4435.01 REV-1

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CHAPTER 5

COST CERTIFICATION

5-1. PROJECTS THAT MUST CERTIFY. Cost certification is required

by The National Housing Act and Regulations for all insured

multifamily projects, except for projects insured under:

Section 213 (Sales Type), Section 213(i) Existing, Section

221(h) Rehabilitation, Section 223(f) Refinance where the

mortgage is 70 percent or less of value, Section 235(j),

and Section 810(g).

5-2. PURPOSE FOR CERTIFICATION is to establish the mortgagor\'s

actual total costs, including contractor\'s cost, to

establish the \"maximum insurable mortgage\" for final

closing.

5-3. CERTIFIABLE COSTS are those costs that have been paid in

cash or will be paid in cash within 45 days of final

closing, except:

A. Land Value included in the mortgage is certifiable,

B. General Overhead is certifiable whether or not paid in

cash, and

C. BSPRA is cost certifiable whether or not paid in cash,

where there is an identity of interest between the

mortgagor and contractor.

5-4. TYPES OF COST CERTIFICATION.

A. Standard or \"Long Form\" Certification is required,

except for projects permitted to use the \"simplified\"

cost certification, and for certification of projects

insured under Section 207 or Section 232 pursuant to

Section 223(f).

B. Simplified Certification is restricted to the

following:

1\. Projects involving 40 or less units of proposed

construction or substantial rehabilitation,

exclusive of projects insured under Section 207,

2\. Section 220(h), improvement loans of \$200,000 or

less, and

3\. Condominium projects (Section 234), where the

project mortgage is to be terminated at completion

or final closing with conversion to individual unit

ownership.

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4435.01 REV-1

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(5-4) C. Section 223(f) Certification is required for all

projects insured under Section 207 or Section 232

pursuant to Section 223(f), except that certification

is not required for refinance transaction projects,

where the mortgage is 70 percent or less of value.

D. Section 223(f) Supplemental Certification is required

for projects identified in paragraph C. above, where

completion of repairs is permitted after closing.

5-5. ENTITIES THAT MUST CERTIFY.

A. Mortgagor must cost certify for all projects, except

those exempted by law and regulations. See paragraph

5-1 above for exempted projects.

B. Contractor must cost certify where:

1\. The contractor has an identity of interest with the

mortgagor, whether such identity of interest

existed before initial closing (for insured

advances projects) or issuance of the firm

commitment (for insurance upon completion

projects), or the identity of interest developed

after those dates; and/or

2\. The contractor used the Construction Contract-Cost

Plus, Form HUD-92442A, whether or not any identity

of interest with the mortgagor existed or came into

being.

C. Subcontractor at any tier, equipment lessor, material

supplier, and manufacturer of industrialized housing

must cost certify where:

1\. The total of all subcontracts, purchases and leases

is more than .5 percent of the mortgage, and

2\. An identity of interest exists or comes into being

between such subcontractor, equipment lessor,

material supplier, or manufacturer of

industrialized housing and either:

a\. The mortgagor, or

b\. The contractor, where the contractor must cost

certify.

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4435.01 REV-1

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(5-5) 3. Identities of Interest are defined by Handbook

4430.1 REV-1, Appendix 8, Amendment To The

Construction Contract To Identify Identities of

Interest Between Owner/Contractors/Architect.

5-6. SEQUENCE OF EVENTS.

A. Notification of Pre-Cost Certification Conference.

Require the Mortgage Credit Branch to notify the

mortgagee and mortgagor, and the Cost Analyst to notify

the contractor when the project is 80 percent complete.

B. Conduct of Conference is the joint responsibility of

the assigned Mortgage Credit and Cost Analysts and

should be held before the project is 90 percent

complete. See Handbook 4470.1 REV-2, Chapter 11 for

detailed instructions.

C. Cut-off Date Established for computation of the cost

certification.

D. Submission and Approval must occur before final

closing, except that the Section 223(f) supplemental

cost certification is not required until completion of

repairs deferred until after closing.

5-7. CUT-OFF DATE. Refer to Handbook 4470.2 REV-1, Chapter 4,

for detailed instructions.

A. Date For Determining Actual Costs is the date the HUD

representative signs the final HUD Representative\'s

Trip Report, Form HUD-5379, provided that the trip

report is subsequently endorsed by the Chief Architect.

Construction must be complete, except for acceptable

items of delayed completion.

1\. The mortgagor has the option to include in the cost

certification the cost of interest, taxes,

insurance, mortgage insurance premiums and finance

fees incurred up to 60 days beyond this date. The

date selected by the mortgagor is the \"cut-off

date\" for the costs of interest, taxes, mortgage

insurance premiums and finance fees.

2\. The mortgagor\'s balance sheet and operating

statement date must agree with the selected cut-off

date.

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4435.01 REV-1

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(5-7) B. Administrative Completion Date may be established by

the Office Manager for any project where the monthly

inspection reports show project work 95 percent or more

complete and progress after reaching 95 percent

completion is less than 2 percent in any month.

1\. The administrative completion date may be used to

prevent the unnecessary accumulation of soft costs

where there is undue completion delay near the end

of construction.

2\. The administrative completion date becomes the

effective date for cost certification, except that

the cost of interest, taxes, insurance, mortgage

insurance premiums and finance fees incurred up to

60 days beyond this date may be included at the

option of the mortgagor. See paragraph A.1. above.

C. Notification Letter. Comply with the following whether

the date for determining actual costs is established in

accordance with paragraph A. or B. above.

1\. Notify the mortgagor, contractor and mortgagee in

writing of the date for the determination of actual

costs. See Handbook 4470.2 REV-1, paragraph 4-2.B.

for the provisions that must be included in the

letter.

2\. Distribute copies of the notification letter to the

Washington Docket, Field Office Docket, Mortgage

Credit File and Closing Attorney\'s File.

5-8. SUBMISSION DATE for cost certification should be within 30

to 45 days after the cut-off date and not less than 30 days

before the desired final closing date.

5-9. MORTGAGOR\'S SUBMISSION. See HUD Handbook 4470.2 REV-1 for

detailed instructions.

A. Required Forms.

1\. Form HUD-92330, Mortgagor\'s Certificate of Actual

Cost is required in all cases except for projects

insured pursuant to Section 223(f).

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4435.01 REV-1

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(5-9) 2. Form FHA-2205A, Mortgagor\'s Certificate Of Actual

Cost (Section 207 Pursuant To Section 223(f)) is

required for a project insured under either Section

207 or Section 232 pursuant to Section 223(f).

Cost certification is not required for a project

insured pursuant to Section 223(f), where it is a

refinance transaction and the mortgage is 70

percent or less of value.

B. Supporting Documentation For Standard Certification.

1\. Form HUD-92330-A completed by the contractor,

subcontractors, equipment lessors, material

suppliers and manufacturers of industrialized

housing, where such entities must cost certify (see

paragraphs 5-5.B. and C. above), except that these

entities must submit Form HUD-92330-A(LI), instead

of Form HUD-92330-A, for manufactured home parks.

2\. Mortgagor\'s audited balance sheet dated as of the

cut-off date.

3\. Mortgagor\'s audited operating statement dated as of

the cut-off date, where occupancy occurred before

the cut-off date, or the auditor\'s statement that

occupancy did not occur before the cut-off date.

4\. Report by an independent Certified Public

Accountant or an independent Public Accountant

(accountant) including the accountant\'s opinion of

audit (see Handbook I.G. 2000.4, Chapter 6)

supporting:

a\. Form HUD-92330, Mortgagor\'s Certificate of

Actual Cost, including the mortgagor\'s balance

sheet and operating statement,

b\. Form HUD-92330-A, or Form HUD-92330-A(LI),

Contractor\'s Certificate of Actual Costs,

submitted by the contractor.

c\. Form HUD-92330-A or Form HUD-92330-A(LI),

Contractor\'s Certificate of Actual Costs,

submitted by any subcontractor, equipment

lessor, materials supplier, or manufacturer of

industrialized housing.

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4435.01 REV-1

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(5-9) C. Supporting Documentation For Simplified Certification

is the same as for the standard certification, except:

1\. The mortgagor\'s balance sheet and operating

statement need not be audited, and

2\. An accountant\'s supporting report, including

accountant\'s opinion of audit, is not required for

Form HUD-92330, Mortgagor\'s Certificate of Actual

Costs, including the mortgagor\'s balance sheet and

operating statement, nor for any Form HUD-92330-A,

Contractor\'s Certificate of Actual Costs, required

from the contractor, or any subcontractor,

equipment lessor, materials supplier, or

manufacturer of industrialized housing.

D. Supporting Documentation For Section 223(f)

Certification. Documentation of the type listed for

paragraphs B. and C. above is not required in support

of the certification or supplemental certification for

projects insured pursuant to Section 223(f). See

Handbook 4470.1 REV-2, Chapter 19, for detailed

instructions for projects insured pursuant to Section

223(f).

5-10. CONTRACTOR\'S AND SUBCONTRACTORS\' SUBMISSIONS. See

paragraphs 5-5.B. and C. for when the contractor, or a

subcontractor, equipment lessor, material supplier, or

manufacturer of industrialized housing must cost certify,

and see Handbooks 4450.1 REV-1, and 4470.2 REV-1 for

detailed instructions.

A. Contractor\'s Certificate of Actual Costs.

1\. The contractor must submit Form HUD-92330-A for

projects with structures where the contractor must

cost certify (see paragraph 5-5.B.). Require a

separate Form HUD-92330-A for rehabilitation work

and new construction on rehabilitation projects

that have both new construction and rehabilitation

elements.

2\. The contractor must submit Form HUD-92330-A(LI)

instead of Form HUD-92330-A, for mobile home parks

where the contractor must cost certify.

3\. Subcontractors and others (see paragraph 5-5.C.)

must submit Form HUD-92330-A for projects with

structures, or Form HUD-92330-A(LI) for

manufactured home parks, where they must cost

certify.

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4435.01 REV-1

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(5-10)B. Accountant\'s Report, including accountant\'s opinion of

audit, must support the Contractor\'s Certificate of

Actual Costs submitted by the contractor or any

subcontractor, equipment lessor, material supplier, or

manufacturer of industrialized housing. See Handbook

IG 2000.4 for detailed instructions.

5-11. COST CERTIFICATION REVIEW. See Handbooks 4470.1 REV-2,

Chapter 11; 4450.1 REV-1, Chapter 6; 4470.2 REV-1; IG

2000.4 and 4480.1 for detailed instructions.

A. Architecture and Cost must:

1\. Review cost certifications where required from the

contractor, or any subcontractor, equipment lessor,

material supplier or manufacturer of industrialized

housing.

2\. Disallow contractor\'s overhead and profit where the

fifty/seventy-five percent rule is violated. For

BSPRA projects, only disallow general overhead.

See Handbook 4450.1 REV-1, Chapter 6, for detailed

information.

3\. Disallow profit and overhead for subcontractors,

equipment lessors, material suppliers, and

manufacturer\'s of industrialized housing where:

a\. There is an undisclosed identity of interest

with the mortgagor or contractor and for which

HUD did not approve the overhead and profit

before the start of work, and/or

b\. A \"paper conduit\" arrangement exists. See

Handbook 4450.1, Chapters 2 and 6, for detailed

information.

4\. Use Form FHA-2331-B, Cost Certification Worksheet,

to review the Mortgagor\'s and/or Contractor\'s Cost

Breakdown, Form HUD-2328.

5\. Complete Form HUD-92331, Summary of Cost

Certification Review, and give an opinion on all

items of cost claimed on Form HUD-92330-A, and any

cost on Form HUD-92330 needing Cost review, e.g.

other fees.

B. Mortgage Credit Examination must determine the maximum

insurable mortgage based on actual cost of the

completed project by:

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4435.01 REV-1

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(5-11) 1. Reviewing Form HUD-92330, Mortgagor\'s Certificate

of Actual Cost,

2\. Completing Form FHA-2331-A, Cost Certification

Review Worksheet, including Cost findings reported

by the Cost Analyst on Form HUD-92331, and

3\. Computing the maximum insurable mortgage on Form

FHA-2580, Maximum Insurable Mortgage, for all

projects except those pursuant to Section 223(f).

C. Director of Housing Development must:

1\. Require review staff to:

a\. Carefully review the certifications for:

compliance with applicable criteria,

mathematical accuracy of the certifications,

and documentation to support the certified

amounts for interest, taxes, property

insurance, MIP, title and recording, financing

fees, legal, organizational and audit fees,

offsite costs, and other fees,

b\. Require supplemental information or cost

breakdowns where required for clarification of

any part of the certification, and

c\. Question the existence of any identity of

interest subcontractor, equipment lessor,

materials supplier, or manufacturer of

industrialized housing.

d\. Attempt to resolve problems by telephone, but

where required, send a letter to the mortgagor

with copies to its accountant, the mortgagee,

and where applicable to the contractor and its

accountant within 5 working days of discovery.

The letter must identify the deficiencies and

required information.

e\. Advise you of the estimated time to resolve any

problems and of resultant delays they may cause

in completing certification review.

2\. Require completion of the certification review with

tentative disallowance of disputed costs, where

resolution of the issues may lead to protracted

delays.

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4435.01 REV-1

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(5-11) 3. Recommend upon your acceptance of the certification

reviews, that the Field Office Manager execute Form

FHA-2580, Maximum Insurable Mortgage. Forward the

original copy of Form FHA-2580 to the mortgagee

with an executed copy for the mortgagor. Where

tentative disallowance of disputed costs are

involved:

a\. Only issue Form FHA-2580 where the combined

effect of tentative and firm disallowances will

not decrease the mortgage, and

b\. State in the covering letter of transmittal of

Form FHA-2580:

1\) The disallowances made and the information

required for their resolution,

2\) That items tentatively disallowed will

have no effect on the maximum insurable

mortgage if later approved, but could

cause a recomputation of the mortgagor\'s

initial equity investment, and

3\) Establish a 30-day deadline for receiving

the requested information for the purpose

of issuing a revised Form FHA-2580,

Maximum Insurable Mortgage.

4\. Recommend endorsement of the permanent mortgage in

the amount shown on Form FHA-2580 to the Field

Office Manager.

5\. Where Form FHA-2580 shows a lower mortgage than

endorsed at initial closing:

a\. The mortgage must be endorsed at the lower

amount, or

b\. Prepayment required as provided by the

Agreement and Certification, Form FHA-3306 or

Form FHA-3306A.

c\. Where the mortgage reduction is less than one

month\'s scheduled principal payment, place it

in the project\'s reserve for replacement

account rather than requiring prepayment.

6\. Recover from the contractor or surety any excess

payments to the contractor shown by the cost

certification.

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4435.01 REV-1

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5-12. DOCUMENT DISTRIBUTION.

A. Form FHA-2580, Maximum Insurable Mortgage.

1\. Mortgagee - original and one executed copy.

2\. One executed copy to each of the following:

Closing Attorney, Mortgage Credit Control File,

Washington Docket, Field Office Docket, Field

Office Valuation Data Bank.

B. Cost Certification Documents. Original documents filed

in the Washington Docket and one copy in the Field

Office Docket.

5-13. IG AUDIT. Request the Regional Inspector General for Audit

to audit the mortgagor\'s and/or contractor\'s books where

apparent discrepancies appear to arise from other than

inadvertent error, or creditable misinterpretation of

applicable criteria. Do not issue Form FHA-2580, Maximum

Insurable Mortgage, before completion of an IG audit

initiated before its issuance. An audit must also be

requested for any indicated fraud or material

misrepresentation detected after issuance of Form FHA-2580.

5-14. COST CERTIFICATION INCONTESTABILITY. After HUD approves

the certifications, and issues Form FHA-2580, Maximum

Insurable Mortgage, they are final and incontestable unless

there is fraud or material misrepresentation by the

mortgagor, general contractor, or subcontractors.

5-15. POST CLOSING ESCROWS must be set up at final closing to pay

all \"to be paid in cash items\" identified on Form HUD-92330,

Mortgagor\'s Certificate of Actual Cost, and debts to

third parties who made the original disbursement for an

item listed as paid on Form HUD-92330. See Handbook 4470.1

REV 2.

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6/93 5-10