8.5.1.2 Existing Project Financial Statements

A. The Borrower entity must submit:

1. The last three (3) fiscal years of financial statements on the project and, if more than three (3) months have elapsed since the closing date of the most recent financial statements, submit a year-to-date balance sheet and operating statement. If three years have not elapsed from certificate of occupancy to application submission, any full year statements must be provided as well as a year-to-date balance sheet and operating statement.

2. When audited financial statements are not available for the last full year and/or any year-to-date period, the borrower must submit: copies of the most recent insurance and property tax bills; rent rolls and bank statements for the last twelve (12) months of operating history or the actual number of months of operation if less than twelve (12) months; and a reconciliation of the rent rolls to financial statements and financial statements to normalized operations and cash receipts.

B. If all the financial statements are audited by an independent Certified Public Accountant (CPA) or an Independent Public Accountant (IPA), no further review is needed to validate the statements.

C. Un-audited financial statements must be certified by the principal of the borrower and the last complete fiscal year must be a CPA or IPA “reviewed” statement. “Audited,” and “Reviewed,” are defined professional standards for reports understood by CPAs. The intent of this requirement is to obtain an independent (non-identity of interest) professional review of the financial statements certified by the Owner.

D. A principal of the borrower must certify year-to-date financial statements, and if the year-to-date period is six (6) or more months the statements also require CPA or IPA review. If the project has a demonstrated history of three (3) or more years of stabilized occupancy and financial performance, a Borrower certified year-to-date statement may suffice. In some cases, year-to-date statements covering less than six (6) months may require a CPA or IPA review. Examples of when year-to-date financial statements for less than six (6) months might require CPA or IPA review include factors such as: a soft market or other case-specific risk factors exist, or; the project has only recently achieved sustaining occupancy.

E. There may be circumstances beyond the Borrower’ s control where the required financial statements are not available because of loss by fire, arson, theft, flood event etc.

1. The Borrower must submit:

   • Evidence satisfactory to the Lender that the financial statements are not obtainable; and

• Project financial statements that are available including an owner-certified balance sheet and operating statement.

MAP Guide, March 2021 Go to beginning of Chapter 8

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

Chapter 8 Page 8-16

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

Chapter 8 Mortgage Credit 8.5 Evaluating Financial Capacity

Go to Table of Contents

2. Lender’s case file must contain a statement from the Borrower that explains why all the required records are not obtainable and a memorandum from the Underwriter to the Regional or Satellite Office Director stating that he/she has evaluated the Borrower’s statement and agrees that the information is not available.

F. Owner-certified financial statement or owner-certified balance sheet and operating statement must include the entire certification and criminal warning found in Appendix 8, Section A.8.1.A.1.b.1, Section A.8.1.A.1.b.2, and Section A.8.1.A.1.b.3.

G. Past due accounts payable and outstanding liabilities for project operating expenses must be cleared and released, or otherwise fully resolved, before or at Initial Closing. Examples of such items include deferred management fees, over-due utility bills or real estate taxes, and trade payables. These items are not to be included in the eligible debt basis in the calculation of the cost of refinance/ acquisition.

H. If the transaction does not involve a Transfer of Physical Assets (TPA), and if approved by the Regional Center Director, surplus cash notes may be established for payables owed to a related entity. Accounts payable and outstanding liabilities that are not past due do not need to be resolved at or before closing.