19.4.9.3 Secured Secondary Financing – Public Sources

A. General. Secondary financing from a public entity that will be secured with a lien against the Mortgaged Property, as memorialized in the Firm Commitment, must be subordinated through HUD’s Subordination Agreement – Public (form HUD-92420M).

Note: The Subordination Agreement – Public should not be used to subordinate HUD-held debt. Existing Mark-to-Market (M2M) debt should be subordinated using the form of subordination agreement from the HUD Office of Recapitalization attached to post-M2M approval memos. The HUD Closing Attorney will contact the MMD to advise on documentation required to subordinate other HUD-held debt, including Partial Claim and Flexible Subsidy loans.

MAP Guide, March 2021 Go to beginning of Chapter 19

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

Chapter 19 Page 19-44

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

Chapter 19 Closing Guide 19.4 Document and Diligence Requirements

Go to Table of Contents

B. The Subordination Agreement – Public . This Agreement contains HUD-required language that must be inserted or incorporated by reference into the subordinate note (see Subordination Agreement – Public (form HUD-92420M), Section 3(c), Borrower’s and Subordinate Lender’s Representations and Warranties). The HUD Closing Attorney will review the subordinate note to confirm inclusion/incorporation of this required language. The form also contains bracketed alternative options for subordinate public debt that is forgivable.

C. Negotiated Templates. HUD will consider requested changes to the Subordination Agreement – Public if the change is necessary to comply with state or local law, in accordance with the procedures set forth below. HUD’s written acceptance of any changes will result in a template for a given jurisdiction and program. Pursuant to the Paperwork Reduction Act, HUD’s approval of any template expires upon implementation of the next OMB-approved version of the form, at which time public Lenders must again request HUD approval to modify the new OMB-approved version.

1. Requested changes are subject to the review of the HUD Closing Attorney, the RC Director, and the Regional Counsel.

2. Counsel to the governmental agency must separately identify each specific provision(s) of the Subordination Agreement – Public that needs to be modified in order to comply with specific provisions of state or local law. The request must include a narrative outline of the request in which each requested form change must be numbered, with a depiction of the change shown as redlined text compared to the HUD form, accompanied by a detailed description explaining why the change is necessary to comply with state or local law. Note that HUD will not consider non-substantive, stylistic changes. HUD will only approve requested changes that are accurate, sufficiently explained, and narrowly tailored to address the state or local law compliance issue(s). The requested changes and supporting justification must be submitted to the HUD Closing Attorney. The HUD Closing Attorney will independently analyze and confirm whether the justification and rationale are accurate and narrowly tailored to address compliance with the identified state or local law and confirm there are no statutory or regulatory barriers.

3. If the HUD Closing Attorney determines the requested changes are legally acceptable, the HUD Closing Attorney will submit the requested changes and justification to the RC Director and Regional Counsel. The RC Director and Regional Counsel will review the submission and render a final decision on programmatic and legal acceptability.

Note: The HUD Closing Attorney will be the sole point of contact for Lender’s Counsel and the government agency during HUD’s review of a template change of the Subordination Agreement – Public , unless the HUD Closing Attorney requests that outside parties communicate directly with other HUD staff.

4. The RC Director will provide a written statement to the requesting party evidencing its final decision.

5. If HUD approves the template, that version will be used for all transactions involving the same governmental program in that state or locality until the expiration of the current OMB-approved Subordination Agreement – Public .

6. The RC Director and applicable Regional Counsel will maintain copies of all approved negotiated templates.

MAP Guide, March 2021 Go to beginning of Chapter 19

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

Chapter 19 Page 19-45

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

Chapter 19 Closing Guide 19.4 Document and Diligence Requirements

Go to Table of Contents

D. Deal-Specific Changes. To further facilitate the use of other public funds, the RC Director is authorized to approve, on a case-by-case basis, the following changes to the Subordination Agreement – Public that may be necessary to accommodate affordable housing, and where there is minimal to no legal and business risk to HUD. Such business-driven changes may be made if the RC Director ensures that the changes are consistent with Program Obligations, are supported from a business and HUD mission perspective, and that resulting risks are appropriately underwritten.

1. Modification of Section 3(b) to allow the subordinate loan to mature prior to the FHA-insured Loan; and

2. Allowance of compounding of interest, which is otherwise prohibited by Section 3(c)(4).

Note: All other deal-specific deviations from the OMB-approved Subordination Agreement – Public , including business-driven changes in state and local templates approved for expired iterations of the form, constitute substantive changes subject to the review procedures in Section 19.4.1.6 of this Chapter.