In March of 2021, Dinsmore published a client alert titled " Chapter 19 of HUD's New MAP Guide – Initial Takeaways for Lenders and Borrowers." In that article, we offered our observations about new requirements in the MAP Guide and predicted how those requirements might impact the loan closing process.
Now that we've lived with the "new" MAP Guide for over a year and seen how HUD staff utilize it on deals throughout the country, we decided to take a step back and reflect on what we've learned. Here's the sequel to our initial list of Chapter 19 takeaways:
1. Tentative Closing Dates have been hugely helpful
In our March 2021 article, we expressed optimism about Chapter 19's tentative closing date (TCD) concept and predicted that it would help maintain momentum on deals from commitment through closing. That has absolutely proven to be the case. We've found that HUD has more often than not agreed to the TCD that we proposed when submitting a pre-closing package. And in those instances where HUD couldn't accommodate our requested TCD, the agency has offered suitable alternative dates.
HUD's willingness to establish a TCD early in the process has provided a lodestar by which lenders and borrowers can guide their transactions toward closing in a timely, predictable fashion. The TCD is particularly useful in applying soft pressure to third parties (surveyors, title agents, commercial tenants, etc.), who are more likely to expedite their work product when we say "this deal is tentatively scheduled to close on Nov. 23" then when we say "we are aiming to close this deal in late November."
2. HUD staff have consistently referenced the 30-business day rule in connection with TCDs
Per Section 126.96.36.199.D of the MAP Guide, lender's counsel must submit the pre-closing package at least 30 business days prior to the requested TCD. The communications we've received from HUD closing coordinators and other HUD staff demonstrate that they are closely following the 30 business day rule.
Given the record-breaking volume of deals FHA saw in 2021, we were not surprised to see some HUD offices grant TCDs that were later than the 30 business day mark, presumably to ensure that their staff kept their heads above water. Less commonly, we've seen HUD offices agree to TCDs that are slightly earlier than the 30 business day mark. When requesting such a TCD, we recommend 1) acknowledging the 30 business day rule and the fact that your request is a deviation from the rule and 2) presenting your strongest business case for moving the deal forward at a faster-than-standard tempo (e.g., avoiding extension fees).
3. Program participants need to be mindful of the five-business day rule
In Section 188.8.131.52.I.1 of the MAP Guide, HUD states that "to maintain a tentative closing date, lender and lender's counsel must respond to HUD comments [on the initial package of draft closing documents] within five business days after the date comments were distributed." Dinsmore initially read this provision with both enthusiasm and trepidation. On one hand, we supported the idea of HUD requiring responses within a specific number of days; we believed the "five-day" rule would help prevent parties from dragging their feet en route to closing. On the other hand, we foresaw potential issues with providing comprehensive responses to HUD's comments within five business days, especially on deals involving secondary financing, commercial leases and other complicating factors. On those deals, would adherence to the five-day rule force lender's counsel to submit incomplete response packages, creating the need for second response packages that could have been prevented if the first response package had been submitted, say, seven days after receiving HUD's comments?
Here's what we've learned: if you want to keep your TCD, submit your response package within five business days of receiving HUD's comments, even if you haven't gathered 100 percent of the documents needed to fully respond to HUD's comments. HUD has generally been tolerant of response packages that are missing a document or two (e.g., a revised surveyor's report). In those situations, we recommend that lender's counsel provide narrative responses to HUD's comments (imbedded in red font next to HUD's comments, as suggested in the MAP Guide) that 1) highlight the omission, 2) explain the reason for the omission and 3) inform HUD as to when they'll have the missing document.
4. HUD's openness to signing in counterpart has proven valuable
Section 184.108.40.206 of the MAP Guide states that "HUD will sign original recordable closing documents in counterpart when allowed under state and local law." When it comes to getting the regulatory agreement fully executed, Dinsmore typically follows the standard procedure of collecting the borrower's signature(s) and presenting an original regulatory agreement to HUD that is complete except for the missing HUD signature. However, we have on at least one occasion relied on 220.127.116.11 to obtain HUD's regulatory agreement signature page without providing the department with the original borrower signatures. While HUD agreed to sign in counterpart, they also insisted on lender's counsel providing evidence that the borrower had already signed. Accordingly, Dinsmore sent an email to HUD staff with the borrower signature pages attached as pdfs. HUD's flexible approach to signing and circulating documents allowed us to shave one critical day off the timeline and keep our TCD.
5. Specific timelines – not uniformly requested, but always advisable
Per Section 18.104.22.168 of the MAP Guide, a lender's request for a TCD must be paired with "a specific timeline for closing by its preferred target date based on HUD's established review times..." The "welcome" or "hello" emails that HUD sends to lenders shortly after the issuing firm commitments sometimes, but not always, include a request for lenders to propose a closing timeline. Whether HUD requests a timeline or not, we recommend that lenders and/or their counsel draft timelines and provide them to HUD as part of their closing preparation routine. Here's an example, based on a pre-closing package that was submitted on Wednesday, Feb. 23:
Monday, Feb. 28 – HUD closing attorney contacts Dinsmore via email per the MAP Guide.
Wednesday, March 9 – HUD Housing and Office of General Counsel provide Dinsmore with comments on the pre-closing package.
Wednesday, March 16 – Dinsmore provides HUD with a supplemental package addressing HUD's comments.
Monday, March 21 – HUD confirms the closing date of March 30 after reviewing Dinsmore's supplemental package and authorizes Dinsmore to submit the regulatory agreement and note to HUD for signature.
Monday, March 28 – Dinsmore provides HUD with an electronic closing docket, two days in advance of the closing. This docket would include documents except the title-related documents (title policy, recorded documents, title agent letter of authority and closing protection letter).
Tuesday, March 29 – Dinsmore supplements the docket with title policy and stamped recorded documents OR title-certified copies of the documents submitted for recording.
Wednesday, March 30 – Closing day - Dinsmore provides title agent letter of authority and closing protection letter, HUD releases the endorsed note.
Upon confirming that our timeline is acceptable to HUD, we enter the relevant dates into our calendars, such that we know when it's time to revise documents, check in with HUD counsel or borrower's counsel, get UCC/docket searches ordered or take any other steps necessary to keep the closing train running on time. In this way, the timeline becomes a simple but highly effective tool.
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