18.4.2 Verification of Existing Borrower Debt

A. The lender must verify the amount and terms, including prepayment penalties and repayment terms, of existing insured mortgage debt and any other secured or unsecured debt of the borrower related to the project.

1. The application should include a copy of the mortgage note, and all documents evidencing other indebtedness.

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Chapter 18 Section 223(a)(7) 18.4 Processing

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2. The lender should compare the mortgage debt information submitted to the lender with information in the project’s financial statements and the title search report. Any discrepancies should be explained in writing by the owner. Since the owner is prohibited from encumbering the project without HUD’s written approval, if the owner is in violation of this provision, the violation should be brought to the attention of the Director of Asset Management in the HUD Regional Office with jurisdiction.

3. If the borrower has made a loan to fund repairs or betterments (whether or not evidenced on a HUDapproved promissory note), a determination must be made as to whether the debt is acceptable to HUD. If the debt is to be repaid as part of the 223(a)(7), it is not necessary for the debt to be on a HUD-approved form prior to closing. However, if the debt is to remain in place after closing to reduce cash requirements, the owner must evidence the debt on HUD-approved forms.

4. When additional indebtedness is associated with betterments made to the project and previously financed, the borrower must provide a list of betterments financed by that indebtedness.