19.5.9.4 Modification Documents

A. Modification/Consolidation Agreement. Lender’s Counsel must prepare a modification agreement (non-form), by and between Borrower and Lender, formatted for recordation, which includes the following:

1. A HUD acknowledgment signature block, which evidences HUD’s acknowledgment and consent to the modification;

2. If the original Loan amount is increased, consolidation language to: (1) evidence that the original Note and the supplemental note (discussed below) represent and are deemed one indebtedness; (2) evidence that the initial Security Instrument and the supplemental security instrument (discussed below) represent and are deemed one security instrument; and (3) modify the original Security Instrument to provide for cross-default with the supplemental security instrument; and (4) evidence that the original Security Instrument retains first lien priority; and the following provisions (in all cases):

   • Nothing in this Modification Agreement waives, compromises, impairs or prejudices any right HUD may have to seek recourse for any breach of that certain Regulatory Agreement executed by the parties hereto, recorded on even date with the Security Instrument, which breach may have occurred prior to or may occur subsequent to the date of this Agreement. If HUD initiates an action for breach of said Regulatory Agreement and recovers funds, either on HUD's own behalf or on behalf of the Project or Borrower, HUD, in its sole discretion, may authorize those funds to be applied to the payment of amounts due and payable under the Note, or the Security Instrument, or as a partial prepayment of the Note.

• Nothing in this Agreement in any way impairs the Note or the Security Instrument or any other security now held for the indebtedness evidenced by the Note, as amended, and secured by the Security Instrument, or alters, waives, annuls, varies, or affects any provision, conditions or covenants therein, nor affects or impairs any rights, powers or remedies under the Note, Security Instrument, or Regulatory Agreement, nor changes the priority of the lien created by the Security Instrument or the encumbrance of the Regulatory Agreement, except as specifically provided herein, it being the intent of the parties that the terms and provisions of the Note, Security Instrument, and the Regulatory Agreement continue in full force and effect except as modified hereby.

B. Allonge (Mortgage Decrease). If the amount of the original FHA-insured Loan is decreasing, state law may require an allonge to the Note. If so required, Lender’s Counsel will prepare an allonge (nonform) and Lender is responsible for ensuring that the allonge is attached to the original Note. If state law does not require an allonge, the modification agreement can be used to modify the terms of the Note.

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Chapter 19 Closing Guide 19.5 Additional Requirements for Insurance of Advances

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C. Supplemental Note and Security Instrument (Mortgage Increase). The following applies when the amount of the original FHA-insured loan is increasing:

1. Supplemental Note. If the amount of the FHA-insured Loan increases, Lender’s Counsel must prepare a supplemental note using the form Note (form HUD-94001M) and captioned or titled “Supplemental Note.” The supplemental note must contain a cross-default provision to the original Note . The principal amount of the supplemental note must be the increase to the FHA-insured Loan amount (not for the new total insured Loan amount). The amount of the monthly payments to principal in the supplemental note must be sufficient to amortize the increased amount over the Security Instrument term. The other terms and provisions of the supplemental note must be the same as those in the original Note.

2. Supplemental Security Instrument. If the amount of the FHA-insured Loan increases, FHA Lender must prepare a supplemental security instrument using the form Security Instrument (form HUD94000M) and titled “Supplemental Security Instrument.” The supplemental security instrument must contain a cross-default provision to the original Security Instrument. The supplemental security instrument secures repayment of the supplemental note and must encumber the entire Mortgaged Property. The reference to the Regulatory Agreement in the supplemental security instrument must be to the original Regulatory Agreement executed and recorded at Initial Closing. The other terms and provisions of the supplemental security agreement must be the same as those in the original Security Instrument.