> **Chapter**
>
> **7**

Closing

## Executive Summary

Section 7-1

> This chapter describes the preparation, execution and recordation of
> the closing and internal control documents needed to consummate a
> Restructuring Plan for a Mark-to-Market debt restructuring
> transaction. It discusses the roles and responsibilities of the: PAE,
> owner, existing and new mortgagees, and their attorneys; title company
> and escrow agent; OAHP Preservation Office Director and business
> staff; and HUD Multifamily Hub or Program Center, Multifamily Claims
> Branch, Multifamily Notes Servicing Branch, Lender Approval &
> Recertification Branch, and Multifamily Insurance Operations Branch
> (MFIOB). Within sixty (60) days of the execution of the Restructuring
> Commitment by the owner, all closing documents should be properly
> executed and recorded, title policy issued, all funds disbursed, and
> escrow closed.

## General Closing Roles and Responsibilities

Section 7-3

A.  **Special OAHP Preservation Office Delegations**. The OAHP
    Preservation Office Director has the authority to execute
    Restructuring Commitments and OAHP loan documents, to modify
    existing mortgages, and to endorse mortgages for the Mark to Market
    program that are insured by FHA under Section 223(a)(7) of the
    National Housing Act. The authority for Section 542(c) HFA
    Risk-Sharing, and Section 542(b) GSE Risk-Sharing is with the local
    Multifamily Hub or Program Center.

B.  **PAE Responsibilities**. The PAE business staff and PAE closing
    attorney are responsible for successfully closing the restructured
    deal as approved by OAHP.

C.  **Closing Escrow Agent (Third Party Fiduciary) Responsibilities**.
    The Closing Escrow Agent will be responsible for handling the
    closing of each restructured deal according to the closing escrow
    instructions provided by the PAE attorney.

D.  **Take-out Financing Closing Responsibilities**. The type of
    financing will determine which party is responsible for preparation
    of the take-out financing documents. The following matrix provides
    closing responsibilities based on financing alternatives:

**Closing Responsibilities**

**by Financing Alternative\***

+-------------------+----------------+----------------+----------------+
| **Type of         | **Prepares     | **Reviews Loan | **Conducts     |
| Financing**       | Loan           | Documents**    | Re             |
|                   | D              |                | structuring/** |
| **Alternative**   | ocuments\*\*** |                |                |
|                   |                |                | **Loan         |
|                   |                |                | Closing**      |
+-------------------+----------------+----------------+----------------+
| Modification of   | Existing       | PAE attorney   | Existing       |
| existing loan     | mortgagee      |                | mortgagee      |
|                   | attorney       |                | attorney       |
|                   |                |                | acting with    |
|                   |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| FHA-insured       | New mortgagee  | PAE attorney   | PAE attorney   |
| Section 223(a)(7) | attorney       |                |                |
+-------------------+----------------+----------------+----------------+
| HFA risk-sharing  | New mortgagee  | PAE attorney   | New mortgagee  |
| or other          | attorney       |                | attorney       |
| state/local       |                |                | acting with    |
| government        |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| Conventional loan | New Mortgagee  | PAE attorney   | New Mortgagee  |
|                   | attorney       |                | acting with    |
|                   |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| FHA-insured       | New Mortgagee  | PAE attorney   | Multifamily    |
| Section 221(d)(4) | attorney       | and HUD MF Hub | Hub or Program |
| or 223(f)         |                | or Program     | Center OGC     |
|                   |                | Center Housing | attorney will  |
|                   |                | staff and OGC  | handle closing |
|                   |                | attorney       | of new         |
|                   |                |                | 221(d)(4) or   |
|                   |                |                | 223(f)         |
|                   |                |                | mortgage in    |
|                   |                |                | conjunction    |
|                   |                |                | with the PAE   |
|                   |                |                | attorney who   |
|                   |                |                | closes the     |
|                   |                |                | OAHP portion   |
|                   |                |                | of the overall |
|                   |                |                | closing        |
+-------------------+----------------+----------------+----------------+

\*The chart addresses the loan financing aspects of the closing, and not
the mortgage restructuring function.

\*\*Refers to take-out financing documents; PAE Attorney always prepares
the M2M loan documents

## Working Parties

Section 7-4

A.  **PAE Responsibilities**. The PAE business staff and PAE closing
    attorney are responsible for the following:

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1.  [Business Staff]{.underline}

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a)  Overall coordination of the closing of each mortgage restructuring
    transaction

b)  Select Closing Attorney

c)  Select Closing Escrow Agent (in conjunction with Closing Parties)

d)  Work with closing parties to select Title Company

e)  Review and approve Closing Attorney's work product; including review
    of all legal documents for accuracy, compliance with the approved
    deal, and consistency with the Form 7.19 Official Term Sheet, and
    Restructuring Commitment

f)  Verify that the mortgagee, servicer, and unpaid balance information
    in HUD's F47 System is correct and, if not, that the discrepancy has
    been reconciled and approved by the Preservation Office Closing
    Coordinator and the Headquarters Closing Specialist.

g)  Provide the initial (and any revisions) Official Term Sheet to the
    PAE Attorney and OAHP Preservation Office

h)  Work with PAE Attorney in the preparation and full execution of the
    Restructuring Commitment and Amendments

i)  Fax copy of fully executed Restructuring Commitment and all
    Amendments to OAHP HQ Closing

j)  Coordinate preparation of and receipt of the Section 223(a)(7) Firm
    Commitment Application Package from the New Mortgagee

k)  Review and recommend approval of Section 223(a)(7) Firm Commitment
    Application (pursuant to Appendix N)

l)  Coordinate the execution of the Section 223(a)(7) Firm Commitment,
    and any subsequent amendments, with the OAHP Preservation Office
    Director

m)  If Firm Commitment is assigned by Mortgagee prior to closing, review
    new Mortgagee entity for acceptability and prepare assignment
    documentation for Preservation Office Director approval, send copy
    to local Multifamily Hub or Program Center

n)  Prepare and distribute Closing Parties Checklist (Form 7.7) to all
    parties

o)  Provide formal notification to existing mortgagee of pending
    restructure (Form 7.9) and provide copy of Restructuring Commitment

p)  Coordinate receipt of necessary closing information and
    documentation from existing mortgagee

q)  Coordinate preparation of Section 8 HAP Contract by OAHP
    Preservation Office

r)  Notify Multifamily Hub or Program Center of need for reservation of
    Section 8 HAP funds

s)  Coordinate the full execution of Section 8 HAP Contract by
    Multifamily Hub or Program Center Director and Owner to ensure
    timely closing

t)  Arrange for Rehabilitation Escrow Deposit Agreement (if applicable)
    including selecting the Contractor responsible for the cash
    management and repair review and providing for payment

u)  Prepare and forward Partial Payment of Claim/Closing package to OAHP
    Relationship Manager at least eighteen (18) days prior to scheduled
    closing date, and coordinate with OAHP HQ Closing staff

v)  Prepare and provide Closing Sources and Uses statement (Exhibit F)
    to Closing Escrow Agent and OAHP HQ Closing staff and coordinate
    with Closing Escrow Agent the preparation of the Final Settlement
    Statement, Final Disbursement Statement and Form 7.21

w)  Coordinate with the Multifamily Hub or Program Center the transfer
    of Section 8 contract administration responsibility, when
    appropriate

x)  Forward electronic copy of final underwriting model to OAHP
    Preservation Office Data Integrity Person immediately upon closing,
    and upload model into M2M MIS

y)  Update the M2M MIS in a timely fashion

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2.  [PAE Attorney]{.underline}

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a)  Work with PAE business staff in the preparation (and full execution)
    of the Restructuring Commitment and Amendments

b)  Using the Official Term Sheet Form 7.19, review and certify that the
    Restructuring Commitment:

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i.  accurately reflects the approved restructuring plan and terms

ii. the form has not been altered, and

iii. any changes to the form have been approved in writing by OAHP HQ

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c)  Draft M2M loan documents pursuant to the Restructuring Commitment,
    Official Term Sheet Form 7.19, the Instructions to PAE Attorneys in
    Appendix F, and this chapter

d)  Coordinate with Multifamily Hub or Program Center attorney to ensure
    a simultaneous closing when take-out financing is insured under
    Section 221(d)(4) or 223(f)

e)  Draft closing instructions for the Closing Escrow Agent (see 7-9A6)

f)  Provide title company with title instructions pursuant to Appendix F
    Title Instructions, and review pro forma title report

g)  Coordinate review of the M2M loan documents by OAHP Preservation
    Office Director

h)  Coordinate execution of restructuring documents by Preservation
    Office Director

i)  Review new title policy for accuracy pursuant to OPG Appendix F
    prior to closing

j)  When requesting review of all legal documents and execution of loan
    documents by OAHP Preservation Office Director, provide the Official
    Terms Sheet Form 7.19, a checklist of documents requiring execution
    and a letter, the first of four certifications submitted by the PAE
    Attorney, certifying the following:

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i.  the closing documents accurately reflect the approved Restructuring
    Plan and the Official Term Sheet

ii. the standard legal forms have not been altered, and

iii. any changes to the forms have been approved in writing by the OGC
     attorney assigned to OAHP

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k)  In a Section 223(a)(7) transaction, provide to the OAHP Preservation
    Office Director the original executed new FHA-insured Note and
    submit the second of four certifications submitted by the PAE
    Attorney, a Certification of Closing Attorney, Form 7.8, to the OAHP
    Preservation Office Director requesting Endorsement of the new
    FHA-insured Note.

l)  When requesting a Partial Payment of Claim authorization from the
    OAHP Preservation Office Director, provide the third of four
    certifications submitted by the PAE attorney, a Certification of
    Closing, Form 7.11, certifying that the loan documents have been
    recorded, and that all funds except the FHA claim have been
    deposited with the Closing Agent and title policies have been issued

> In a restructuring of a HUD-Held Note, or a non-HUD-held restructuring
> that does not require a 541(b) payment, provides to the OAHP
> Preservation Office a Certification of Closing, Form 7.14 in lieu of
> Form 7.11.

m)  The Certification of Closing Attorney (Form 7.8) and request for
    authorization for Partial Payment of Claim (Form 7.11) must not be
    submitted until the following have occurred, without exception:

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i.  Loan documents have been recorded

ii. Verification that all required funds except FHA claim have been
    deposited with Closing Escrow Agent

iii. Title policies have been issued

iv. Provide instruction to the OAHP Preservation Office Director
    regarding the faxing and forwarding of the original endorsed note to
    the new mortgagee

v.  if there is a Section 223(a)(7) refinancing, prepare the HUD Closing
    Memorandum, Form 290

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n)  Prepare the IRP reuse documentation as required in Appendix Q and
    forward a copy of the package to the new first lender. (old IRP
    schedule, new IRP re-use schedule and 236(s) Grant Agreement and Use
    Agreement, as applicable)

o)  Fax copies of new 1st lien Note, OAHP notes, mortgages, Form 7.16,
    interim or final signed Settlement Statement and Form 7.21, W-9
    Form, copy of the 236 IRP reuse documentation and, if HUD is in 1st
    position after the restructuring (no takeout), a copy of the most
    recent tax bill to OAHP HQ Closing/Post-Closing Representative
    immediately (3 days max) after closing (unrecorded mortgages are
    acceptable at this time).

p)  Provide to OAHP Preservation Office Director a final certification
    (the fourth and final certification) on letterhead stating that all
    required actions have been taken, the Closing has been consummated
    and the Restructuring has been completed according to the guidelines
    and approved terms.

q)  In conjunction with the Closing Escrow Agent, prepares and executes
    Form 7.21 and Final Settlement Statement and provide OAHP HQ Closing
    written verification when all funds have been disbursed from the
    Closing Escrow.

r)  Prepare and distribute the Closing Docket pursuant to guidance in
    Chapter 8, if selected to do so by the PAE.

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B.  **Closing Escrow Agent (Third Party Fiduciary) Responsibilities**.
    The Closing Escrow Agent will be selected by the PAE with the
    approval of all parties. The Closing Escrow Agent must be an
    experienced third party fiduciary, be bonded and insured, and have
    multifamily real estate closing experience. The Closing Escrow Agent
    must have an arms length relationship with all parties to the
    closing. It is recommended that the Closing Escrow Agent be part of
    a major title company. If not part of a major title company, the
    closing escrow agent must execute a Closing Protection Service
    Letter. The Closing Escrow Agent expense may be included in the
    transaction costs.

> The following list identifies usual responsibilities of the Closing
> Escrow Agent. It is not all-inclusive and is intended as information
> only. The Closing Escrow Instructions prepared by the PAE Attorney
> will provide deal specific directions (see 7-9 A.6).

1.  Capture all closing documents, including specific HUD documents, as
    listed in the Closing Documents Checklist (Form 7.2)

2.  Prior to authorizing the 541(b) claim payment, OAHP HQ Closing will
    call the Closing Escrow Agent to verify:

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a)  that ALL required funds from all other parties have been received,

b)  confirm wiring instructions, and

c)  confirm amount anticipated from HUD.

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3.  Capture and forward via FAX to 202 708 5755 the following items to
    OAHP HQ Closing within three days of closing: a copy of the final
    settlement statement, the current property tax bill, M2M Notes,
    Mortgages, 236 Grant Agreement (if applicable), IRS Form W-9 for
    mortgagor entity and OAHP Form 7.16 Owner/Manager Information (The
    PAE may choose to provide some of these items.)

4.  Capture and disburse all funds from the Closing Escrow. The only
    exceptions are funds that will be paid outside of closing (POC) such
    as escrows from old lender to new lender.

5.  Provide recording instructions to the title company.

6.  Prepare and submit to PAE Attorney and HQ Closing a disbursement
    statement and/or settlement statement reflecting the flow of funds
    through the closing escrow (refer to Section 7-7 below). Label the
    statement as Interim or Final depending on whether all funds have
    been received/disbursed.

7.  In conjunction with the Closing Escrow Agent, prepare and execute
    Form 7.21 and Final Settlement Statement, providing OAHP HQ Closing
    written notification when all funds have been received and disbursed
    and the Closing Escrow has been closed out. Attach Final Settlement
    Statement to 7.21 (and Final Disbursement Statement if applicable).

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C.  **Owner and Owner's Attorney**.

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1.  Owner initiates start of closing by executing the Restructuring
    Commitment

2.  Owner is first to execute closing documents

3.  Owner's attorney issues Opinion of Owner\'s Counsel (Form Legal
    Opinion in Appendix F) and, if applicable, FHA Opinion of Owner's
    Counsel

4.  Owner pays into the Closing Escrow the required owner contribution
    reflected on Exhibit F and in the Closing Escrow Instructions (e.g.,
    owner's portion of rehabilitation and transaction costs and any
    other owner funded items)

5.  Owner executes final closing documents

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D.  **OAHP Preservation Office**.

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1.  [Relationship Manager and/or Preservation Office Closing
    Coordinator]{.underline}

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a)  Ensures that the reconciliation of HUD's F47 System was completed
    and that any discrepancies were corrected (this must be completed
    before approval of the restructuring plan).

b)  Monitors the closing process, assisting the PAE business staff and
    attorney

c)  Acts as liaison between PAE and Preservation Office Director

d)  Reviews and forwards Partial Payment of Claim Package to the OAHP HQ
    Closing staff at least sixteen (16) days prior to closing

e)  Reviews and forwards HUD-Held Summary (Form 7.12) or
    Non-541b/Non-HUD Held Post Restructuring Summary (Form 7.13), and
    attachments (the Closing Package) to OAHP HQ Closing at least 16
    days prior to Closing

f)  Reviews and updates Partial Payment of Claim/Closing packages prior
    to closing for all closings (verification of receipt of funds, etc.)

g)  Acts as liaison between PAE and OAHP HQ Closing for issues arising
    from the Partial Payment of Claim Package and Restructuring
    Commitment

h)  Coordinates approval and execution of Restructuring Commitment, Firm
    Commitment and final closing documents by Preservation Office
    Director and HUD (when appropriate). Reviews at a high-level the
    Closing Docket to ensure completeness, consistency and compliance
    with the approved deal

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2.  [Preservation Office Director]{.underline}

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a)  Executes Restructuring Commitment and Amendments after review using
    the Form 7.19 Official Term Sheet; Amendments must be numbered; a
    Final Administrative Amendment is required which must match the
    information contained in the Final Form 7.19 Official Term Sheet.
    The Final Official Term Sheet becomes part of the Final
    Administrative Amendment.

b)  Responsible for review of all legal documents for accuracy,
    completeness, consistency and compliance with approved deal, using
    the Form 7.19 Official Term Sheet and Restructuring Commitment.

c)  Executes all required legal documents as instructed by the PAE
    Attorney

d)  Executes Section 223(a)(7) Firm Commitment if applicable (if
    subsequently assigned or amended, executes approval)

e)  Receives Partial Payment of Claim/Closing Package from the PAE,
    prepares and executes forms as applicable

f)  Coordinates with the PAE Attorney, OAHP HQ Closing, and Closing
    Escrow Agent to facilitate claim payment

g)  Upon receipt of partially executed closing documents, Certification
    of Closing (Form 7.3), loan document checklist, pro forma title
    policy and opinions of the owner's and mortgagee's attorneys from
    the PAE Attorney, executes final closing documents as applicable and
    returns executed documents to the Closing Escrow Agent

h)  In a restructuring using Section 223(a)(7) financing, upon receipt
    of Certificate of Closing Attorney, Form 7.8:

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i.  verifies that endorsement panel on note is properly prepared and
    notarized,

ii. then endorses new mortgage note,

iii. faxes a copy of note and forwards original to new mortgagee and

iv. executes HUD Form 290

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i)  Upon receipt of Certificate of Closing Attorney (Form 7.8, 7.11
    and/or 7.14 as appropriate), authorizes the request for Partial
    Payment of Claim (or non-Claim closing) by the OAHP HQ Closing
    Coordinator after verifying funds are in place.

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E.  **HUD Multifamily Hub or Program Center**.

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1.  When notified by OAHP Preservation Office, reserves or prepares to
    recapture Section 8 funding, as needed

2.  Executes Section 8 HAP and Recapture Agreement, as needed, and
    notifies the PAE Attorney for coordination of contract in Closing
    Escrow

3.  Where using Section 221(d)(4) or Section 223(f) FHA insured take-out
    financing, or Section 542(c) HFA Risk-Sharing or 542(b) GSE
    Risk-Sharing, the Multifamily Hub or Program Center executes a Firm
    Commitment and coordinates with PAE attorney for a simultaneous
    closing

4.  Enters HUD 223(a)(7) Firm Commitment and Form 290 information into
    DAP

5.  If Firm Commitment assigned prior to closing, enters into DAP.

6.  Receives Transmission Memo and arranges for transition meeting

7.  Receives Closing Docket and acknowledges receipt

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F.  **Existing Mortgagee or Loan Servicer (if HUD-insured at Closing)**.

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1.  Provides the PAE with the information necessary to compare the
    existing mortgage information (regarding mortgagee, servicer, and
    unpaid balance) to HUD\'s F47 system. If applicable, assists the PAE
    in assembling the documentation necessary to explain and resolve any
    discrepancy.

2.  If a loan modification, an attorney representing the lender or
    current servicer of the existing FHA-insured mortgage should work
    closely with the owner\'s attorney to complete the closing documents
    and draft Settlement Sheet.

3.  If applicable, mortgagee executes loan modification documents and
    forwards to the Closing Escrow Agent.

4.  If the existing mortgage is to be paid off, executes and forwards to
    Closing Escrow Agent:

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a)  Release of Mortgage

b)  HUD 9807

c)  Certification of Current Mortgage Balance

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5.  If requesting a Section 541(b) Claim payment, prepares and submits
    to Closing Escrow Agent or PAE:

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a)  the Section 541(b) Claim form, and

b)  Authorization letter and corporate resolution to allow Claim payment
    to be paid through the Closing Escrow.

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6.  Closes out existing MIP, taxes, insurance, reserve for replacement
    and other escrows based on language in the Restructuring Commitment
    and Closing Escrow Instructions,

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a)  Transmits existing escrow account balances to Closing Escrow, or

b)  Transmits funds POC to new lender, or

c)  Deducts existing escrow balances from final payoff figure and
    provides breakout of netting from payoff to HQ Closing the day of
    closing.

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G.  **New Mortgagee or Loan Servicer**

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1.  New Mortgagee's attorney works closely with the PAE attorney and the
    owner's attorney to prepare the closing documents and coordinates
    review of new loan documents to ensure consistency and accuracy

2.  Executes applicable loan documents

3.  At the appropriate time, wire transfers new first mortgage funds to
    the Closing Escrow Agent

4.  Prepares check payable to HUD for upfront mortgage insurance premium
    and forwards to the Closing Escrow Agent, if new loan has new
    223(a)(7) FHA mortgage insurance

5.  Acts as post-closing Rehabilitation Escrow Account holder, if
    applicable

6.  Establishes post-closing escrows for Reserve for Replacement, and
    taxes and insurance, as instructed in Closing Escrow Instructions

7.  Sets up monthly billing to HUD for IRP payments, if applicable

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H.  **Title Company**

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1.  Provides preliminary title report

2.  Provides pro forma title policy prior to closing pursuant to OAHP's
    guidelines

3.  Records documents pursuant to closing escrow instructions

4.  Issues final title policy prior to 541(b) payment disbursed

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I.  **HUD Multifamily Claims Branch**

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1.  Branch Chief or designee receives Partial Payment of Claim Package
    from OAHP HQ Closing at least fifteen (15) days prior to closing

2.  Reviews Partial Payment of Claim Package and notifies OAHP HQ
    Closing of any necessary changes

3.  Receives authorization to request Section 541(b) Claim payment from
    OAHP HQ Closing Manager after all required actions have taken place

4.  Submits Section 541(b) Claim payment request to Treasury Department

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J.  **HUD Multifamily Insurance Operations Branch**. Where applicable
    (new 223(a)(7) take-out), receives from Closing Specialist and
    processes the following documents: HUD Form 290 ("Closing
    Memorandum"), new first Mortgage Note, Initial Premium Receipt, HUD
    Form 9807 ("Request for Insurance Termination"), HUD Form 92080
    ("Mortgagee Change Form"), Request for Firm Commitment/Risk Sharing
    Authorization or Credit Subsidy Obligation.

K.  **HUD Claims and Lender Approval & Recertification Branches**. Where
    applicable, reviews documentation provided by the Closing Specialist
    and makes necessary adjustments to HUD's F47 System that resolve
    discrepancies between it and the mortgagee's and/or servicer's
    records.

L.  **HUD Notes Servicing Branch**. Handles HUD booking of new M2M debt.
    (see Section 7-12 for additional roles for existing HUD-held loans).

## Pre-Closing

Section 7-5

A.  **Restructuring Commitment**. The PAE and OAHP Preservation Office
    should coordinate closely to ensure that the owner and his or her
    attorney receive the necessary instructions to begin closing.
    \[Pursuant to Chapter 4 of the OPG, the Restructuring Commitment
    cannot be executed prior to the completion of the Environmental
    Evaluation Form 4.4 and the Environmental Assessment and Compliance
    Findings, HUD Form-4128, available on HUDClips.\]

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1.  [Execution]{.underline}. Preparation for closing starts when the
    owner executes the Restructuring Commitment (see Chapter 6) and:

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a)  the owner and new mortgagee both execute the Firm Commitment for FHA
    mortgage insurance, if the Restructuring Plan calls for FHA-insured
    financing;

b)  the owner receives a commitment for conventional financing from a
    new mortgagee; or

c)  Risk-share lender issues a Firm Approval/Commitment Letter, if the
    Restructuring Plan calls for financing under the HFA 542(c) or GSE
    542(b) Risk-sharing programs.

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2.  [Forwarding to PAE and OAHP]{.underline}. The owner should return
    the Restructuring Commitment, and the lender or owner should return
    the original of any Firm Commitment to the PAE after execution. The
    PAE will forward the original Firm Commitment to the OAHP
    Preservation Office.

3.  [Notifying OAHP Preservation Office]{.underline}. The PAE must
    update the Mark-to-Market MIS tracking system when it receives the
    Restructuring Commitment and the Firm Commitment executed by the
    owner, as required under the terms of the Restructuring Plan. The
    PAE should advise the OAHP Preservation Office if problems arise or
    are anticipated in closing the transaction.

4.  [Entering 223(a)(7) in DAP]{.underline}. HUD must enter issuance of
    the Firm Commitment (and any subsequent assignment to another
    mortgagee) into DAP.

5.  [Preliminary Closing Deadline]{.underline}. The PAE should set a
    preliminary closing date that is no more than sixty (60) days from
    the date the owner executed the Restructuring Commitment. The
    closing process should take no more than sixty (60) days to
    complete. The Restructuring Commitment expires at the end of the
    sixty (60) days unless OAHP provides a written extension executed by
    the original approving authority.

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B.  **Choosing the Title Company and Closing Escrow Agent** (third party
    fiduciary). The PAE must select a title company and closing escrow
    agent satisfactory to all parties (see 7-4B and 7-4H). A key factor
    in selecting the title company and closing escrow agent is that
    there be no identity of interest relationships with the PAE, owner
    or attorneys.

C.  **Closing Instructions from the PAE to the Owner**. Upon receiving
    the fully executed Restructuring Commitment and any Firm Commitment,
    the PAE should forward to the owner and his or her attorney the
    following closing materials:

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1.  [Transmittal Letter]{.underline}. Explains mortgage restructuring
    closing and provides general instructions. (Form 7.1)

2.  [Closing Documents Checklist]{.underline}. Lists mortgage
    restructuring closing documents for each mortgage financing
    alternative. (Form 7.2)

3.  [Closing Parties Checklist]{.underline}. Identifies and provides
    contact information for key parties involved in the closing process.
    (Form 7.7)

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D.  **PAE Notice to the Existing Mortgagee of Debt Restructuring**. The
    PAE must provide formal notification (Form 7.9) to the existing
    mortgagee of the debt restructuring, stating that the Restructuring
    Commitment constitutes authority for the existing mortgagee to
    accept prepayment conditioned on completion of restructuring and
    execution and recordation of the Use Agreement. Authority to accept
    prepayment expires simultaneously with the expiration of the
    Restructuring Commitment. A copy of the executed Restructuring
    Commitment is part of the formal notification. Further, the PAE
    should provide information regarding the closing escrow and request
    that the existing mortgagee provide the following to the closing
    escrow:

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1.  Executed Application for Section 541(b) Payment (Form 7.6)

2.  Authorization for payment of claim to be made to the Closing Escrow
    Agent (or other) and official corporate resolution naming corporate
    officers (Authorization should be typed on mortgagee's letterhead
    and signed by authorized party.)

3.  Executed Release of Deed of Trust/Mortgage

4.  Executed Insurance Termination Request for Multifamily Mortgage HUD
    Form 9807.

## Closing Escrow - Receipt of Funds and Disbursements

Section 7-6

> The Closing Escrow Agent is responsible for receiving and disbursing
> funds from the Closing Escrow, in accordance with the PAE Attorney's
> Closing Escrow Instructions. The Closing Escrow must be fully funded
> prior to authorizing any disbursements. OAHP requires (see 7-4B) that
> Closing Escrow Agents be experienced, licensed and bonded third part
> fiduciaries, with no identity of interest with the parties to the
> transaction. Neither the PAE attorney, owner's attorney, nor lender's
> attorney are authorized to perform in this capacity.

A.  **Funding the Closing Escrow**. Funds that must be received in the
    Closing Escrow are addressed specifically in the Closing Escrow
    Instruction Letter (see 7-9A6) which is developed by the PAE
    Attorney based on the RC, and using the final Exhibit F, Sources and
    Uses of Funds statement. The following is a general overview of
    funds that are usually included in the Closing Escrow. (See also OPG
    Appendix R regarding other types of Sources typical to Additional
    Funds transactions.) It is important that the PAE Attorney clearly
    address in the Closing Escrow Instructions any sources on Exhibit F
    that will not flow through the Escrow and assure there are adequate
    funds available to close the transaction. Fund sources that must be
    captured include:

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1.  [Owner's Contribution]{.underline}. The owner must deliver the
    contribution amount as called for in the Restructuring Commitment
    and reflected on Exhibit F (for rehabilitation costs and all other
    costs), to the closing escrow for appropriate disbursement. (The
    only exception is if the owner is a housing cooperative.) It is not
    appropriate for the Closing Escrow Agent to reduce the required
    owner contribution by any surplus amount in the escrow at closing
    (see 7-6B.5. below)

2.  [New Mortgage Proceeds]{.underline}. If there is take-out financing,
    the new mortgagee must deliver the loan amount to the Closing Escrow
    Agent for disbursement to the existing mortgagee or loan servicer
    and/or to the rehabilitation escrow account. The new mortgagee may
    net new escrow amounts from the funds going into the escrow but must
    provide a detailed breakout to HQ Closing the day of closing and the
    netting must be clearly reflected on the Final Settlement Statement
    (see 7-6C. below).

3.  [Existing Escrow Balances Held by Mortgagee]{.underline} (e.g.,
    Reserve for Replacement, Residual Receipts, MIP, taxes, insurance,
    etc.) The flow of funds from project specific reserve and escrow
    accounts (e.g., reserve for replacement, taxes, insurance, MIP,
    etc.) must be clearly addressed in the Closing Escrow Instructions
    and the Restructuring Commitment so that the Closing Escrow Agent
    knows to expect and require the funds in order to close. Paragraph
    #38 of the Restructuring Commitment will specify whether existing
    escrow balances are to be sent by the existing lender to the Closing
    Escrow for disbursal at Closing, if the existing lender will send
    those funds to new escrow holder after closing, or if the existing
    lender will net escrows from the final payoff disbursement. If the
    requirements differ for certain escrows, those escrows should be
    addressed separately in the RC.

4.  [Partial Payment of Claim]{.underline}. The 541(b) claim payment
    from the FHA insurance fund will be paid to the Closing Escrow Agent
    (or to the existing mortgagee or servicer as authorized) pursuant to
    the existing mortgagee's authorization for disbursement to the
    existing mortgagee in order to pay off the first lien. All other
    funds must be in place before HUD will authorize payment of the
    claim.

5.  [Sources received that are NOT reflected on Exhibit F Sources and
    Uses]{.underline}. Sometimes the Closing Escrow Agent will receive
    funds that are not listed on the Exhibit F Sources and Uses. Those
    Sources should be clearly addressed by the PAE Attorney in the
    Closing Escrow Instructions (e.g., when bridge loan funds are
    received in lieu of tax credit equity at closing, and they obtain a
    larger construction/interim take-out than reflected in Exhibit F
    because it includes tax credit equity, etc.). If the discrepancies
    are not clearly addressed, the Closing Escrow Agent must follow-up
    with the PAE Attorney as the claim may have been sized too large.

6.  [Sources reflected on Exhibit F Sources and Uses but NOT
    received]{.underline}. If funds are reflected on the Exhibit F
    Sources and Uses and in the Closing Escrow Instructions (e.g., HOME
    loan funds) but are not received, the Closing Escrow Agent must
    follow-up with the PAE Attorney as there may be insufficient funds
    to settle the transaction.

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B.  **Disbursement of Funds**. The Closing Exhibit F, Sources and Uses
    statement will be the source document for the Closing Escrow Agent's
    disbursement instructions. Any items not captured on the Final
    Sources and Uses Statement will be captured in the Closing Escrow
    Instructions. The following disbursements are generally made from
    the Closing Escrow:

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1.  [Payoff of existing insured or HUD-held loan]{.underline}.

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a)  **Existing Insured Mortgage**. The Closing Escrow Agent must
    disburse to the existing insured mortgagee (or servicer, if
    delegated authority provided by mortgagee), the amount specified in
    Exhibit F to satisfy the existing insured loan. Funds must be
    disbursed based on wiring instructions and authorizations from the
    existing mortgagee (payoff may be reduced by amount of existing
    escrows held by that lender if addressed in Closing Escrow
    Instructions and RC).

b)  **Existing HUD-held Note**. The Closing Escrow Agent must disburse
    to HUD the amount specified in Exhibit F as partial payment on the
    existing HUD-held loan (may be reduced by the amount of existing
    HUD-held escrows provided they were included in Sources on Exhibit
    F). Funds must be sent to HUD Multifamily Notes Servicing Branch by
    check to be applied to the existing HUD-held Note. See 7-6E below
    for specific instructions for remitting funds to HUD.

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2.  [Transaction Costs including (but not limited to) fees to the old
    and new lender, the title company, survey fees, accounts payables,
    etc]{.underline}. Transaction costs are lumped on a single line on
    the Closing Exhibit F and must therefore be addressed in detail in
    the Closing Escrow Instructions.

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a)  **Up-front Mortgage Insurance Premium (MIP)**. If there is new FHA
    insurance after closing, the up-front (first year's) MIP must be
    paid (by the mortgagee) at closing to HUD. The up front MIP amount
    is included in transaction costs payable to the mortgagee.

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i.  The OAHP Preservation Office (PO) will provide an official receipt
    Form HUD-27038, and schedule Form HUD-3416 for the Closing Escrow
    Agent or PAE to prepare at closing. The Closing Escrow Agent or PAE,
    as appropriate, will provide copies to the PO upon execution. (Refer
    to OPG Appendix N, Attachment 2 Receipt Instructions for information
    on receipt and schedule numbering and submission to HUD.)

ii. At closing, the Closing Escrow Agent will issue the official receipt
    for the up-front MIP from the lender and forward the original check
    with the original receipt and schedule to the Department of Housing
    and Urban Development, Box 277167, Atlanta, GA 30384-1767. Checks or
    receipts from different Section 223(a)(7) closings should be sent to
    the lockbox separately.

iii. A copy of the receipt must be sent to the new lender.

iv. A copy of the receipt and the check must be retained by the PAE to
    be included in the closing dockets and Form 290 Closing Memorandum
    Package (See Appendix N for 290 instructions).

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b)  **New Reserve for Replacement, Tax and Insurance Escrows**. The
    Closing Escrow Agent should disburse said funds to the first
    mortgagee to be held in an escrow account. In the event that the
    existing mortgage is 100% written down, and there is no new take-out
    lender (HUD in first position after closing), the HUD Multifamily
    Notes Servicing Branch will service the loans and escrows. In this
    event, the Closing Escrow Agent should disburse the escrow funds to
    the HUD Multifamily Notes Servicing Branch, clearly identifying the
    amount and name of each new account. See 7-6E below for specific
    instructions for remitting funds to HUD.

> If the owner wants the Reserve for Replacement invested, a letter must
> be sent requesting investment instructions to the HUD Multifamily Note
> Servicing Branch. See 7-6C below for specific instructions for that
> address.

3.  [Rehabilitation Escrow Account]{.underline}. Where the restructuring
    transaction provides financing for rehabilitation needs
    (twelve-month physical needs other than those that the owner must
    correct prior to approval of the Restructuring Plan), the owner must
    establish a rehabilitation escrow account. The Rehab Escrow
    Administrator will be specified in the Rehab Escrow Agreement
    executed at closing, usually the new first mortgage lender.

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C.  **Excess Funds/Shortfalls at Settlement**. Since many transaction
    costs included in the Exhibit F Sources and Uses are estimates at
    the time the claim amount is determined and the closing is
    scheduled, it is not uncommon for there to be a slight surplus or
    shortage of funds at the Closing table.

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1.  [Shortfalls]{.underline}: The RC specifically states that in the
    event that the actual transaction costs associated with the
    Transaction exceed the estimated amount, OAHP will not permit any
    such excess costs to be financed by the New Loan. It further states
    the Owner shall be solely responsible for bringing any such excess
    funds to the closing table.

2.  [Excess funds at Closing]{.underline}: In the event that the actual
    transaction costs are less than estimated, any excess funds
    remaining will generally be sent to HUD, MF Notes Servicing Branch
    to be applied as a partial payment toward the Mortgage Restructuring
    Note effective the date of closing. Specific instructions must be
    addressed in the Closing Escrow Instructions. Refer to paragraph
    7-6C below for specific instructions for sending payments to HUD MF
    Notes Servicing Branch. Although the Owner generally contributes
    toward transaction costs, the owner's cash contribution should not
    be reduced at closing when transaction costs are less than
    estimated. Such a reduction is inappropriate because the owner's
    Capital Recovery Payment (CRP) is based on the owner's estimated
    contribution. In order to return a portion of the excess to the
    owner would require adjusting (reducing) the CRP (and making
    necessary revisions to closing documents) and is not feasible.

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D.  **Excess Bond Reserve Funds (Generally After Closing)** When
    existing mortgage loans funded with bond proceeds (typically
    tax-exempt housing bonds) are prepaid, the Trustee for the bonds is
    required to do a final accounting of the bonds. The final accounting
    includes, in addition to paying bondholders, the disposition of all
    bond accounts. The Trustee performs the final accounting in
    accordance with the terms of the trust indenture (or bond
    resolution). The trust indenture also dictates the party to whom any
    final balances should be sent: HUD, in many instances. The PAE must
    provide the Trustee with instructions for sending the final balances
    to HUD as part of the Closing process (wire is the preferred
    method).

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1.  When the indenture requires that excess bond funds come back to HUD
    (generally required), refer to paragraph 7-6E. below for specific
    address and wiring instructions for HUD MF Claims Branch. The
    transmittal memo, required for wires or checks, must identify the
    original FHA project name and number, and state that the funds are
    excess bond funds to be posted to the FHA Fund, Miscellaneous Income
    Account. Provide a Trustee name and contact phone number for
    questions.

2.  If the indenture requires a different application, contact the OAHP
    HQ Closing or HQ Bond Departments for specific guidance.

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E.  **Sending Payments *TO* HUD - Specific Instructions for Checks and
    Wires**. These instructions are applicable when funds are sent to
    HUD at or subsequent to M2M Closing. It is essential that a
    transmittal be included with ALL payments to HUD, providing detailed
    information on how the funds are to be applied. Failure to direct
    the funds clearly to the appropriate entity or send to the wrong
    address will result in funds not being properly applied. Questions
    regarding receipt of payments, wiring instructions, issuance of
    official receipts, and determining whether payments to HUD should be
    sent to HUD Claims or Notes Servicing, may all be directed to OAHP
    HQ Closing.

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1.  [HUD Multifamily Claims gets payments that will not be applied to
    the M2M project debt or new HUD-held escrows]{.underline}. This
    includes, but is not limited to, excess bond reserve funds, excess
    New Reg. Residual Receipts, or other payments to HUD that will not
    be applied to the M2M project debt (e.g., if no M2M debt at time of
    transmittal of funds because QNP debt assignment or forgiveness has
    already been booked by HUD). It is critical that the sender (escrow
    agent, old lender, owner, etc) include the following information in
    the transmittal memo: identify themselves and provide a contact name
    and phone number, the original FHA project name and number, explain
    the reason the funds are being transmitted (e.g., excess bond
    reserve funds or excess New Reg. Residual Receipts) and specify that
    funds are being sent to HUD Multifamily Claims to be posted to the
    FHA Fund, Miscellaneous Income Account. Provide contact name and
    phone number for questions.

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a)  **Make Checks payable to the Secretary, Department of Housing and
    Urban Development and mail with transmittal to**:

> HUD Multifamily Claims Branch
>
> PO Box 44003
>
> Washington DC, 20026.

b)  **Wires for payments for Excess bond reserve funds will be accepted
    ONLY from the Bond Trustee**. Wires are STRONGLY discouraged from
    all other payees. Wired funds are the most difficult to properly
    account for, especially when the transmittals are often incomplete.
    Contact MF Claims at 202-401-2168 for wiring instructions. Do not
    reuse wiring instructions previously received from Claims (and never
    modify wiring instructions from a different Branch). Always call
    Claims for new deal-specific guidance if a wire will be sent.

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2.  [HUD Multifamily Notes Servicing]{.underline} gets payments that
    will be applied to project-specific HUD-held accounts (MRN, CRN,
    escrows, etc). This includes but is not limited to funds from the
    old lender or M2M closing escrow agent to establish new HUD-held
    escrows, excess funds from the M2M closing escrow, excess Old Reg.
    Residual Receipts, annual debt service on the M2M debt, excess funds
    from the Rehab Escrow (after completion of work) or other such
    payments to HUD that will be applied to the M2M project debt. In the
    transmittal memo it is critical that the sender (escrow agent, old
    lender, owner, etc.) identify themselves with a contact name and
    phone number, identify the original project name, FHA project number
    for the M2M debt (old FHA number with a V (for the MRN) or W (for
    the CRN)), explain the reason the funds are being transmitted and
    how they are to be applied (e.g., to R4R escrow, excess claim
    proceeds to be applied as a payment on the MRN effective the date of
    Closing, excess Old Reg. Residual Receipts to be applied to the MRN
    effective the date of Closing, or funds to establish new HUD-held
    reserve account, etc.). Provide contact name and phone number for
    questions.

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a)  Make Checks payable to the Secretary, Department of Housing and
    Urban Development and mail with transmittal to:

> Multifamily Notes Servicing Branch
>
> HUD Multifamily Payment Processing Center
>
> PO Box 70764
>
> Chicago, IL, 60673

b)  If funds would be normally be applied to the MRN/CRN but there was
    either none created at closing, or they have been assigned or
    forgiven by HUD (OPG Appendix C), then payment must be made to HUD
    Multifamily Claims (see above) to be applied to the FHA Fund,
    Miscellaneous Income Account.

c)  Wires are STRONGLY discouraged for the above payments. Wired funds
    are the most difficult to properly account for, as transmittals are
    too often incomplete. If necessary, contact MF Notes Servicing at
    202-708-4035 (attention Debbie Courtright at ext. 2753) for
    instructions. Do not reuse wiring instructions previously received
    from Notes Servicing (and never modify wiring instructions from a
    different Branch). Always call Notes Servicing directly for new
    deal-specific guidance if a wire will be sent.

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3.  [HUD Multifamily Insurance Operations Branch gets checks ONLY for
    upfront MIP payments]{.underline}. Checks must be sent via the
    Atlanta lockbox with Receipt Form HUD-27038, and schedule, Form
    HUD-3416 (no wires). Note: no other payments should be directed to
    this address! See 7-6B2 above and OPG Appendix N for information on
    required documentation to accompany the check (receipt and
    schedule).

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a)  Make Checks payable to the Secretary, Department of Housing and
    Urban Development and mail with transmittal to:

> MF Insurance Operations Branch
>
> Department of Housing and Urban Development
>
> Box 277167
>
> Atlanta, GA 30384-1767

## Settlement Statement

Section 7-7

> OAHP requires a Final Settlement Statement after closing a M2M
> transaction to document the actual flow of funds at Closing, enabling
> OAHP to book the transaction and track payments due to HUD from
> Closing Escrows. Deadlines established herein for submission of
> settlement statement documents and closing out the closing escrows
> refer to the date of "Closing". In this context, "Closing" refers to
> the date the PAE Attorney signs the Attorney's Certification, forms
> 7.8, 7.11 and/or 7.14 as appropriate.
>
> The PAE must assure that these requirements related to Final
> Settlement Statements are addressed in the Closing Escrow
> Instructions. Refer also to the Resource Desk for additional Questions
> and Answers to further clarify these requirements.

A.  **Disbursement Statement and/or Settlement Statement**. Settlement
    Statements, documenting the actual flow of funds at Closing, are
    generally prepared by Closing Escrow Agents. If instead, a
    Settlement Statement is prepared by the PAE Attorney, OAHP requires
    that the Closing Escrow Agent provide OAHP and the PAE a copy of
    their Disbursement Statement immediately after closing (max 3 days).
    Using that Disbursement Statement, the PAE Attorney may then prepare
    the detailed Settlement Statement required so OAHP can book the
    transaction and track payments due to HUD from Closing Escrows. The
    combination of the two documents will provide a good roadmap of the
    transaction.

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1.  [Disbursement Statement (optional)]{.underline}. This is an optional
    document prepared and signed by the Closing Escrow Agent showing the
    accounting of funds in and out of the Closing Escrow and is
    generally necessary under state licensing and insurance
    requirements. A Disbursement Statement often shows the gross amounts
    of funds in and out of the escrow (no items paid outside of closing
    (POC)), with lump sum check amounts and payees. Using the
    Disbursement Statement, RC and Closing Escrow Instructions, the PAE
    attorney should then prepare the Settlement Statement and attach
    both to the new Form 7.21 (see below).

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a)  A separate disbursement statement is required only if the Closing
    Escrow Agent does not prepare and sign the Final Settlement
    Statement.

b)  A Disbursement Statement alone is not acceptable at interim or final
    submission.

c)  The Closing Escrow Agent must sign the new Form 7.21, even if they
    sign a Disbursement Statement in lieu of a Settlement Statement.

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2.  [Settlement Statement (SS)]{.underline} -- summary statement
    prepared by PAE Attorney and/or Closing Escrow Agent reflecting the
    flow of funds into and out of the escrow as well as funds that will
    be Paid Outside of Closing (POC) either from old lender to new
    lender, or from old lender to the Closing Escrow Agent, following
    closing. This statement must be consistent with the escrow
    Disbursement Statement (if applicable) but must provide a much more
    detailed summary and breakout of the individual line items that were
    included in a given check to a payee (or funds received from another
    source).

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a)  For example, the Disbursement Statement might show a check \# XX was
    sent on 9/14/2004 to "Old Lender" in total amount of \$XXX. The
    Settlement Statement must provide a breakout of how that figure was
    arrived at, such as: principal XXX, + interest XXX, + prepayment
    premium XX, - existing tax XXX, - ins XXX, - residual receipts
    XXX, - R4R XXX and -MIP XXX escrow balances.) The SS must reflect
    the actual flow of funds through the escrow in accordance with the
    Closing Escrow Instructions from the PAE attorney to the Closing
    Escrow Agent.

b)  The Settlement Statement must include a separate line item for each
    source and disbursement so that the flow of funds can be traced.

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B.  **Interim and/or Final Statements**. Statements must be clearly
    labeled interim or final, reflecting whether the closing escrow has
    been closed out and all funds disbursed.

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1.  [Interim Settlement Statement (and Disbursement Statement, if
    applicable)]{.underline}. If funds remain undisbursed and/ or have
    not yet been received, within 3 days of Closing, the Closing Escrow
    Agent must submit an interim statement identifying funds disbursed,
    received and remaining in the escrow. The document must be clearly
    identified as an Interim Settlement Statement (or Interim
    Disbursement Statement). A separate Interim statement is not
    required if the escrow has been closed out and there are no
    undisbursed funds. Instead, submit only a Final Settlement Statement
    immediately (3 days) after closing.

2.  [Final Settlement Statement (and Disbursement Statement if
    applicable)]{.underline}. A Final Settlement Statement (FSS) must be
    provided once the Closing Escrow has been closed out and all funds
    have been disbursed. If all funds are disbursed at the closing
    table, a FSS may be submitted within 3 days and an interim statement
    is not required. A FSS must be provided within 3 days of final
    disbursement. The PAE Attorney and Closing Escrow Agent must both
    sign the FSS (and/or escrow agent may sign Final Disbursement
    Statement if applicable).

3.  [Format for Interim/Final Settlement Statement]{.underline}. OAHP
    encourages, but does not require, use of the HUD1 or HUD 1A for the
    Final Settlement Statement. It is essential that the Statement be
    accurate and unambiguous to those of us using it at OAHP. In lieu of
    mandating a specific OAHP format for the FSS, we developed Form 7.21
    (see D) below), that must now be signed and submitted by the Closing
    Escrow Agent AND PAE Closing Attorney with the Interim/FSS
    immediately after closing (max 3 days).

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C.  **Maximum time for Closing Escrows to remain open**. All funds
    should be disbursed and the closing escrow closed out immediately
    after Closing. A FSS must be provided within 3 days of final
    disbursement. However, in no event should a Closing Escrow remain
    open more than 30 days after Closing. If funds remain undisbursed at
    that time, the PAE attorney must instruct the Closing Escrow Agent
    to remit all excess funds to HUD, unless HQ Closing has approved in
    writing (in advance) an extension to the Closing Escrow term.

D.  **Transmittal/Certification Form 7.21 (mandatory)**. The new Form
    7.21 will be used to officially notify OAHP HQ Closing and the PAE
    when the escrow is closed out and to clarify items on the settlement
    statement documents. Attachments to the Form 7.21 include a copy of
    the PAE's Closing Escrow Instructions to the Closing Escrow Agent,
    Interim and/or Final Settlement Statements and Disbursement
    Statements if applicable.

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1.  The PAE Attorney and Closing Escrow Agent must both sign the Form
    7.21 at the time of each submission to OAHP (e.g., at interim and
    again at final), certifying that:

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a)  the settlement/disbursement statements attached are correct, and
    reflect the actual flow of funds through the closing escrow,

b)  the settlement/disbursement statements attached are consistent with
    Form 7.21, and

c)  whether or not the escrow is closed and all funds have been
    disbursed.

> The certification statements for the PAE Attorney and Closing Escrow
> Agent on the 7.21 vary slightly, reflecting the PAE Attorney's greater
> involvement in the overall transaction.

E.  **PAE Controls To Track Closeout And Final Disbursements**. PAEs
    must have controls in place to track the close out and final
    disbursement of funds from each Closing Escrow. OAHP will audit the
    status of Closing Escrows for closed transactions. PAEs must take
    steps to assure Closing Escrows are closed out promptly.

## Partial Payment of Claim (PPC) and the PPC Package 

Section 7-8

A.  **General**. The 541(b) claim payment is the most important part of
    the full restructuring transaction and the most difficult to
    implement in a timely manner. The following process was developed to
    ensure all necessary information has been provided and authority
    given to request payment from the FHA insurance fund. The
    information compiled for the Multifamily Claims Branch must be in
    its office NO LATER THAN FIFTEEN (15) days prior to the funding
    request. If the information is not received by that time or is
    incomplete, the funding and/or closing date of the transaction will
    be adjusted accordingly. If there is no 541(b) claim payment as part
    of the transaction, refer to Section 7-11, HUD-held Notes or 7-12,
    Non-HUD-held/Non-541(b) Restructurings, as appropriate.

B.  **Preparation of Partial Payment of Claim Package and Other Internal
    Control Documents**. HUD\'s Multifamily Claims Branch must have
    sufficient advance notice of the Section 541(b) Claim.

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1.  Immediately following the owner's execution of the Restructuring
    Commitment, the PAE notifies the existing mortgagee of the debt
    restructuring, provides a copy of the Restructuring Commitment, and
    requests the necessary information and documentation.

2.  The existing mortgagee should provide the requested information
    within a few weeks of the request. At least 45 days prior to
    closing, if necessary, the PAE should follow up with the existing
    mortgagee in order to ensure timely receipt of the information. The
    existing mortgagee should submit the documents directly to the
    Closing Escrow Agent, with a copy of the package to the PAE via mail
    or fax. The Closing Escrow Agent will arrange with the PAE for the
    delivery of the appropriate documents for inclusion in the Partial
    Payment of Claim Package.

3.  [At Least Eighteen (18) Days Prior to Closing]{.underline}. The PAE
    business staff assembles the Partial Payment of Claim Package which
    contains the documents listed in the Claim Payment Checklist (Form
    7.4):

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a)  Form 7.4 Claim Payment Checklist

b)  Form 7.5 Claim Payment Summary

c)  Form 4.11 F47 Clearance Certification or Form 4.12 F47
    Reconciliation Form, whichever is applicable

d)  Restructuring Commitment, including Sources and Uses and Special
    Terms and Conditions

e)  Certification of Mortgage Balance (from existing mortgagee)

f)  Wiring Instructions for Partial Payment of Claim, Payment
    Information Form HUD-1044D. The form is available through HUDCLIPS
    and at: http://www.hud.gov/offices/hsg/omhar/readingrm/opglinks.cfm,
    scroll down and click on Chapter 7 Forms. Scroll to the bottom of
    the forms page, look under the heading Additional Forms. Note: the
    1044D anticipates that the claim payment will be wired directly to
    the HUD insured Mortgagee and therefore asks for the name of the
    mortgagee in block 1. Instead, enter the exact Bank Account Name for
    wiring the claim funds -- this name must match exactly the name
    shown in Section III. of Form 7.5.

g)  Written Authorization from Existing Mortgagee for Payment to be Sent
    to Servicer or Other Entity and official corporate resolution naming
    corporate officers.

h)  Form 7.6 Application for Section 541(b) Claim Payment

i)  Mortgagee Record Change (HUD 92080) (if applicable)

j)  Insurance Termination Request for Multifamily Mortgage (HUD 9807)

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4.  [At Least Sixteen (16) Days Prior to Closing]{.underline}. The OAHP
    Preservation Office should prepare and execute, as necessary, and
    submit to OAHP HQ Closing the Partial Payment of Claim Package. If
    there are any problems with the information submitted, OAHP HQ
    Closing will notify the Preservation Office Closing Coordinator.

5.  [At Least Fifteen (15) Days prior to Closing]{.underline}. OAHP HQ
    Closing Department delivers the executed claim documents (Partial
    Payment of Claim Package) to HUD Multifamily Claims Branch Chief, or
    designee. If there are any problems with the information submitted,
    the Multifamily Claims Branch will notify OAHP HQ Closing, who will
    notify the Preservation Office Closing Coordinator.

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C.  **Payment of Section 541(b) Payment**. HUD authorizes payment of the
    Section 541(b) Claim from Treasury after OAHP triggers payment of
    the Claim.

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1.  [Notification of OAHP Preservation Office Director]{.underline}. The
    OAHP Preservation Office Director receives notification of the
    following, from the PAE attorney in order to authorize the claim
    submission:

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a)  Appropriate documents have been recorded

b)  Title policy has been issued

c)  Form Legal Opinion from the owner's attorney has been received and
    is acceptable

d)  All prerequisite closing funding requirements have been met,
    including receipt of all funds necessary to close the transaction

e)  Upon receipt of Section 541(b) Payment, the Closing Escrow Agent is
    prepared to disburse payments as necessary

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2.  The OAHP HQ Closing Department will notify the HUD Multifamily
    Claims Branch Chief or designee, via email and follow up telephone
    call that authority is granted to submit the request for Section
    541(b) Payment.

3.  [HUD\'s Multifamily Claims Branch Chief or Designee]{.underline}.
    Upon receipt of proper notification from the OAHP HQ Closing
    Department, the HUD Multifamily Claims Branch Chief or designee
    submits the request to the appropriate Treasury office to wire
    transfer the funds in accordance with the wiring instructions
    provided earlier. Note: HUD or Treasury cannot provide a wire
    confirmation number to the Closing Escrow Agent. All parties must
    contact the Closing Escrow Agent to determine when HUD funds are
    received in the Closing Escrow.

## Closing Document Preparation, Execution, and Recordation 

Section 7-9

A.  **Completion of Closing Documents**. The PAE attorney, working with
    the Closing Escrow Agent, the owner, the owner's attorney, an
    attorney for the existing mortgagee (in the case of a loan
    modification) or the new mortgagee, and Multifamily Hub or Program
    Center if FHA-insured (in the case of 221(d)(4) or 223(f) take-out
    financing), must oversee the completion of all closing documents and
    provide copies and the Certification of Closing Documents (Form 7.3)
    to the OAHP Preservation Office Director. For more specific
    guidelines for completing the legal documents, see Closing
    Instructions to PAE Attorney in Appendix F.

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1.  [Timing]{.underline}. Document preparation starts as soon as the
    owner receives closing instructions from the PAE. It should take no
    more than forty-five (45) days. All documents should be completed
    and submitted to the PAE (or the Closing Escrow Agent, as
    applicable) at least ten (10) days prior to closing, with the
    exception of the HUD Multifamily Claims documents. (See Section 7-8
    above for a detailed explanation of the claim payment process.)

2.  [Legal Requirements]{.underline}.

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a)  **Hiring an Attorney**. The PAE should use an attorney experienced
    in multifamily restructuring finance (including FHA insurance
    programs) to complete the closing documents. Any outside attorney
    will be subject to the conflict of interest rules. The PAE Attorney
    is responsible for drafting all M2M legal documents and for
    reviewing all legal documents in the closing.

b)  **Paying Attorney\'s Costs**. Attorney fees will be recognized to
    the extent allowed in the Portfolio Restructuring Agreement (PRA).

c)  **Using Standardized Documents**. The PAE attorney shall use the
    standard form closing documents provided by OAHP and HUD that are
    appropriate to the first mortgage financing alternative agreed to
    under the terms of the Restructuring Commitment. "Standard form
    closing document" means that neither the PAE attorney nor any other
    party is permitted to alter the document, except for changes
    required under state law, such as notary acknowledgments.

d)  Using Form 7.3, the PAE attorney must certify that all standard form
    legal documents are complete, accurate, executed, and consistent
    with the terms of the Restructuring Commitment as shown on the
    Official Term Sheet Form 7.19 and with the other documents.

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3.  [General Instructions for Completing Closing Documents]{.underline}.
    The PAE attorney has primary responsibility for preparing the OAHP
    legal documents and in completing or reviewing Section 223(a)(7)
    required closing documents. For additional guidance, see Form 7.2
    Closing Document Checklist, and Closing Instructions to PAE Attorney
    in Appendix F.

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a)  **FHA Number**. If there will be FHA-insured take-out financing, the
    new FHA Project Number should be typed on each take-out financing
    closing document if not otherwise included in the document. (The PAE
    contacts the local Multifamily Hub or Program Center for the new FHA
    number.) The old FHA number should be typed on each OAHP closing
    document. In most cases, the first five digits of the FHA# should be
    identical to the existing FHA#. In all cases, the last three digits
    should be higher than the existing FHA#.

b)  **Specific State and Local Requirements**. Any changes in the forms
    required by state or local law must be set out in an addendum to the
    document with a statement clarifying that the change is required by
    State or local law and must include specific citations to the state
    or local law requiring the change.

c)  **Recorded Documents**. The PAE Attorney is responsible for
    capturing all recorded documents after recordation. Each recorded
    document must contain the return address of the PAE Attorney.

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4.  [Cooperating with the Owner's and Mortgagee's
    Attorneys]{.underline}. The PAE attorney should work closely with
    the owner's attorney and mortgagee's (or loan servicer's) attorneys
    to complete the closing documents.

5.  [Wiring Instructions and Address for Disbursements]{.underline}. The
    PAE should obtain instructions from all working parties with
    payments to settle at closing and address them in the Closing Escrow
    Instructions (see 6 below). HUD must be included as often excess
    funds after final settlement must be sent to HUD (see paragraph
    7-6E). Instructions should include the following information:

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a)  Wiring numbers for lenders or servicers

b)  Names, addresses, telephone numbers and points of contact

c)  Tax identification numbers

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6.  Closing Escrow Instructions from the PAE Attorney to the Closing
    Escrow Agent.

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a)  Preparation and Review. About forty-five (45) days prior to closing,
    the PAE attorney is responsible for drafting instructions for the
    Closing Escrow Agent who will be responsible for the closing escrow.
    The instructions must include specific information in order to close
    the escrow correctly and expeditiously. It is suggested that all
    parties utilize the closing escrow instructions to include their
    triggers and facilitate clear coordination of effort. The OAHP HQ
    Legal Liaison and HQ Closing Department may review the instructions
    for accuracy and completeness. The instructions should include the
    following information:

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i.  names, addresses, points of contact, and other contact information
    for all parties to the escrow, including HUD departments;

ii. wiring instruction or payment information from all parties as
    applicable (reminder, HUD is usually the recipient of any excess
    funds after final settlement so instructions for wiring or other
    payment to HUD must be included, see paragraph 7-6E);

iii. all required executed and miscellaneous documents (including
     Section 8 documents);

iv. all sources of funds (including other sources when processed in
    accordance with OPG Appendix R as an Additional Funds transaction);

v.  all disbursements of funds and specific information regarding the
    timing and recipient of funding;

vi. identify any funding sources that will not be available at the time
    of closing that have been accepted by OAHP (specifically addressed
    in the RC for delayed pay-in);

vii. specific funding instructions if all funds will not be funneled
     through the escrow (e.g., notification of receipt of funds from the
     mortgagee, etc.);

viii. if take-out financing includes construction financing (draws up to
      a maximum amount over time in lieu of a permanent loan all
      disbursed at closing) address requirements documenting
      availability of funds;

ix. specific requirements relative to application of any excess funds
    (see 7-6C.2.);

x.  the order in which documents must be recorded; and a clause stating
    that the executed Release of Mortgage will not be recorded until the
    disbursement to the existing mortgagee has been made.

xi. Provide specific instructions for remitting any funds to the HUD
    (reflecting each appropriate (different) mailing address as
    specified in 7-6E)

xii. require preparation and submission of interim/final settlement
     documentation as required in 7-7 above

xiii. Require preparation and submission of Closing Escrow Agent's
      disbursement statement within 3 days of Closing or within 3 days
      of final disbursement if funds were undisbursed at the earlier
      submission.

xiv. Require that all funds be disbursed and the closing escrow closed
     out immediately after Closing but in no event greater than 30 days
     after Closing. If funds remain undisbursed at that time, the PAE
     attorney must instruct the Closing Escrow Agent to remit all excess
     funds to HUD, unless HQ Closing has approved in writing (in
     advance) an extension to the Closing Escrow term.

xv. method of unwinding the escrow if the closing does not occur.

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b)  At least thirty (30) days prior to closing, the Closing Escrow Agent
    should execute the Escrow Instructions and return it to the PAE
    attorney.

c)  Prior to execution of documents, the owner must execute the Escrow
    Instructions. The unwind feature of the escrow instructions will
    have no value if the owner has not agreed in writing prior to
    closing.

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B.  **Managing Closing Document Execution**.

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1.  [PAE Attorney's Central Coordinating Role]{.underline}. The PAE
    attorney manages closing document execution and confirms that the
    appropriate parties receive, execute, notarize (as needed), and
    return all documents to the appropriate parties. All documents may
    be forwarded to the PAE, who in turn will ensure that the Closing
    Escrow Agent receives the documents in a timely manner. The
    exception to this rule is the existing mortgagee. In order to
    minimize confusion, the existing mortgagee is requested to forward
    all documents directly to the Closing Escrow Agent. The Closing
    Escrow Agent will coordinate with the PAE Attorney regarding
    documents requiring PAE administration.

2.  [Preparation, Execution and Distribution of Closing
    Documents]{.underline}. The Closing Document Checklist (Form 7.2)
    provides required standard form closing documents for most financing
    arrangements. (If a specific financing arrangement is not listed,
    contact OAHP HQ Closing for assistance.) The PAE Attorney prepares
    the M2M closing documents, reviews the documents for accuracy,
    completeness, compliance with the Official Term Sheet, and the
    Restructuring Commitment, arranges for PAE business staff and OAHP
    Preservation Office review of the documents; arranges for execution
    of the documents, reviews take-out financing loan documents for
    consistency with the Restructuring Commitment and coordinates the
    Closing Date and Closing structure with the Closing Parties.

3.  [Title Insurance]{.underline}. With respect to the status of title
    to a project, for review and certification purposes, the PAE and PAE
    Attorney may rely upon such title reports, title commitments, new
    title policies, or other endorsements to an existing title policy
    provided by the title company. See Title Instructions in Appendix F
    for specific title requirements.

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C.  **Review and Certification of Legal Documents**.

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1.  When the owner, new mortgagee and existing mortgagee have properly
    executed all relevant closing documents, the PAE Attorney must
    review them to ensure they are complete, have not been altered, and
    conform to the terms and conditions of the Official Term Sheet,
    Restructuring Commitment and Firm Commitment for FHA Insurance, if
    applicable. At least nine (9) days prior to closing, after the
    appropriate parties have executed the closing documents, and the PAE
    Attorney has approved them, the PAE Attorney should forward the
    partially-executed closing documents that require OAHP's execution
    to the OAHP Preservation Office with the following information:

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a)  Certification of Closing Documents (Form 7.3)

b)  Legal Opinion of Owner's Attorney (Appendix F)

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2.  [Review by OAHP Preservation Office]{.underline}. The OAHP
    Preservation Office staff should conduct a full detailed review of
    the documents to ensure that all appropriate documents are included
    (using the Closing Document Checklist Form 7.2) and all documents
    are consistent, comply with the approved deal as revealed by the
    Official Term Sheet Form 7.19 and Restructuring Commitment, and
    correct and complete and are properly executed.

3.  [Execution by OAHP Preservation Office]{.underline}. The OAHP
    Preservation Office Director should execute the appropriate closing
    documents as outlined in Form 7.2 Closing Documents Checklist, and
    as advised by the PAE Attorney.

4.  [Returning Documents to the Closing Escrow Agent]{.underline}. The
    OAHP Preservation Office Director should return the executed closing
    documents directly to the Closing Escrow Agent, or as instructed by
    the PAE Attorney, at least five (5) days prior to closing by
    overnight mail, and notify the PAE that this has been completed. The
    PAE Attorney should determine the logistics of this action based on
    the Closing Escrow schedule.

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D.  **Closing Escrow Agent Document Holding**. The Closing Escrow Agent
    captures all closing documentation from the PAE, the OAHP
    Preservation Office, and the existing mortgagee, whether or not the
    document requires recordation. The Closing Escrow Agent will capture
    all funds from applicable parties, disburse funds as instructed, and
    ensure the recordation of all necessary documents in the appropriate
    order. The Closing Escrow Agent will provide to the PAE all
    remaining unrecorded, executed documents to be filed in the
    appropriate closing dockets.

E.  **Setting Closing Date and HUD Funding Date**. The PAE, the title
    company, and the Closing Escrow Agent must coordinate with one
    another, as well as the OAHP Preservation Office, the OAHP Closing
    Coordinator, and any other interested parties, to set a closing
    date. At least thirty (30) business days prior to closing, the PAE
    should work with all parties to set a final date. In addition, when
    a 541(b) Claim payment is required, the PAE must coordinate with
    OAHP HQ Closing to obtain a slot on the funding calendar that will
    work with the schedule for document execution and recordation. The
    requested funding date must be included in the Partial Payment of
    Claim Package.

F.  **Transmitting Closing Information from the PAE to All Working
    Parties**. After coordinating reviews and establishing the closing
    date, the PAE should prepare and send a transmittal letter to all
    working parties. The letter should: 1) be sent within five (5) days
    of the final closing date; 2) advise that the closing documents are
    complete and conform to the Restructuring Commitment and the Firm
    Commitment (if applicable); 3) indicate the final date of closing;
    and 4) provide instructions for completing an escrow closing.

G.  **Recordation and Effective Date of Closing**.

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1.  [Recordation]{.underline}. The order of recordation should be:

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a)  Release of Regulatory Agreement;

b)  M2M Use Agreement;

c)  Section 236 Use Agreement, if there is no new take-out financing; if
    there's new take-out, record after the UCC for the new take-out
    financing.

d)  Subordination Agreement of Existing FHA-insured Mortgage (if loan
    modification);

e)  New First Mortgage, Modification of FHA-insured Mortgage, or
    Modification and Subordination of HUD-held Mortgage;

f)  New FHA First Mortgage Regulatory Agreement with M2M Rider;

g)  UCC Financing Statements for first Mortgage Note (recorded with
    appropriate governmental agency(ies))

h)  Mortgage Restructuring Mortgage/Deed of Trust with M2M Rider;

i)  Appropriate FHA Regulatory Agreement with M2M Rider for Mortgage
    Restructuring Mortgage;

j)  UCC Financing Statements for Mortgage Restructuring Note (recorded
    with appropriate governmental agency(ies))

k)  Contingent Repayment Mortgage with M2M Rider;

l)  Appropriate FHA Regulatory Agreement with M2M Rider for Contingent
    Repayment Mortgage;

m)  UCC Financing Statements for Contingent Repayment Note (recorded
    with appropriate governmental agency(ies))

n)  Release of existing Mortgage/Deed of Trust;

o)  Release of existing Security Agreement (if applicable);

p)  UCC Termination Statements

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2.  [Closing Completed]{.underline}. Closing is complete when the PAE
    attorney notifies OAHP HQ Closing that the Closing Escrow is closed
    out, all funds have been disbursed and a Final Settlement Statement
    and Form 7.21 have been provided to OAHP HQ Closing.

3.  [Immediate Closing Submissions to OAHP]{.underline} Immediately
    after closing (max 3 days), the Closing Escrow Agent and/or PAE must
    fax to OAHP HQ Closing a copy of the signed settlement statement,
    the endorsed first lien note, the M2M notes and mortgages, final
    Exhibit F, Form 7.16, W-9, and, if there is no take-out financing, a
    copy of the most recent tax bill.

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H.  **Endorsement for Full Mortgage Insurance under Section 223(a)(7)**.

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1.  [Conditions for Endorsement]{.underline}. The OAHP Preservation
    Office Director will endorse the Note for full mortgage insurance
    when all of the following have occurred.

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a)  All required Section 223(a)(7) insured mortgage closing documents,
    and all M2M required closing documents to consummate the
    restructuring transaction, have been properly executed, notarized,
    as needed, and recorded.

b)  All of the conditions of the Firm Commitment have been satisfied.

c)  All of the conditions of the Restructuring Commitment have been
    satisfied.

d)  The mortgagee has paid the initial mortgage insurance premium, equal
    to the first year's payment, in the case of Section 223(a)(7)
    mortgage insurance.

e)  Request for Final Endorsement of Credit Instrument (FHA Form 92023)
    has been executed by the new mortgagee and mortgagor and delivered
    with the Note to be endorsed for FHA mortgage insurance. The
    mortgagee must make appropriate arrangements for handling the
    original promissory Note, both before and after endorsement.

f)  Title Policy for the Section 223(a)(7) insured mortgage has been
    issued as per the Title Insurance Instructions set out in Appendix
    F.

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2.  [Required Actions Immediately Following Endorsement]{.underline}.
    Immediately following endorsement for full FHA mortgage insurance,
    the OAHP Preservation Office should:

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a)  follow the established procedures for paying mortgage insurance fees
    and premiums (see Section 7-6.B.2.a.);

b)  fax a copy of the endorsed Note to the insured mortgagee and deliver
    the original endorsed Note directly to the insured mortgagee in
    accordance with the arrangements made in advance by the mortgagee.

c)  forward the Closing Memorandum (HUD Form 290) and backup
    documentation to the OAHP Closing Specialist in OAHP HQ (see Chapter
    8, Internal Document Distribution and OPG Appendix N (for 290
    instructions))

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I.  **Endorsement under Section 542(c) HFA Risk-Sharing or Section
    542(b) GSE Risk-Sharing**. If the new mortgagee is providing
    refinancing under the Section 542(c) HFA Risk-Sharing program, the
    HFA will present to the local Multifamily Hub or Program Center for
    endorsement at closing: (1) the closing Risk-Sharing docket, and (2)
    evidence that the initial mortgage insurance premium has been paid
    to the Mortgage Insurance Operations Branch in the FHA Comptroller's
    Office in headquarters. Under Section 542(b) GSE Risk-Sharing
    program, Government-sponsored enterprises (GSEs) that have entered
    into Risk-Sharing Agreements with HUD may reinsure project mortgages
    and present mortgage notes to the Multifamily Hub or Program Center
    for endorsement after the loan has closed. GSEs are prohibited from
    refinancing their own loans without prior HUD approval.

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1.  [Conditions for Endorsement]{.underline}. If the Multifamily Hub or
    Program Center determines that all documentation and certifications
    are complete and in conformance with the terms and conditions of the
    Restructuring Commitment and Lender's Risk Share Commitment, the
    Multifamily Hub or Program Center Director will endorse the Note for
    mortgage insurance and forward it to the Closing Escrow Agent for
    disbursement.

2.  [Required Actions Immediately Following Endorsement]{.underline}.
    Within five (5) days of escrow closing, the PAE must provide
    complete closing documents to the Multifamily Hub or Program Center
    with jurisdiction. The Multifamily Hub or Program Center delivers
    the completed closing memorandum (HUD Form 290) package to the
    Mortgage Insurance Operations Branch in the FHA Comptroller's Office
    in headquarters (see Chapter 8 Internal Documentation Distribution).

## Section 221(d)(4) Substantial Rehabilitation or Section 223(f) Refinancing 

Section 7-10

A.  **General**. The closing process for assets with new FHA insured
    loans under Section 221(d)(4) and Section 223(f) mortgage insurance
    follows the closing guidance above, with the exception of the
    process for closing the first mortgage. The OAHP Preservation
    Office, Multifamily Hub or Program Center, PAE, new mortgagee, and
    owner will follow HUD's current procedures for closing on a first
    mortgage with a Firm Commitment for FHA mortgage insurance under
    Section 221(d)(4) or Section 223(f) with the exception that the loan
    closes concurrently with the Mark-to-Market closing. This Operating
    Procedures Guide does not include detailed instructions for the
    first mortgages under these sections.

B.  **Document Execution**. The PAE attorney and business staff will
    review all mortgage Restructuring documents and ensure consistency
    between the terms of the FHA mortgage insurance closing and the
    terms of the Restructuring Commitment before submitting them to the
    OAHP Preservation Office.

C.  **Internal Control**. The internal control process will be the same
    as with other first mortgage financing alternatives. The Section
    221(d)(4) and 223(f) closings should be simultaneous with the
    Mark-to-Market closing. The closing escrow instructions should
    include the needs of all parties to ensure an accurate, smooth
    closing. All funds should flow through the M2M Closing Escrow Agent,
    including the full loan disbursement from the new FHA insured
    lender. The HUD attorney closing a Section 221(d)(4) or Section
    223(f) loan handles only the new insured take-out -- the PAE is
    still responsible for closing the restructuring and must coordinate
    the entire process. Contact OAHP HQ Closing if there are questions
    regarding roles and responsibilities.

## Section 8 HAP Contract

Section 7-11

> The OAHP Preservation Office is responsible for preparation of the
> appropriate Section 8 HAP Contract, coordinating contract execution,
> and forwarding the contract to the HUD Multifamily Hub or Program
> Center for execution. Reservation of Section 8 funds, data tracking,
> and the many details necessary to initiate and fully implement the
> Section 8 contract are described in other guidance, and must be
> coordinated between the OAHP Preservation Office, the PAE, and the
> Multifamily Hub or Program Center Please contact the appropriate OAHP
> Preservation Office for more information.

## HUD-Held Notes

Section 7-12

A.  **General**. HUD-held notes are formerly FHA-insured notes, which
    have already been through the FHA claim process, and are now assets
    owned by HUD. A M2M restructuring of a HUD-held note does not
    require a partial payment of claim at closing. A Closing Escrow
    Agent is still required to act as third party fiduciary. As
    mortgagee, HUD must issue a final Payoff Demand. The Payoff Demand
    must be fully satisfied through the Restructuring. The OAHP
    Preservation Office Director must receive required PAE Attorney
    Certifications and must authorize closing by reviewing for accuracy,
    comparing with the payoff demand to ensure the existing obligation
    will be fully resolved and assuring all necessary funds are in the
    closing escrow. Preservation Office Directors must notify the HQ
    Closing Department by phone and by email when they have the signed
    attorney certification in hand (the Form 7.14) and are authorizing
    the closing. Until this step is completed, the closing is not
    official. If the closing date is delayed, additional per diem
    interest will be due to HUD and could result in a shortfall at the
    closing table. Closing guidance in the balance of Chapter 7 is
    applicable for HUD-held loans, as modified in this section.

B.  **Closing Escrow Agent**. The Closing Escrow Agent is a vital part
    of this closing process and acts as the third party fiduciary (not
    the PAE nor the Owner). The Closing Escrow Agent has the same
    responsibilities in the closing as it would for any other closing. A
    final Settlement Statement is required and must provide sufficient
    information to resolve the HUD payoff demand and any/all funds in
    the escrow (see comment in A. above regarding shortfalls if the
    closing date is delayed). The PAE Attorney and Closing Escrow Agent
    must sign the Settlement Statement. See Section 7-7 for guidelines
    on preparing the Settlement Statement.

C.  **Multifamily Notes Servicing**. D Payoff Demand. Since HUD acts as
    the lender on existing HUD-held notes, the Preservation Office
    Closing Coordinator must request and receive a final and unqualified
    Payoff Demand from Multifamily Notes Servicing via fax (Debbie
    Courtright, Multifamily Notes Servicing Branch Manager, Fax 202 708
    619-8408) prior to closing. In addition, Notes Servicing:

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1.  verifies current escrow balances,

2.  permits no escrow disbursements without prior OAHP HQ Closing
    approval (after issuance of Payoff Demand letter), and

3.  disburses funds from existing HUD-held escrows to set up new
    post-closing escrows (if necessary), based on deal specific
    instruction from HQ Closing.

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D.  **Legal Documentation**. The legal documentation, title insurance
    and title requirements are the same as a restructuring requiring a
    claim payment. The Form 7.2 Closing Document Checklist is provided
    to assist in determining appropriate documentation in various
    financing alternatives.

E.  **PAE Attorney Certifications**. The PAE attorney provides to the
    OAHP Preservation Office Director all four Certifications to direct
    the Closing sequence (when the Restructuring Commitment is ready to
    execute, when the legal documents are ready to execute, when the
    closing is ready to consummate and when the closing is complete).

F.  **HUD-Held Closing Package and Form 7.12**. A Form 7.12 HUD-Held
    Restructuring Summary (the counterpart to the Form 7.5 Claim Payment
    Summary), Restructuring Commitment with Exhibit A and Exhibit F, HUD
    Payoff Statement, the Form 7.4a HUD-Held or Non-Claim/Non-HUD-Held
    Restructuring Summary Checklist (the counterpart to the Form 7.4
    Claim Payment Checklist) and Form 7.7 Closing Parties Checklist must
    be prepared and submitted by the PAE to the OAHP Preservation Office
    Director for execution prior to closing. The Preservation Office
    staff forwards the executed Closing Package to HQ Closing.

G.  **Upon receipt of the Certification of PAE Attorney Form 7.14**, the
    Preservation Office Director must verify that the transaction is
    ready to close and contact the HQ Closing Department Manager by
    phone and email, and trigger the closing (same process as if a claim
    were involved).

H.  **Projects with a HUD-Held and HUD Insured Loan**. Projects with
    more than one loan, where at least one loan is still HUD insured and
    one is HUD-held, require an ad hoc edit to the model. Contact the
    Resource Desk for assistance. Generally, in such a situation, the
    project number assigned to the MRN and CRN should match the
    previously HUD-held FHA project number. Contact HQ Closing for
    further assistance.

I.  **FHA-Insured Take-out Financing**. If the take-out financing is a
    FHA insured Section 223(a)(7) loan, the processing is the same as
    any other Section 223(a)(7). The PAE Attorney will provide a
    Certification Form 7.8, and the Preservation Office Director will
    trigger the closing by contacting the HQ Closing Department Manager
    and triggering the closing, just as if a claim is involved.

J.  **Payments to HUD**. When the existing loan is HUD-held, in addition
    to routine payments (of excess funds) to HUD from a Closing Escrow,
    the Closing Escrow Agent must disburse to HUD any funds that are to
    be applied to the existing HUD-held Note or to fund new HUD-held
    escrows (if no take-out financing -- HUD is in first position after
    closing again). Those payments must be sent to the HUD Multifamily
    Notes Servicing Branch. Refer to paragraph 7-6E for address and
    wiring instructions.

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1.  A transmittal memo must accompany wires and checks, identifying the
    original FHA project name and number, the reason for the payment and
    how funds are to be applied (M2M restructuring, apply to the
    existing HUD-held debt).

2.  The OAHP PO Closing Coordinator is responsible for submitting a
    completed Form 7.12 that provides the M/F Notes Servicing Branch all
    required information to resolve the HUD-Held obligation and address
    application of all existing escrows being held in trust for the
    owner. To do this accurately, the Form 7.12 and Exhibit F Sources
    and Uses must reflect both the existing and new escrow account
    balances post closing.

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K.  **Disbursements by HUD from Existing HUD-held Escrows**. Application
    of any existing HUD-held escrow balances must be addressed by the
    PAE in condition #38 of the Restructuring Commitment (and addressed
    in Closing Escrow Instructions and in Exhibit F Sources and Uses).
    Refer to paragraph 7-6A.3. above. When the existing loan is
    HUD-held, the PAE should generally include the language in #38A.i.of
    the RC (Escrows to be Deducted from Payoff Amount).

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1.  After the M2M closing, OAHP HQ Closing staff will review the closing
    escrow agent's final Settlement Statement and provide specific
    instructions to HUD for application of the existing escrows. Often
    the total of the new loan take-out and owner contribution (in
    Sources) are adequate to fund all the new escrows and funds will be
    disbursed to the new lender from the closing escrow agent for those
    escrows. If HQ Closing determines additional funds are needed, will
    instruct HUD how existing escrow balances are to be disbursed to the
    new lender and how remaining funds (if any) are to be applied.
    Generally, if there are funds remaining, they are applied to reduce
    the write off of the existing HUD-held note.

2.  It is essential that Exhibit F Sources and Uses reflect both
    existing (Sources) and new (Uses) escrow balances so funds can be
    properly reconciled.

3.  Sometimes new lenders may insist they want the existing escrowed
    funds be deposited in the closing escrow account and disbursed at
    Closing to prevent the new escrows from not being fully funded. We
    do not recommend this for HUD-held loans. Such requests must
    generally be submitted at least one week in advance of closing in
    order for the funds to be received on the scheduled closing date and
    it's not uncommon (with M2M Closings), for there to be changes in
    the identified closing escrow agent (agent name, account number,
    etc.) immediately prior to closing. This type of change could be
    very problematic if the escrow funds have already been sent (to the
    wrong place), and could delay closing. PAEs need to explain these
    issues and concerns to new lenders.

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L.  **Closing Wrap-Up**.

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1.  The effective date of closing will be the date the documents have
    been executed and recorded (see 7-9G), the title policy(ies) has
    been issued, funds have been captured and disbursed by the Closing
    Escrow Agent and HQ Closing has been notified by phone and email.
    Since a claim payment is not required, a slot on the funding
    calendar is not required. The PAE must request a revised payoff from
    HUD if the closing date slips (will affect per diem interest and
    possibly other costs).

2.  [Closing]{.underline} Completed Closing is complete when the PAE
    attorney notifies OAHP HQ Closing that the Closing Escrow is closed
    out, all funds have been disbursed and a Final Settlement Statement
    and Form 7.21 have been provided to OAHP.

3.  [Immediate Closing Submissions to OAHP.]{.underline} Immediately
    after closing (max 3 days), the Closing Escrow Agent and/or PAE must
    fax to OAHP Closing a copy of the signed settlement statement
    documentation (see 7-7), the endorsed first lien note, the M2M notes
    and mortgages, final Exhibit F, Form 7.16, W-9, and, if there is no
    take-out financing, a copy of the most recent tax bill.

## Non-HUD-Held/Non-541(b) Restructurings -- Full Restructurings with no 541(b) Payment

Section 7-13

A.  **General**. For transactions with existing FHA-insured Notes that
    will not require a Section 541(b) Payment, the PAE business staff
    and PAE attorney should coordinate the transaction with OAHP HQ
    Closing. For example, a large balance in the residual receipts
    account (available to reduce the Section 541(b) Payment amount when
    it is part of a M2M FULL debt restructuring) may eliminate the
    541(b) Payment entirely, instead of just reducing it.

> The closing requirements for these are the same as HUD-held and 541(b)
> transactions, with the exception of the closing authority. Closing
> guidance in the balance of Chapter 7 is applicable, as modified in
> this section. Prior to closing, the PAE must provide to the OAHP
> Preservation Office Director for execution and submission to HQ
> Closing to request authorization to close the transaction: Form 7.13
> Non-HUD-held / Non-PPC Closing Summary (and attachments), and Form
> 7.4a HUD-Held or Non-Claim/Non-HUD-Held Restructuring Summary
> Checklist.

B.  **Excess Residual Receipts and/or other escrows.** In some
    instances, there will be excess funds in the residual receipts
    and/or reserve for replacement account after restructuring.
    Disbursement of those excess reserve funds must be addressed in the
    Restructuring Commitment and Closing Escrow Instructions. If the RC
    requires payment of the funds to HUD, the Closing Escrow Agent
    should disburse in accordance with the instructions in paragraph
    7-6E.except that the transmittal should indicate that the funds are
    to be applied to either:

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1.  HUD's Miscellaneous Income Account when the project is under the New
    Section 8 Regulations (New Reg) for Residual Receipts (that would
    belong to HUD at HAP expiration).

2.  The MRN when the project is under the Old Section 8 Regulations (Old
    Reg) for Residual Receipts (that would belong to the owner at HAP
    expiration).

3.  Refer to the Resource Desk for questions regarding Old Reg/New Reg
    Residual Receipts.

## Business Forms, Legal Forms and Appendices 

Section 7-13

**Chapter 7 Business Forms**

1.  Transmittal Letter from PAE or PAE Attorney to Owner with Closing
    Instructions

2.  Closing Documents Checklist

3.  Certification of Closing Documents from PAE Attorney to OAHP
    Preservation Office Director

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3.  Certification of Transfer of Physical Asset Documents from PAE to
    OAHP Preservation Office Director

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4.  Claim Payment Checklist

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4.  HUD-Held or Non-Claim/Non-HUD-Held Restructuring Summary Checklist

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5.  Claim Payment Summary

6.  Application for Claim Payment

7.  Closing Parties Checklist

8.  Certification of Closing Attorney -- with 223(a)(7) Take-out
    (execute Form 7.11 or 7.14 in addition, as appropriate)

9.  Notification Letter from PAE to Existing Mortgagee

10. Reserved

11. Certificate of Closing Attorney --with 541(b) Payment (execute 7.8
    in addition if 223(a)(7) Take-out)

12. HUD-Held Closing Summary

13. Non HUD-Held/Non-PPC Closing Summary

14. Certification of Closing Attorney - No 541(b) Claim (execute 7.8 in
    addition if 223(a)(7) Take-out)

15. Authorization for Write-Off of M2M Notes and Release of Legal
    Documentation (OPG Appendix C)

16. Certification of Mortgagor Information

17. Docket Review Checklist

18. Authorization for Assignment of M2M Notes (OPG Appendix C)

19. Official Term Sheet -- located in Underwriting Model

20. Reserved

21. Transmittal and Certification of Interim/Final Settlement Statement
    and Closing Escrow Instructions

**List of Legal Forms**

For a complete list of Legal Forms, see Form 7.2 Closing Document
Checklist in Appendix F.

**Appendices**

Appendix C addresses sales to qualified non-profits and related
forgiveness or assignment of M2M debt.

Appendix D contains HUD requirements for TPAs

Appendix F contains the following information:

Guide to PAE Attorney - Closing Documentation

Title Instructions

Mark-to-Market Closing Checklist for Section 223(a)(7)

Standard Form Legal Documents (available on the OAHP web site)

Appendix N describes the HUD requirements for processing a Section
223(a)(7) FHA-Insured Loan

Appendix P addresses requirements when a project has existing Flexible
Subsidy Loans including subordination issues to be dealt with at
Closing.

Appendix Q describes the requirements for processing IRP re-use for a
236 project and includes language for the Restructuring Commitment and
documenting the re-use.

Appendix R describes the requirements for processing a M2M project when
new sources of funds are brought to the deal, generally to achieve a
greater level of up-front rehab than possible under a standard M2M
transaction. These transactions typically involve multiple funding
sources with special conditions for funding approval. These conditions
must be reviewed and addressed early as they can affect the M2M Closing.
Early coordination between the PAE Closing Attorney, OAHP Closing
Coordinator, and owner and lender attorneys is essential.