A.12.5.7 Other Matters

A. In the event of a mortgage insurance claim before final closing, instruct the MAP Lenders to establish communications with the Office of the FHA Comptroller regarding the surcharge of insurance benefits for recovery of mortgage proceeds.

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Appendix 12 Construction Period A.12.5 Projects Experiencing Difficulties Before Final Closing

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B. For tax-exempt bond funded projects in default before final closing, see Chapter 11 for additional information and riders included in the “Note” and “Lender's Certificate” regarding a default.

1. Prepayment lock-out and/or penalty override . Consider exercising HUD authority to override Lender’s prepayment lock-out and/or penalty provisions only where:

   • The project mortgage has defaulted, and HUD has received notice of such default, in accordance with 24 CFR Section 207.256;

• HUD determines that the project is experiencing a net income deficiency that is attributable to more than management inadequacy or lack of owner interest, and that the deficiency's magnitude leaves the Borrower unable to make required debt service payments, pay all project operating expenses and fund all required HUD reserves;

• HUD finds that there is a reasonable likelihood that the Borrower can arrange to refinance the defaulted loan at a lower interest rate or otherwise reduce the debt service payments through partial prepayment; and

  • HUD determines that refinancing the defaulted loan at a lower rate or partial prepayment is necessary to restore the project to a financially viable condition and to avoid an insurance claim.

2. Deadline extension for filing claim intentions . MAP Lender must request a three-month extension of the election notice filing deadline in the event of a default within the term of the prepayment lockout and/or penalty. See Chapter 11 and the Lender's Certificate.

   • Analyze the project's financial condition and assess the feasibility of arranging a successful refinancing.

• Recommend that the Regional Center or Satellite Office Director grant the 3-month extension or a shorter extension of the election notice filing deadline, based upon positive conclusions reached by the analysis in Appendix 12, Section A.12.5.1.A above.

• Do not consider additional extensions of the election notice filing deadline, unless specifically requested by the MAP Lender.

C. In the event of a grant/loan project with a pro rata disbursement agreement that defaults before completion of construction, the governmental entity must disburse the remaining funds where the request for funds remains in the same ratio as previously authorized.

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Appendix 13 Cost Certification A.13.1 Agreement Authorizing Reopening of Mortgage Transaction

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