inspection fees in the account, the lender must apply the funds to prepay the principal balance of the mortgage. 5. Compliance. Investing (secondary) mortgage lenders are encouraged to be bonded, and require lenders who hold the Construction Escrow Account to be bonded, to ensure compliance with their responsibilities to borrowers. D. Foreclosure of Mortgage During Construction. In the event of a default and subsequent assignment of the mortgage during the construction period, the lender is to notify the Chief of the Architectural Branch by letter that a final inspection is being made in order to compensate the contractor for all work completed to date of assignment. The fee inspector is to document on the Compliance Inspection Report and the Draw Request the amount of work that has been completed since the start of construction. HUD or a DE Underwriter will determine the value of the completed work and authorize the release of escrowed funds. Using a similar format to the Final Release, HUD or a DE Underwriter authorizes release of payment for completed work, as well as the release of holdbacks on advances previously released. The lender is to submit a copy of the Final Release Notice with the claim for insurance benefits. If funds remain in the construction escrow account, the amount of the claim (the unpaid principal balance) must be reduced by the unexpended funds remaining in the account. E. The interest rate for the permanent mortgage must be established at closing. F. The case binder is retained by the Field Office until the completion of construction and then is shipped to Headquarters in accordance with outstanding instructions. 3-2 Subdivisions. If construction/permanent mortgages are to be insured in a new subdivision involving five or more lots, the subdivision must be processed under HUD's Improved Area Procedure and the appraiser and DE lender must complete Form HUD-54891. If the subdivision will involve four or fewer lots or the home will be constructed on a spot lot, the builder and DE lender need only complete the Builder Certification Form HUD-92541. _____________________________________________________________________ 12 SECTION 4. OTHER ISSUES 4-1 Direct Endorsement. All unconditionally approved DE lenders are eligible to process Section 248 mortgages, including construction permanent mortgages. The HUD field office may impose a pre-closing review requirement on any DE lender before allowing it to originate construction/permanent mortgages. A. DE lenders may use their own staff to perform Section 248 appraisals, compliance inspections and review of architectural exhibits. However, these individuals must be approved by the HUD Field Office and attend any training session that is required by HUD. Lenders may also use HUD fee panel members which can be assigned by the local HUD Field Office. B. The DE lender will be fully responsible for processing the Section 248 application, including, for construction/permanent mortgages, the authority to make releases from the Construction Escrow Account as the work progresses. The lender's DE Underwriter must sign and date the Compliance Inspection Report and the Draw Request, authorizing release of the monies from the Construction Escrow Account. Copies of the forms must be sent to the HUD Field Office's Architectural Branch after each inspection for recordkeeping and field review purposes. C. The DE lender must use Form HUD 54113 to comply with the certification requirements. 4-2 Maximum Mortgage Amount. The mortgage amount is determined as for any other loan by applying loan-to-value limits to the lesser of the appraised value or acquisition cost. The appraisal is made from complete plans and specifications, and requires a final inspection. The appropriate loan-to-value limits are applied to the lesser of: The appraised value, or The documented acquisition cost of the property, which includes the contractor's price to build. A. HUD requires a copy of the contract to determine that there is a legitimate contractor involved and that it is an arms-length transaction (no identity of interest between the contractor and purchaser). _____________________________________________________________________ 13 B. Documentation Requirements. The loan is closed using the standard HUD documentation with the addition of a Construction Rider to the Mortgage (if applicable), Construction Loan Agreement (if applicable), the HUD-approved Residential Lease, and the Section 248 Rider. Other appropriate forms to be used are also attached to this Mortgagee Letter. 4-3 Closing Costs. Only the typical, customary, and reasonable closing costs may be included in the mortgage. However, the Department will allow lenders to charge an origination fee of up to 2 1/2 percent for loans involving construction advances. 4-4 Endorsement. Cases should be submitted within 60 days after closing. For construction/permanent mortgages, the lender must include in the case binder verification that the escrow account has been established. 4-5 Amortization is the same as prescribed under Section 203(b). 4-6 Failure to enforce evictions. 24 CFR 203.43h(b) addresses the problem of tribes that do not enforce eviction procedures. If the Field Office Manager determines that a tribe has failed to adequately enforce its eviction procedures, HUD will cease issuing commitments for the insurance of mortgages to tribal members and instruct Direct Endorsement lenders within the jurisdiction of the Field Office to cease approving mortgages. A. Adequate enforcement entails an eviction occurring within 60 days after the date of the notice by HUD that foreclosure was completed. B. Review. If HUD ceases issuing commitments because of the lack of enforcement then: 1. HUD will notify the tribe of the reasons and that the tribe may, within 60 days of HUD's notice, file a written appeal with the Field Office Manager. 2. In the event of an adverse decision by the Field Office Manager, the tribe has 60 days to file a written request for review with the Regional Administrator (RA). C. Upon notification of an adverse decision by the RA, the tribe has an additional 60 days to file an appeal with the Secretary. The determination of the Secretary is final, but the tribe may resubmit the issue to the Secretary at any time if new evidence of changed circumstances warrant reconsideration. D. Any other action taken by HUD to debar a tribe from participating in this program will be subject to the formal debarment procedures of 24 CFR Part 24. _____________________________________________________________________ 14 4-7 Property Disposition. After a Section 248 property is acquired, the Field Office should endeavor to sell the leasehold property. However, tribal consent must be obtained on any subsequent sales. In the event that a buyer acceptable to the tribe cannot be found, the tribe may propose a renter. If the tribe does not propose an acceptable renter, the Field Office may rent the property to anyone, including non-Indians. 4-8 Outreach. HUD Field Offices with Indian lands in the jurisdiction will plan training and outreach efforts, to the extent possible, to interest lenders in participating in the Section 248 program. Because these processing instructions address some servicing issues, it should be shared with the Housing Management Division. If you have any questions concerning these instructions, please contact the Single Family Development Division, Mortgage Credit Branch, (202) 708-2700. _____________________________________________________________________ RESIDENTIAL LEASE Lease No. ________________________ Contract No. _____________________ THIS LEASE, made and entered into between ____________________________ __________________________________________________, hereafter designated as "LESSOR," and _____________________________________________________________ member(s) of the ________________________________________ residing upon the _______________________________________________________ Indian Reservation, hereinafter designated as "LESSEE(S)". If the Lessor is not an Indian Tribe, the term "Tribe" is defined as: __________________________________. WITNESSETH: 1. SECRETARIAL APPROVAL. As used in this Lease, the term "Secretary" means the Secretary of the Interior or his duly authorized representative. This Lease is subject to the approval of the Secretary pursuant to the Act of August 9, 1955, 69 Stat. 539, as amended; 25 U.S.C. 415. This Lease has been prescribed by the Secretary of Housing and Urban Development (HUD) pursuant to 24 CFR 203.43h(c), which implements Section 248 of the National Housing Act, 12 U.S.C. 1715z-13, for use in connection with Federal Housing Administration (FHA) insurance of a mortgage on the interest created by this Lease. 2. PREMISES. Lessor, as authorized by law and in accordance with a resolution adopted by the _________________________________________________ ___________on _________________________, hereby leases to the Lessee(s) all that tract or parcel of land situated on the ______________________________ __________Indian Reservation, County of ___________________________________ _____State of ___________________________________________, and described as follows: 3. USE OF PREMISES. The object of this Lease is to enable the Lessee(s) to construct, improve and/or maintain a dwelling and related structures on the leased premises, and otherwise to use said premises as a principal residence. _____________________________________________________________________ 2 4. TERM. Lessee shall have and hold the premises for a term of twenty-five (25) years beginning on the effective date of this Lease. This Lease shall automatically and without notice renew for an additional term of twenty-five (25) years on the same terms and conditions contained herein. This Lease may not be terminated by either or both parties during its initial or renewal term if, and as long as, the Lease and/or any improvements on the premises, or any interest therein, are mortgaged or otherwise pledged as security for any loan in accordance with the provisions hereof, unless consent in writing to such termination is given by the Lender and, when HUD/FHA insurance is in force, by HUD. This Lease shall not be subject to any forfeiture or reversion and shall not be otherwise terminable, if such event would adversely affect any interest in the premises, including improvements thereon, acquired in accordance with the provisions hereof by the holder of any mortgage or other lien, or of any purchaser at a foreclosure sale under such mortgage (or lien) or under any conveyance given in lieu of foreclosure, or of any holder subsequent to such purchase. In the event HUD acquires a mortgage on the interest created by this Lease by assignment from a lender, the Lessor shall not terminate the Lease without the written consent of HUD as long as the mortgage is in force. 5. RENT. The improvement of housing for ____________ families is a public purpose of the Lessor. The consideration for this Lease is (1) the said purpose, (2) the promise hereby given of Lessee(s) to pay the Lessor rent at the rate of One Dollar ($1.00) for each twenty-five (25) year term, payment to be made each term in advance, (3) the extinguishment, hereby agreed to by Lessee(s), of any and all use rights heretofore held by Lessee(s) in the premises, so that Lessee(s) shall hereafter hold rights only by virtue of this lease, and (4) other good and valuable considerations, the receipt of which is hereby acknowledged by Lessor. It is agreed that there shall be no adjustment of the rent if the Lease is terminated before its term otherwise would expire or in the event that any part of the premises is taken by condemnation for highway or other public purposes. 6. IMPROVEMENTS. All buildings or other improvements now existing or hereafter constructed on the premises shall be the leasehold property of the Lessee(s) during the term of this Lease, including any extension or renewal thereof. 7. USE RIGHT. Upon expiration of this Lease, or upon its termination in accordance with the terms hereof, unless such termination is due to default upon the part of Lessee(s), Lessee(s) or any successors in interest shall be entitled to use rights in the premises if qualified under the laws and customs of the _______________________. If not so eligible, Lessee(s) and any successors in interest shall, upon demand, surrender to Lessor upon expiration or other termination of this Lease complete and peaceable possession of the premises and all improvements thereon, which shall be the property of the _________________. _____________________________________________________________________ 3 8. FEDERAL SUPERVISION. (a) Nothing contained in this Lease shall operate to delay or prevent a termination of Federal responsibilities with respect to the premises by the issuance of a fee patent, the lifting of restrictions on alienation, or otherwise during the term of the Lease; such termination, however, shall not serve to abrogate the Lease. (b) No member of Congress or any delegate thereto or any Resident Commissioner shall be admitted to any share or part of this Lease or to any benefit that may arise herefrom. (c) The Lessee(s) agree(s) not to use or cause to be used any part of said premises for any unlawful conduct or purpose. 9. QUIET ENJOYMENT. Lessor agrees to defend the title to the premises and also agrees that Lessee(s) and any successors in interest shall peaceably and quietly hold, enjoy and occupy the premises for the duration of this Lease without any hindrance, interruption, ejection or molestation by Lessor or by any other persons whomsoever. 10. ASSIGNMENT. Except as otherwise provided herein, Lessee(s) shall not assign this Lease without the prior written consent of the Lessor and, if this Lease and/or any improvements on the premises are mortgaged or pledged as security for a loan, without the written approval of the lender. Lessee(s) may assign the Lease or deliver possession of the premises, including any improvements thereon, to the lender or its successors in interest if Lessee(s) default(s) in any mortgage or other loan agreement for which the Lease and/or improvements on the premises are pledged as security, and, in such event, the lender or its successors in interest may transfer this Lease or possession of the premises to a successor Lessee. Nothing in this Lease shall prevent the Lessee(s) from executing and recording a mortgage, declaration of trust and/or other security instrument as may be necessary to obtain financing for the construction and/or improvement of a dwelling and related structures, or shall prevent the mortgagee or other lender from foreclosing or instituting other appropriate proceedings under law in the event of default or any mortgage or other loan agreement by the Lessee(s). Except in cases involving loans for home construction or home improvement by a bank or other recognized lending institution, where no such consent or approval of Lessor shall be required, lessee(s) may not execute a mortgage, declaration of trust or other security instrument pledging their interest in this Lease or any improvements on the premises without the prior consent of Lessor and the approval of the Secretary. Notwithstanding the provisions contained above, the following additional requirements shall be applicable to a Lease which secures a mortgage insured or held by HUD/FHA: (1) Lessee(s) shall not sell or otherwise assign this Lease without the prior written consent of the tribe of which the Lessee(s) is/are member(s), if the Lessor is not such tribe. (2) In the event HUD acquires the mortgage secured by this Lease, and subsequently acquires the Lease by foreclosure, or by the assignment of the Lease by Lessee(s) (for which the approval of the tribe is not required), then: (a) HUD will notify the tribe of the availability of the Lease for sale, the sales price and other terms of sale. _____________________________________________________________________ 4 (b) If a purchaser is found, the Lease will be transferred by HUD to the purchaser, with the written consent and approval of the tribe. (c) If a purchaser cannot be found, HUD shall be entitled to sublease the leased premises to anyone wishing to sublease the same. The term of the initial sublease period and any succeeding periods shall not exceed one year each. A purchaser approved by the tribe must wait where the leased premises are sublet until the expiration of any current sublease before occupying the premises. (d) No mortgagee (except HUD as assignee of a mortgage) may obtain title to the interest created by this Lease without the prior written consent of the tribe. 12. OPTION. In the event of default by the Lessee(s) on any mortgage or other loan agreement for which this Lease or any improvements on the premises are pledged as security, Lessor shall have the right of first refusal to acquire the Lessee's interest in the premises (subject to all valid liens and encumbrances) upon (a) payment of all sums then in arrears, and (b) either payment of the balance of the loan or assumption of the mortgage. Said right of first refusal may be exercised at any time within thirty (30) days after notice in writing from the lender of the Lessee's default, which notice shall be given before the lender invokes any other remedies provided under the mortgage or by law, and shall be exercised by notice in writing from the Lessor to the Lessee(s) and the lender; provided, however, that the Lessee(s) shall have fifteen (15) days from the date of the latter notice to cure the default. The estate acquired by the Lessor through exercise of said right of first refusal shall not merge with any other estate or title held by the __________________________________ as long as this Lease and/or any improvements on the premises, or any interest therein, are mortgaged or otherwise pledged as security for any loan, and said estate shall remain subordinate to any valid and subsisting mortgage or other security instrument. Provided: Where the Lessee(s) default(s) on a HUD/FHA insured mortgage, this option shall not be exercised by the Lessor unless: (1) HUD has considered the Lessee(s) for assignment forbearance relief and determined Lessee(s) to be ineligible; (2) after Lessee(s) has/have received assignment forbearance relief, HUD determines Lessee(s) to be ineligible for additional assignment relief, or (3) HUD is not required by appropriate regulation (24 CFR 203.664(b)(2)) to grant assignment forbearance relief to the Lessee(s). 13. EFFECTIVE DATE. This Lease and all its terms and provisions shall be binding upon the heirs, successors, executors, administrators and assigns of the Lessee(s) and any successor in interest to the Lessor, and shall take effect on the _____________________ day of ____________________, 19 ___. _____________________________________________________________________ 5 14. OBLIGATIONS TO THE UNITED STATES. It is understood and agreed that while the leased premises are in trust or restricted status, all of the Lessee's obligations under this lease, and the obligation of his sureties, are to the United States as well as to the owner of the land. ________________________________, LESSOR ATTEST: By______________________________________ _________________________________ (Authorized Official) WITNESS: ________________________________, LESSEE _________________________________ ________________________________, LESSEE WITNESS: APPROVED: DATE: _________________________________ ________________________________________ Secretary of the Interior _____________________________________________________________________ 4165.1 REV-1 APPENDIX XIII ___________________________________________________________________________ RIDER FOR SECTION 248 MORTGAGE THIS RIDER FOR SECTION 248 MORTGAGE is made this day of , 19 , and is incorporated into and shall be deemed to amend and supplement the Mortgage, Deed of Trust or Security Deed ("Security Instrument") of the same date given by the undersigned ("Borrower") to secure Borrower's Note ("Note") to ("Lender") of the same date and covering the property described in the Security Instrument and located at: Property Address ADDITIONAL COVENANTS. In addition to the covenants and agreements made in the Security Instrument, Borrower and Lender further covenant and agree as follows: A. The interests of the Borrower in the property described above were created by a lease agreement from as lessor dated , 19 . Any reference to the "Property" shall be construed as referring only to the interest of Borrower created by such lease or any replacement lease. B. If the Security Instrument is assigned to the Secretary of Housing and Urban Development ("Secretary"), any foreclosure proceeding may take place in a tribal court, Federal district court, or other court of competent jurisdiction. Section 248(f)(5) of the National Housing Act grants to any such court the jurisdiction to convey to the Secretary the remaining life of a lease on the property and to order eviction of the delinquent Borrower. C. Any purchaser at foreclosure sale other than the Secretary must receive the written consent of the lessor or, if lessor is not an Indian tribe, the tribe of which lessor is a member. The purchaser shall receive a lease for the remaining term of the existing lease unless the tribe consents to an assumption of the existing lease. D. This Security Instrument may be assumed, subject to credit approval by the Lender and the consent of the tribe to an assumption of the existing lease or the grant of the new lease. Assumption shall not cause any adjustment of the interest rate. E. A sale of property subject to the Security Instrument without an assumption of the Security Instrument may be made if a new lease for the remaining term of the existing lease is granted. BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants in this Rider for Section 248 Mortgage. ______________________________(SEAL) Borrower ______________________________(SEAL) Borrower ADD ANY NECESSARY ACKNOWLEDGEMENT PROVISIONS. ___________________________________________________________________________ 4/92 XIII-1 _____________________________________________________________________ Mortgage Credit Anaylsis Worksheet Instructions For transactions involving Section 248 please follow the instructions below to complete the Mortgage Credit Analysis Worksheet. Line 14b Cross out Repairs and Improvements and replace it with Construction Costs. Construction Cost calculation is as follows: Builder as General Contractor A. Total Cost of Construction _______ B. Contingency Reserve on Construction costs (10-20% of A) _______ C. Mortgage payments escrowed (__ months x $ ___) _______ D. Total for Construction Escrow Account _______ Place amount from line D on line 14b Borrower as General Contractor A. Total Cost of Construction excluding labor costs _______ B. Contingency Reserve on Construction costs (10-20% of A) _______ C. Inspection Fees (___ x $___ per inspection) _______ C. Mortgage payments escrowed (__ months x $ ___) _______ D. Architectural & Engineering Fees _______ E. Independent Consultant Fees _______ F. Permits and Other Fees (Explain in Remarks section of Worksheet) _______ G. Total for Construction Escrow Account _______ Place the amount from line G and place amount on line 14b Line 14g Section 248 is exempted from UFMIP and annual premium. MIP is calculated into the mortgage payment in section 17, Future monthly payments. Line 14k This line will always be blank under Section 248. _____________________________________________________________________ __________________________________________________________________________ Mortgage Credit Analysis Worksheet ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ Mortgage Credit Analysis Worksheet (Continued) ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ 248 APPLICANT ACKNOWLEDGEMENT I/We, the undersigned, do hereby acknowledge and understand that at the time of the loan closing of HUD 248 Insured Construction/Permanent Loan, for which I/we have applied to ______________________________________ ____________________________________________________ (lender), the proceeds designated for the construction, including a contingency reserve in the amount of $ _______________ (received form the borrower/loan proceeds), are to be placed in an interest bearing escrow account. If there are unused contingency funds, mortgage payments or inspection fees in the Construction Escrow Account after the Final Release is processed, ___________________________________________________ (lender), in compliance with HUD regulations, must apply those funds to prepay the mortgage principal, provided those items are a part of the mortgage. The net income (interest) earned by the Construction Escrow Account will be (1) paid to me/us or (2) applied to prepay the mortgage principal upon the completion of construction. This account is not, nor shall it be treated as an escrow for the paying of real estate taxes, insurance premiums, delinquent notes, ground rents, or assessments. I/We hereby request that ____________________________________(lender), after final inspection is satisfactorily complete and the final release has been processed, will: o Pay the net interest income directly to me/us. o Apply the net interest income directly to the mortgage principal balance for an equal amount of principal reduction. o Other: If/We further acknowledge, that if required to protect the priority of the Security Instrument, that ____________________________________ (lender) may retain the holdback, for a period not to exceed 35 days (or the time period to required by law to file a lien, whichever is longer), to ensure compliance with state lien waiver laws or other state or tribal requirements. A copy of the final inspection report and Final Release Notice will be provided to me/us. I/We further understand that the Appraiser and Inspectors obligation is to assist the lender in determining the eligibility of the property for HUD mortgage insurance purposes only and that I/we are responsible to determine the soundness of the property before and after construction, including value, cost estimates and the ability of the contractor to complete the construction in a satisfactory workman like manner in compliance with all accepted exhibits and local codes and ordinances. ________________________________________________ (DATE) Applicant Signature ________________________________________________ (DATE) Co-Applicant Signature _____________________________________________________________________ CONSTRUCTION LOAN AGREEMENT This Agreement is made this __________ day of _______, 19____, between __________________ (Borrower) and _________________________________(Lender) to establish the conditions under which the Lender will advance proceeds of a loan to be used to purchase and construct the property described below. The property is located on the Reservation of _____________________________ ______________________________________(Tribe) State of_____________________ and is described as: 1. The loan will be in the principal sum of _____________________ Dollars ($_______________) to be advanced by Lender to Borrower as provided in this agreement and will be secured by a mortgage or deed of trust (Mortgage), which will be a first lien on the property. 2. Payments required under the mortgage or deed of trust must be made by the Borrower on the date specified, even though the proposed construction may not be completed or the property may not be suitable for occupancy, on the anticipated date. 3. The Lender intends to request the Assistant Secretary for Housing - Federal Housing Commissioner (Commissioner) to insure the loan under the provisions of Section 248 of the National Housing Act; therefore, Borrower agrees to conform to, and to cause the unit to be constructed in conformance with, all requirements of the Commissioner. 4. The Lender will place that portion of the principal amount of the loan allocated to construction ($ _________________) in a secured interest bearing account, trust or escrow for the benefit of the Borrower (hereafter "escrowed funds"). The income earned on the escrowed funds will be paid upon issuance of the Final Release Notice or such earlier time as agreeable to the Lender. If the Borrower should default under the mortgage or deed of trust, funds in the interest bearing account, trust, or escrow that have not been approved for disbursement shall be applied to the unpaid balance of the loan. Lender shall release the escrow funds by check, payable to the Borrower and the contractor or other appropriate payee who performed the work and supplied the materials in connection with this Agreement. The funds shall not be released until a 248 Draw Request, signed by both the Mortgagor and contractor, and an executed Compliance Inspection Report (Form HUD-92501) are approved by the Mortgagee. The Final Release of the escrow funds is to take place only after the final acceptance of work by local or tribal jurisdiction. The Lender or HUD may determine that additional compliance inspections are required throughout the construction period to ensure that the work is progressing in a satisfactory manner. Release of funds is not authorized on this type of inspection, however, the Borrower or builder is responsible for paying the inspection fee. The Lender may require a property inspection if there have been no draw requests for more than 30 days. _____________________________________________________________________ If a Mortgage Payment Reserve is established in the escrow account, the Lender may draw from the account to make the monthly mortgage payments provided the dwelling has not been occupied and/or the Final Release Notice has not been issued. 5. The principal amount of the loan specified in paragraph 1 contains a contingency reserve. If the contingency reserve or any part thereof is not used, the remaining balance will be applied as a partial prepayment of the loan, if the contingency reserve is part of the mortgage. However, such prepayment will not extend or postpone the due date of any monthly installment due under the note, nor change the amount of such installments. If the Borrower, (or other person, organization or agency) put his or her own money into the contingency reserve account, then the Borrower can be refunded the money remaining in the account after the issuance of the Final Release Notice. 6. The Borrower will complete all construction on the property in accordance with the architectural exhibits as accepted as accepted by the Lender and/or Commissioner. 7. Changes in the architectural exhibits must be approved by HUD or the Direct Endorsement Underwriter, prior to the beginning of construction. Construction must be 100% complete on each change order item before release of any monies. 8. Borrower will cause all improvements to be made in a workmanlike manner and in accordance with all applicable statutes and regulations. All licenses, permits and privileges required by local or tribal governmental authorities to construct the property will be obtained by the Borrower or his/her contractor. 9. Representatives of the Lender and of the Commissioner shall have the right to enter upon the property at all times during the period of construction and on completion of construction to determine whether the work conforms with this agreement and to determine the amount of the Construction Escrow Account to be released by the Lender. 10. Borrower will furnish such records, contracts, bills and other documents relating to the property and the construction as the Lender or the Commissioner may require. 11. Without prior, written consent of the Lender, no materials, equipment, fixtures, or any part of construction financed with this loan shall be purchased or installed subject to conditional sales contracts, security agreements, lease agreements, or the right is reserved or accrues to anyone to remove or repossess any item, or to consider it as personal property. 12. The Borrower shall cause either this instrument or the construction contract to be filed in the public or tribal records, if the effect of recording will be to relieve the mortgage property from mechanics and materialmen's liens. Before any advance under this agreement, the Lender may require the Borrower to obtain acknowledgement of payment and releases of lien from the contractor and all subcontractors and materialmen dealing directly with the principal contractor. These releases shall cover the period down to the date covered by the last advance, and concurrently with the final payment for the entire project. Such acknowledgements and releases shall be in the form required by local, tribal or state lien laws and shall cover all work done, labor performed and materials (including equipment and fixtures) furnished for the project. _____________________________________________________________________ 13. Borrower shall cause work to begin within 30 days following the date of this agreement. Borrower shall have work completed with ___ months following the date of this agreement. Work shall be performed with reasonable diligence; therefore, work is never to cease for more than 30 consecutive days. Should Borrower fail to comply with these terms, the Lender may refuse to make further payments under this agreement. Any funds remaining in the Construction Escrow Account shall be applied as a prepayment to the mortgage. 14. In the event any Stop Notices, Notices to Withhold, Mechanic's Liens, or claims of liens are filed against the property, the Lender, after five (5) days' notice to the undersigned of its intention to do so, may pay any or all such liens or claims, or may contest the validity of any of them, paying all costs and expenses of contesting the same. 15. Failure of the Borrower to perform under the terms of this Construction Escrow Account shall make the loan amount, at the option of the Lender, due and payable. 16. The Borrower acknowledges receipt of the accepted architectural exhibits that are incorporated into this agreement, which copies are maintained by the Lender and in the HUD Field Office. _____________________________________________ Borrower(s) Signature(s) Date _____________________________________________ Date _____________________________________________ Lender Signature Date _____________________________________________________________________ CONSTRUCTION LOAN RIDER THIS CONSTRUCTION LOAN RIDER is made this ____________ day of________, 19 _____, and is incorporated into and shall be deemed to amend and supplement the Mortgage, Deed of Trust or Security Deed (Security Instrument) of the same date given by the undersigned (Borrower) to secure Borrower's Note (Note) to (lender) of the same date and covering the property described in the Security Instrument and located at: (property address) ADDITIONAL COVENANTS. In addition to the covenants and agreements made in the Security Instrument, Borrower and Lender further covenant and agree as follows: A. All replacements and additions, and Borrower's interest in the Construction Escrow Account established in connection with this Security Instrument, shall be covered by this Security Instrument. B. Loan proceeds are to be advanced for the construction of the premises in accordance with the Construction Loan Agreement dated ___________, 19___, between the borrower and lender. This agreement is incorporated by reference and made a part of this mortgage. No advances shall be made unless approved by a Direct Endorsement Underwriter or the Assistant Secretary of Housing - Federal Housing Commissioner, Department of Housing and Urban Development. C. If the construction is not properly completed, performed with reasonable diligence, or is discontinued at any time except for strikes or lockouts, the lender is vested with full authority to take the necessary steps to protect the construction and the property from harm, continue existing contracts or enter into necessary contracts to complete the construction. All sums expended for such protection shall be added to the principal indebtedness, and be secured by the mortgage and be due and payable on demand with interest as set out in the note. D. If the borrower fails to make any payment or to perform any other obligation under the loan, including the commencement, progress, and completion provisions of the Construction Loan Agreement, and such failure continues for a period of 30 days, the loan shall, at the option of the lender, be in default. BY SIGNING BELOW, Borrower accepts and agrees to the terms of the covenants contained in this Construction Loan Rider. ___________________________________(DATE) _____________________________________________________________________ __________________________________________________________________________ SAMPLE DRAW REQUEST Section 248 ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ __________________________________________________________________________ SAMPLE DRAW REQUEST Section 248 ( Continued ) ******************************************************************** * * * * * * * * * * * * * * * * * * * GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED * * * * * * * * * * * * * * * * * * * ******************************************************************** __________________________________________________________________________ _____________________________________________________________________ FINAL RELEASE NOTICE 248 Case Number: ____________________________________________________ Property Address: ____________________________________________________ ____________________________________________________ To: Mortgagee (HUD processed) Mortgagor (DE processed) We have reviewed the final inspection of the construction of the subject property. Based on our findings and the documentation in the file, you are hereby authorized to release the final draw along with the holdback. However, if it is required to protect the priority of the Security Instrument, the hold back may be retained for a period not to exceed 35 days (or the time period required by law to file a first lien, whichever is longer), to ensure compliance with state lien waiver laws or other state or tribal requirements. The mortgage must be prepaid in the amount of $________________, which represents the balance of the contingency reserve, mortgage payment reserve, inspection fees or other miscellaneous fees that were financed and not approved for release. ____________________________________________(DATE) Chief, Architectural Branch or DE Underwriter _____________________________________________________________________ MORTGAGOR'S LETTER OF COMPLETION * To: Lender RE: 248 Case Number: ___________________________________________ Lender's Loan Number: ___________________________________________ Property Address: ______________________________________________ ______________________________________________ The construction, as outlined in the Construction Loan Agreement (including architectural exhibits), has been completed in a workmanlike manner to my/our satisfaction to the above mentioned property. I/We request that the Final Inspection by the HUD approved inspector and the Final Release of funds from the Construction Escrow Account be made to me/us after you receive an acceptable Final Compliance Inspection Report. I/We understand that you, the lender, if required to protect the priority of the Security Instrument, may retain any "Holdback" reserve funds for a period of not more than thirty five (35) days or a longer time period allowable by state laws to ensure against to ensure against any liens resulting from the construction of the home on the subject property. However, at the earliest possible date, I/we request any such funds be released as is appropriate. This request also directs you to properly distribute the funds in the Construction Escrow Account that represent the balance of the Contingency Reserve, Mortgage Payment Reserve, and inspection fees and other miscellaneous fees (if applicable) that were not used. ____________________________________________(DATE) Borrower(s) Signature * If HUD processed, the lender should forward to HUD for review. _____________________________________________________________________ CONTINGENCY RELEASE LETTER 248 Case No: __________________________________________________ Property Address: __________________________________________________ __________________________________________________ To: Mortgagee (HUD processed) Mortgagor (DE processed) We have received and reviewed your request for release of $__________, the contingency reserve for your 248 mortgage. Your request is approved/disapproved, of the amount of $_____________. ____________________________________________(DATE) Chief, Architectural Branch or DE Underwriter *U.S. GOVERNMENT PRINTING OFFICE:1994-301-067/93956