Definition of Principal for Regulatory Agreement Section 50

A. For privately held entities, the provision generally requires two signatures for project Sponsors. In most cases, HUD, upon the Lender’s recommendation, shall approve an individual signatory to sign in his or her individual capacity and the project parent/Sponsor entity to sign in a corporate capacity. In any specific deal, underwriting may conclude that an entity with the requisite control and involvement or interest in the Project that possesses a positive credit history and adequate financial strength relative to the size of the loan may serve in the capacity required by Section 50. In some circumstances, particularly involving large, capitalized, and experienced corporate entities with complex corporate organizational structures, the underwriting may not reveal any apparent individual to reasonably serve in the required capacity, whereas the parent/Sponsor entity itself may possess such necessary characteristics to act as the sole necessary signatory.

B. The Lender may consider whether the entity has been approved as an appropriate signatory to provisions similar to Section 50 in a recent Government Sponsored Enterprise (GSE) transaction. A GSE transaction means any Fannie Mae DUS or Risk Sharing or Freddie Mac loan program, in which they have approved the signatory on their comparable carve out provisions. HUD will also consider the Federal Home Loan Bank as a GSE, if they also have similar approval. The GSE-approved entity may be an appropriate sole signatory for Section 50 if the entity has positive credit history and adequate financial strength. A copy of relevant excerpts from the recently closed transactions would evidence such GSE approval.

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C. For publicly traded corporations, Real Estate Investment Trust (REITs), or nonprofit Borrower: The parent/Sponsor entity itself is acceptable as the sole signatory. For such entities, any individual signing on behalf of the corporate entity does not sign in an individual capacity, but to bind the parent/Sponsor. No personal liability will be claimed against the individuals signing in such a capacity.

D. For nonprofit Borrowers, the parent or other Principal must be named as the signatory for Section 50. In the event the parent or other Principal is not the entity, the nonprofit Single Asset Entity is the signatory named in Section 50. The MAP Underwriter’s Narrative should contain a brief explanation as to the reason why the nonprofit entity is named as the signatory.

E. For any corporate entities required to execute Section 50: An officer or entity or other person authorized to bind the company in connection with the proposed transaction may sign.

F. The following prohibitions relate to Section 50:

1. Insertions of “or successors” language to the identification of signatories is not allowed. The Regulatory Agreement can and should be amended when there is a new individual who is responsible for the provisions of Section 50.

2. Riders to the regulatory agreement that attempt to limit a signatory’s liability are not allowed.

3. Section 50 may not be omitted simply because a currently insured project has been processed as a Section 223(a)(7).

G. The Domestic Principal or foreign national Active Principal who is a lawful permanent resident of the U.S. may each sign Section 50 of the Regulatory Agreement in his or her individual capacity. A foreign national Active Principal Section 50 signatory must either remain a lawful permanent resident of the U.S. for the life of the loan or be replaced, with HUD’s prior written approval, by a U.S. citizen or lawful permanent resident of the U.S.

H. The Lender is responsible for the mortgage credit review of the parent/Sponsor entity and to identify and verify the identity of the signatory of Section 50 of the Regulatory Agreement. The signatory will be identified in the Firm Commitment (or in a letter Amendment to the Firm Commitment).