February 24, 2021

New – Operating Loss Loan Section 232/223(d) – COVID Documents Now Available For Use

On January 15, 2021, ORCF published Mortgagee Letter 2021-01 (here) which implemented temporary statutory authority to insure operating loss loans under Section 223(d) of the National Housing Act to mitigate healthcare facilities’ COVID-related temporary revenue reductions. Referenced in that Mortgagee Letter was the forthcoming Lender Narrative to be used in applications for such loans. That Lender Narrative – Operating Loss Loan Section 232/223(d) – COVID (Form HUD-90011t-ORCF), as well as the following documents for use with the Operating Loss Loan 232/223(D) – COVID program is now available for use:

• Lender Narrative – Operating Loss Loan Section 232/223(d) – COVID (Form HUD-90011t-ORCF), (here).
• Firm Application Checklist – Section 232/223(d) – COVID (here).
• Firm Commitment Template – Section 232/223(d) – COVID (here).

Keywords: COVID-19, 223(d)

Best Practice – Third-Party Environmental Submissions in HEROS

Beginning in February 2020, third-party environmental reviews are accepted through the HUD Environmental Review Online System (HEROS) for Section 232 mortgage insurance applications. HEROS submissions by third-party consultants, when completed thoroughly and accurately, and in accordance with ORCF guidance, help to expedite the Section 232 environmental review process. While such submissions remain voluntary at this time, lenders are encouraged to use HEROS submissions to facilitate completion of environmental reviews.

The third-party consultants can assign the HEROS review to ORCF at the time of, or shortly before, the application’s submission to HUD. Upon approval by the lender, the consultant should submit the HEROS review to ORCF by using the “Assign Review” feature and selecting Wayne Harris as the assignee. Please do not contact Wayne Harris regarding HEROS; his name is only used to store the HEROS submissions until an environmental reviewer is assigned to the project. Questions regarding HEROS should be submitted to LeanThinking@hud.gov.

Consultants should enter the name of the facility and the FHA Project Number in the “Project Name” field on the Initial Screen (1105) in HEROS. For example, 111-22999-ABC-Healthcare. Providing the FHA number with the project’s name allows ORCF to quickly identify the subject of the HEROS review.

A download of the HEROS environmental review record (ERR) should be included in the mortgage insurance application in Section 2: Third-Party Reports. The HEROS exhibit should be named “Other-HEROS ERR” to identify its content. Please note that a HEROS submission does not replace or eliminate any application exhibits.

Keywords: Environmental, HEROS

Lender Completion of the Maximum Insurable Mortgage Calculation (Form HUD 92264a-ORCF)

ORCF is seeing frequent data errors in the Maximum Insurable Mortgage Calculation form (form HUD-92264a-ORCF) submitted in the firm application. These data errors in the form are delaying ORCF’s ability to process applications. Please review the below reminders. Should you have any questions prior to application submission, please contact Leanthinking@hud.gov.

• Instructions: Please carefully review the instructions page on Form HUD 92264a-ORCF and Handbook 4232.1, Section II, Chapter 3 prior to application submission.
• Submission of the 92264a-ORCF Form:
  • Please do not override the formulas contained within the form HUD 92264a-ORCF. Changes to the formulas may result in corrections and additional review of the numbers, as well as potential impacts to loan sizing. In addition, the formulas constitute part of the OMB approval of the form, and changing the formulas results in a change to the form without HUD permission.
  • Submit an Excel version of the form as well as a pdf.
  • Include all applicable pages in one pdf. Please review instructions #6, 11 & 12 on the Instructions tab of the workbook regarding what pages to include.
  • Include signature of Lender's Underwriter and date.
  • Include the Project Name, Project Number and Program Type on BOTH the Sources & Uses page and on MILC Page 1. Ensure these are correctly noted for the subject project.
• Loan to Value, Criterion D: Use the Maximum Loan-to-Value (LTV) Ratio underwriting benchmark that applies to your project per HUD Handbook 4232.1, Section II, Chapter 3.2. If your project qualifies for the limited debt seasoning exception (See Handbook 4232.1, Section II, Chapter 3.13.D), use the LTV Ratio that applies to your project rather than the maximum LTV limits.
• Amount Based on Debt Service, Criterion E: The Net Operating Income (NOI) in line "e" should match the lender's underwritten NOI in the Lender's Narrative.
• Amount Based on Cost to Refinance, Criterion H: Line "a" should be the HUD Eligible Costs as listed on the Sources & Uses. Line "b" should list the amount of the existing reserve for replacement. Line "c" should be line "a" minus line "b."
• Reserve for Replacement:
  • Note that there are two distinct lines on the Sources & Uses for reserve deposits. The distinction is made because they are treated differently with regard to loan sizing. Do not delete either line. If either line is not applicable to the transaction, simply indicate “$0” for that cost.
  • Initial Deposit to the Reserve for Replacement: Any reasonable and necessary loan proceeds used for the Initial Deposit to the Reserve for Replacement should be shown on the "Initial Deposit to the Reserve for Replacement" on the Sources & Uses. As noted in the instruction comment, this amount should not include any existing reserves being transferred.
  • Existing Replacement Reserves to Transfer: Any existing reserves for replacement should be shown in the Sources under "Existing Replacement Reserves to Transfer" and then as a HUD Eligible Use under "Existing Replacement Reserves to Transfer." Please note that on 223(a)(7) loans, Handbook 4232.1, Section II, Chapter 2.10.Q requires that existing reserves be rolled over to the new loan. This line item may also apply to 223(f) loans refinancing existing FHA-insured projects.

Keywords: Maximum Insurable Mortgage Calculation (MILC)

Application Processing for 232/223(a)(7) Projects Involving Repairs

Lenders are reminded to consider the environmental review requirements for 223(a)(7) applications involving projects with proposed repairs that exceed Routine Maintenance. Notice CPD-16-02 here (www.hudexchange.info/resource/3197/guidance-categorizing-activity-as-maintenance-environmental-regulations-24-cfr-parts-50-and-58/) provides “Guidance for Categorizing an Activity as Maintenance for Compliance with HUD Environmental Regulations, 24 CFR Parts 50 and 58”. Lenders are encouraged to consult this notice when repairs are proposed within a 223(a)(7) application. For applications where an existing HUD-insured project involves work that exceeds the level of routine maintenance (including, but not limited to, construction, demolition, building repairs, site clearing, tree removal, or ground disturbance), HUD must complete an Environmental Review before the work can commence.

Keywords: 223(a)(7), Environmental

Underground Fuel Storage Tanks

In accordance with the provisions in Handbook 4232.1, Section II, Chapter 7.3, the following is guidance to assess the environmental risk presented by underground storage tanks (UST) and the potential for contamination. When an underground storage tank containing, or previously containing, hazardous waste or petroleum products exists on the project site, HUD will require information to evaluate the environmental risk that the UST presents. When an onsite UST is regulated by the State, please provide documentation that confirms compliance with the State’s regulations. When a UST is not subject to State oversight, including testing and inspection protocols, the UST and its service lines must pass an integrity test before HUD completes the environmental review. In addition, an Operations and Maintenance plan must be submitted that includes periodic testing of the tank and its service lines, as well as repair, maintenance, and emergency response procedures. These requirements do not apply to propane USTs.

If a UST was previously removed from the property or abandoned on the site, HUD will require information to evaluate the environmental impact that the former UST may have had on the site. The Phase I Environmental Site Assessment must determine if the former UST is considered to be a recognized environmental condition (REC), and if so, the REC must be satisfactorily addressed before the application is submitted. Information such as removal/closure documentation and Phase II study results should be submitted with the application.

When the removal of an underground storage tank is proposed, the removal and post-removal site testing must be completed prior to HUD’s completion of the environmental review. This is due to the potential for contamination to be encountered during, or following, the UST removal.

Keywords: Underground Storage Tanks

Intergovernmental Transfer (IGT)/Upper Payment Limit (UPL) Revenues

As a reminder, ORCF provided guidance in the June 27, 2012 and June 24, 2015 Email Blasts cautioning against relying on Medicaid IGT/UPL type supplemental payments when underwriting skilled nursing facility (SNF) transactions. The June 24, 2015 Email Blast noted that additional scrutiny will be applied as the percentage of NOI derived from UPL increases. We have recently been seeing applications where a significant portion of value is attributable to this supplemental income stream. Inclusion of these increased levels of IGT/UPL in the underwritten value for loan sizing does not adequately minimize the risk associated with this financing mechanism, and therefore presents an unacceptable underwriting risk to HUD. (Note – this guidance also applies to the Quality Incentive Payment Program (QIPP) or other similar supplemental revenue stream structures.)

Keywords: Intergovernmental Transfer (IGT), Upper Payment Limit (UPL) Revenues

Updated Construction Budgets and Progress Schedules of Work Required Prior to Initial Closing

Please Note: For all New Construction, Sub-Rehabilitation, and 241(a) loans, an updated construction budget (form HUD-92328-ORCF, Contractor’s and/or Mortgagor’s Cost Breakdown Schedule of Values Section 232) dated within 30 days of Initial Endorsement is required to be submitted for review and approval at least 10 calendar days prior to Initial Endorsement. In addition, at least 10 calendar days prior to Initial Endorsement, an Estimated Progress Schedule of Work (form HUD-5372) dated within 30 days of Initial Endorsement must be submitted by the general contractor for review and approval.

For further questions, please contact the assigned ORCF Closing Coordinator for the specific project.

Keywords: Initial Closing, Form HUD-92328-ORCF, Estimated Progress Schedule of Work

Survey Review Requirements for Section 232(a)(7) Projects

As a reminder, for Section 223(a)(7) transactions, use the “Survey Instructions and Borrower’s Certification (form HUD-91111-ORCF)” in lieu of a new survey, unless the following has changed:

• New easements;
• New encroachments;
• Changes in description; and/or
• Any unusual circumstances or items that require special attention or conditions.

As a general reference, please refer to Page 2, Section II of the form HUD-91111-ORCF for guidance on whether or not an updated survey will be needed. If it is still unclear, please contact an ORCF Title/Survey Reviewer for clarification.

Keywords: Section 223(a)(7), Survey Instructions and Borrower’s Certification, form HUD-91111-ORCF

“After Recording” – Reminder for all Regulatory Agreements

Remember to include the assigned HUD Attorney (name and HUD office address) on all Regulatory Agreements on page 1 under “After Recording”.

For further questions, please contact the assigned ORCF Closing Coordinator for the specific project.

Keywords: Regulatory Agreement

Signature Dates are Key at Closing

As a reminder, documents required to be signed by the Lender, Borrower, and General Contractor, (i.e. forms HUD-92403-ORCF, 92448-ORCF, 92023-ORCF, and 92464-ORCF) must include the signature date. If the signature is not dated in the document, the form will be returned to the lender to be dated. This additional step may cause a delay in closing.

For further questions, please contact the assigned ORCF Closing Coordinator for the specific project.

Keywords: Closing, Closing Documents

February 26, 2020

Addressing Quality of Care Issues in Application

As noted in the December 18, 2019 Email Blast, failure to analyze and address ongoing survey/quality of care issues was one of the areas in FY 2019 in which additional lender due diligence was needed on some transactions. Quality of care should be thoroughly addressed in the Lender Narrative, a key component of which is the Risk Management Program section.

An analysis of a facility’s implementation of recently effective CMS requirements is highly relevant to addressing quality of care issues. In particular, the Quality Assurance and Performance Improvement (QAPI) plan requirement section of the CMS Medicare and Medicaid Programs; Reform of Requirements for Long-Term Care Facilities 10/4/2016 final rule here (www.federalregister.gov/documents/2016/10/04/2016-23503/medicare-and-medicaid-programs-reform-of-requirements-for-long-term-care-facilities) became effective on November 29, 2019. This rule requires all Medicare and Medicaid funded LTC facilities to develop, implement, and maintain an effective comprehensive, data-driven QAPI program that focuses on systems and outcomes. The final rule also includes requirements for Training, Compliance and Ethics, and Infection Control.

As noted in Handbook 4232.1, Section II, Chapter 8.8, “The Lender is responsible for reviewing the qualifications of the proposed Operator and/or Management Agent to assess their ability to operate the project effectively and in compliance with ORCF requirements.” QAPI plans may impact staffing and staffing levels can heavily impact overall star ratings. When evaluating the operator’s capacity, Lenders should thus consider whether staffing levels, experience and roles are commensurate with the QAPI requirements and any needs identified in the QAPI plans.

(Quality of Care was also the subject of Email Blasts on 12/19/2018 and 2/29/2016.)

Keywords: Quality of Care, Risk Management Programs

Guidance on Operating Lease Escalators

Lease payment escalators included in the operating leases with third-party operators are an important operational risk factor. As such, Lenders should analyze this risk as part of the Lease Payment Analysis for the applicable underwriting Lender Narrative. In that regard, Handbook 4232.1, Section II, Chapter 8.6 and excerpted below, outlines the basic ORCF Operating Lease Requirements, (as further detailed in forms HUD 91116-ORCF and 91116-ORCF). As the handbook emphasizes, the lease payments must be sufficient to “(1) enable the Borrower to meet debt service and impound requirements and (2) enable the Operator to properly maintain the project and cover operating expenses.”

When a facility’s performance is placing the facility at financial or other operational risk, notification and action plan requirements apply. Form HUD 93334-ORCF, Servicer’s Risk Notification to HUD of Risks to Healthcare Project and Action Plan for Remedy and form HUD 93335-ORCF, Operator’s Notification to HUD of Threats to Permits and Approvals outline requirements for addressing situations where the financial viability of the facility is at substantial and imminent risk. Any consideration of bankruptcy or of efforts to renegotiate substantive lease terms trigger the formal notification and action plan requirements, and the servicing Lender in such instances should be timely in engaging the assigned Account Executive.

Keywords: Operating Leases, Operator and Management Agent Analysis<, Asset Management, Financial Operations, State Risk

Appraisal Reminders

ORCF Appraisers would like to remind Lenders of the following when submitting appraisals with their applications:

• Sales Comparables - every attempt should be made to find the most recent and similar sales comparables, typically within the same state. ORCF Appraisal Guidelines require that the sales selected for the Sales Comparison Approach should be those that provide the most relevant and meaningful insight into the property’s value. When the sales comparables are old, require substantial adjustments, or are not relevant to the appraisal analysis, additional data or explanations may be required and slow down the review process.
• Sales History – please fully analyze the subject's sales history. Failing to do this is a common deficiency. While not a requirement, ORCF considers it a best practice to include the Subject’s sale as a comparable within the Sales Comparison Approach.
• Initial Operating Deficit Escrow Calculation Template - please remember to use the most recent version of the Initial Operating Deficit Escrow Calculation Template (HUD-91128-ORCF). Please do not convert the file into pdf, but submit it in its original Excel format as provided.
• Demand analyses for new construction applications of assisted living, memory care, and independent living - the monthly rents used in the target income calculations should be based on average monthly rents, not minimum rents. In addition, the anticipated care fees should be included in the monthly rent determinations for the target income calculations.
• Decision Circuit - when filling in the Revenue tab, and Historical Expense tab, the columns to the left of the appraisal’s projections (shaded blue) should be filled out with the same time periods that were used in the appraisal. Additional periods not included in the appraisal, such as updated financial periods, should be entered in the “Optional Reporting Periods” columns to the right of the Lender’s Debt Service Coverage projections (shaded yellow).
• Certified Financials - the application needs to include certified financials that match those supplied to the appraiser. Without them, the review appraiser cannot reconcile the history shown in the appraisal to the certified financials. This does not mean that certified financials will not also be required for updated financials that occur after the appraisal.

Keywords: Appraisals

Section 106 Historic Preservation Reviews

Lenders and third-party consultants are reminded of the importance of submitting complete information to the State Historic Preservation Officer (SHPO) for use in the Section 106 consultation. In particular, please ensure that you are specific about the scope of work that is being completed as part of the FHA-insured project, and include a map, photos, and project plans as applicable (Please see Handbook 4232.1, Section II, Chapter 7.E.5). Please check the SHPO’s website prior to submitting a request for consultation as some states have their own process and submission requirements. While SHPOs have 30 days to review a submission, the submission must be complete and correct or the SHPO may require additional information which can add to the review time.

Keywords: Section 106, Historic Preservation, SHPO, Application Processing

New Environmental Rule Conforming the Acceptable Separation Distance (ASD) Standards for Propane Tanks to Industry Standards

On January 24th, 2020, HUD published a final rule revising 24 CFR Part 51 Subpart C to exempt liquefied petroleum gas or propane (LPG/propane) containers up to 1,000 gallons that comply with industry standard, National Fire Protection Association (NFPA) Code 58 (Liquefied Petroleum Gas Code) (2017). This final rule is effective on February 24th, 2020 and is available here (www.govinfo.gov/content/pkg/FR-2020-01-24/pdf/2020-00440.pdf). ORCF environmental reviews will incorporate the new standards in the evaluation process for propane aboveground storage tanks (ASTs).

Mortgage insurance applications for projects involving propane ASTs that qualify for the exemption should include evidence of compliance with NFPA 58 in Section 2: Third-Party Reports. Documentation of compliance with NFPA 58, including the NFPA separation distance requirements noted below, will satisfy the Handbook requirements for fire safety conformance letters and ASD calculations.

Copied below is the revision in 24 CFR Part 51.201 which removes propane ASTs from the ASD requirements if they comply with NFPA Code 58 and do not exceed 1,000 gallons water capacity.

Ҥ 51.201 Definitions.

* * * * *

Hazard—means any stationary container which stores, handles, or processes hazardous substances of an explosive or fire prone nature. The term ‘‘hazard’’ does not include: ….

(5) Containers used to hold liquefied petroleum gas with a volumetric capacity not to exceed 1,000 gallons water capacity, if they comply with National Fire Protection Association (NFPA) 58.”

As stated in the rule’s Supplementary Information, “this rule does not remove all safe distance requirements for LPG containers sited near HUD assisted projects. All tanks exempted from HUD’s ASD requirements under this rule must be fully compliant with NFPA (2017) standards, including NFPA separation distance requirements. Tanks locations must meet a separation distance between the container and important buildings … or line of adjoining property that can be built upon, in accordance with the NFPA 58. Tanks between 125 and 500 gallons must be at least 10 feet apart from important buildings or property lines of adjoining property that can be built upon, while tanks between 501 and 1,000 gallons must be at least 25 feet apart. Under NFPA 58 and this rule’s revision of 24 CFR part 51, tanks under 125 gallons would not require a separation distance”.

HUD’s Office of Environment and Energy has issued Fact Sheet #H1, Hazardous Operations - FR-6054-F-02 Conforming the Acceptable Separation Distance (ASD) Standards for Residential Propane Tanks to Industry Standards, which is available on HUD Exchange here (www.hudexchange.info/programs/environmental-review/explosive-and-flammable-facilities/).

Keywords: Environmental, Propane, NFPA, ASD

Submitting Environmental Reviews to ORCF in HEROS

Environmental reviews that are prepared by third-party consultants in the HUD Environmental Review Online System (HEROS) may now be voluntarily submitted to ORCF for Section 232 mortgage insurance applications. ORCF will use HEROS submissions for assistance with processing of its environmental reviews; however, ORCF remains responsible for independently evaluating the information supplied in HEROS, supplementing that information as needed, and making the required environmental findings.

The HEROS review should be assigned to ORCF at the time of, or shortly before, the application’s submission to HUD. In addition, HEROS reviews that have been prepared for applications that are currently in the ORCF processing queue may be submitted at this time.

Upon approval by the Lender, the consultant should submit the HEROS review to ORCF by using the “Assign Review” feature and then selecting Wayne Harris as the assignee. Please do not contact Wayne Harris regarding HEROS; his name is only used to store the HEROS submissions until an environmental reviewer is assigned to the project. Questions regarding HEROS should be submitted to LeanThinking@hud.gov.

Consultants should enter the name of the facility and the FHA Project Number in the “Project Name” field on the Initial Screen (1105) in HEROS. For example, 111-22999-ABC Project. Providing the FHA number with the project’s name allows ORCF to quickly identify the subject of the HEROS review.

A download of the HEROS environmental review record (ERR) should be included in the mortgage insurance application in Section 2: Third-Party Reports. The HEROS exhibit should be named “Other-HEROS ERR” to identify its content. Please note that a HEROS submission does not replace or eliminate any application exhibits. All applicable environmental exhibits will continue to be submitted with the mortgage insurance application in accordance with the current practice.

Guidance for ORCF stakeholders using HEROS is available online at ORCF’s Environmental Resource website.

Lenders and stakeholders are also encouraged to access the ORCF Lender's Environmental Checklist for additional environmental guidance.

Keywords: Environmental, HEROS

LEAN Thinking Communication With Loan Applications

Lenders are encouraged to include any Lean Thinking responses within their applications for FHA Mortgage Insurance. The LeanThinking@hud.gov mail box is available for pre-submission questions that are specific to a project, and/or general questions which have may have applicability to a project that is being contemplated for submission. In the event that a LeanThinking inquiry results in guidance under one of these scenarios, Lenders are asked to submit a complete record of the inquiry/response within the Communication folder of their applications. This includes any request(s) for early Environmental Consultation. Inclusion of this information within the application will help ORCF streamline processing and may save considerable time by avoiding duplicative efforts.

Although Lenders should include the Lean Thinking email exchange for ready reference, we do note that, as stated at the bottom of each Lean Thinking response:

A Lean Thinking response is based on the limited and preliminary information submitted by the inquirer specific to a particular matter. The response is thus limited to that particular matter and/or transaction and is itself preliminary. A Lean Thinking response shall not be construed as an approval of a submission; all submissions must meet ORCF underwriting criteria, and approval of the topic discussed above is only a portion of the overall review process that must be approved. Lean Thinking cannot be used in lieu of prescribed waiver or exception procedures, and any firm application accompanied by a Lean Thinking response will always be subject to underwriting and final approval.

Keywords: Lean Thinking, Environmental, Application Processing

FHA Number Requests

Please note that the 232FHARequest@hud.gov email box is no longer being monitored and emails submitted to this mailbox will not receive a response. All FHA Number Requests should be submitted through the HUD 232 Healthcare Portal here (www.hud232portal.com/) for processing.

If you are having issues submitting your FHA Number Request or Application, please submit a Help Desk Ticket for assistance.

If you are following up on the status of an FHA Number Request, please contact LeanThinking rather than reaching out to individual ORCF staff. LeanThinking will route the inquiries to the appropriate ORCF staff members and coordinate the response. Please note that Lenders are encouraged to request FHA Numbers early in the application preparation process to accommodate application submission timing deadlines, as periods of high volume or processing of Help Desk Tickets can require additional time for processing.

Keywords: Application Processing

Reminder - CMS Provider Number

Please ensure that the CMS Provider Number is entered correctly on the contact sheet in the application (e.g. Exhibit 1-6 for a 223F application). ORCF has seen a number of submissions with the incorrect number entered. Please note, the CMS Provider Number is always six digits and that some begin with a zero (if you have a five-digit number, the zero may be missing). Providing the correct CMS Provider Number will avoid delays in processing your application.

Keywords: Application Processing

ORCF Asset Management Risk Monitoring Routine

As part of our continuous effort to enhance and standardize the notification and mitigation of circumstances that could impair the value of the FHA-insured security in Section 232 facilities, ORCF Asset Management will be implementing a standard risk monitoring routine in the coming months, consistent with existing Borrower/Operator requirements and Lender servicing requirements.

As a reminder, all Operators are required by 24 CFR Section 232.1015 to provide to HUD and the Lender/Servicer prompt notification of circumstances placing the value of the FHA-insured security at risk. Although this provision applies to Operators of any Section 232 facility (regardless of the of the version of the Regulatory Agreement the Operator has executed), the requirement is further set forth in the Borrower Regulatory Agreement (92466-ORCF). Handbook 4232.1, Section III, Asset Management, Chapter 3.10 further prescribes that a Project is required to notify both HUD and the Lender when there are threats to the Project’s permits and approvals.

Effective October 3, 2019, Lender/Servicers, Borrowers, and Operators are required to use the Operator’s and/or Borrower’s Notification to HUD of Threats to Permits and Approval (HUD-93335-ORCF), and The Servicer’s Notification to HUD of Risks to Healthcare Projects and Action Plan for Remedy (HUD-93334-ORCF) when notifying relevant parties of risks to the FHA-insured security and for communicating action plans for remedy. Consistent with these publications, issues requiring action plans include, but are not limited to:

• Delinquent or defaulted mortgage payments
• A debt service coverage ratio below 1.0
• Special Focus Facility (SFF) designation
• Licensed Nursing Facility survey findings higher than a “G” level citation
• REAC inspections (single score below 30 or consecutive scores below 60)
• Missing Financial Reports

The information required by ORCF when risks to the FHA-insured security are present can be found in Handbook 4232.1, Section III, Chapter 3.10 and Chapter 4.4, and the information is further delineated in HUD-93334-ORCF. As detailed therein, ORCF requires the establishment of a corrective action plan for improving deficiencies and remedying the identified risk condition(s). Consistent with HUD-93334-ORCF, ORCF expects that servicing Lenders will work with their clients to ensure the following are addressed:

• A description of the risk and discussion of its effect on the Project.
• An analysis of the root cause of the financial risk factor(s) (i.e., is a low DSCR due to low census, labor market, staff turnover, and/or unexpected expenses, etc.?).
• A description of the action plan to be implemented (e.g., marketing plan, expense management plan, risk management plan, etc.) and the identified goals and areas in need of improvement. The Lender should be sure that the plan and the goals align with the root cause analysis. For example:
  • An action plan implementing cost saving measures would be included for a Project with increasing operating expenses.
  • An action plan implementing a marketing plan to expand Medicare referral sources would be expected for a Project with declining revenues, declining resident days, and declining average daily rate (ADR).
• Each identified goal/step of the action plan is measurable (e.g., increase census by 10%).
• Each goal has a timeline (target completion date).
• The action plan includes a set time when the Borrower or Operator will follow-up with the Lender and provide a status report.
• Monitor and inform HUD on a recurring basis (monthly, quarterly, as determined by the timelines/target completion dates) whether the plan is on schedule or not, and if not, have the Operator/Borrower reevaluate and provide amended action steps, target completion dates, as appropriate.

In the coming months, ORCF Asset Management will communicate with stakeholders about improved processes to better position Lenders and their clients to timely meet the expectations summarized above.

Keywords: Risk Notification, Documents

Revised Asset Management Checklists Pursuant to Healthcare Portal Updates

As a follow up to the Asset Management Healthcare Portal Training sessions held during the week of February 10, 2020, all checklists for Asset Management transactions have been revised to reflect the naming conventions to be utilized for submissions to the Healthcare Portal. Each of the revised checklists contains instructional information regarding use of the numerical code identifiers (highlighted in green) for each of the exhibits in the checklist. These highlighted numbers are important codes that “guide” the Portal system to recognize the type of transaction submitted, section number of the checklist, and the identity of the document. Failure to use the updated Asset Management checklists and their corresponding naming conventions will cause the Healthcare Portal to reject the submitted transactional document and may subsequently result in a rejection of the entire transaction submission.

Keywords: Asset Management Checklist, 232 Healthcare Portal

FROM THE CLOSING CORNER

Last Minute Issues Prior to Closing – Procedures for Newly Discovered Litigation

As a reminder, as stated in the August 28, 2013, February 27, 2014, and December 21, 2016 Email Blasts, to help to avoid delays in closing Section 232 projects, ORCF is restating procedures for newly discovered litigation.

ORCF no longer collects litigation searches (except where required by the Attorney’s Opinion as an Exhibit). Please note that the Attorney’s Opinion form requires the attorney signing it to opine that, to such attorney’s knowledge, based on the Docket Searches and the Attorney’s Opinion Certification, there is no litigation or other claim pending before any court or administrative or other governmental body against the Borrower or General Partner/Managing Member, Operator or the Project except as has been disclosed in Exhibit F to the Opinion.

Please keep in mind the following timeframes:

1. Searches: Searches should be run and analyzed by the Lender no earlier than 30 days before closing and no later than 10 business days before closing.
2. Newly Discovered Litigation? No later than 5 business days prior to the scheduled closing, Lenders must disclose to HUD any newly discovered litigation (“newly” meaning not previously disclosed to ORCF in the application process), the Lender must also address the following:
3. Name and discussion of each newly discovered lawsuit, including estimated potential liability;
4. Whether each newly discovered lawsuit is of the type covered by insurance or whether the lawsuit is for a claim not covered by insurance;
5. The amount of liability insurance available to cover each newly discovered lawsuit and other pending claims and judgments and the estimated potential liability for such other lawsuits/judgments; and
6. Identify who bears the cost of defense of each newly discovered lawsuit and whether the insurance company is participating in the defense.
7. An opinion from the Lender’s Underwriter that the litigation is mitigated (e.g. covered by insurance) and will have no material impact on the project or underwriting.

Any issues will need to be cleared by ORCF and HUD’s Office of General Counsel prior to closing. Prompt disclosure to HUD of newly discovered litigation will minimize the risks of delays in closing.

Keywords: Litigation/Docket Searches, Closings

Reminder for Section 232 New Construction Contracts

Please remember that ORCF’s policy for Retainage Reduction Riders attached to executed HUD Construction Contracts must be in accordance with Healthcare’s policy found in Handbook 4232.1, Section II, Chapter 10.15.D. This section, which reads, in part:

“…the existing standard of 10% retainage will be required only until 90% completion. After 90% completion, the requirement will be 5% retainage until 100% completion and 2.5% retainage until the loan reaches Final Closing.”

Please note that this is different than current HUD Office of Multifamily Housing Programs policy. Multifamily Housing Riders will not be accepted.

Keywords: Retainage Reduction Rider