19.4.11.7 Pre-Approval of Special Limited Partners

A. A LIHTC investor may request HUD pre-approval for the SLP to take control of Borrower as the interim general partner or managing member (GP/MM) of Borrower under certain triggering default conditions set forth in Borrower’s limited partnership agreement or operating agreement. Transfers of control of Borrower require HUD consent prior to transfer, however HUD approval may be given in advance subject to the requirements below.

Note: This process is exclusively for SLPs seeking pre-approval. Unless Borrower requests preapproval, HUD will treat the SLP as a passive investor. Once granted, pre-approval applies only to the SLP and the particular project for which pre-approval was requested and granted. HUD’s preapproval of the SLP as an Interim Replacement GP/MM (defined further below) is evidenced by the RC Director’s and the Closing Attorney’s approval of the Security Instrument with the LIHTC Rider attached, including pre-approval provisions.

B. If HUD pre-approves a transfer of control to the SLP, no further HUD approval for the SLP’s takeover at the time of removal of the existing GP/MM is required, subject to the limitations of the LIHTC Rider. As stated in the LIHTC Rider, HUD’s pre-approval of the SLP to act as an interim GP/MM is for a limited duration. If the SLP seeks to act as a long-term replacement GP/MM, Borrower and Lender must apply for HUD approval through the transfer of physical asset (TPA) review process.

1. Requirements to Pre-Approve SLP.

   • General . Attaching the LIHTC Rider with pre-approval provisions included provides evidence of and gives effect to HUD’s pre-approval. The pre-approval provisions may be included in an executed LIHTC Rider and attached to the Security Instrument if the items below are received and approved by the RC Director and the HUD Closing Attorney. The RC Director may waive receipt

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Chapter 19 Closing Guide 19.4 Document and Diligence Requirements

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of specified documents if HUD previously received the documents during pre-approval review of a different Project.

• Synopsis of the Transaction. Equity Investor must provide a written request for HUD to preapprove the SLP as a temporary replacement GP/MM. This request must include an overview of the transaction and contain an organizational chart depicting the relationship between the proposed interim GP/MM and the parent organization requesting pre-approval. This request may be sent via email.

• Previous Participation Review. The SLP must submit all documents required for the Previous Participation Review (aka the 2530 review). See 200 CFR Part 200, Subpart H; and Notice H 2016-15, Processing Guide for Previous Participation Reviews of Prospective Multifamily Housing and Healthcare Programs Participants .

• Organizational Documents.

  • 1. Organizational Documents of Borrower. The SLP pre-approval request must include a reference list of the SLP takeover provisions in Borrower’s organizational documents. The HUD Closing Attorney will review the takeover provisions, including triggering events, that permit the removal of Borrower’s GP/MM and replacement of the GP/MM with the SLP. The HUD Closing Attorney will discuss the takeover provisions with the RC Director and confirm the RC Director’s approval. The organizational documents must state that upon removal of the existing GP/MM the SLP will act as the Interim Replacement GP/MM in accordance with and subject to the terms of HUD’s pre-approval of the SLP and the LIHTC Rider.
  • 2. Organizational Documents of SLP. The SLP pre-approval request must include the SLP’s organizational documents. The Closing Attorney will review the SLP organizational documents to confirm the SLP’s formation and good standing, that there is no identity of interest with Borrower’s GP/MM, and there are no restrictions in the SLP organizational documents that would prohibit the SLP from acting as Borrower’s interim GP/MM (e.g., neither the stated purpose of the entity nor any other provision restricts the SLP from taking control of Borrower as the interim GP/MM or restricts the SLP to passive real estate investment).
  • 3. Legal Opinion. Borrower/SLP must submit a legal opinion of Borrower’s counsel giving the opinion that removal of the existing GP/MM and substituting in the SLP as the new GP/MM does not cause the dissolution of Borrower under applicable state law or the Borrower’s organizational documents. The attorney giving the opinion must be licensed by the state bar in the state where the Borrower is organized and may not have an identity of interest with the Borrower.

• Evidence of Determinative Criteria. SLP must submit evidence of the determinative criteria, discussed below.