United States: Summary Of HUD’s LEAN 232 Program E-Mail Blast: Office Of Residential Care Facilities (ORCF), September 5, 2014

Last Updated: September 12 2014
Article by Christine Waldmann Carmody and Blair L. Schiff

In an effort to summarize the highlights of the U.S. Department of Housing and Urban Development (HUD) LEAN E-mail Blasts that we receive, and rarely have time to review in a timely fashion, we at Pepper are providing this quick synopsis of the latest LEAN update. Our aim is to provide pertinent information succinctly as a roadmap to the LEAN E-mail Blasts, not to replace the LEAN E-mail Blasts. We hope you find these summaries helpful. Here is a link to the complete September 5, 2014 LEAN E-mail Blast.

End of Fiscal Year!

ORCF has asked us to emphasize that it is very close to meeting their 2014 fiscal goals. The ORCF Closing team invites all complete closing packages to be submitted to the assigned HUD Attorney and HUD Closer as soon as they are ready. ORCF Closers will work closely with HUD Attorneys to try and meet closing deadlines set before the end of HUD's fiscal year. We are all incentivized to meet the end of the fiscal year goals, as doing so will encourage HUD to renew the contract underwriter and closer contracts.

New Section 232 Handbook Became Effective September 1, 2014

As a reminder, the new Section 232 Handbook became effective September 1, 2014. The handbook provisions apply to all projects in the 232 portfolio and all lender/underwriter approval requests on or after September 1, 2014.

It is important to remember that the insurance requirements (including property and general liability insurance, but excluding professional liability insurance) will not be effective until November 1, 2014. Please see the June 26, 2014 E-mail Blast for more details. Existing Section 232 projects are not required to implement these new insurance requirements; however, if a project chooses to implement the changes at the time of insurance renewal, it must comply with the new property and general liability insurance requirements in their entirety.

Additionally, the Section 232 Handbook's Section III – Asset Management, Chapter 4 – Financial Operations, Section 4.5 - Financial Risk Metrics of Operator, Subsections A-F related to Operator financial reports, will not be effective until 60 days after the requirements are announced in the Federal Register.

Pre-Construction Conference Agenda and Lender's Pre-Construction Conference Duties Documents Updated

With the recent publication of the new Section 232 Handbook, the "Lender's Pre-construction Conference Agenda," and "Lender's Pre-construction Conference Duties," documents have been updated. All conferences held shall now use these new documents.

General Contractor's Requisition for an Initial Draw on Loans with Early Commencement or Early Start Approval

On loans given Early Commencement or Early Start approval, if construction proceeds are being requested when the Lender submits Initial Endorsement documents, the Initial Draw, form HUD-92403, Application for Insurance of Advance of Mortgage Proceeds, must reference and attach a single form HUD-92448, Contractor's Requisition. Please note that the amount claimed in line item #1 of form HUD-92403 must match the net amount of the requisition on page 2 of the attached form HUD-92448.

The form HUD-92448 must include signatures by the General Contractor, Architect, and HUD Contract Inspector. However, since construction draws are not conducted during Early Commencement or Early Start, communication among the Lender, ORCF's Construction Manager Michael Peeler, and the HUD Contract Inspector, is key to obtaining the necessary inspection and signatures related to the HUD-92448. Therefore, prior to submitting the Initial Draw to HUD, the Lender must contact Michael Peeler, via e-mail, and indicate when Initial Endorsement is anticipated, discuss how the Contractor's Requisition will be signed on site, and include the Initial Draw documents. Mr. Peeler will then contact the assigned Contract Inspector, advise them to coordinate their first Draw Inspection at the job site with the General Contractor and Architect, and they will sign the Contractor's Requisition at that time.

After the Contractor's Requisition is signed by the General Contractor, Architect, and HUD Contract Inspector, it will be given to the Borrower, who must immediately send it to the Lender with the other Initial Draw documents.

The Lender will then transmit the complete Initial Draw to the assigned ORCF Closer for final review and approval.

As a reminder, Early Commencement approval does not guarantee a firm commitment will be issued.

Reminder on HUD Firm Application Instructions

Please remember to read the Firm Application Instructions and make sure application submissions are in agreement with ORCF limitations.

Also, since the Check Transmittal Letter was merged with the Certification for Submission of Electronic Firm Application (Form HUD-90022-ORCF), it no longer needs to be submitted as a separate letter.

Initial Operating Deficit Calculations for Private Pay Facilities

When ORCF created the standardized template for calculating initial operating deficits (IODs) (Form 91228-ORCF) it anticipated there would be delayed reimbursement payments from government sources such as Medicare and Medicaid. Many of the new construction projects are private-pay and delaying the time for reimbursements by two months results in an exaggerated deficit. Therefore, ORCF has posted the Initial Operating Deficit Escrow Calculation Template – Private Pay Sample that calculates the IOD without the assumption that there will be a delay in governmental source receipts. This version may be used at the lender's option – instead of revising the formulas on Form 91228-ORCF. However, it is only to be used for projects that are anticipated to be entirely private-pay. This is a temporary solution and ORCF hopes to have a version that works across a wide range of contingencies, such as blends of payor types, or projects with existing cash flows. The "Details & Draw Requests" tab of the Initial Operating Deficit Escrow Calculation Template – Private Pay Sample may be edited. If lenders need to edit the formulas, please explain the revisions in the lender narrative of the Firm Application submittal.

FHA Number Request Submission E-mail Change

Effective immediately, ORCF has a new e-mail address for lenders to send in their FHA Number Requests and FHA Number inquiries - 232FHARequests@hud.gov.

New ORCF Closer Checklists for 223(f) and 223(a)(7) Projects

Updated ORCF Closer Checklists for 223(f) and 223(a)(7) projects are now posted.

The updates include referencing the Borrower's Certification - No Adverse Actions (as required by the Firm Commitment) and noting that the draft closing statement should be from the Sources & Uses page of the HUD-92264a-ORCF.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Blair L. Schiff
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