8.3.5 Foreign National Participation in FHA-Insured Multifamily Programs

A. Foreign national individuals and business entities may participate as either Active or Passive Principals in FHA-insured Multifamily programs (as defined in Section 8.3 of the MAP Guide and as clarified below). The formed single-asset-entity Borrower must be registered in the United States and in the State where its corporate office is located. At least one Principal with operational decision-making authority must be a United States citizen or a foreign national who is a lawful permanent resident of the United States, having an immigration status granted by the United States government that enables that Principal to exercise operational decision-making authority. It is the MAP Lender’s responsibility to confirm that foreign national entities are properly identified as Active or Passive Principals. This analysis is to ensure that Passive Principals have no decision-making authority, or operational control, and do not represent a financial or legal risk to HUD.

B. As required under Section 8.3 above, each foreign national individual or foreign national controlled private entity that is an Active or Passive Principal must be listed on the Borrower entity’s organizational chart.

C. Background Evaluations of Foreign National Principals. In addition to the existing requirements applicable to all Active and Passive Principals under Section 8.3 above, the MAP Lender must perform a thorough and independent background evaluation for all foreign national Principals including:

1. A review of organizational documents, personal resumes, history of past business relationships and litigation, i.e. foreign and domestic criminal and civil; and

2. Research of the foreign national Principal on the following internet and database systems: SAM.gov (System for Award Management); Office of Foreign Asset Control (OFAC) and the MDDR (Multifamily Delinquency and Default Reporting). The analysis of a foreign national business entity is conducted at the business entity level in addition to the executive who is authorized to execute actions of the entity.

3. Based upon the content of this background evaluation, HUD may require additional information and/or an investigation to better assess the foreign national Principal in terms of risk to HUD. The MAP Lender will summarize the results of their background evaluation from the legal risk and the business relationships in the MAP Lender’s Underwriter Narrative.

D. A Domestic Principal is an individual that acts on behalf of the partnership in cases where the remaining principals in the partnership are Passive foreign nationals. Similar to an Active Principal, Domestic Principals with operational decision-making authority must be a United States citizen or a

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lawful permanent resident of the United States. This authority to act on behalf of the Borrower presumes that the Domestic Principal has similar credit and financial strength and real estate development experience with those he/she is representing, such as an executive level officer (if employed by a real estate development organization). The MAP Lender has the responsibility to determine that the Domestic Principal has significant liquid assets and net worth (e.g., a net worth equal to at least 3-5% of the proposed loan amount) that are commensurate with the level of financial obligation of the loan being insured, notwithstanding the requirement for the other Active (or Passive) Principals to provide necessary equity. The Domestic Principal should also evidence a high level of experience in similar real estate projects to that being proposed.

E. The MAP Lender must conduct a thorough underwriting of the Domestic Principal, focusing on the relationship of the Domestic Principal to the foreign national principal/entity, in the single asset entity. This investigation should include any past partnerships and joint ventures, the length of time that the parties have known or done business with each other, and any financial or legal obligations created by one to the other.

F. E-2 Treaty Investors are not eligible as Active Principals or Domestic Principals, given their nonimmigrant classification and temporary status (subject to renewal every two years: https://www.uscis.gov/working-united-states/temporary-workers/e-2-treaty-investors). Their shortterm status conflicts with the need for longer term operational decision-making authority and stability of the foreign national Active and Domestic Principals within single asset Borrower entities due to the lengthy maturity terms of FHA-insured Multifamily loans.