19.6.2.4 Differences from Section 223(f) Procedures

A. Generally, underwriting and closing of the Section 223(a)(7) loan is similar to the procedures used for Section 223(f). Closing procedures for Section 223(a)(7) loans that differ from Section 223(f) include the following:

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Chapter 19 Closing Guide 19.6 Requirements for Acquisition/Refinance and Other FHA Insurance Programs

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1. Previous Participation Clearance using the Previous Participation Certification (form HUD-2530), is not required for existing principals and affiliates who have already obtained clearance. New Controlling Participants must obtain form HUD-2530 clearance.

2. A new project number is assigned to the Section 223(a)(7) project.

3. Standards for the maximum mortgage and the mortgage term are set forth in Section 18.3(B). Note that if expenses exceed those allowed for Section 223(a)(7) underwriting, the application must be converted to a Section 223(f) loan or, for substantial rehabilitation, a Section 221 loan. Use form HUD92476.1M when establishing an escrow for deferred repairs and require a 110% deposit (i.e., the required Additional Deposit Amount is to be 10% of the estimated cost of the Repair Work; in contrast, for 223(f) loans, the required Additional Deposit Amount is to be 20% of the estimated cost of the Repair Work).

4. A new Regulatory Agreement must be executed at closing, referencing the same Section of the Act as the original loan, with the addition of “pursuant to Section 223(a)(7).”

5. The Section 223(a)(7) program is based upon the premise that the original insurance obligation is transferred to the new Section 223(a)(7) Loan. Please see the note in form HUD-94001M, in which the endorsement panel for Section 223(a)(7) loans contains provisions specific to Section 223(a)(7), including the transfer of the Contract of Insurance from the prior FHA project number to the new Loan and the following:

   • 207/223(f) becomes “§ 207/§ 223(f) pursuant to § 223(a)(7)”; and

   • 221(d)(4) becomes “§ 221(d)(4) pursuant to § 223(a)(7)”.

6. Survey Affidavit of No Change. Notwithstanding the other provisions of this Chapter relating to survey requirements, a new survey and Surveyor’s Report is not required if:

   • The title company will issue the policy with no new survey exceptions;

• A copy of the HUD-approved as-built survey is available in the original HUD loan file (or provided by Borrower); and

• Either (a) no changes have been made to the land or buildings since the original survey was filed, or (b) minor changes are proposed to the land and/or buildings, and the RC Director determines that such changes are acceptable without a new survey.

7. If the RC Director does not require a new survey, Lender’s Counsel must submit a Survey Affidavit of No Change certifying to no material change, in a format similar to the sample included at Section 19.10, to document the lack of changes, together with a copy of the survey from the original loan file.