HUD recently released Housing Notice 2014-10 to make updates to certain procedures published in Notice 2011-18 “Processing Guidance for the Section 202 Supportive Housing for the Elderly and Section 811 Supportive Housing for Persons with Disabilities Programs.” These updates are related to underwriting and construction administration guidance.

Summary of Changes:

  • Organizational Expenses-Conflicting language removed on financial consultants as an eligible use of funds. A financial consultant is an eligible use of capital advance funds only when used for traditional (non-tax credit) project activities.
  • Housing Consultant-Final payment to the housing consultant has been changed to be due at final closing and not one year after final closing.
  • The cash requirement of a Contingency Reserve has been omitted and replaced with a construction contingency line item in the Developer’s Fee as previously allowed.
  • A holdback of excess capital advance proceeds is removed as an allowed assurance of completion for offsite improvements.
  • The correct definition of flood insurance coverage for capital advances is added to Form HUD 90164-CA.
  • Cost Certification-For projects exempt from submitting cost certification, input the final completion date into DAP as the cost certification date. Exempt projects are allowed to include expenses incurred up to 60 days beyond this date as project costs.
  • Owner/Architect Agreement- HUD amendment to AIA form B-108 is available as form HUD-92408-M.
  • Davis-Bacon wage determinations requested from the DOL are effective for 180 days from date of the determination when there is no published determination applicable.
  • Joint Venture-Deleted language requiring a waiver of prohibited relationships between development team members. It no longer applies to mixed finance projects.
  • Excess Amenities- The use of floating units are optional when there are unassisted units in the project.
  • Health Care Facilities- Mixed-financed Section 202 projects may have certain health care facilities.
  • Bedroom Types- Bedroom types are now specified in 24 CFR 891.210(b).
  • Use Agreement- Further guidance has been added for mixed finance projects. The Capital Advance Mortgage term should match the Use Agreement term. The Use Agreement is to be recorded before all mortgage instruments even when the Capital Advance is not in first lien position.
  • Underwriting Instructions-Deleted language indicating that the contractor and architect cannot have an identity of interest with the owner or other team members
  • Tax Credit Issues- Added further guidance for mixed finance projects. When the sponsor loans the capital advance to the project, the loan documents are to assign the collateral to HUD.
  • Project Operating Budget- Corrected typo by adding a percentage sign. Projects with 100[%] PRAC units may include a vacancy loss rate.
  • First Lien Position- Added further guidance for mixed finance projects. When HUD is not in first lien position, agreements in the superior position cannot contain provisions that conflict with HUD requirements. Recording the Use Agreement first will protect HUD from certain conflicts; however, documents used in the transaction should be reviewed thoroughly for conflicting language and brought to the attention of the project owner’s counsel.
  • Use Agreements- When the sponsor is loaning capital advance funds to the project, language referencing forgivable loans is deleted as they are do not meet the tax credit test for a loan.
  • CAUC Duration- Updated information to allow for the fund reservation to be extended beyond 36 months with a waiver from headquarters. Initial closing must occur to complete the term of the reservation.

Click here to read Housing Notice 2014-10.