16.5 Cost Certification and Final Endorsement

A. The Borrower/Lessor, the Master Tenant and all Master Sub-lessees will be required to cost certify the actual costs of the project unless the property contains Low Income Housing Tax Credits and HUD determines at the time of Firm Commitment issuance that it has a loan to cost ratio of less than 80 percent. The cost certification must contain a certification signed by an authorized agent of each entity, audited by a CPA or IPA, and contain a Schedule of Tax Credit/Syndication Proceeds that includes the following:

1. The amount of syndication proceeds received from the investing partner to date;

2. The purposes for which syndication proceeds received as of the cut-off date were used; and,

3. The dates, terms, and conditions under which future investor contributions are to be made.

• B. Total income of the Borrower/Lessor, including lease payments, is recognized during the construction/rehabilitation period.

1. If the replacement cost mortgage (Criterion 3) is not the controlling mortgage and there is excess NOI (net operating income) generated during construction, it may be applied to cover shortfalls in mortgageable soft costs, change orders, initial operating deficit and escrows. At Final Endorsement, funds not needed to cover shortfalls in costs or operating deficits may be distributed to the borrower or deposited into the project’s Reserve for Replacement account or applied toward the amortization of the mortgage principal.

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2. If Criterion 3 is the controlling mortgage amount, HUD will determine if the balance of the NOI is equal to or greater than 1% of the original mortgage amount and, if it is, will deduct this amount from the certified replacement cost. When the NOI does not meet this 1% threshold, it can be used toward shortfalls as noted above. Any remaining balance must be deposited into the project’s Reserve for Replacement account at Final Endorsement and there is no distribution to the borrower. The Borrower/Lessor, Master Tenant and Master Sub-lessees are required to submit a certified operating statement which reflects the income collected and expenses incurred in accordance with the lease agreements and all documents required by HUD. Refer to Chapter 13 of the MAP Guide for further details on cost certification and the exemption from cost certification for LIHTC applications.

• C. A final Sources and Uses Statement must be included in the cost certification report as supplemental information and will be reviewed to determine actual sources and uses.

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