Lender's Certificate

Section 33 requires the Lender to notify HUD of any Violations of the Regulatory Agreement and § 35 requires the Lender to notify HUD of any known payments made by an insurer. Although there are no specific instructions in the Lender’s Certificate with respect to the notification process, written notifications should be sent to the HUD Field Office responsible for the Project. These notifications are in addition to the other reports required of the Lender in accordance with Program Obligations (e.g., Handbook 4350.4, Insured Multifamily Servicing and Field Office, and Handbook 4060.1, Mortgagee Approval).

2. I was discussing the requirements Section 9 of the new lender’s certificate with a HUD office and the question arose of whether these requirements conflict with current HUD policy on the use of tax credits with FHA Insured loans, particularly the language in Section 9(b) that states the cash required over the proceeds of the loan must be used before any proceeds from the Loan are advanced, absent written approval of HUD. Of course the local HUD office doesn’t think they have the authorization to provide written approval, but this requirement seems to conflict with the current policy on the use of tax credit financing, or am I just missing something very obvious, such as this will be spelled out in the commitment.

First, it should be clarified that the language in the Lender’s Certificate stating “these funds must be used before any proceeds from the Loan are advanced” refers only to those funds held in the escrows, if any, required by the Firm Commitment and identified in Section 9(a). The three escrows identified in Section 9(a) are: (i) cash required over the proceeds of the Loan; (ii) a grant or loan from a non-governmental source; or (iii) a grant or loan from a governmental source. LIHTC equity does not fit any of these categories. With regard to the (i) cash required over the proceeds of the Loan, it is not anticipated that such cash will be LIHTC equity. Pursuant to HERA and MAP Guide Section 8.13(l), HUD does not require LIHTC equity to be placed in escrow at initial endorsement. Although, as stated in MAP Guide Section 8.13(l)(1) and (2), HUD may require a certain percentage of total LIHTC equity to be funded at initial endorsement, it is not anticipated that such initial equity will be placed in escrow, but will be disbursed for the use of the Project. With regard to the other escrows listed in Lender’s Certificate Section 9(a), (ii) a grant or loan from a non-governmental source and (iii) a grant or loan from a governmental source, MAP Guide Section 8.10 sets forth current HUD policy on the disbursement of these funds. When such funds are from a governmental source, the funds may be disbursed prior to HUD-insured Loan proceeds or on a pro rata basis with HUD-insured Loan proceeds. When such funds are from a non-governmental source, such funds must be disbursed prior to HUD-insured loan proceeds. When such funds, in accordance with such Program Obligations or with other written consent from HUD, are not disbursed prior to the advance of the HUD-insured Loan proceeds, the Lender’s Certificate Section 9(b) includes space for the parties to describe the disbursement arrangement. In other words, if a loan from a governmental source will be disbursed pro-rata with HUD-insured loan proceeds, no additional HUD consent is necessary since MAP Guide Section 8.10 allows for such disbursement, and the parties would describe such pro rata disbursement in Section 9(b) of the Lender’s Certificate.

3. The new Closing Guide checklists for a7 and 223 closing require both a Lender's Certificate and a Request for Endorsement. Is this correct?

The Lender's Certificate should only be used for new construction and substantial rehabilitation closings and the Request for Endorsement should be used for refinancings. For your closings, the checklist for the a7s and 223fs should be amended to remove the Lender's Certificate from the checklist.

4. In the Lender's Certificate, at Paragraph 29, and in the Request for Endorsement of Credit Instrument, at Paragraph I.D.9, Lender must certify that "all HUD form closing documents submitted to HUD in connection with this transaction (with the exception of the Opinion by Counsel to Borrower and the companying Certification by Borrower) conform to those documents Lender obtained from HUD and such documents have not been changed or modified in any manner except as suitably identified and approved by HUD as evidenced by the attached memorandum." Some lenders and their counsel have submitted a document that seeks HUD's signature, in order to evidence HUD's approval of the closing documents, but HUD field counsel has rejected any requirement that HUD sign such a document. How is HUD's approval to be evidenced?

If the Lender or its counsel has submitted the requisite memorandum identifying any changes made to the HUD forms (as further specified in the Request for Endorsement or in the Lender's Certificate) and HUD has reviewed the closing documents and accepted them at the closing, and the authorized HUD official has endorsed the Note for insurance, then such review, acceptance and endorsement shall evidence HUD's approval. It is unnecessary for HUD to sign any document simply to evidence its approval of the closing documents, other than HUD's endorsement of the Note.

5. How does Lender accomplish the certification of documents as required by paragraph 29?

Please see the answer in the General Questions Category dated 12/5/12 and titled “How must changes to loan documents be shown?,” which answers this question.

6. Please provide clarification on page 3 of Section 9 (a)(i) and 9(b)(i).

Section 9(a)(i) of the Lender's Certificate asks the Lender to describe how the funds, if any, that Borrower needs in excess of the Mortgage Proceeds to complete the Project are handled. Typically, as set forth in MAP Guide Section 8.9 and Closing Guide Section 3.3, these funds must be expended prior to the use of any Mortgage Proceeds. In this typical situation, the Lender would fill in the amount of the cash required by the Firm Commitment in the blank line and no other provisions would be necessary, because the default situation (that other funds would be used prior to Mortgage Proceeds) would apply (or Lender could insert "n/a" after the colon to indicate no extraordinary provisions apply). If the Housing program staff's underwriting, consistent with MAP Guide 8.9 and Program Obligations, determines that the additional cash required may be disbursed pari passu with the Mortgage Proceeds or according to some other disbursement arrangement, such arrangement should be detailed after the colon at the end of Section 9(a)(i). To the extent that this disbursement arrangement requires greater space to explain, or to the extent another document such as the Partnership Agreement details this disbursement arrangement and the Housing staff and the HUD Attorney have reviewed this document to ensure that the disbursement arrangement is described in accordance with the Housing staff's expectations and consent, then Lender may reference such other document after the colon at the end of Section 9(a)(i). Section 9(b)(i) is similar and applies if any additional funds are required, whether such requirements are reflected in Section 9(a)(i), (ii), or (iii). The Lender should indicate whether such funds are held as cash or a letter of credit in the blank indicated. Then, if an alternate disbursement arrangement has been approved by Housing, unless Lender has already described the disbursement arrangement in Section 9(a)(i) or referenced in 9(a)(i) another document that describes the disbursement arrangement, Lender shall describe the approved disbursement arrangement in Section 9(b)(i).

7. (3/1/2012)
In Section 21 of the Lenders Certificate and Section D(2) of the Request for Endorsement the lender certifies in part that it "does not have outstanding and shall not make loans or advances to Borrower, any of the sponsors, the general contractor, or the architect for any purpose connected directly or indirectly with this Project without prior written approval of HUD." In some (a)7 refinance transactions the lender is making a loan to the borrower's principals which loan is secured by their interests in the borrower entity. Does this provision apply to (a)7 transactions and if so does the commitment evidence HUD's written approval of the loan to the sponsor?

The Lender’s Certificate does not apply to section 223(a)(7) refinancings. However, the Request for Endorsement (HUD-92455M), which is applicable to 223(a)(7), contains a provision similar to the language in this question. Please see the answer provided to the same question that was asked under the Request for Endorsement.

8. 5/1/2012
Editorial correction to paragraph 35 of Lender’s Certificate to correct language “Mortgaged Property is” to “Improvements are”.

Paragraph 35 of the Lender’s Certificate “If Lender determined that any of the Improvements
are located in an area identified by the Federal Emergency Management Agency . . . .”

9. 6/15/2012
May Section 40 of the Lender's Certificate be modified to read as follows (with the phrase "and HUD, as its interest appears" shown as deleted text): "40. Lender certifies that the security agreement and the Uniform Commercial Code Financing Statement filings, along with any other documents required by State law, establish a perfected first lien security interest under the Uniform Commercial Code in the UCC Collateral in favor of Lender [[and HUD, as its
interest appears]]. Lender acknowledges that it must maintain a perfected lien position in the UCC Collateral for the life of the Loan." If the requested modification is not permitted, may the Security Instrument be modified to provide a security interest in favor of HUD, in accordance with Section 40 of the Lender's Certificate?

While HUD is listed as an additional secured party in the UCC financing statements, it is not a party
to the Security Instrument. HUD only becomes a party if the loan is assigned to HUD. During the
notice and comment period, HUD posted a version of the Regulatory Agreement that doubled as a
Security Agreement. This security agreement language was removed from the Regulatory Agreement
in response to comments; however, the corresponding edit was not made to the Lender's Certification. This omission has now been corrected and is reflected in the document in HUDclips.

10. 6/28/2012
I am working on a 221(d)(4) and do not want to assume that all concepts from the Request for Endorsement identically apply to the Lender's Certificate on a (d)(4). In particular, the Lender's Certificate I received contains 3 Exhibits, 2 Riders and a Mortgagor's Acknowledgement. I would like to make sure HUD speaks with one voice before I respond. Please let me know current HUD policy and whether my assumptions on certain matters are correct:

(1) Exhibit A: Disclosure of Fees: Acceptable subject to Housing's approval of the substantive content?

A: Correct, Housing field office staff will review the exhibit required by section 7 of the Lender’s Certificate outlining fees and charges for compliance with Program Obligations.

(2) Exhibit B: Borrower's Certificate of Representations and Warranties (submitted in connection with Section 30). Lender may not qualify in Lender Certification with a Borrower Certification in the confines of the 92434M? What exactly is Section 30 requiring to be attached as Exhibit B?

A: Correct, Lender may not qualify its due diligence obligations contained in the Lender’s Certificate with an attached Borrower certification. The exhibit required in section 30 is merely a list (disclosed by Borrower) of the licenses, permits, filings, actions, etc., that are necessary to construct, own, operate the project, carry out the transaction, and comply with applicable statutes and regulations. Note as a reminder that HUD has previously stated in a Q&A relative to section I.10.D. of the Request for Endorsement (no. 13, 1/26/2012), “HUD review of the document does not include judgment on the sufficiency of that due diligence. If questions arise regarding the borrower's possession of the required governmental certificates, permits, licenses, qualifications and approvals, the lender will be required to demonstrate the adequacy of its review.” This statement is also applicable to section 30 of the Lender’s Certificate.

(3) Exhibit C: Third Party Obligee Certification of Lender and Guarantor Regarding Extension Fees. Remove. Guarantor Certifications are not permitted in this document?

A: Correct, side agreements between Lender and Borrower (or principals of Borrower), including guarantor certifications, should not be attached to the Lender’s Certificate, unless they are specifically required by HUD.

(4) Rider I: Certification of Lender in Event of Default. Remove. Is this still required? We cannot find requirement in documents.

A: Correct, it is not necessary to attach a certification to the Lender’s Certificate outlining Lender’s responsibilities and the specific procedures to follow in the event of a default during the term of a prepayment lock-out and/or prepayment premium for loans funded by state or local bonds, or Ginnie Mae mortgage-backed securities. This matter is sufficiently covered in section 24(a) of the Lender’s Certificate, where Lender agrees “to follow those procedures set forth in Program Obligations.”

(5) Rider II: Lender Agreement to obtain a new PCNA and facilitate Borrower's PCNA obligations under Reg. Agt. Is this still required?

A: Consistent with a previous Q&A for the Request for Endorsement (no. 8, 12/28/2011), PCNA requirements are covered by Program Obligations (MAP Guide) and therefore no additional certification is required in the Lender’s Certificate. Section 14 of the Lender’s Certificate provides that HUD may increase or decrease the Reserve for Replacement fund pursuant to Program Obligations. HUD will make this assessment based on the PCNA reports. Note that paragraph VI.C.2. of Map Guide Appendix 5G, which requires a PCNA rider to the Lender’s Certificate, will be deleted with the next set of revisions to the MAP Guide.

(6) Mortgagor's Acknowledgement and Concurrence. Remove. Lender may not qualify its Lender Certification with a Borrower Certification in the confines of the 92434M?

A: Correct, Lender may not qualify the Lender’s Certificate with a Borrower Certification, see the discussion above on section 30.

11. 9/06/2012
In the old Mortgagee's Certificate, paragraph 10, which covers the operating deficit escrow, provided two check boxes--one for the Agreement of Sponsor to Furnish Additional Funds and the Bond Guaranteeing Sponsor's Performance and another for the Escrow Agreement for Operating Deficits. The first check box has been removed from the new Lender's Certificate, but it appears that the Agreement of Sponsor has come forward to the new documents. In light of this change, I have the following two questions: (1) If the Agreement of Sponsor (HUD-92476M) is used, should the information relating to it be placed in the new lines in paragraph 12? (2) If that Agreement is not used and instead, as may be the usual case, the Escrow Agreement is used, should those blanks in paragraph 12 be left blank and only the information for the Escrow Agreement supplied in the check box section?

(1) Yes, if the Agreement of Sponsor to Furnish Additional Funds relates to operating deficits. (2) In this instance, “N/A” should be inserted in the blanks in the first part of paragraph 12; the box next to “Escrow Agreement” should be checked and the information pertaining to the Escrow Agreement
should be filled in.

12. 6/18/2014
For projects where advances for building components stored offsite are not applicable, may Section 28 (which states requirements relating to such advances) of the Lender's Certificate (Form HUD-92434M) be modified to add text at the start of the section? "28. Note: Section 28 of this Lender's Certificate does not apply to this transaction. For any case involving materials stored off-site, Lender agrees to: . . . ."

In the case of the proposed Lender’s Certificate changes, to the extent that there are no advances to be made for building components stored offsite, the language of the lender’s certificate already states "For any case involving materials stored off-site". Thus, there is already disqualifying language in the text of the certificate for any instances where there are no building components stored offsite and thus the proposed language is unnecessary.

13. 11/13/2014
On page 3 of the Lender's Certificate, paragraphs 10(b)(i) and 10(b)(ii) each reference paragraph 9(a). However, there is no paragraph 9(a). Should these references be changed to 10(a)?

Yes, the references to paragraph 9 (a) are a mistake and should be changed to 10(a). Thank you for bringing this to our attention. The corrected document has been posted to HUDClips.

14. 6/12/2015
Can we change the word check to payment in the Request for Endorsement and Lender's Certificate when the MIP is paid through pay.gov pursuant to Mortgagee Letter 15-13? The Healthcare Request for Endorsement has been revised this way, but the Healthcare Lender's Certificate still uses the word check: "Lender submits separately a check to HUD for $0.00 covering the first mortgage insurance premium . . . . "

Beginning July 1, 2015, HUD will require lenders to remit Multifamily Production Program fees, including MIP, via Pay.gov. At that time, HUD will no longer collect paper checks at closing. Given the process change, if Lender’s counsel requests to change paragraph I.A.1 of the Request for Endorsement or paragraph 2 of the Lender’s Certificate to read “Lender submits separately a check payment to HUD….,” HUD counsel may permit the change.

15. 4/4/2016
What is meant by the requirement that funds do not become “HUD-insured Loan Funds” “until direct disbursement to the Borrower (or Borrower’s Designee)” in the HUD sample form Lender Certification for Tax Exempt Bonds and 4% LIHTC Transactions (“Lender Certification – Bonds/LIHTC)”)? Is it HUD’s position that the transfer of bond proceeds by the Bond Trustee from the Project Fund has to go to the Lender, who then must remit the same funds to title company for disbursement to the Borrower? Or may bond proceeds go from the Bond Trustee to the title company for disbursement in accordance with the terms of the Lender's closing instruction letter and approved closing/settlement statement?

“Direct disbursement to the Borrower (or Borrower’s Designee),” means that the Lender must disburse the HUD-insured Loan Funds directly to the Borrower or Borrower’s designee, such as a contractor but never the Bond Trustee or an agent of the Bond Trustee. This requirement does not limit the Lender’s ability to use an escrow or other agent to complete the disbursement of HUD-insured Loan Funds, as long as such agent is acting on behalf of, and under the control of, the Lender. For example, the Lender could disburse the HUD-insured Loan Funds to the Borrower or Borrower’s designee, through a title company or escrow agent who is legally authorized to act on behalf of the Lender, pursuant to Lender’s instructions (which must comply with HUD Program Obligations).

This requirement ensures that HUD-insured Loan Funds are only disbursed for the purpose of directly financing those activities authorized by the relevant section of the National Housing Act.

Note: In the near future we will be issuing a revised Lender Certification – Bond/LIHTC to clarify these matters.

16: 2/7/2018

I have routinely told parties to remove addenda from the Lender's Certificate that specifies extension fees and who pays them pursuant to guidance issued on 6/28/2012; however, guidance issued on 6/12/2017 pointed out that the addendum is actually required by Section 20(c) of the form Lender's Certificate: In an attached addendum, Lender has identified the time frames in which the extension fees must be paid and the parties liable for payment of such extension fees. Could you please clarify that the addendum is indeed required?[Note: The following answer supersedes the guidance issued on 6/28/2012 concerning disclosure of extension fees (Lender’s Certificate, no. 10 (sub Q&A 3 only).]

Section 20(c) of the Lender’s Certificate requires disclosure of funds escrowed for potential construction loan extension fees, as well as the party responsible for the fees and the time frame for payment (shown in an addendum). Section 2.7.G.4 of the Closing Guide provides additional requirements if the borrower plans to pay the extension fees from excess mortgage proceeds. If construction loan extension fees are not escrowed at initial closing, they are treated as “deferred fees” under Closing Guide section 2.7.G.5, and they may not be paid from excess mortgage proceeds. Deferred fees must be disclosed to HUD in an addendum, using section 20(h) of the Lender’s Certificate. In addition to the information required by section 20(c) concerning the disclosure of responsible parties and time frames, the parties must also provide the third-party obligee certification found in Part 5 of the Closing Guide to ensure the parties will not seek recovery against the Mortgaged Property or mortgage proceeds. The addendum required by 20(c) and the thirdparty obligee certification may be combined in this instance, and 20(c) concerning construction loan extension fees should be revised to indicate that the fee “may be” collected rather than an amount that “has been” collected.

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