LEAN 232 Closings Tips & Current Trends Southeast Mortgagee Advisory Counsel (SMAC)

1. LEAN 232 Closings Tips & Current Trends Southeast Mortgagee Advisory Counsel (SMAC) Koren McKenzie-John HUD Office of General Counsel May 15, 2014

2. 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_facilities/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_facilities/residential_care/underwriting Sign up online to receive HUD LEAN e-mail blasts on this home page.

3. 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.

4. After Firm Commitment • Review and comply with all Special Conditions • Request all amendments to the FC, including rate-lock 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

5. 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.

6. 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

7. 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

8. 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.

9. 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.

10. 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 Cross-Default Guaranty of Subtenants. • For new AR lines submitted on or after July 12, 2013, all new AR-related 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.

11. 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.

12. 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)

13. 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.

14. 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.

15. Questions & Answers