8.7.6 Secured Public Secondary Financing Conditions

A. A publicly financed subordinate loan must be made subject to the Subordination Agreement Public, HUD-92420M, which includes, among other provisions, the following terms:

1. The Lender on the FHA-insured mortgage (first mortgage) consent to the placing of the subordinate lien and confirm that its existence does not create a basis for default on the insured first mortgage.

2. The subordinate lender certifies that the subordinate loan documents do not contain a cross default provision or any right of foreclosure before the termination of the FHA-insured mortgage.

3. The subordinate loan is assumable when a sale or transfer of physical assets occurs, and the insured first mortgage remains in place.

4. The subordinate loan automatically terminates if HUD acquires title to the project by a deed in lieu of foreclosure.

5. Repayment of the subordinate loan from Project Assets is limited to 75% Surplus Cash.

6. Subordinate lender agrees to extend the subordinate loan under certain circumstances (e.g., insufficient surplus cash for repayment when due and payable).

B. Both the subordinate lien, as modified by the Subordination Agreement Public, HUD-92420M, and the insured first mortgage loan documents must be recorded prior to or on the day of closing. Though recordable closing documents are frequently recorded in advance of actual closing, the subordinate loan may not be funded until closing. See Chapter 19, Section 19.1.3.4 for details on closing arrangements.