19.4.9.2 Unsecured Secondary Financing

A. Promissory notes may be used to evidence subordinate Borrower debt approved by HUD. One of the two following forms must be used:

1. Surplus Cash Note (form HUD-92223M); or

2. Residual Receipts Note (form HUD-92908M), when Borrower’s distributions are restricted through a Residual Receipts Rider to the Regulatory Agreement.

• B. The foregoing forms may be used to evidence the following types of debt:

1. Discounts, financing fees, and/or extension fees paid by a third party on behalf of Borrower;

2. Secondary loans from a governmental or non-governmental source;

3. Deferral of the Developer’s fee in return for Borrower’s agreement to pay upon completion of the Project (deferred Developer fee), if: (1) disclosed by the parties before Initial Endorsement, and (2) the Firm Commitment does not provide for a Builder’s and Sponsor’s profit and risk allowance (BSPRA); and

4. Land acquisition costs that exceed HUD’s warranted price of land fully improved.

• C. Promissory notes are prohibited under the following circumstances:

1. For costs disallowed in the cost certification review;

2. To determine the distribution of surplus cash; and

3. To establish an equity interest, other than Equity Bridge Loans for tax credit projects, as discussed in Section 19.4.9.6, below.