14.19.3 Tax Credit Regulatory Agreements

A. In Tax Credit projects, certain IRS Section 42 obligations must be allowed to continue post-default. Generally, however, for the Tax Credit LURA, and/or when public secondary financing with regulatory agreements or restrictive covenants are required, HUD requires the use of its standardized rider to these restrictive covenants, which indicates that in case of conflicts between a LURA or another restrictive covenant and FHA “program obligations,” FHA requirements take precedence. Neither this provision nor the use of the rider itself should be waived. Instead, staff must identify the point of conflict and consult with OGC. Alterations of the rider that are once approved can then be used as the template for that jurisdiction, as applicable. Typical conflicts include differing numbers of units set aside for specific income levels, different use agreement termination dates, etc. It is the Lender’s responsibility to draw attention to potential conflicts between FHA requirements and the LURAs or other restrictive covenants as early as possible (i.e., during Concept Meetings) and no later than with Firm Commitment application submission. If they are not addressed in the Firm Commitment, the Lender should assume the closing will be delayed.