7.15.7 Fee-Joinders

A. Under certain limited circumstances, HUD may insure mortgages even when the Borrower entity does not directly own the requisite Fee Simple Estate and/or eligible Leasehold interest with appropriate closing documentation to ensure compliance with the National Housing Act, as discussed below.

B. Certain states have statutorily authorized programs that provide tax abatements to residential rental projects. In order to take advantage of such programs, private Developers will transfer Fee Simple ownership of their project to the state or local development agency, and then enter into a Lease with the state or local development agency for a duration that is shorter than required under the National Housing Act. Through a joinder to the FHA-insured mortgage, as an accommodation to gain FHA-insured financing, the governmental agency agrees to allow its Fee Simple Estate to serve as security for the FHA-insured loan. This arrangement is deemed a subordination of the fee (or “Joinder of the Fee”).

C. For FHA purposes, a document titled Rider to the Security Instrument – Fee Joinder (the “Rider”), must be used in these situations. Through this document, the governmental agency/Landlord agrees to subject its Fee Simple interest to the FHA-insured Security Instrument so that the MAP Lender has a first mortgage on real estate in Fee Simple for the entire term of the FHA loan. If the Borrower defaults under its obligations, then the FHA Lender, HUD, or other purchaser at foreclosure sale (as applicable) will acquire Fee Simple title to the project.

D. MAP transactions requesting HUD approval for Joinder of the Fee must meet the following requirements:

1. The project, Borrower, and transaction must otherwise be eligible pursuant to this MAP Guide;

2. The project must benefit from a state or locally authorized tax abatement program;

MAP Guide, March 2021 Go to beginning of Chapter 7

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

Chapter 7 Page 7-55

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

Chapter 7 Valuation & Market Analysis 7.15 Leaseholds/Ground Leases

Go to Table of Contents

3. The Landlord must be a state or local unit of government or public entity created pursuant to state law;

4. Lender’s counsel and the HUD closing attorney must ensure that under state law, the FHA Security Instrument (mortgage or deed of trust) represents a first lien on the entire Fee Simple Estate of the project for the duration of the FHA-insured Note;

5. The Rider must be executed and attached to the Security Instrument; and

6. Borrower must provide a title insurance policy satisfactory to the MAP Lender and HUD.

E. For valuation purposes, Fee joinder structures must be underwritten to the full amount of the project taxes unless the project satisfies the permissions set forth in Section 7.16.

• F. Additional Requirements:

1. Security Instrument.

• The Landlord must be added to the first paragraph of the Security Instrument as an accommodating “Joinder Party.” This addition is necessary to ensure the proper indexing of the Fee Simple security interest granted by the Rider. While the Landlord will be added as a party in the first paragraph of the Security Instrument, it will not be a signatory to the Security Instrument itself.

• The Rider must be executed by the Landlord and the Borrower and must meet the state-law specific signature and attestation requirements.

• The Security Instrument must not be referred to or titled as a Leasehold Mortgage/Leasehold Deed to Secure Debt/Leasehold Deed of Trust because the Rider results in the Security Instrument encumbering the entire Fee Simple Estate as collateral for the loan.

2. Title Insurance Policy.

   • The title insurance policy must not be a “Leasehold Loan Policy.” Instead, Schedule A2 must list both the Fee Estate and Leasehold Estate. Schedule A3 should similarly list both the Landlord and the Borrower. In Schedule A4, where the Security Instrument is listed, the Rider must be appropriately referenced. Schedule B, Parts I and II, must list all exceptions and encumbrances pertaining to both the Fee Simple and Leasehold Estates. Any exceptions must be acceptable to HUD.

3. Lease Addendum – Multifamily, form HUD-92070M.

   • The Borrower must use the Lease Addendum, striking paragraphs 7, 11, and 12, as they are not applicable in this Fee Joinder context. Further, paragraph 10 regarding condemnation must be stricken and replaced with the following (no HQ approval is needed): “All awards and /or proceeds from the condemnation, or the negotiated sale in lieu of condemnation, of all or any part of the Tenant's and/or Landlord's interests in the Property, Improvements or the leasehold estate, shall be paid to Lender and applied as provided in the Security Instrument between Lender and Tenant.”

MAP Guide, March 2021 Go to beginning of Chapter 7

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

Chapter 7 Page 7-56

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

Chapter 7 Valuation & Market Analysis 7.16 Tax Abatement Procedures

Go to Table of Contents