19.4.7.3 Pro Forma Title Policy Submission

A. As part of the draft closing package, Lender’s Counsel must submit a pro forma of the Title Policy, along with legible copies, or if illegible, certified transcripts, of all exception documents listed in Schedule B. If the title company cannot produce a legible copy or certified transcript of an exception document, the exception must be extinguished and removed from the Title Policy, or affirmatively covered, except where the RC Director, in consultation with the HUD Closing Attorney, determines that elimination is impossible or impracticable, and does not pose an unacceptable risk to HUD.

B. Lender’s Counsel must thoroughly review the pro forma Title Policy prior to submission with the closing package and, when possible, obtain corrections to the pro forma to comply with the standards of this section prior to submitting the pro forma to HUD.

1. HUD Closing Review. The RC Director and HUD Closing Attorney have concurrent responsibility to review the pro forma Title Policy, for completeness, acceptability, and accuracy, as detailed below. Lender’s Counsel is responsible for resolving deficiencies, whenever possible, and submitting a final Title Policy, that is consistent with the form and substance approved by the HUD Closing Attorney and RC Director.

RC Director Responsibilities. The RC Director will:

• 1. Review all subordinate liens and encumbrances for programmatic acceptability and compliance.
• 2. Review all title exceptions and survey matters for consistency with the proposed financing of the Project. Confirm that listed exceptions do not adversely affect the Project value or marketability, unless previously approved by HUD during Project underwriting. If the RC Director cannot determine acceptability, the RC Director will refer the issue to HQ MHP. See 24 CFR 200.61, 200.72, and 200.73.
• 3. If the Project’s zoning compliance is established by title endorsement (see checklist), confirm that the Project’s approved use under the applicable section of the NHA is consistent with the zoning endorsement. See 24 CFR 200.72.

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• 4. Provide the HUD Closing Attorney and Lender with written comment identifying all title and survey matters deemed by the RC Director to be programmatically unacceptable. The RC Director will consult with the HUD Closing Attorney to resolve identified deficiencies.
• 5. Ensure all identified deficiencies have been resolved to the RC Director’s satisfaction prior to issuing the administrative clearance to close and assist Lender in resolving deficiencies as appropriate.

HUD Closing Attorney Responsibilities. The HUD Closing Attorney will:

• 1. Confirm that the Title Policy reflects that the FHA-insured Security Instrument will be a valid and enforceable first lien against the insured Land (except for loans insured under sections 241 and 223(d)).
• 2. Ensure the elimination of unacceptable title and survey matters, including covenants, restrictions, or exceptions that violate federal law, except where the RC Director, in consultation with the HUD Closing Attorney, determines that elimination is impossible or impracticable, or that the encumbrances can be insured over or otherwise adequately addressed.
• 3. Identify all Schedule B items with rent, affordability, and/or use restrictions, including those imposed by state or local government(s) or instrumentalities. If the item reflects a restriction that is not approved in the Firm Commitment (e.g ., secondary financing, see Section 19.4.9), disclose the matter to the RC Director in writing.

Note: The HUD Rider to Restrictive Covenants (see Section 19.15) is required when the RC Director, in consultation with the HUD Closing Attorney, determines that the Rider is necessary to comply with the Project’s underwriting or Program Obligations.

• 4. Identify Schedule B and Survey matters that the RC Director should review for programmatic acceptability, including:

  • a) Indemnification provisions;

  • b) Private charges or assessments;

  • c) Options to purchase;

  • d) Rights of first refusal, or the prior approval of a future purchaser or occupant;

  • e) Tenant in possession under a recorded or unrecorded lease;

  • f) Air rights, whether they are part of the insured real property or reserved to a party other than Borrower;

  • g) Condominium rights;

  • h) Mineral rights, mineral reservations, and mineral leases;

  • i) Patent reservations;

  • j) Riparian rights;

  • k) Reversionary interest (conditional or unconditional);

  • l) Telecommunication leases and rooftop leases;

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• m) Commercial leases; and

• n) Development agreements.