LEAN 232 Closings
Tips & Current Trends
Southeast Mortgagee Advisory Counsel (SMAC)
Koren McKenzie-John
HUD Office of General Counsel
May 15, 2014
Application Submission
• Use approved ORCF form documents on the ORCF program document webpage when
submitting Firm applications, including the new HUD-92264A-ORCF, Maximum Insurable
Loan Calculation. ORCF will not be able to process amendment requests without this new
form.
http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration/healthcare_fac
ilities/residential_care/final_232_documents
• Do not delete or revise forms. Use N/A, as appropriate.
• If underwriter determines that the form template has been changed in the Firm Application
submission, the entire application will be returned and placed at the end of the queue.
• New ORCF documents required for all new transactions (unless New Document
Implementation Matrix indicates otherwise).
• Not acceptable to mix old and new documents (except In circumstances where the existing
AR financing or master lease transactions are being modified, as indicated by New
Document Implementation Matrix)
• Underwriting Guidance Home Page:
http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration/healthcare_fac
ilities/residential_care/underwriting
Sign up online to receive HUD LEAN e-mail blasts on this home page.
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Application
• Ensure that Lender’s Narrative accurately
reflects document submission.
• Include cover letter, noting any unique
issues & modifications, as appropriate,
and tab all exhibits.
• Disclose as early as possible if project has
a lock-out that will prevent closing before
or after a certain date, or if there are state
laws/practices that require modification of
HUD requirements.
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After Firm Commitment
• Review and comply with all Special Conditions
• Request all amendments to the FC, including ratelock amendments, prior to closing submission
• Submit clean and red-lined versions of all documents
as they are revised.
• Promptly respond to HUD comments and requests.
• Use ONE version of legal description for all
documents
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Legal Closing Package
For all Firm Commitments, the instructions (as listed
on the Cover Letter or Email) will be as follows:
Send LEGAL closing package to:
Regional Counsel or Associate Regional
Counsel’s name for the project– to be inserted
by UW per the OGC assignment sheet.
 When sending the LEGAL closing package, also
send email to ORCFcloser@hud.gov for a closer
assignment within one to two business days.
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HUD Legal Review
• One legal review to be performed, AFTER Firm
Commitment issued EXCEPT if project has any of
the following issues:
 Accounts Receivable Financing
 Master Lease for Medium and Large
Portfolios
 Issues that may arise in underwriting that
would require a legal consultation
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Scrivener’s Errors
If you find scrivener’s errors in any new ORCF
PRA documents, please send the details, via
email, to Nicole Hendrich
Larger policy corrections or changes should also
be sent to Nicole, but those changes may be
required to wait for the next PRA document
update process
Substantive questions should be directed to the
232 Documentation Implementation Committee
using the email box:
232DocumentsFAQ@HUD.GOV
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Update Regarding Paperwork Reduction Act
(PRA) Process
• 2013 revisions published in March 2013 represented first comprehensive
232 program document update and involved many improvements.
• One-year expiration date of March 14, 2014 extended during PRA process.
• HUD published proposed electronic submission policy along with newly
revised Intercreditor Agreement on February 27, 2014. Public comments
have been received and are being reviewed.
• HUD received public comments on other documents among the 115 PRA
documents (other than the Intercreditor) on March 31, 2014
• Based on comments received, HUD made revisions to certain documents to
address third party operator concerns, including Rider to Operator Security
Agreement, Rider to Master Tenant Security Agreement & edits to the
Master Lease SNDA regarding project operating deficiency.
• HUD responded to OMB on May 6, 2014 and is awaiting OMB final approval.
OMB has 30 days to provide its decision.
• HUD anticipates republishing documents shortly with three-year expiration
date.
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241 (a) Documents Posted Online
• Section 241(a) provides insured second mortgages to finance
repairs, additions and improvements to healthcare properties
already insured by FHA.
• Sample documents for 241(a) transactions were recently
posted online. Not PRA-approved, so negotiable.
• ORCF is amenable to transaction-specific changes. See May 7,
2014 LEAN e-mail blast.
• Borrowers completing a Section 241(a) transaction will be
subject to two different Regulatory Agreements.
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New Document Implementation Matrix
HIGHLIGHTS:
• Master Lease – after July 12, 2013, new docs required
• If Master Lease was created under old documents, but a new
project is being added with an FC issued after July 12, 2013, then
new docs will be required except for Master Lease and CrossDefault Guaranty of Subtenants.
• For new AR lines submitted on or after July 12, 2013, all new ARrelated documents will be required, including A/R Financing
Certification form HUD-90020-ORCF and Intercreditor Agreement
(Form HUD-92322-ORCF). If AR line was previously approved by
HUD and there is no substantial change in AR line, ORCF will allow
use of old ICA & Rider, but in all instances, must use A/R
Financing Certification Form.
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New Document Implementation Matrix
• New construction – two stage submission process
• If old documents were timely used in the initial submission, then
the old documents should be used on the final submission,
consistent with the old submission checklist.
• If the FC for the initial stage was issued on or after July 12, 2013,
then the new documents should be used.
• 241 Transactions
• If FC on a 241 is issued on or after July 12, 2013 on a project with
an existing FHA-insured loan which is governed by the old
documents, the new sample 241 closing documents are to be
used.
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New Document Implementation Matrix
MANAGEMENT AGENTS:
• Management Agent that holds license for facility will be
required to execute all new documents, including
certifications, Operator Regulatory Agreement, Security
Agreement, Addendum to Operating Lease, SNDA & Estoppel
Certificate.
• Management agents that do not hold the license for the
facility, ORCF will require the management agent to execute
the Consolidated Certification-Management Agent (Form
HUD90017-ORCF) and Management Certification – Residential
Care Facility (Form HUD 9839-ORCF)
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Operator Regulatory Agreement
• Someone always has to sign the
Operator Regulatory Agreement.
Depends on actual role and legal
feasibility.
• For example, if Borrower is acting as
both Borrower and Operator, it must
sign both Borrower Regulatory
Agreement and the Operator
Regulatory Agreement.
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DACA & DAISA
• Sample documents only, no standard form; unique to each
bank
• Smaller banks more agreeable to accept “as is”
• More pushback from larger banks wanting to use own form &
refusing to sign
• Public comments were against form
• DAISA: Number of days prior to termination of the account
troublesome area
• Updated 232 regulations clarified that accounts must be in an
insured account (e.g. FDIC); offshore accounts unacceptable.
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Questions & Answers
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