7.15.2 Legal — HUD Multifamily Accelerated Processing (MAP)

A. The Tenant/Borrower must have a mortgageable interest in the property comprised of:

A Leasehold interest in the land – Lease Addendum – Multifamily (form HUD-92070M) (Option 1 “Ground Lease”); or
A Leasehold interest in the land and building/improvements – Lease Addendum – Multifamily (form HUD-92070M)) (Option 2 “Lease,” permitted only in cases where the Landlord is a public/governmental entity); or
A Leasehold interest in the air rights – Lease Addendum – Multifamily (form HUD-92070M) (Option 1 “Air Rights Ground Lease”).
A Leasehold interest in air rights and improvements – Lease Addendum – Multifamily (form HUD92070M) (Option 2 “Air Rights Lease,” permitted only in cases where the Landlord is a public/governmental entity).
For Leaseholds of trust lands or Native American tribal land, HUD must ensure that the Lease provisions, including the term of the lease and any waivers of Lease Addendum provisions, are acceptable to both HUD Headquarters and the Bureau of Indian Affairs.

NOTE: In all cases the Landlord must be the Fee Simple owner of the property and must grant the leasehold estate directly to the Tenant (i.e., the Borrower). This prohibition against insurance of mortgages on sub-leasehold estates is statutory for Sections 207/223(f) and 231 and cannot be waived for these programs.

B. The Lease must meet the following requirements:

Term of Lease. The term of the lease must comply with the National Housing Act and cannot be waived.
- Sections 221(d) and 220: the term of the lease must run at least ten (10) years beyond the maturity date of the mortgage or for a period of not less than 99 years which is renewable.

Sections 207/223(f) and 231: the term of the lease must run at least fifty (50) years beyond the date of mortgage execution or for a period of not less than 99 years which is renewable.
Section 223(a)(7): the term of the lease is subject to the requirements of the original mortgage program for the project being refinanced.
- Section 241(a): the term of Lease (from the insured first mortgage) may remain the same except if the 241(a) loan is being extended beyond that of the insured first mortgage. The term of Lease must be extended by a corresponding number of years in cases where the original Lease term is other than 99 years and renewable.

Recording. The Lease or a Memorandum of Lease must be recorded in the applicable land records office and must contain the following information (in addition to any information required by state law):

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Chapter 7 Valuation & Market Analysis 7.15 Leaseholds/Ground Leases

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The names of the parties (Landlord and Tenant);
A legal description;
Term of the Lease and any option to renew;
Reference to the HUD Lease Addendum – Multifamily , form HUD-92070M; and
Specific reference to HUD’s option to purchase in Section 7 in the HUD Lease Addendum (unless Section 7 is expressly waived in writing by HUD in accordance with Program Obligations).

Lease Addendum – Multifamily (form HUD-92070M). The Lease Addendum must be included and used as follows:
- The Lease must incorporate the Lease Addendum - Multifamily form HUD-92070M (“Lease Addendum”). If the Lease has been recorded, the Lease Addendum must also be recorded in the official records to amend the previously recorded Lease. If a Memorandum of Lease has been recorded, it must be amended in the official records to reference the incorporation of the Lease Addendum as noted above.

The Lease, through the incorporation of the Lease Addendum, must grant HUD the option to purchase good and marketable fee simple title to the property and the Landlord’s interest, if any, in the building and improvements (Section 7 of form HUD-92070M).
- 1. Option Price: HUD’s option price must be the value of the Leased Fee Estate (net present value of Ground Lease) at the time of Firm Commitment (see Section 7.15.4 regarding valuation of the leasehold interest).
- 1. Waiver: If the Landlord is a state or local unit of government or public entity created pursuant to state law, the Regional Center Director may waive the purchase option requirement at the time of issuance of the Firm Commitment. To be eligible for this waiver, the project must also:
  - a) Be “affordable” as defined in Chapter 3, Section 3.1.12, OR be a low-leverage, low-risk loan with significant public purpose and benefit;
  - b) Be appraised for both Leased Fee and Leasehold interests, as well as the Fee Simple interest in the land (the Leased Fee is the net present value of the Ground Lease); and
  - c) Provide a thorough discussion in the appraisal and underwriting narrative of the Lease terms, and a determination by Lender that both the Leasehold Estate is marketable and the Leased Fee is less than the Fee Simple interest in the land.
  - d) Additionally, HUD will permit the use of discounted cash flow analysis and/or direct capitalization in determining the value of the Leased Fee. The Lender must include a thorough discussion of the parameters and methods used in the determination of the discount rate. The value of the Leasehold Estate will be accounted for in form HUD92264A on line 3(a) and will be used to calculate the maximum insured mortgage for purposes of Criterion 3. No value is given to the Leased Fee under either Criterion 3 or 4.

Execution of a new Lease Addendum is not required for 223(a)(7) transactions.

Estoppel Certificate. The Tenant/Borrower must provide an estoppel certificate signed by the Landlord that identifies the Lease documents, including all amendments, and confirms: the legal description; that the Lease is in full force and effect; and that there are no defaults, pending defaults,