13.10.2 Long Form Cost Certification

A. For cases that do not qualify for simplified cost certification based upon Section 13.10.1.A.1 above, the following must be submitted:

1. Form HUD-92330, Borrower's Certificate of Actual Cost, supported by an accountant's opinion (refer to Section 13.10.2.A.6).

2. Form HUD-92330A, Contractor's Certificate of Actual Cost, supported by an accountant's opinion (refer to Section 13.10.2.A.6), which is required if there is an identity of interest with the Borrower or if a cost-plus construction contract was used.

3. Subcontractors, suppliers, and equipment lessors with an identity of interest with either the Borrower or General Contractor must submit form HUD-92330A, supported by an accountant's opinion.

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Material suppliers must attach to form HUD-92330A a sheet showing:

• 1. Quantities furnished;
• 2. Sources from which the materials were obtained; and
• 3. Unit prices paid to the sources, brand names, model numbers, sizes, lumber grades, etc., as applicable.

NOTE: No amount will be included for general requirements (e.g., job overhead).

Equipment Lessors must attach to Form HUD-92330A a sheet showing:

• 1. Dates the equipment was acquired;
• 2. Age of equipment at acquisition date;
• 3. Brand names and model numbers;
• 4. Sizes;
• 5. Dates and length of time used; and
• 6. Rates charged.

  • a) The Lessor(s) must certify that:

    • i. The rates charged were not more than the local going rate obtainable in the area, including any maintenance and repair;

    • ii. The time charged was not more than essential for the project; and

    • iii. The charges did not exceed the purchase price of the equipment.

  • b) Lump Sum Basis. Instead of providing an attachment containing the above information, the lessor(s) may elect to certify to charges at 85% of the local going rates for identical equipment under arms' length (lump sum) leases. When using this alternative, the lessor agrees:

    • i. The Regional Center is the sole judge of the reasonableness of the time and rates charged; and

    • ii. Equipment maintenance and repair expense is the responsibility of the lessor(s) and is not included as an additional cost.

  • c) Subcontractor's equipment. Costs for subcontractor(s) equipment, whether owned or rented, are considered in the markup for overhead and profit. These costs shall be reflected in the total subcontract and in the prior approval of identity of interest entities. A separate certification of the equipment is not required.

• Manufacturers of Industrialized Housing must attach to form HUD-92330A a breakdown of Division 13, Special Construction, showing:

• 1. Manufacturing costs, including:

  • a) Labor;

  • b) Materials;

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• c) Sales and any other taxes;

• d) Factory overhead; and

• e) General overhead and profit.

NOTE: The manufacturer's accounting system must follow generally accepted accounting procedures, which will allow certification of the actual cost of manufacturing by a Certified Public Accountant or Independent Public Accountant. No amount will be included for transportation or work at the project site.

• 2. Transportation costs from the factory to the project site (if provided by the manufacturer), including:

  • a) Labor; and

  • b) Equipment.

• 3. On-site erection costs (if provided by manufacturer), including:

  • a) Labor;

  • b) Equipment;

  • c) Materials; and

  • d) General requirements (job overhead).

• 4. The remainder of the manufacturer's form HUD-92330A is to be completed per the form’s standard instructions.

NOTE: There can be no duplication of manufacturing costs (e.g., repair of components damaged in shipment.)

4. An audited balance sheet of the Borrower entity, as of the cut-off date is required.

   • The balance sheet must contain the following certification:

I HEREBY CERTIFY that the foregoing figures and statements contained herein submitted by me as agent of the Borrower [owner] for the purpose of obtaining mortgage insurance under the National Housing Act are true and give a correct showing of (Name of Borrower or owner) financial position as of (date of financial statement).

• Signed this day of , 20 (Signature of authorized agent with name printed or typed under signature)

WARNING: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010. 1012; 31 U.S.C. 3729, 3802)

• Furnish reconciling information if short-term liabilities on the balance sheet do not agree with Column B of form HUD-92330.

• Explain the purpose of all liabilities in the notes to the financial statement and include repayment requirements of the liabilities. Take special care to note any liabilities included for repayment on the balance sheet that were not disclosed during the firm processing stage or before initial endorsement. If such liabilities are found, inform the Borrower that the liabilities cannot be an obligation of the project; repayment is the responsibility of the Borrower. These liabilities will

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not be considered (allowed nor disallowed) in the review of the cost certification. When nondisclosures are found, it requires a detailed review of cost certification forms HUD-92330 and HUD-92330A.

• If proceeds and obligations from project syndication are passed through the books and records of the Borrower entity, reflect receivables as an asset of the Borrower entity.

  • The notes to the balance sheet must identify the original amount of, and summarize the expenditures from, the working capital deposit.

5. An audited operating statement is also required if occupancy occurs before the cost certification cutoff date.

The statement must contain the certification contained in Section 13.10.2.A.4.

• Prepare the operating statement on an accrual basis.

• The statement must cover the beginning of marketing and rent-up activities (or date of initial endorsement in rehabilitation projects where occupancy is continuous) to the cut-off date.

• Marketing and rent-up activities will start no later than 6 months before the issuance of the first form HUD-92485, Permission to Occupy-Project Mortgages.

• The statement must show the actual dates covered, rather than language such as "From the Date of Commencement of Marketing and Rent-up Activities, etc."

  • The statement must show income from all sources. Do not consider security deposits as income.

• The operating statement should not contain any expense items that were paid or should have been paid from the working capital deposit or otherwise included in cost certification.

• Operating expenses may include:

  • 1. Expenses directly related to renting the project, such as:

    • a) Rental commissions customary for the type of project, if any, and

    • b) Marketing and advertising expenses.

  • 2. Purchase of furnishings, fixtures, equipment, and supplies not paid from the working capital deposit and in the eligible replacement costs.
  • 3. Reasonable fees for preparing any Federal, State, or local tax return information required of the project. For example, if the Borrower entity is a partnership, the cost of preparing both IRS Form 1065 (U.S. Partnership Return of Income) and related K Schedules may be considered. Do not recognize the cost of preparing a partner's personal IRS Form 1040 return.
• 4. Electricity, gas, water, and operating salaries (maintenance, cleaners, gardeners, elevator operators, etc.) to the extent they are not included in construction cost on form HUD-92330, Borrower's Certificate of Actual Cost, or form HUD-92330A, Contractor's Certificate of Actual Cost.
  • 5. Management fee stated in the contract.

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• 6. Services not covered by the management fee under Chapter 3 of Handbook 4381.5, Compensations for Management Services in Multifamily Housing Projects with Insured or HUD-Held Mortgages.

Operating expenses may not include:

• 1. Depreciation.
• 2. Interest, taxes, property insurance premiums, and mortgage insurance premiums that are reflected in form HUD-92330, Borrower's Certificate of Actual Cost.
• 3. Salaries paid to principals of the Sponsor or Borrower for managing the Borrower entity.

• Treatment of net operating income generated during construction:

• 1. If the replacement cost mortgage (Criterion 3) is not the controlling mortgage, any NOI generated during construction may be applied to cover shortfalls in mortgageable soft costs, change orders, initial operating deficit, and escrows. At final endorsement, the balance of funds may be distributed to the Borrower, deposited to the project’s Reserve for Replacement account, or applied toward the amortization of the mortgage principal.
• 2. If the replacement cost mortgage (Criterion 3) is controlling, the Mortgage Credit staff will do a calculation and determine if the interim NOI is equal to or greater than 1% of the original mortgage. If it is, the calculated interim NOI is deducted from the certified replacement cost amount. When the NOI does not meet this 1% threshold, apply the amount toward shortfalls, etc. as instructed in number 1 above. The Lender must deposit any remaining balance into the project’s Reserve for Replacement account or apply it toward the amortization of the mortgage principal at final endorsement. There is no distribution to the Borrower.
• 3. For a non-profit mortgagor, any NOI generated during construction may be processed as:

  • a) A recovery of construction costs at cost certification, to the extent that it was used to reduce liquidated/actual damages.

  • b) An offset for a mortgage increase.

  • c) A deposit of the unused portion of net income into the project’s Reserve for Replacement account at final endorsement.

If operating expenses exceed income:

• 1. No entry is made on form HUD-92330, Mortgagor's Certification of Actual Cost.
• 2. Operating deficit may be carried over as a reduction to net income on the supplemental operating statement.

6. A Certification by an independent Certified Public Accountant or an Independent Public Accountant must accompany form HUD-92330, Mortgagor's Certificate of Actual Cost, including the audited balance sheet and operating statement of the Borrower, and form HUD-92330A, Contractor's Certificate of Actual Cost.

   • The accountant must meet the auditor qualifications of the Government Auditing Standards (GAO Yellow Book), including the qualifications relating to independence and continuing professional

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education. The audit organization also must meet the quality control standards of the GAO Yellow Book.

• The Code of Federal Regulations prohibits accountants from contracting for services when their name is shown on the HUD and General Services Administration (GSA) Government-wide Consolidated List of Debarred, Suspended and Ineligible Contractors and Grantees (2 CFR Part 2424 Subpart J).

• The accountant must also comply with the requirements in Chapters 1, 2, and 6 of HUD Handbook IG 2000.4, Consolidated Audit Guide for Audits of HUD Programs.

7. The Borrower must submit a supplemental operating income statement if more than 3 months exist between the cut-off date and the start of amortization. If a deferment of amortization was granted (see Section 13.25), use the new date for the start of amortization in determining the need for a supplemental operating statement.

   • This requirement does not apply to non-profit Borrowers or any project where the mortgage is $200,000 or less.

• The statement covers the period from the cost certification cut-off date to the date which is 3 months before the start of amortization. The Borrower should submit the statement within 30 days after the expiration of this period.

• If the required original cost certification was audited, a CPA or IPA must prepare and certify the supplemental statement.

• The Borrower may advance the date of amortization to avoid submitting a supplemental income statement.

• In preparing the statement, if the operating statement submitted at cost certification shows expenses in excess of income, such expenses may be carried forward as "un-recovered expense– prior period."