Daily Rules, Proposed Rules, and Notices of the Federal Government
This 30-day notice published today continues the process required by the PRA. With the issuance of this notice, HUD will submit the information collection for the closing documents to the Office of Management and Budget (OMB) for review and approval, and assignment of OMB control numbers. In accordance with the PRA, the closing documents will undergo the public comment process every three years to retain OMB approval.
On May 3, 2012, at 77 FR 26304, HUD published, in accordance with PRA requirements, a notice (60-day notice) seeking comments for 60 days on proposed changes to the healthcare facility documents. In conjunction with publication of the 60-day notice, the proposed revised healthcare facility documents were made available at:
This 30-day notice published today continues the process required by the PRA for the healthcare facility documents. As was the case with the 60-day notice, HUD will post on its Web site the healthcare facility documents. Again, HUD will show the documents (1) in a clean format, and (2) in redline/strikeout format, to show the changes made from the versions posted with issuance of the 60-day notice.
While complying with the PRA, this 30-day notice, as was the case with the 60-day notice, provides information beyond that normally provided in such notices. The 60-day notice published on May 3, 2012, provided descriptions of the major documents that are used in FHA's healthcare transactions and identified differences, as applicable, from the final multifamily rental project closing documents and existing healthcare facility documents. This notice issued today identifies substantive changes that HUD has made to the healthcare facility documents in response to public comment submitted on the 60-day notice, responds to significant issues raised by commenters, and identifies changes that HUD is proposing for comment in this 30-day notice following further consideration of certain issues.
The healthcare documents that HUD is submitting to OMB are posted on HUD's Web site at
This section identifies key changes made by HUD in response to public comment on the 60-day notice, and further consideration of certain issues by HUD as highlighted below.
In the May 3, 2012, 60-day notice, HUD presented for public comment 154 healthcare facility documents. In response to public comment and upon further examination and consideration of the documents during the 60-day comment period, HUD now advises in this 30-day notice, that it has eliminated certain documents from the PRA process for various reasons, and separated concepts in certain existing documents into new documents. As a result of these changes, the number of healthcare facility documents presented for PRA purposes now numbers 115. Of the eliminated documents:
• 14 documents were removed for various reasons: the information in the forms is captured elsewhere; the information is no longer necessary; or the particular form would better serve HUD and the industry as a sample document rather than a prescribed form. For example, the Healthcare Facility Summary Appraisal Report was eliminated, and any necessary portions were incorporated into HUD-92264a-ORCF Maximum Insurable Loan Calculation; the Certification titled FHA Retyped Forms was deleted as obsolete; and the Deposit Account Control Agreement (DACA) and Deposit Account Instructions and Service Agreement (DAISA) were deleted from the PRA process and are being made into samples.
• 20 checklists (including all 16 Production Checklists and 4 Asset Management Checklists) were removed. The Checklists summarize and list other exhibits in the application but do not collect information. The Checklists simply serve as a reminder of the documents that may be needed for a particular transaction.
• The 8 Firm Commitments have been removed. The Firm Commitments are letters from HUD to the lender setting forth the terms of the transaction and do not collect information or imposing recordkeeping requirements.
• The Subordination Agreement and Subordination, Non-Disturbance, and Attornment Agreement relating to the Operating Lease, were combined into one document.
In addition, 4 new documents were added:
• The HUD-2205A-ORCF, Borrower's Certificate of Actual Cost, was added, because the existing HUD multifamily form no longer applies to Section 232 projects.
• An additional addendum was added to the existing Section 223a7 Lender Narrative to address Transfers of Physical Assets (TPA), which now allows for more seamless processing of a refinance and TPA simultaneously.
• In addition to the existing Lender Narrative for a Blended Rate—Single Stage, two additional documents were added to allow a project to submit for a blended rate in a two stage process: Blended Rate—Initial Submission and Blended Rate—Final Submission.
Consistent with the change made in the 2012 Final 232 Rule, applicable healthcare facility documents have been revised to reflect the policy that the long-term debt reserve is not a requirement for every project.
HUD also revised the operator's regulatory agreement, consistent with the 2012 Final 232 Rule, to remove the requirement to maintain positive working capital. In lieu of such requirement, consistent with the 2012 Final 232 Rule, if a quarterly financial statement is not filed or demonstrates negative working capital, the operator's regulatory agreement now prohibits funds generated by the operation of the healthcare facility to be taken as distribution or used for other purposes, except as specified.
Other nomenclature and wording changes were made. For example, in HUD-92415-ORCF, the Request for Permission to Commence Construction Prior to Initial Endorsement for Mortgage Insurance, the term “mortgagor” was changed to “applicant” throughout the document. Further, adjustments were made to make the forms more generic, and eliminate needless duplication. In addition, several of the documents were revised, in accordance with the 2012 Final 232 Rule, to revise the time frame for providing notices relating to certain operational deficiencies to two (2) business days.
All changes made to the healthcare facility documents, whether substantive changes or wordsmithing changes, are presented in the redline/strikeout
These documents include information and certifications that must be made by the lender to ensure that a project is consistent with the Section 232 program requirements and therefore meets FHA eligibility requirements. These “Lender Narratives” are the summary document for each application submission. Based on commenters' concerns, the Lender Narratives have been simplified and revised to make the documents as consistent as possible across each loan type.
While members of the public did not submit extensive public comments on these documents, many of the changes adopted reflect changes made in other healthcare facility documents. For example, the other documents include updated environmental requirements, and updated procedures such as those regarding the amount of commercial space allowed in a facility or the flood insurance requirements. Also, minor technical changes were made, such as cross references to new or changed documents. Changes to these documents are reflected in the redlined/strikeout documents posted on HUD's Web site at the address set forth in the introduction to this notice.
HUD has added an additional addendum to the lender's narrative for the Section 223(a)(7) refinance program. This new addendum addresses the requirements for conducting a TPA concurrently with a refinance. This addendum takes the place of the previous addendum “h,” which related to the operating lease and is being incorporated into the main lender's narrative document, Lender Narrative, Section 232/223(a)(7), HUD-9001-ORCF.
This form has been eliminated, and relevant information has been incorporated into a checklist.
These forms were added as lenders have requested the option to submit blended rate projects via the two stage process.
This group of documents consists primarily of consolidated certifications, which allow each participant in the application submission process—the lender, borrower, principal of borrower, operator and/or management agent—to submit one document containing all required certifications. The required certifications mirror the certifications required for the multifamily program, and include certifications relating to: identifying parties to the transaction, whether there are identities of interest, granting credit authorizations, compliance with the Byrd Amendment, compliance with Title VI of the Civil Rights Act of 1964, and HUD mortgage insurance program requirements. These certifications also include language regarding previous participation disclosures. These certifications did not receive any public comments, and few substantive changes were made to them since the initial publication. Changes to the documents are reflected in the redlined documents posted on HUD's Web site at the address set forth in the introduction to this notice.
There were few public comments on these documents, and those comments submitted predominately related to loans for the Section 232 program for new construction. The majority of changes to the documents were for minor editing changes or clarifications of policy. Changes to the documents are reflected in the redlined documents posted on HUD's Web site at the address set forth in the introduction to this notice.
These documents were generally updated to clarify escrow calculations. Some signature lines were added to specify certification of the calculations included on the forms.
Few comments were submitted on these documents which are used by HUD for routine reviews and approval of facility operations.
A provision related to the timeframe and scope of the lien was adjusted to provide at least 30 days notice before the “Cut-Off Time” when HUD assumes a priority lien position. This would allow additional time for a turnaround, rather than having the cut-off enforced at the time notice is served.
Several definitions were revised to accommodate concerns from the accounts receivable industry, including “Protective Advances,” “AR Lender Priority Collateral” and “AR Loan Obligations.”
As a result of public comment to the Intercreditor Agreement, a new section clarifies HUD's requirements that property securing FHA-insured loans may not cross-collateralize obligations of properties without FHA insured loans.
This document was removed as a result of public comments. It will be a sample document, not a required form.
This document was removed as a result of public comments. It has been incorporated directly into the Intercreditor Agreement.
The collection of Master Lease documents was established to address the increase in the number of multi-facility portfolio transactions submitted to the Section 232 program. The May 3, 2012 60-day notice proposed a master tenant security agreement, a master tenant regulatory agreement, a subordination/subordination non-disturbance and attornment agreement, a cross-default guaranty of subtenants, and an addendum to the master lease which includes provisions protecting the lender and HUD's interests. The master lease structure allows for any rental deficiencies at one facility to be supported by income from another facility under the master lease. A master lease does not, however, pool the assets of all facilities for underwriting a single mortgage; each individual loan must meet HUD's underwriting standards on its own merit.
In reviewing this document in response to public comment, HUD attempted to eliminate unnecessary duplication and retain only those provisions most appropriate for the Master Lease Addendum. Provisions requiring direct enforcement rights were moved to the master tenant regulatory agreement. In addition, HUD clarified provisions regarding “bed authority,” acknowledging that in most instances, the operator holds the licenses required to operate the healthcare facility. HUD clarified the term “Approved Use” consistent with current policy.
The title of this document was changed from “Subtenants Cross Guaranty” to “Cross-Default Guaranty of Subtenants.” HUD also made additional clarifications pursuant to public comment.
Minor rewording and clarifications were made to make this document consistent with other documents and terminology used throughout all of the healthcare facility documents.
To be consistent with 24 CFR 232.1015 of HUD's 2012 Final 232 Rule, the time frame for providing notices relating to certain operational deficiencies has been clarified as two (2) business days.
In response to comments, this document was revised to give additional rights to and clarify the rights of the lender. For example, clarifications were adopted to provide the lender authority to allow the operator to select and engage the services of a management consultant in the event of a project operating deficiency.
The title of this document was changed from Master Tenant's Attorney's Opinion to Guide for Opinion of Master Tenant's Counsel. New sections were added in the document to describe the exercise of rights or enforcement of remedies, security interest and rights to the collateral, which are consistent with the Guide for Opinion of Borrower's Counsel. A new section was added to clarify that the Guide for Opinion of Master Tenant's Counsel is governed by the laws of the state where the project is located.
Changes were made to make this document consistent with the borrower's and operator's regulatory agreements. Provisions that had required segregated accounts were revised in accordance with the 2012 Final 232 Rule. The provision requiring the healthcare facility to maintain positive working capital at all times has been removed.
In response to public comments regarding Uniform Commercial Code (UCC) requirements, among other changes, the UCC definition of “Debtor's location” reflects UCC requirements rather than, as in the proposed document, the location of the chief executive's office. A new clarification was added for “Permitted Liens,” encompassing both the security interest in favor of the secured party and any liens approved in writing by the secured party and HUD, which are allowable liens against the collateral. Additional recitals and optional language were added to this document to address different scenarios within a project (e.g. to account for a situation where the borrower is not the same as the operator or when a master lease is involved).
This category is mainly comprised of the documents relating to the borrower's and operator's attorneys' opinions. A summary of the substantive updates is presented below.
The document was modified to provide that the enforceability opinion does not include the ground lease and certain other documents.
The documents include several revisions in response to public comments. One modification was to change all references to “Property” to refer to the “Project” when referring collectively to all of the types of property interest that are to serve as collateral for the loan.
Changes to the documents are reflected in the redlined/strikeout documents posted on HUD's Web site at the address set forth in the introduction to this notice.
Several commenters recommended that these documents be eliminated as HUD mandated forms because they are used with third parties who do not normally do business with HUD. The commenters noted that many depository banks, which are large institutions, have their own forms and will not accept the HUD form. The commenters suggested, and HUD agrees, that these documents are more appropriate as samples rather than as forms. As a result, these documents have been removed from the PRA process. Several commenters also provided technical comments which will be addressed when the sample documents are generated.
As this form was only used by Section 232 new construction program applicants, a few sections of this form (e.g., Land and Replacement Cost) were incorporated into the related Maximum Insurable Loan Calculation form. The Healthcare Facility Summary Appraisal Report has been eliminated.
The document name was changed to Maximum Insurable Loan Calculation to avoid confusion with an existing FHA multifamily program form with a similar name. The document was also changed to an Excel spreadsheet with tabs for instructions, sources and uses, land, replacement cost, loan determination criteria and criteria by loan type. Additional features of the form include context sensitive comments for individual cells and calculations for many cells.
In response to public comment, a new attachment was added to provide an operator Assignment of Leases and Rents subpart of this form. This new document is the only portion of the operator Security Agreement that is recorded. This change removes the recordation requirement for the main document. Other changes were made in response to public comment, including adding a concept of “permitted liens,” and clarifying government receivables account requirements.
This agreement reflects changes made in the 2012 Final 232 Rule. For example, the time frame for providing notices relating to certain operational deficiencies has been clarified as two (2) business days; the long-term debt service reserve requirement is no longer a standard provision for every transaction; provisions relating to reasonable operating expenses and ensuring goods and services are acquired at favorable prices were clarified, and in reliance of these clarifications, subsequently unnecessary provisions, such as provisions limiting payments to affiliates, have been relaxed.
HUD also made several changes to this document pursuant to public comment. Triggers for causing the termination of a management agreement were clarified. The surplus cash calculation provisions reflective of current policy were reinstated. Requirements for non-profit borrowers to take distributions were clarified to reflect current policy.
This agreement also reflects changes made in the 2012 Final 232 Rule. For example, since the 2012 Final 232 Rule allows aggregated accounts so long as accounting can readily and reliably identify and analyze each facility's financial transactions, provisions requiring segregated accounts have been revised accordingly. As with the borrower's regulatory agreement, the time frame for providing notices relating to certain operational deficiencies has been clarified as two (2) business days and the provisions relating to reasonable operating expenses and procedures for ensuring favorable pricing for goods and services have been clarified.
Several changes were made based on public comments received. The requirement to maintain positive working capital at all times was removed. Clearer standards triggering HUD's right to require the operator to hire a consultant were set forth. HUD limited its ability to declare an immediate event of default to situations where a termination, suspension or restriction on a necessary permit or approval would have a materially adverse effect on the operation of the healthcare facility.
In addition to the revisions made in response to the comments discussed below, language was added to this document in response to comment to obligate the borrower to assure that the operator, master tenant and management agent comply with UCC related provisions and to allow liens in favor of HUD-approved accounts receivable lenders.
This form has been revised to be consistent with HUD's 2012 Final 232 Rule, at 24 CFR 232.1011, captioned Management Agents, and to clarify the requirements for a management agent and the management agreement.
As stated previously, HUD determined that these documents are inappropriate for the PRA process, and these documents have been removed. HUD will provide additional details about these documents as necessary.
As stated previously, HUD determined that these documents are inappropriate for the PRA process, and these documents have been removed. HUD will provide additional details about these documents as necessary.
Thirteen sets of public comments were submitted in response to the 60-day notice through
As a special outreach to the public on proposed changes to the Section 232 program regulations, HUD hosted a forum, the “Section 232 Document and Proposed Rule Forum” on May 31, 2012, in Washington, DC. A video of this forum is available on the HUD Internet site at
In addition to comments submitted in response to the 60-day notice, 27 public comments were submitted in response to the companion May 3, 2012, Section 232 proposed rule. To the extent that comments submitted on the proposed rule related to the healthcare facility documents, those comments were taken into consideration in the further development of the healthcare facility documents presented for additional public comment in this 30-day notice.
This section of the notice highlights the key issues raised by public comments on the documents and HUD responses to these comments. Some documents received no comments and therefore are not included in the discussion section below. For other documents, many of the changes suggested and those adopted by HUD have been discussed in Section II of this notice.
Many commenters recommended different terminology or different organizational structure to several of the documents. All these types of comments are not necessarily addressed in this section of the notice. To address each editorial/organizational structure recommended change would result in a very lengthy notice. The redline/strikeout versions of the documents, however, reflect all changes that HUD agreed with and adopted, and have taken into account any such recommended editorial/organizational changes that HUD did not agree or adopt. Finally, certain issues raised by the commenters on the documents were also raised in connection with the companion proposed rule. To the extent that comments were similar and have been addressed in the preamble to the 2012 Final 232 Rule, HUD does not repeat the issue and response in this notice.
Generally, in the discussion of public comments that follows, the terms “section” and “paragraph” are interchangeable. Some of the documents specifically use the term section, while others simply number paragraphs.
The commenter recommended that Table A, Item 1 be deleted, subject to being required by the title company in order to issue the title insurance required by HUD. The commenter further suggested that Item 6b should be dropped as current building setback and related items only impact new construction and not a previously existing structure. The commenter also suggested that Item 10(a) should be deleted, subject to being required by the title company in order to issue the title insurance required by HUD; Item 10(b) should be deleted; Item 11(b) should be deleted and replaced by 11a plotting or disclosure of utilities by observable evidence is sufficient. Going beyond observable evidence is extremely burdensome and oppressive; Item 19 should be deleted as a required item.
The commenter further recommended that section I—2nd paragraph modify the sections that the survey will comply with. The commenter recommended that section I E be revised to add “HUD Project Name” to basic information to be provided.
The commenter recommended that section II A be modified to say: “The title company will delete the title policy survey exception and accept the prior survey in issuing the policy of title insurance otherwise required at endorsement by HUD;”