13.14.10 Legal, Organization, and Audit Expenses

A. Legal, organization, and audit expenses are limited to expenses incurred in organizing the Borrower entity, developing the proposal to submit to HUD and other necessary governmental agencies, and required services during closing and construction.

1. For organizational allowances:

   • Include only the amount in Section G of form HUD-92264 for the organizational fee unless the Borrower, who justifies the need for and reasonableness of the additional expenditure, submits fully supporting documentation.

• Any costs incurred in excess of this allowance are not eligible for recognition in processing a mortgage increase or the equity computation on form HUD-92580.

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• Do not allow:

  • 1. Expenses that are not directly identifiable with the proposed HUD insured transaction, i.e., predevelopment reports that were not prepared for the HUD insured loan.
  • 2. Expenses related to developing a larger development that includes the HUD insured parcel.

2. Limit the Borrower’s legal expenses to those incurred for: initial through final closings; tax advice during organization of Borrower entity only; and preparation of documents and representation for and during organization of the Borrower entity.

   • Allow customary expenditures expected to be incurred before and during initial closing, construction period, and final closing.

   • Do not allow:

     • 1. Expenses connected with land acquisition already included in, or contributing to:

       • a) Title and recording expense.

       • b) Estimated market price of site.

       • c) Obtaining changes in zoning.

     • 2. Costs of legal services to create tax shelters, trusts, etc.

3. Recognize the cost of a “package deal” for organization and legal services, provided:

   • The supplier is qualified to furnish the needed services.

   • Duplicate credit is not allowed for the same services.

4. Audit fee covers the cost of the accountant’s audit and opinion of the Borrower’s certificate of costs.

5. Amounts included in form HUD-92264 for legal and audit expenses are not blanket allowances, but ordinarily set an upper limit on allowable amounts.

• Non-typical fees must be borne by the Borrower, unless a higher fee is proven by the Borrower, in an exceptionally complex case, to be necessary and reasonable. Detailed invoices and/or other documentation are required as to the reasonableness, purpose, necessity, and proper classification of all items in the category.

• This limitation is not flexible where a “package deal” for legal and organizational services is involved, or where a substantial amount of the legal and organizational services is performed by the same firm.