19.3.4.3 Closing Without Full Participation of the Contractor.

A. If the RC Director, in consultation with the HUD Closing Attorney, determines that HUD is willing and authorized to approve a Lender’s request to proceed to Final Closing with disputes pending, and without full participation of the General Contractor, the following matters must be addressed to the RC Director and HUD Closing Attorney’s satisfaction:

1. Certain administrative requirements of Chapter 12, Section 12.7.7, Final Advance, will not be met. The RC Director may waive non-statutory and non-regulatory requirements. HUD’s expectation is that the requirements for Final Endorsement will be met to the greatest extent possible. For necessary deviations from this Chapter or elsewhere in this Guide, Lenders must adhere to the requirements of Section 19.4.1.

2. All documents listed on the HUD Final Closing checklist must be submitted. Lenders must request form changes (e.g . , a change to the Contractor’s certification on the Request for Final Endorsement) following the procedures in Section 19.4.1.

3. Lender must provide a written narrative to explain what good faith efforts were made by Lender and Borrower to resolve the outstanding dispute(s) prior to making the request to proceed to Final Endorsement with the dispute(s) pending.

4. Lender must provide evidence that all relevant parties (e.g., Contractor, Surety) were notified of the Lender’s request to proceed to Final Closing while the dispute(s) between Borrower and Contractor are pending.

5. Potential liens and claims related to the dispute, and the authority of Borrower to proceed to Final Endorsement under the terms of the Construction Contract, including the A-201, must be addressed through a supplemental Opinion of Borrower’s Counsel (form HUD-91725M). See e.g., the standard form Opinion of Borrower’s Counsel opinion 7, and confirmations (c) and (e).

6. Cost certification must be satisfactorily completed by all required parties. See 24 CFR 200.96, Chapter 12, Section 12.7.7.A.1, and Chapter 13.

7. The title company must bring the policy forward to the date of Final Endorsement (typically through a date-down endorsement) or issue a new policy as of the date of Final Endorsement and provide affirmative coverage over all existing mechanic’s liens.

8. Chapter 12, Section 12.7.7.A.2. requires the Contractor to execute Contractor’s Requisition and Contractor’s Prevailing Wage Certificate (form HUD-92448), and HUD must receive the customary letter or memorandum from HUD’s Office of Davis Bacon Labor Standards stating that the Project may be closed (the letter may be conditional, may be issued by DBLS or DOL, and may require specific mitigation to address unpaid obligations).

MAP Guide, March 2021 Go to beginning of Chapter 19

Bookmarked Version Go to Acronym and Abbreviation List, Glossary, Index

Chapter 19 Page 19-19

To return to this page after clicking a link, press ALT + Back Arrow

Chapter 19 Closing Guide 19.3 Final Loan Closing Procedures for New Construction and Substantial Rehabilitation

Go to Table of Contents

9. 24 CFR 200.101 requires Borrower to certify, among other matters, as to “all unpaid obligations in connection with the mortgage transaction, the purchase of the mortgaged property, the construction or rehabilitation of the project or the purchase of the equipment financed with mortgage loan proceeds.” See Request for Final Endorsement (form HUD-92023M), which may require modification to accurately reflect the parameters of the dispute while still providing the information required under 24 CFR 200.101.

10. Chapter 12, Section 12.7.7.A.5, requires the Contractor to execute the Request for Final Endorsement , discussed more fully in Section 19.3.2.A.2. This includes the Contractor’s certification as to its outstanding obligations, which may require modification to accurately reflect the parameters of the dispute.

11. Chapter 12, Section 12.7.7.A.4, requires an escrow for items of delayed completion (see Section 19.3.1). If the dispute includes allegations of incomplete construction, this escrow must be established as part of the Final Closing.

12. The remaining mortgage Loan proceeds (as well as additional sums, if required) must be placed in escrow or otherwise made available (e.g . , bonded, or letter of credit) pending the outcome of the dispute. See Section 19.3.4.3.A.13, immediately below, and Chapter 12, Section 12.15.5.

13. The terms for resolving the dispute, including release or advancement of funds to the prevailing participant, must be evidenced by an agreement (e.g . , escrow agreement), and such terms must be satisfactory to the RC Director and HUD Closing Attorney. The agreement should, at a minimum, meet the following requirements:

• Provide a mechanism for the payment of all undisputed outstanding obligations, such as amounts owed subcontractors, upon receipt of proper lien waivers;

• Provide for funds disbursement to the prevailing parties upon resolution of the dispute, or upon a designated future date, etc.;

• Include supplemental cost certification, if needed, for items of delayed completion, etc., to ensure that the Loan amount needs no further adjustment;

• Address unique requirements (and compliance therewith) of state or local law regarding disbursement and payment;

• Stipulate Borrower’s present or future right to any awards, payments, settlements or other compensation resulting from litigation involving the Project are deemed Mortgaged Property under the Regulatory Agreement; and

• Ensure the agreement is entered into by the Lender and Borrower, and, if applicable, the title company, court, Contractor, and/or surety.