12.2.3 Cost Certification

A. Cost certification requirements for the mortgagor and (if applicable) the General Contractor, subcontractors, equipment lessors and suppliers, industrialized housing manufacturers and relocationrelated costs. Where there is a second mortgage securing a Governmental loan, the cost certification also applies to the second mortgage.

B. HUD staff to inform all parties that HUD will initiate a pre-cost certification conference to be held when construction is 90% complete and that detailed instructions will be provided at that point. (See Chapter 13 for cost certification procedures.)

• C. Matters concerning identity of interest are as follows:

1. Identities of interest that develop or become known after initial closing must be reported to the Lender and to HUD within 5 working days of having such knowledge;

2. HUD must give prior approval for all identity of interest subcontractors and apply penalties where this is not done;

3. Self-owned equipment must be certified; and

4. Shell companies are prohibited. In this context a shell company is a firm organized for the apparent purpose of acting as a General Contractor but in practice subcontracts the preponderance of its responsibility measured both in the substance of the work as well as in monetary value to one or two other de facto General Contractors, collecting a fee but performing little or no commensurate service. See the 50/75 percent rule in Chapter 13, Section 13.15.3.D.