What Are Unique Requirements In A HUD Loan

HUD loans are like riding a bike. It may seem complex at first; but with a little practice it is intuitive and easy to use. Here are some unique requirements.

  1. Regulatory Agreement is signed by owner and HUD and is the primary document that addresses HUD’s requirements of the owner related to protecting the government’s investment in the project.
  2.  Financial Requirements
    1. Audited Financial Statements
      1. Audited Financial Statements (AFS) must be submitted annually. Prior to your initial submission, you must establish your fiscal year and submit that information to the Account Executive. The AFS is due ninety days after your fiscal year end. It must be filed electronically through the Secure Systems Financial Assessment Subsystem (FASS).
      1. FASS is part of the Real Estate Assessment System (REAC). (See information below.)
      1. The audit must be in a specific format using HUD’s Chart of Accounts. That information is found in the Appendices for the User Guide for FASSUB.
      1. Accrual accounting is required.
    1.  Monthly Accounting Reports. The report is required for at least 12 months after endorsement.
      1. Submit to your Account Executive by the 10th of the month following the report month.
      1. Use form HUD-93479 Monthly Report for Establishing Net Income, and Schedule B (HUD-93480 Schedule of Disbursements) and Schedule C (HUD-93481 Schedule of Accounts Payable) or other financial submissions approved by your Account Executive.
      1. Schedule B can be replaced with a print of the check register in date and number order. Please include the purpose of the disbursement (may handwritten in). All check numbers must be accounted for, including those you have voided.
      1. Schedule C can be replaced with a print of aging accounts Payables. If the purpose of the Payable is not clear, please write it in.
    1. Certain Separate Accounts Required
      1. Entity vs. Operations
      1. Tenant Security Deposits
      1. Reserve for Replacements Account
    1. Limitation on Distributions to Surplus Cash. Allowable distributions shall be made after the end of a semi-annual or annual fiscal period. “Surplus Cash” means any cash plus amounts received under Section 8 project-based subsidy payments (earned in the applicable fiscal period) remaining after:
      1. The payment of:
        1. all sums immediately due or currently required to be paid under the terms of the Note, the Security Instrument and this Agreement on the first day of the month following the end of the fiscal period; including without limitation, all amounts required to be deposited in the Reserve for Replacement or other reserves as may be required by HUD; and
        1. all other obligations of the Project (accounts payable and accrued, non-escrowed expenses) unless funds for payment are set aside or deferment of payment has been approved by HUD, and
      1. The segregation and recording of:
        1. an amount equal to the aggregate of all special funds required to be maintained by Borrower;
        1. the greater of Borrower’s total liability or the amount held by Borrower for tenant security deposits; and
        1. all accounts and accrued items payable within thirty (30) days after the end of the fiscal period.
    1. Advances and contributions.
      1. Equity or capital contributions may not be reimbursed from Project accounts without the prior written approval of HUD.
      1. Reimbursement of Advances. Any owner advances made must be deposited into the Project’s operating account. Reimbursements are only allowed from surplus cash at the end of the annual or semi-annual period or such other time as may be approved in writing by HUD. Interest may be permitted on such advances with the prior written approval of HUD.
    1. Purchasing. Borrower shall obtain contracts for goods, materials, supplies, and services at costs, amounts, and terms that do not exceed reasonable and necessary levels and those in the area. The purchase price should be based on quality, durability and scope of work and be the most advantageous terms. Reasonable Operating Expenses do not include amounts paid for improvements unless determined by HUD to be prudent and appropriate. Borrower shall keep copies of all written contracts or other instruments.
    1. Insurance.
      1. Please contact insurance agent and request that our office receive a copy of the Acord certificates.
      1. Property Insurance Requirements (form HUD-92447) and schedule (form HUD 92329).
    1. Fidelity Bond Coverage is required for management agent principals and participating staff. Amount must be at least the project’s gross potential income for 2 months.
  3. Physical Condition of Project
    1. Physical Assessment Subsystem (PASS)
      1. Contractors inspect project and delete points for deficiencies according to a standardized format. Inspection will be every year unless score over 80 (every 2 years if 80 to 89; every 3 years if 90 or above.)
      1. Important to not have Exigent Health and Safety Issues or score below 60. If either, we require a certification of correction within 72 hours and 60 days, respectively.
      1. Important to do pre-inspection and to look for key deficiencies that have many points (expired extinguishers, exposed wiring, nonfunctioning smoke detectors.) Packet has links to more information.
    1. Noncritical repairs escrow is held by the lender. Repairs must be completed during the first year after closing.
    1. Reserves for Replacement Escrow.
      1. Amounts of deposit are in the Regulatory Agreement. Lender will automatically collect the deposit as part of monthly payment.
      1. Requests for disbursements must be approved by HUD. Submit a completed form HUD 9250, Funds Authorization, to your Account Executive. We allow for major repairs and capital replacements. More information is in Chapter 4 of Handbook 4350.1 and Housing Notice 99-13. Item must be identified with specificity—may submit invoice.
      1. Your request also requires submission of a certification that you may obtain from your Account Executive. Certification lists specific requirements, such as cannot be for an invoice older than 1 year.
      1. Reevaluation of deposit at least every ten years, starting from the date of initial or initial/final endorsement of the Note, and more frequently at HUD’s sole discretion, Borrower shall submit to HUD a written analysis of its use of the Reserve for Replacement during the prior ten years and the projected use of the Reserve for Replacement in accordance with Program Obligations. Owner must obtain and submit to HUD a Project Capital Needs Assessment (PCNA) at least 6 months prior to the anniversary date. Cost of PCNA is an eligible expense from the reserves for replacement account.
  4. Occupancy Issues
    1. Tenant fees and deposits. Owners are allowed to charge fees that are typical in the market place with HUD permission. No founder’s fee or admission fees allowed.      Move in fees cannot be greater than prepayment of the first month’s rent plus a security deposit in an amount not in excess of one month’s rent. Also, you may charge reasonable application processing fees such as credit check, criminal background fees, or pet deposits. If you have not already had those charges approved by this office, please submit immediately for their approval.
    1. Fair Housing Requirements and Affirmative Fair Housing Marketing.
    1. Management and Occupancy Review (MOR) is conducted by an Account Executive using form HUD 9834. Selection for review is currently based on an analysis of several factors.
  5. You must notify HUD in writing of the following events:
    1.  If an appointment of any receiver for the Project, the filing of a petition in bankruptcy or insolvency or for reorganization.
    1. If a property or liability insurance claim is paid.
    1. If any action relating to any condemnation or other taking, or conveyance in lieu thereof, of all or any part of the Mortgaged Property, whether direct or indirect condemnation.
    1.  If any litigation proceeding filed against Borrower or the Project, or any litigation proceeding filed by Borrower.
  6. Owners may not take any of the following actions without prior written approval of HUD:
    1. Convey, assign, transfer, or otherwise dispose of the Mortgaged Property or any interest therein.
    1. Enter into any contract, agreement or arrangement to borrow funds or finance any purchase or incur any liability other than for Reasonable Operating Expenses.
    1. Pay any entity related expenses except from Surplus Cash or other permitted withdrawals.
    1. Change the management agent. Enter into or change any contract, agreement or arrangement for supervisory or managerial services or Leases for operation of the Project in whole or in part except as permitted under Program Obligations.
    1. Convey, assign or transfer any right to receive the rents of property.
    1. Remodel, add to, subtract from, construct, reconstruct or demolish any part of the Mortgaged Property, except for routine replacements.
    1. Permit the use of the Mortgaged Property for any other purpose except the use for which it was originally intended or permit commercial use greater than that originally approved by HUD.
    1.  Amend the organizational documents. All new principals must submit a Previous Participation Certification.
    1. Take any kickbacks from agents or vendors.
    1. Agree to change in zoning that changes the permitted use.
    1. Changing to a condominium or cooperative use.
    1. Change unit configurations or number of insured units.
  7. Secure System/REAC Registration Requirements — use of these systems is required.

HUD transacts certain business with Multifamily Housing Owners ONLY over the Internet and by email. Owners should register for access to HUD’s electronic systems in the Real Estate Assessment Center (REAC) as soon as possible after final endorsement.

What systems do all multifamily properties with HUD-insured mortgages access?

                FASSUB—System to File the Annual Financial Report

  • Owner’s financial statement must be filed in this system within 90 days of the end of the owning entities fiscal year. It is important to set up your access to REAC early since it takes some time and extensions are rarely granted. There are negative consequences for filing late. These are being flagged in the previous participation (APPS) system and referral to the Enforcement Center, which may result in fines.

PASS—Physical Inspection System

  • To get electronic reports of property inspections

APPS—”Active Partners Performance System”

  • To establish an electronic baseline that is now required by HUD instead of the paper HUD-2530 Previous Participation Certification
  • To change addresses of owners, lessees, and management agents, add or delete participants, or be approved for multifamily business

Local HUD staff does not have access to the systems themselves as a security measure.

For Registrations Problems, call the REAC Help Line at 1-888-245-4860 For Applications Problems, call the Multifamily Help Desk 1-880-767-7588

VIII. Useful HUD Reference Materials—Handbooks, forms, web

4350.1Insured Servicing MF Asset Management and Project Servicing Partially Updated in Housing Notice 99-13  
4370.2Financial Accounting Procedures Handbook (developed before electronic filing)
4381.5, REV-2Management Agent Handbook
8025.1, REV-2Implementing Affirmative Fair Housing Requirements
4065.1  Previous Participation Handbook
Forms—Fair Housing  
HUD-928.1, 1AFair Housing Poster in English and Spanish
HUD-934.1, 1A HUD-934.2 ,2A, HUD-934.3,3A  Equal HSG. Opportunity Logo in English and Spanish and in several sizes
HUD 934.4, 4AEqual HSG Opportunity Logo and Slogan
HUD-935.2AAffirmative Fair Housing Marketing Plan (Multifamily Housing)*
Forms for Monthly Accounting Report
HUD-93479Monthly Report for Establishing Net Income
HUD-93480Schedule B Schedule of Disbursements
HUD-93481Schedule C Schedule of Accounts Payable
Forms for Management Agent Reviews, Changes, or Updates
HUD-9832Management Entity Profile
HUD-9834Management Reviews of Multifamily Projects
HUD-9839-BProject Owner’s & Management Agent’s Certification
Forms for Reserve for Replacement Withdrawals
HUD 9250Funds Authorizations for use of Reserve for Replacement or Residual Receipts
CertificationRequest in Word format
Useful Internet Sites
FASSUB (including Chart of Accounts)HUD’s in Appendices
Forms, handbooks, etc.http://www.hud.gov/offices/adm/hudclips/index.cfm
REAC Homepagehttp://www.hud.gov/offices/reac/  
Active Partners Performance System (APPS) Homepagehttp://www.hud.gov/offices/hsg/mth/auus/appsmfhm.cfm