A. Processing:

1. If the Borrower’s or contractor’s estimate for the change order exceeds HUD’s estimate, the difference must be escrowed with the Lender. Excess mortgage proceeds, if available, may be used to satisfy this requirement. Conversely, that portion of HUD’s estimate that exceeds the Borrower’s or contractor’s estimate must be restricted and held until final endorsement to ensure funds to complete the project.

2. Process the cost and appraisal findings and show the cumulative effect on cost of all approved change items.

3. Use Section 12.8.4 and Section 12.8.5 for additive and deductive change orders.

4. Recalculate the maximum insurable mortgage when any approved construction change or changes adversely affect net income, e.g., a change that causes an increase in project operating costs or a reduction in project income.

   • The HUD Underwriter or assigned appraiser completes a Trial form HUD-92264 with an updated income and expense analysis.

Re-determine the maximum insurable mortgage.

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Chapter 12 Construction Period 12.11 Change Orders – HUD Underwriter Instructions

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• If the re-determined mortgage is lower than the original mortgage amount, as a condition of approval of the change order, indicate in item 3b of form HUD-92437 that subsequent Contractor’s Requisitions, form HUD-92448, must be reduced by the greater of:

  • 1. The difference in mortgage amounts;
  • 2. The net increase in costs resulting from acceptable construction changes.

5. Extensions of time.

   • The HUD CA is responsible for determining whether the delay was beyond the contractor’s control and, if so, the length of the approved time extension.

Calculate the cost increase due to the extension:

• 1. Compute pro-rata daily rate for interest, taxes and insurance by using estimates in Section G of form HUD-92264 and multiply these rates by the approved time extension measured in days.
• 2. An additional year of MIP will be required if the approved time extension, when added to the estimated construction term plus the two months included in Section G of form HUD-92264 plus previously approved time extensions, would extend the term past twelve, twenty four or thirty six months, as applicable.
• 3. Add the additional general requirements, if any, noted by the HUD CA on the change order request. Only this item amends the construction contract price on form HUD-92437.
• 4. Determine the source of funds for any increase due to the extension, e.g. cash, excess mortgage proceeds or non-profit’s Developer fee, or contingency reserve funds.

• Requests for release of excess mortgage proceeds or contingency reserve funds set aside to fund time extensions are submitted on form HUD-92403.

Releases from a cash deposit are made using form HUD-92464M.

• These funds may be released only after the account for the soft cost item(s) being requested has been exhausted on form HUD-92451, Financial Record of Mortgage Loan Transaction (or similar format in an Excel worksheet).

B. Requests for disbursement of contingency reserve funds, working capital construction contingency funds and non-profit’s Developer fee for completed change order items, are made on form HUD-92403. All requests:

1. Must be accompanied by a certification by the Borrower’s supervisory Architect and the HUD Inspector that all the work covered by the change order was acceptably completed in accordance with contract documents.

2. Must include the authorization by the Depository Institution relative to payment to the contractor contained on form HUD-92464M, Request for Approval of Advance of Escrow Funds.

3. Must include the criminal certification contained in form HUD-92464M for certifications made in Section 12.11.2.A.1 and Section 12.11.2.A.2 above.

4. Are subject to a holdback of retainage consistent with the construction contract.

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Chapter 12 Construction Period 12.12 Labor, Fair Housing and Equal Opportunity (FHEO) and URA Compliance

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C. Change orders funded from excess mortgage proceeds. Excess mortgage proceeds may be used to fund either necessary or betterment change orders.

1. These funds may be used to fund HUD’s estimate of increased costs as well as any portion of the contractor’s estimate that exceeds the HUD estimate. The portion that exceeds HUD’s estimate must be restricted until final endorsement.

2. Funds are released in the same manner as contingency reserve funds.

D. Releasing Cash Deposit. The Borrower must submit, through the Lender, form HUD-92464M when construction covered by a cash deposit is complete and acceptable to HUD.

1. The Borrower’s supervisory Architect and the HUD inspector must certify on form HUD-92464M that all work and materials covered by the change order are satisfactory and consistent with contract drawings.

2. If construction costs were paid in full by other than the cash escrow or excess mortgage proceeds before submitting the disbursement request to HUD for approval, the Borrower must submit a receipt of payment signed by the General Contractor.

3. If construction costs will be paid after HUD’s approval for the release of the funds deposited for the construction change, before the next form HUD-92403 is submitted, the Borrower must submit a receipt of payment signed by the General Contractor.

E. Change Order Summary Sheet showing cumulative cost of all executed change orders should contain, at least:

1. The date the change order was signed by the Borrower;

2. The date HUD received the change order;

3. The date the HUD Underwriter completed review of the change order;

4. The Borrower’s or contractor’s estimate of cost for the change order;

5. HUD’s estimate of cost for the change order;

6. The amount of change orders to be funded from contingency reserve, working capital construction contingency, non-profit’s Developer fee, or excess mortgage proceeds;

7. The required cash escrow deposit, if any;

8. The HUD percentage of cost increase or decrease.