The Office of Capital Improvements (OCI) has developed guidance that may be used to assist public housing authorities in completing the Capital Fund Financing Program application. Use of this is not required; however, if the guidance is followed HUD's review of the legal documents can be completed in a shorter period of time. If you would like to request a copy of this legal guidance, please contact any member of the CFFP team listed on the CFFP Contacts page.
1. Conflicts clause: A conflicts clause should be placed at the end of the bond documents including the Master Indenture and any Supplemental Indentures, as well as any legal document entered into by the PHA as part of a CFFP transaction.
Sample conflicts clause:
"To the extent that any of the foregoing is in conflict with the requirements of the United States Housing Act of 1937, as amended, Federal regulations, and the Annual Contributions Contract, as amended, ("Federal public housing requirements"), such Federal public housing requirements shall control and govern in such instances of conflict."
2. Indemnification clauses: A PHA may not use Public Housing assets derived from Federal Housing Assistance (e.g. Operating Fund, Capital Fund, related accounts, or public housing property under ACC and Declaration of Trust. An indemnifications clause should be placed in any document entered into by the PHA which includes an indemnification provision.
Sample Indemnification clause:
"The PHA's indemnification is limited to eligible non-public housing assets (assets not subject to the Declaration of Trust and not acquired or merged with assets acquired with public housing funding under the United States Housing Act of 1937)."
3. Required Mandatory Redemption/Prepayment clauses: CFFP Proceeds are subject to the same statutory and regulatory requirements as are Capital Funds. However, since CFFP Proceeds do not flow through LOCCS, HUD does not have a similar level of control over the Proceeds as it does Capital Funds. This is of particular import as it relates to obligation and expenditure requirements. Therefore, HUD requires bond/loan documents to contain language requiring mandatory redemption/prepayment prior to the end of the obligation/expenditure deadlines.
Bond/loan documents must contain a mandatory redemption/prepayment provision requiring a participating party with legal authority over the proceeds (such as the trustee, issuer or lender) to use unobligated proceeds to redeem/prepay the bonds/loan such that 90% (ninety percent) of the proceeds are obligated before the end of the 2nd year after closing.
Bond/loan documents must contain a mandatory redemption/prepayment provision requiring a participating party with legal authority over the proceeds (such as the trustee, issuer or lender) to use any unexpended proceeds to redeem/prepay the bonds/loan such that 100% (one hundred percent) of the proceeds are expended before the end of the 4th year after closing.