12.15.6 Cash-Out Escrow from Land Equity

A. Cash-Out Escrow from Land Equity (or any balance remaining after funding all mortgage requirements). See Chapter 8, Section 8.14.C.11.

1. Cash out from the excess value of the land, or the “as is” property value for a substantial rehabilitation project, that was contributed to meet the Sponsor’s equity requirement at initial endorsement, above what was required at initial endorsement must be deferred and held by the Lender. If any of the land equity was used to fund escrows at initial endorsement, the remaining balance is deferred and held by the Lender. The Lender will have discretion as to the form of escrow used for holding cash-out from land equity. Refer to Appendix 12, Section A.12.1.4 about eligible uses of cash-out from land equity.

2. The Lender will hold the cash-out funds until project operations have demonstrated to the HUD field office’s satisfaction that it has achieved 6 consecutive months of sustaining occupancy or 12 months of sustaining occupancy for transactions that meet the Large Loan parameters (see Chapter 3, Section 3.1.25 for sustaining occupancy definition.)

3. The HUD Underwriter will consult with Asset Management staff prior to approval of a release. HUD Offices should exercise caution to be certain that monthly results are not erratic or seasonal and that 1.0 or better debt service coverage will be sustainable after release of the escrow funds. HUD will approve a request for release of funds on form HUD-92464M from the Lender. The Lender’s file should contain the HUD approval and documentation supporting the release.