14.12.2 Deferred Developer Fee (DDF)

A. If repayment of the DDF is an obligation of the Borrower, repayment terms must be identified in the Borrower’s Limited Partnership Agreement or Operating Agreement, and/or in a Note. The DDF loan does not need to be documented in HUD’s form of Surplus Cash Note. Whether the DDF loan is documented in the Borrower’s organizational documents or in a Note, language must be included specifying that repayment is restricted to Surplus Cash or non-project funds (as that term is defined in the Regulatory Agreement between the Borrower and HUD). A DDF loan may not be secured by the project, and its term may be shorter than the term of the FHA mortgage. The DDF loan is not subject to the limits on the amount of secondary debt, and it need not be combined with other private secondary debt to determine if the combined amount exceeds the limit of 100% of total project costs. In the event of any conflict between the provisions of this section and other provisions of the MAP Guide, the provisions of this section control.

B. Regardless of whether the Deferred Developer Fee was structured as debt of the ownership entity as evidenced in a Note or if the Deferred Developer Fee was treated as equity (e.g. an obligation of one or more of the upper tier members and not the Borrower, as evidenced in the Limited Partnership Agreement or Operating Agreement), the Deferred Fee may be recognized as eligible debt and paid off in

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the same manner as other debt per Chapter 8, Section 8.11.1.C, Determining Existing Indebtedness, in a Refinancing Transaction subject to the following conditions:

1. The amount of the outstanding Deferred Developer Fee is verified by documentation (e.g. Audited Financial Statements) from the Borrower/Limited Partner/Investor Member.

2. The Borrower/Limited Partner/Investor Member affirmatively consents to the use of loan proceeds and to the refinancing in general (if the Investor/Member currently maintains interest in the ownership structure or will remain as part of the proposed ownership structure post refinancing), and,

3. The Lender’s underwriting must support the inclusion the Deferred Developer Fee as a cost to refinance, in addition to the first mortgage and/or any other eligible debt.

4. In no event will Deferred Developer Fee be considered eligible debt in a Section 223(a)(7) transaction.