8.3.3 Previous Participation Certification Requirements

A. Certain Principals are subject to a previous participation certification review as set forth in 24 C.F.R. Subpart H 200.220, as may be amended from time to time. This review is in addition to any underwriting considerations or review. Those individuals and entities subject to previous participation certification review in accordance with 24 C.F.R. Subpart H 200.212 must submit form HUD-2530 or any successor form or electronically through the Active Partners Performance System (APPS) or any successor electronic system. Individuals and entities that are excluded from underwriting review are also excluded from previous participation review. Guidance with respect to previous participation certification review may be updated from time to time through Mortgagee Letters or other appropriate means.

B. For any multifamily project, with an insured or proposed FHA insured mortgage under the National Housing Act (a “Covered Project”), an individual or entity serving in any of the following capacities is also considered to be a “Participant” for purposes of this previous participation section. Participants are natural persons (individual) or entities who may or may not be an Active and/or Passive Principal but who are required to file for previous participation certification review, i.e. form HUD-2530 or APPS.

C. Notwithstanding the foregoing or anything else in this Guide, if HUD determines that an individual or entity does not actually exercise financial or operational control of a Covered Project or Specified Capacity, such individual or entity shall not be considered a Controlling Participant.

D. Active Principals must possess and disclose social security numbers (SSN) and employer identification numbers (EIN). This is required by 24 C.F.R. 5.216(c), (d) & (f) for applicants and participants under 24 C.F.R. 200.6 and 24 C.F.R. 200.1101.

1. Controlling Participants for Previous Participation Review Purposes. Controlling Participants are those entities and individuals (i) serving as a Specified Capacity with respect to a Covered Project as both terms are defined below; and (ii) the entities and individuals in control of the Specified Capacities. At least one natural person must be identified as a Controlling Participant for each Specified Capacity.

Specified Capacities are:

The Borrower entity;

• The owner, if different from the Borrower entity, e.g. in a transfer of physical assets (TPA) or change in role;

• The Management Agent;

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The General Contractor; and/or

• The foreign national (individual and/or business entity). The foreign national Active Principal, who is an individual, must possess and provide an SSN, and a business entity must possess and provide its EIN. An Individual Tax Identification Number (ITIN) may not be used in place of the SSN or EIN for a foreign national Active Principal. HUD will not require a foreign national Passive Principal to provide an SSN or EIN. An SSN or EIN is required if the Passive Principal’s role later changes to Active Principal.

2. In addition to the entities named above, an individual or entity determined by HUD to have control over the day-to-day financial or operational decisions of an FHA-insured property shall also make a previous participation certification review submission. If a Controlling Participant is an entity, the submission must include those individuals who exercise the day-to-day financial or operational control for that entity.

3. The previous participation certification procedure assesses the experience of applicants with FHAHUD insured mortgage programs and with the United States Department of Agriculture Rural Development (USDA-RD) multifamily programs. All submissions must include a previous participation certification and may be made via the Active Partners Performance System (APPS), or paper form HUD-2530. Submission of the previous participation certification review or form HUD2530 is not a substitute for processing the application for project acceptability, credit capacity, or competency. Paper submissions are acceptable if the Participants are having trouble with the APPS access. All Participants must certify and sign the certificate personally as to their individual record and are responsible for its timely filing with the Regional Center having jurisdiction over the project. Any Participant experiencing trouble with or wants to learn more about APPS, to register, access the user guide, or use the tutorial can visit HUD’s website by clicking the following link: https://www.hud.gov/program_offices/housing/mfh/apps/appsmfhm.

4. A Previous Participation Certification is required from the following List of Controlling Participant types:

   • Tax credit syndicators or investors with an identity of interest in the general partner or managing member.

• For-profit entities; officers of the entity’s board of directors (BOD); officers and the executive management team of the entity (such as the President, Chief Executive Officer etc.), if different from the officers of the BOD; or any other individuals determined by HUD to control the entity.

• Nonprofit borrowing entities, including the:

• 1. Executive Director or another manager or officer of the non-profit corporation. Non-profit board members who do not exercise control over the corporation in another capacity (for example, as Executive Director or other manager or officer of the non-profit corporation) are excluded from the requirement of filing for the previous participation certification and review.

Special Limited Partner (SLP) Entity in a LIHTC transaction seeking pre-approval.

• Investors (passive principal) that have exceeded the $500 million threshold or investors who wish to avoid exceeding that threshold and want to invest in a project as a passive investor with less than a 25% interest (10% for corporations) so as not to trigger the threshold.

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• An investor (passive principal) who the Borrower relies upon for both financial strength and cash requirement contribution but still maintains an ownership interest of less than 25% (10% for corporations).

• Foreign nationals who are Controlling Participants (as defined in 24 C.F.R. 200.212 & 200.216 and Housing N-2016-15) for the Specified Capacity (owner, Borrower, Management Agent, General Contractor, as set forth in the Regulations and Housing Notice) are required to register in the Business Partner Registration System of APPS (Active Partners Performance System). Participants will either prepare and submit the electronic filing of the Previous Participation Certification (form HUD-2530) through APPS or submit a non-electronic (paper) filing of the form HUD-2530. The Controlling Participant must file using either an SSN or EIN. Passive Principals are not required to file a Previous Participation Certification. See Housing Notice H 2016-15 and 24 CFR Part 200, Subpart H (2018) for more detailed information.

  • If the applicant or MAP Lender has any reason to believe that any Controlling Participant is not of sound mind or body or is otherwise incapacitated, such information must be disclosed to HUD to review and determine whether another individual is acting as a Controlling Participant.

5. List of Exclusions. Except that any Specified Capacity is a Controlling Participant, and unless otherwise determined in writing by HUD in a specific transaction to exercise day-to-day control of a Covered Project or Specified Capacity, Controlling Participants do not include the following:

• Wholly-owned entities. Any entity that is 100% owned or controlled by one individual or entity is excluded. Such entities are not exercising control; the individual or entity that wholly owns them is exercising control. An organizational chart may include one or more tiers of wholly-owned entities. All wholly-owned entities in all tiers are excluded.

• Shell entities. Entities that do not take actions themselves but only serve as legal vehicles through which the partners, members or owners of such entity take actions are excluded. These entities are not exercising control; the partners, members or owners of such entities are controlling. The "middle tiers" of an organizational chart are often shell entities.

For example, if a Borrower ("Borrower LLC") has a managing member ("Managing Member") that is a joint venture partnership of two entities ("Partner 1" and "Partner 2") and day-to-day control of Managing Member is exercised by Partner 1, then Partner 1 is the Controlling Participant of the Borrower. In this example, neither Managing Member nor Partner 2 are exercising control and are excluded. If Partner 1 is itself a shell LLC, with three members, then the individual(s) or entity(ies) that exercise day-today control of Partner 1 would be the Controlling Participant(s). If day-to-day control of Partner 1 is exercised by Member A, then Partner 1 would be excluded, and Member A would be the Controlling Participant. If the organizational chart reflects this arrangement and unless additional information or special circumstances warrant further inquiry, HUD will accept Member A's certification that it is the Controlling Participant and will not require an examination of the various entities' organizational documents to confirm that Managing Member and Partner 1 are excluded shell entities.

• Individuals who provide a certification in one capacity need not provide a separate duplicate certification. When a corporation (for-profit or nonprofit) is a Principal, all its officers, directors and principal stockholders need not individually sign, certify nor file the certificate when they all have the same record. When their previous participation records are identical the officer

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authorized to sign for the corporation will list on the certificate the full names for all such principals connected with the corporation who do not elect to sign. Those principals who have a separate participation record outside that of their corporation must certify, sign and file. The objective is full disclosure.

• Attorneys and Architects with only an arms-length fee arrangement for services.

• Sub-contractors.

• Minor corporate officers who do not exercise control over an entity or who have no significant involvement in a project, as determined by HUD, need not complete a previous participation submission.

In the event HUD requests an officer who has not provided a Previous Participation Review submission to provide a submission, HUD shall accept certification from the officer that (s)he has limited involvement in the Covered Project, does not exercise operational or financial control over the Covered Project and does not have the ability to prevent or resolve violations or circumstances giving rise to flags related to the Covered Project (See Notice 2016-15 Section G for details on "Flags".)

• Less than 25% ownership interest. Unless exercising control through another capacity, members, partners, stakeholders, and owners of entities with less than a 25% interest in an entity are excluded. This exclusion does not apply to any such member, partner, stakeholder or other owner of an entity ("Proposed Excluded Member") who would have an interest greater than 25% if the combined percentages of all other members, partners, stakeholders or other owners (including beneficial interests in trusts) with whom the Proposed Excluded Member has an "Identity of Interest," or a conflict of interest because of familial relation or common financial interest, exceeds 25%. Whether an Identity of Interest or conflict of interest exists is determined by HUD. If the program requirements of the applicable program in which the Covered Project is participating speak to Identify of Interest or conflict of interest, those program requirements control.

• Members of a Board of Directors. Members of a non-profit or for-profit corporation's board of directors who do not exercise control over the corporation in another capacity (for example, as Executive Director or other manager or officer of the non-profit corporation) are excluded.

  • Parties whose sole interest is that of purchaser or owner of less than five individual unit(s) in the same condominium or cooperative development; and parties whose sole interest is that of a resident.

• Tax Credit investors, Passive Investor Principals, Syndicators and direct investor entities in LowIncome Housing Tax Credits, Historic Tax Credits, New Markets Tax Credits or other tax credits (if HUD determines such credits are substantially similar to the listed tax credits) are excluded unless such entities exercise day-to-day control or seek other involvement that would trigger the need for previous participation review. For these passive investors, HUD requires the “ Identification and Certification of Limited Liability Investor Entities (ILLC),”. The certification is found in Appendix 8, Section A.8.8.

If during the underwriting it is found that an entity has triggered the need for a previous participation review because it will exercise day-to-day control or other involvement exists that would trigger a review, or the entity does not want to provide an ICLLIE , they must submit in place

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of the required certifications the following items: organizational documents, form HUD 92013SUPP, a credit authorization, EIN verification, and credit report.

• Public Housing Agencies/Authorities, whether in their capacity as owning and operating public housing or otherwise, are excluded. Public housing agencies are subject to different oversight and review by HUD's Office of Public and Indian Housing, and who are subject to separate treatment for projects redeveloped under the RAD program.

• Brokers whose services are limited to referring the loan to a Lender and presenting information on behalf of the Borrower.

• A Qualified Opportunity Zone Fund that has invested in an insured project structured as a shell entity need not file; however, the fund and its participants must be identified on the organizational chart.

• Publicly Held Companies. For publicly held companies, the chief executive officer (or equivalent position), the controlling shareholder (if any), and other individual(s), if any, identified as having day-to-day control over a Specified Capacity or Covered Project, including any relevant project manager(s), must file but the publicly held company shall otherwise be treated as an individual without need for other individual shareholders to file certifications in their individual capacity or identify their social security or tax identification numbers.

• Mortgagees. Mortgagees acting in their capacity as such are excluded.

• No Exercise of Financial or Operational Control. Any individual or entity determined by HUD not to exercise financial or operational control of a Covered Project or Specified Capacity shall not be considered a Controlling Participant.

• For the Sections 223(a)(7), 223(t), 241(a), 232(i) and 223(d) programs Controlling Participants are only subject to Previous Participation review if they were not previously approved to participate in that project (provided they have not changed roles in the project without prior approval).