19.3.4.2 Relevant Issues for HUD’s Consideration

A. The RC Director, in consultation with the HUD Closing Attorney, will consider the following factors related to a Lender’s request to proceed to Final Endorsement without full participation of the Contractor, in addition to any other matters deemed necessary by the HUD Closing Attorney or the RC Director:

1. Has cost certification been completed ? When cost certification is required, HUD will not proceed to Final Endorsement without Borrower’s completion of the Mortgagor’s Certificate of Actual Cost (form HUD-92330). See Chapter 13 for HUD’s requirements for cost certification.

   • Cost certification in cases of unresolved dispute(s) also facilitates HUD’s review of requests to proceed to Final Endorsement by:

     • 1. Providing the factual basis for HUD to determine that the maximum insurable mortgage calculation does not exceed the statutory limit; and
     • 2. Illustrating what outstanding obligations are disputed, which helps establish that sufficient funds are escrowed (or otherwise available) to cover Borrower’s potential liability and mitigate the risk of future construction-related liens against the Project.

2. Can the dispute result in a mechanic’s lien that primes the HUD mortgage?

   • Have any liens been filed ?

• If no liens have been filed, has the statutory period for filing liens expired, or is it possible that liens could be filed in the future?

• If future liens are possible, are the relevant program participants willing to sign lien waivers? Are such waivers enforceable under applicable state law?

• If a lien waiver is conditional, is Borrower willing to provide assurances of payment in the event the dispute is resolved in the Contractor’s favor?

If liens have been filed, is the final draw sufficient to pay such liens?

• 1. If sufficient, will Borrower and Lender agree to escrow the mortgage Loan proceeds with the title company pending resolution of the dispute?
• 2. If not sufficient, will Borrower furnish additional funds (or other assurances acceptable to the RC Director) to cover any liens and other pending obligations until the dispute is finally resolved?

3. What title coverage is available to bring the effective date of the policy forward to Final Endorsement? Is clean title available, with no liens shown as exceptions? Alternatively, if any mechanic’s liens exist, is the title insurance policy providing affirmative coverage against those liens?

4. Is it possible for Borrower to bond over the liens, if any, or the litigation, if any, in order to free the project from the effects thereof and clear title to the project? (See, e.g., Colorado Revised Statutes § 38-22-131; other states may have similar procedures.)

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5. Are there state laws that affect the dispute resolution process? For example, some states have statutes under which a claimant can force the disburser of funds either to pay the claimed amount or hold all undisbursed mortgage Loan proceeds in escrow pending the outcome of the dispute. (See, e.g., Colorado Revised Statutes § 38-22-126.) If so, does state law provide or permit a process consistent with HUD’s requirements?

6. What is the status of Labor Clearance for the Project? See Section 19.2.2.