19.5.6.1 General Requirements

A. Assurance of project completion by the General Contractor must be provided for the protection of HUD and Lender in an amount and means as specified in the Firm Commitment and to meet state and local requirements protecting material suppliers, mechanics, and subcontractors. Applicable assurances must be listed in the Lender’s Certificate (form HUD-92434M). Lender or Borrower may impose additional or more stringent requirements than HUD.

1. Performance Bond-Dual Obligee (form HUD-92452M) . Performance Bond–Dual Obligee protects against financial loss caused by the failure of the General Contractor to build the Project in accordance with the terms and conditions of the Construction Contract. The Performance Bond must name Lender and HUD as obligees. The RC Director, in consultation with the HUD Closing Attorney, may approve the addition of a subordinate Lender as an additional obligee on the Performance Bond. In such cases, an agreement setting forth the rights of, priorities of, and/restrictions on each Lender to call on the Performance Bond may be necessary. In all cases, the Lender and HUD must have the first priority right to call on the Performance Bond. When GNMA securities are issued in connection with the Project Loan, GNMA may be allowed as an additional obligee. No equity investor in the Borrower entity may be named as an obligee.

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Chapter 19 Closing Guide 19.5 Additional Requirements for Insurance of Advances

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2. Payment Bond (form HUD-92452A-M). Payment Bond guarantees that certain labor and material bills associated with the project will be paid. The Payment Bond must name Lender, HUD, and Borrower as obligees. GNMA may be added as an additional obligee on the Payment Bond; however, subordinate Lenders and equity investors may not be included as additional obligees.

3. Completion Assurance Agreement (form HUD-92450M). A s an alternative to performance and payment bonds, a Completion Assurance Agreement (form HUD-92450M) may be provided. It must be executed by the Borrower, Lender, and General Contractor. The General Contractor must fund its obligations with a cash deposit or letter of credit. The RC Director, in consultation with the HUD Closing Attorney, will review the substantive terms of any Completion Assurance Agreements.