The U.S. Department of Housing and Urban Development (HUD) has released revised closing documents that must be used for all transactions with a commitment issued after August 10, 2014. HUD has instituted a grace period in situations where (1) a loan application was in process for 60 days or more before August 10, 2014 and (2) the loan closed within 180 days of August 10, 2014 (approximately February 5, 2015). Outlined below are the substantive changes to the loan documents, highlighting revisions that alter the borrower’s or lender’s obligations. Copies of the new forms redlined against the old forms are available at Each document number listed below links to the relevant document on the HUD Portal.

The most drastic changes come in the Regulatory Agreement. The new document (1) alters the definition of surplus cash, (2) eliminates the special provision for Limited Dividend Borrowers, (3) incorporates some of the terms of the NC Escrow Agreement, (4) changes the process for preparing the borrower’s yearly financial statement, and (5) requires the borrower to certify that all permits and licenses necessary to operate the project have been obtained. Finally, experienced borrowers will note that the assertions made in Section 50 of the previous form have been moved to a rider, though no new obligations are imposed upon the Section 50 principals.

HUD has also taken steps to reduce the number of documents executed at closing. First, a new Section 14 has been added to the Agreement and Certification which incorporates all certifications required to satisfy special conditions to the Commitment. This will require some extra due diligence on the part of the lender and lender’s counsel, as the lender will now also be certifying to matters traditionally controlled by the borrower. Second, HUD has issued a new Consolidated Certificate incorporating the terms of the EEOC, Title VI Certificate, LIHTC Certificate, and Borrower’s Byrd Certificate. Regrettably, this will not reduce the number of signature pages required, as the borrower will be required to initial the bottom of each page of this document.

1. Security Instrument (HUD-94000M)

  1. The revised language of Section 1(v) expands the definition of “Loan Documents” to include the Note, Security Instrument, Regulatory Agreement and adding “all other agreements, instruments and documents which are now existing or are in the future required by, delivered to and/or assigned to Lender and/or HUD in connection with or related to the Loan.”
  2. Section 1(w) expands the definition of “Mortgaged Property” to include property acquired after the date of the Security Instrument. As revised, Section 1(w) also permits the Borrower to (1) specifically exclude from the “Mortgaged Property” any “non-project funds” held in segregated and labeled accounts and (2) list such accounts in Section 1(w). Non-project funds may consist of equity contributions, gifts, and surplus cash released from the project in accordance with the Program Obligations.
  3. Section 2 requires the borrower to certify that no UCC filings have been made against the borrower, project, or project assets, with an exception carved out for UCC filings that will be released as part of the closing. This section was further revised to (1) require the borrower to notify the lender of any changes in the borrowing entity (e.g. business name or location) that would require an additional or amended UCC filing and (2) obligate the borrower to assist the lender in making such a filing.
  4. Section 4 of the Security Instrument addresses the assignment of leases and rents and has been revised to eliminate the specific attornment requirements that were outlined in the prior Section 4(f)(1) and allows commercial leasing (and the renewal of commercial leases) only in accordance with the Program Obligations.
  5. Section 6 has been revised to replace the list of the exculpated parties with a reference to the Section 50 Addendum of the Regulatory Agreement.
  6. Section 19 addresses insurance at the property and has been revised to expand the requirements for flood hazard coverage. Now, any “machinery, equipment, fixtures, and furnishings” funded in whole or in part with loan proceeds and located in a flood area must be covered by flood insurance. Section 19(f) has been revised to state that any payment of insurance proceeds will not be considered an optional prepayment under the Security Instrument or the Note and any payment of the loan from insurance proceeds will not relieve the borrower from making its regular monthly payments. Section 19(g) now requires that the lender provide HUD with evidence of a total loss to apply insurance proceeds to the indebtedness.
  7. Section 32 has been revised to specifically state that, per the Program Obligations, any change in lender or servicer of the loan must be approved by HUD. Similar language now appears in the revised RFE and Lender’s Certificate as well.

2. Note (HUD-94001M)

  1. The first paragraph of the Note has been revised to include the name of the borrower.
  2. As with the Security Instrument, Section 8 of the Note has been revised to remove the list of Section 50 principals and replace it with a reference to the Regulatory Agreement.
  3. Revisions to Section 9 strictly limit the information that may be included in Rider 1 to the Note to (1) the HUD-approved prepayment restriction and (2) prepayment penalty or premium charge. Section 9(c) of the Note has been revised to adjust and refine what constitutes a prepayment. Specifically, payments made within 30 days of the Maturity Date, payments made per Sections 19(f) and 20(b) of the Security Instrument, reductions in the Loan Amount pursuant to the Program Obligations, and payments made pursuant to Section 13 of the Note (Loan Charges) will not be considered a prepayment.
  4. The endorsement panel to the Note has been replaced with program-specific endorsements.
  5. The state specific Rider 2 now need only be attached for projects in Maine and Vermont.

3. Regulatory Agreement (HUD-92466M)

  1. Section 1 (Definitions) has been revised to (1) incorporate a definition of “Construction Contract;” (2) remove the definitions of “Residual Receipts,” “Limited Dividend Borrower,” “Non-Profit Borrower,” and “Public Body Borrower;” (3) incorporate a definition of the term “Loan;” (4) revise the definition of “Mortgaged Property” to correspond to the definition in the Security Instrument; (5) revise the definition of “Surplus Cash” (see item e, below).
  2. Section 4 now incorporates by reference the terms and conditions of the lender’s Certificate/Request for Endorsement of Credit Instrument into the Regulatory Agreement. Similarly, Section 7(b) incorporates language indicating that the borrower has obtained all government approvals, permits and licenses required to operate the project.
  3. Sections 5, 7, and 8 have been revised to incorporate the construction provisions which appeared in the old Regulatory Agreement as well as incorporate information on any non-critical repairs required at the project. The Regulatory Agreement now includes (1) guidelines on how the repairs are to be completed, (2) assurances that borrower has obtained the required permits to address the Non-Critical Repairs; and (3) how the escrow for these repairs will be distributed upon completion.
  4. The Residual Receipts provision has been deleted from the Regulatory Agreement, but the new form allows for a Residual Receipts Rider to be attached to the new form. A sample Rider has yet to be released by HUD.
  5. As noted above, HUD has revised the definition of Surplus Cash. Per Section 13 of the new Regulatory Agreement, Surplus Cash includes any (1) project cash, excluding the Reserve for Replacements and any other HUD required reserves, (2) short term investments, (3) project based Section Housing Assistance Payments that have been earned (but not received), and (4) funds approved, but not yet withdrawn, from the Reserve for Replacement Fund or other project Escrow Accounts. Surplus Cash must be calculated on the last day of the borrower’s fiscal year (or, subject to Program Obligations, on the last day of the sixth month of the borrower’s fiscal year) and these calculations must be submitted to HUD with borrower’s annual financial reports.
  6. HUD has also adjusted how Borrower Advances are to be made and repaid. Section 15 now defines Borrower Advances to include any advance of funds or a loan to the Project made by the borrower or an affiliated entity, but does not include equity or capital contributions required in connection with the HUD Loan Closing. All Borrower Advances must be paid into the Project’s operating account and my only accrue interest as set forth in the Program Obligations. Such Borrower Advances will be considered a Reasonable Operating Expense under the Regulatory Agreement, but may only be repaid with the prior written approval of HUD and subject to the Surplus Cash and Distribution requirements outlined in Sections 13 and 14 of the Regulatory Agreement. Any agreement to repay Borrower Advances must recognize the restrictions set forth in Section 15 of the Regulatory Agreement.
  7. Section 19 has been revised to adjust how the borrower’s Annual Financial Reports will be produced. Such reports are due within 90 days of the end of the borrower’s fiscal year and conform to generally accepted accounting principles and HUD financial reporting standards established by 24 CFR 8.801 and the Program Obligations. The reports must be audited by and independent CPA and failure to conform to these standards gives HUD the right to initiate an independent audit of the borrower’s financial records.
  8. The revised Regulatory Agreement consolidates the management requirements included in Sections 21, 22, and 23 of the old Agreement into a revised Section 21. Section 21 now requires that all projects be managed in a manner acceptable to HUD and any management agreement include a number of HUD mandated provisions.
  9. Revised Section 30 requires borrower to list all occupancy restrictions.
  10. A new section 49 has been inserted into the Regulatory Agreement which provides a detailed explanation of HUD’s role as an insurer of the loan.
  11. Section 50, detailing the nonrecourse provisions of the loan, has been moved from Section 50 of the Regulatory Agreement to an addendum to the Regulatory Agreement. Section 50 Principals will now execute that Addendum and no new obligations are imposed upon Section 50 Principals.

4. Request for Endorsement of Credit Instrument (HUD-92455M)

  1. Section 6 has been revised to state that any successor Lender/Servicer must be approved by HUD in accordance with the Program Obligations. A new Section 14 states that the Lender will fully perform the duties outlined in the Lender’s Certificate and includes an acknowledgement that HUD is relying on Lender to perform those duties. Section 19 includes a provision setting forth the timing requirements for new PCNA reports.
  2. Section 15 establishes the escrows and fees that will be required for the Project. Section 15(c) addresses the Non-Critical Repair Escrow; this has been expanded to account for the 50% Holdback of loan proceeds required under section 223(f). A new section 15(d) addresses the funding of the Reserve for Replacement Account and a new section 15(e) addresses the funding of the Residual Receipts Account.

5. Borrower’s Oath (HUD-92478M)

The Borrower’s Oath has been revised to indicate that it was executed “under oath” and to remove a provision regarding Section 207(b) of the National Housing Act.

6. Opinion of Borrower’s Counsel and Certification of Borrower (HUD-91725M/91725M-CERT)

No substantive changes have been made the Opinion.

7. Consolidated Certifications – Borrower (HUD-91070M)

This is a new document and is designed to incorporate the provisions of the EEOC, Title VI Certification, Borrower’s Byrd Amendment Certification and the LIHTC Certificate. As noted above, each page of this document must be initialed by the borrower.

8. Agreement and Certification (HUD-93305M)

  1. HUD has been removed as a party to this document.
  2. A new Section 14 has been added to the Agreement and Certification to incorporate any additional certifications that are required to satisfy a condition of the firm Commitment. As noted above, this is will require enhanced due diligence on the part of the lender and lender’s counsel as both lender and borrower will now be required to certify as to the satisfaction of the Special Conditions.

9. Escrow Agreement for Non-critical, Deferred Repairs (HUD-92476.1M)

Section 9 has been revised to address situations where all or a portion of the repair cost is required to support the Loan amount. When the repair cost is less than estimated, HUD will require a supplemental cost certification. Any excess Loan Proceeds must be used for additional repairs, reduce the outstanding loan amount, or as an additional deposit for the Reserve for Replacement.

10. Escrow Agreement for Working Capital (HUD-92412M)

No substantive changes have been made to this document.


11. Lender’s Certificate (HUD-92434M)

  1. Substantive changes to the Lender’s Certificate include a revision to Section 3 which explicitly states that any successor lender/servicer must be approved by HUD in accordance with the Program Obligations, and a new Section 4 which states that the lender will fully perform the duties outlined in the Lender’s Certificate and an acknowledgement that HUD is relying on Lender to perform those duties. Section 15 includes a provision indicating that a PCNA will be provided 10 years following the commencement of amortization.
  2. HUD altered the timing of certain deadlines as well. (1) Application for insurances of advances of loan proceeds must be submitted 30 days after (as opposed of five days before) the date of disbursement; (2) Lender must provide notice to HUD when a payment made under the Note is not made by the 10th of the month, as opposed to the 15th of the month under the previous form.
  3. Section 30 has been reorganized and clarified to clearly state that, based upon lender’s due diligence, all permits and licenses required for the operation of the project have been or will be obtained. As with the RFE above, this will likely require the collection of such permits prior to closing.

12. Building Loan Agreement (HUD-92441M)/Supp. to Building Loan Agreement (HUD-92441M-SUPP)

Changes to the BLA are entirely cosmetic. These changes clarify that the Disbursement Agreement is attached as Exhibit C. In the absence of a Disbursement Agreement, a schedule of disbursements will be attached as Exhibit C. No changes have been made to the Supplement to the BLA.

13. Construction Contract (HUD-92442M)/Supp. to Construction Contract (HUD-92554M-SUPP)

The Construction Contract has been revised to include a new Article 15 regarding arbitration and mediation. The Supplement has not been revised.

14. Request for Final Endorsement of Credit Instrument (HUD-92023M)

A new provision has been added to this document requiring the lender to certify that, based upon lender’s reasonable due diligence, all necessary permits and licenses have been obtained.

Phase I Environmental Site Assessment Update

Please note there has been a significant change in the rules relating to conducting “all appropriate inquiries” (AAI) for Phase I environmental site assessments in order to qualify for certain owner and lender liability protections under CERLA. The relevant ASTM standards are periodically updated – the last two most recent updates occurred in 2013 and 2005. Previously, EPA indicated that performance of a Phase I under either standard, “05” or “13” would suffice to establish AAI. However, as of earlier this week, EPA has now clarified that only the 2013 standard will qualify. Therefore, make sure that your consultants are using the 2013 standards for maximum protection under CERLA.