4700.1 REV-1

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CHAPTER 2. DISBURSEMENT OF ELIGIBLE LOANS

2-1. GENERAL. This chapter provides the lending institution with the

policy and required documentation in connection with the

disbursement of eligible loans for each property improvement

loan program.

2-2. PROTECTIVE INSURANCE. Lenders attention is called to the

statutory or regulatory restrictions, Federal or State, which

may affect the handling of insurance in their respective

jurisdictions. While HUD has no objection to lending

institutions selling credit life or other types of protective

insurance to borrowers under the Title I program, the purchase

of such insurance shall be a purely voluntary basis, and the

cost of of the insurance shall not be incorporated in the net

proceeds of the loan nor be added to the maximum permissible

financing charged. In order to permit the borrower to notify

the lender of any questions or misunderstandings relating to the

protection to be provided, the lender may include proper

confirmation of the premium charge for the protection insurance

in the \"Advance Notice of Approval\" forwarded to the borrower.

The lender may bill the borrower for the premium, if desired,

on an installment basis; however, the payment coupon should

clearly segregate the loan and insurance premium payment.

2-3. FLOOD INSURANCE. Flood insurance coverage in an amount at least

equal to the value of the loan advance or the available limits

of coverage, whichever is less, is required as a condition for

obtaining a loan for the repair, improvement, or construction of

a structure located in an area identified by the Secretary as an

area having special flood hazards.

a\. You cannot obtain flood insurance under the National Flood

Insurance Program unless the community is participating.

You are permitted to obtain private flood insurance provided

the coverage meets or exceeds the National Flood Insurance

requirements.

SECTION 1 - TITLE I PROPERTY IMPROVEMENT LOANS

2-4. ELIGIBLE IMPROVEMENTS. The following basic policy may be

supplemented by a specific ruling as to any particular project

or item about which there may be doubt on the part of the

lending institution, upon application to the Director, Office of

Title I Insured Loans, Department of Housing and Urban

Development, Washington, DC 20410. Requests for rulings should

be supported, if possible, by descriptive or illustrated

literature in the case of a specific individual item as well as

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Page 2-1 9/83

HUD-Wash., D. C.

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4700.1 REV-1

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by plans and specifications where general projects involving

various improvements are contemplated.

2-5. INELIGIBLE IMPROVEMENTS. Lending institutions must review

carefully the partial list of ineligible improvements given in

Section 201.7 of the HUD Regulations. The omission of any item

from this list should not be construed as rendering such omitted

item eligible for financing. Any improvements made prior to the

loan approval are ineligible for financing.

2-6. MAXIMUM LOAN AMOUNTS are changed periodically to conform with

economic conditions. At the time a loan is made, lenders must

make certain that the loan does not exceed the maximum allowable

amount as set forth in the HUD Title I regulations.

2-7. EXISTING STRUCTURES - CLASS 1 LOANS. The structure to be

improved must exist as a completed building that is occupied or

used, was formerly occupied or used, or has been made ready for

occupancy or use. In the case of a new residential structure,

the building must be completed and occupied, and if the amount

of advance is in excess of \$600, the building must have been

completed and occupied for 90 days before the date of the

application.

a\. Class 1(a) Loans. No part of a loan may be used to finance

the cost of completing an unfinished structure. Structures

commonly known as \"shell houses\" are not deemed \"completed\"

within the meaning of the regulations. This does not

exclude a loan for the repair of a previously completed

structure which has been damaged but not substantially

destroyed by deterioration, flood, fire, or other casualty;

nor does it exclude the construction of an attached garage

or other attached building in connection with a completed

house or other existing buildings, such as apartment houses,

hotels, office buildings, hospitals, orphanages, colleges,

churches, and manufacturing industrial plants.

\(1\) Eligible expenditures are limited to those for

structural alterations, repairs, additions to the

structure itself, or other improvements to or in

connection with the structure which substantially

protect or improve the basic livability or utility of

the property. The enlargement of the size of the

structure, new flooring, new porch, roof, plumbing,

wiring, painting, plastering, awnings, and heating

systems, which in themselves are alterations and

improvements, are eligible expenditures.

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9/83 Page 2-2

HUD-Wash., D. C.

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4700.1 REV-1

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(2-7) (2) Certain improvements in connection with the structure

are also eligible, such as making structures barrier-free

and accessible to handicapped or disabled persons,

grading and landscaping, permanently installed lawn

sprinkler system, the construction of private

sidewalks, curbs, fences, and driveways, the

installation of a septic tank or cesspool, and the

drilling of a well together with necessary pumping

equipment and piping to serve the structure. These

improvements although physically removed from the

structure, are eligible.

\(3\) A loan to convert one type of building into a different

type will be eligible provided a substantial part of

the original building is left standing. For instance,

a loan for the conversion of a house into a commercial

type structure would be eligible if the walls and other

main structural elements are left standing. A new

stairway, new windows, rooms, porch, etc., may be

added, and partitions changed.

\(4\) A loan to demolish a structure or move a structure off

the premises would not be eligible except where such

demolition or moving is for the purpose of improving an

existing structure remaining on the property.

\(5\) Loans to finance the cost of insulating an existing

structure, putting on a new roof, installing a new

bathroom, adding closets, repairing the floors, walls,

or ceilings are eligible.

\(6\) Heating systems, including stokers, oil burners, coal,

gas and electric furnaces, and plumbing and wiring,

when made a permanent part of the realty, are eligible.

\(7\) Solar energy heating systems are eligible provided they

meet the Commissioner\'s standards outlined in HUD

4930.2 Intermediate Minimum Property Standards

supplement. Inquiries should be addressed to the local

HUD office for a determination of eligibility.

\(8\) Equipment and machinery such as presses, drills,

lathes, and other similar items used in an industrial

or commercial establishment are not eligible regardless

of the method or permanence of installation.

\(9\) Farm or dairy equipment and machinery, except bulk milk

tanks and milk coolers, are not eligible.

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Page 2-3 9/83

HUD-Wash., D. C.

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4700.1 REV-1

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(2-7) (10) Built-in kitchen equipment designed to be installed and

remain as a permanently attached integral part of a

kitchen is eligible provided the structure is

residential and the borrower is the owner of the

property or has a renewable lease having an original

term of not less than 99 years. Free-standing

household appliances, as well as draperies and other

furnishings, are not eligible. Prior to disbursing the

loan proceeds, the lender must obtain a completed

Certificate of Eligibility for installation of

built-in-kitchen appliances (Form FH-801) signed by the

borrower and dealer.

\(11\) Carpeting purchased and installed in a residence with

the intent that it become and remain a part of the real

estate will be eligible if the borrower is the owner of

the property or has a renewable lease having an

original term of not less than 99 years. The carpeting

must meet HUD\'s minimum standards. Carpeting in a

kitchen, bathroom, or patio is not eligible. Prior to

disbursing the loan proceeds, the lender must obtain a

completed Certificate of Eligibility for carpet

installation (Form FH-802) signed by the borrower and

the dealer/seller.

\(12\) The following principles are applicable, bearing in

mind that loans for eligible improvements must be upon

existing structures or in connection therewith:

\(a\) The repair, improvement, or addition must be

physically attached to and a part of the

structure.

\(b\) Improvements and additions which are removable or

temporary, are generally not eligible. Items

which are generally considered as trade fixtures

or equipment for commercial or industrial use are

not eligible.

\(c\) An ineligible item does not become eligible merely

because it is attached to the realty.

\(13\) A mobile home unit may be improved with Class 1(a)

property improvement loan terms, if the following

criteria are met:

\(a\) The mobile home has been placed on property owned

by the borrower or is being purchased under a real

estate contract.

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9/83 Page 2-4

HUD-Wash., D. C.

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4700.1 REV-1

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(2-7) (b) The wheels of the unit have been removed and the

unit has been placed on a permanent foundation.

\(c\) The security for the mobile home loan is in the

form of a deed of trust or mortgage covering the

realty and the unit is no longer capable of being

repossessed as personal property.

\(d\) All utility connections-including water and

sanitary facilities are operable so that the unit

is complete and habitable.

\(e\) The unit has been occupied for at least 90 days,

if proceeds are in excess of \$600.

\(f\) The unit is carried on the tax rolls of the

locality as real property.

\(14\) A mobile home that is considered personal property

which is located on a private site or in a mobile home

park is eligible for a maximum loan of \$5,000 for a

maximum period of 12 years. The proceeds of the loan

may only be used to improve, repair or alter the

structure.

b\. Class 1(b) Loans. The property to be improved must be

individually owned. Corporate Entities are not eligible

borrowers. The proceeds of a class 1(b) loan must be used

to alter, repair or improve a structure, or convert a

structure to further its use as a dwelling for two or more

families. (\"Family\" as used in the regulations is defined

as one or more persons living, sleeping, cooking, and eating

on the same premises as occupants of one living unit.) For

example, a one-family house may be converted into a dwelling

for two or more families and may be improved by painting or

by installing a new heating system or a new plumbing system;

a commercial building may be altered to provide living

accommodations for two or more families. Class 1(b) loans

for improvements to residential structures having commercial

units are permissible, provided the improvements benefit the

commercial portion of the structure only incidentally, if at

all.

\(1\) The maximum class 1(b) advance is based on the number

of living units in the structure after the improvements

have been made.

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Page 2-5 9/83

HUD-Wash., D. C.

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4700.1 REV-1

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\(2\) If there is any doubt as to whether a proposed project

is eligible for class 1(b) financing, all the facts of

the case may be submitted to Washington for an official

ruling.

2-8. NEW STRUCTURE-CLASS 2 LOANS. Examples of new structures

eligible for a class 2 loan which may be erected on improved or

unimproved real property are: barns, garages, service buildings,

gasoline stations, tourist cabins, bunk houses for itinerant

farm laborers, and industrial or commercial buildings.

a\. A class 2 loan may not include the cost of trade equipment

used in the operation of the business that will occupy the

structure. The loan may include the cost of heating or

lighting systems and similar items which are eligible for

class 1 improvement loans. For example, a loan may be used

to erect a commercial building, including a heating system,

but no portion of the proceeds may be used to buy and equip

the structure with trade fixtures.

b\. A class 2 loan must be used to finance the building of a new

structure that will be ready for use upon completion. It is

not permissible to purchase an existing structure nor to

apply the proceeds to complete a structure that is partially

built.

c\. More than one new structure may be built on a single piece

of property, but the principal amount of any one loan may

not exceed the maximum loan amount for any one property.

d\. No portion of a class 2 loan may be used for demolishing

existing structures to make room for a new structure.

However, the erection of a new structure on an old

foundation would be eligible.

2-9. RESTRICTIONS ON ELIGIBILITY OF LOANS FOR INSURANCE.

a\. Prior Liens. A HUD property improvement loan may not be

made to supplement an obligation not reported for insurance,

the payment of which is secured by a prior lien created in

connection with the proposed work. However, if the insured

loan is also secured, and such security has priority over

the uninsured obligation, the loan may be made.

b\. Supplemental Costs. A loan may include the cost of

architectural and engineering services. However, a loan may

not include the cost of land, or the cost of an appraisal,

if such cost is in addition to the maximum permitted

financing charges.

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9/83 Page 2-6

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4700.1 REV-1

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c\. Additional Loans. The regulations do not limit the number

of loans an individual borrower may obtain to improve one

property as long as the total outstanding balances of all

such loans at any time do not exceed the maximum permitted

for the particular type of loan involved. An individual

owning several properties may obtain any number of loans to

improve each property, provided the HUD improvement loans

outstanding on any particular property at no time exceed the

maximum loan permitted for the type of loan involved and the

prior approval of the Commissioner is obtained, when

required.

d\. Prior Approval of Credit. If a proposed loan would result

in a total principal amount of HUD improvement loans

outstanding in excess of \$15,000 (exclusive of financing

charges) to any borrower, the prior approval of the

Commissioner must be obtained before the transaction will be

eligible for insurance. The principal amount outstanding

applies to anyone who, as an eligible borrower on a proposed

loan, is primarily or secondarily liable on any prior HUD

improvement loan. Such approval may be obtained from the

Field Office having jurisdiction over the site of the

property to be improved. This approval applies solely to

the applicant as an acceptable risk for the additional

credit and must not be construed that all other aspects of

the loan are acceptable.

e\. Delinquency on Prior Loans. If the lender has knowledge

that the borrower is past due more than 15 days in the

payment of either principal or interest on an obligation

owing to or insured by a department or agency of the Federal

Government, the transaction will not be eligible for

insurance.

2-10. DISTINCTION BETWEEN \"DIRECT LOANS\" AND \"DEALER LOANS\". It is

important that a clear understanding exist as to the elements

constituting \"direct loans\" as distinguished from

\"dealer-contractor loans\".

2-11. DIRECT LOANS. The lending institution may disburse the proceeds

of the note to the borrower by cash, check, or money order drawn

solely in favor of the borrower(s), or by crediting the

borrower\'s account. Dealer-contractor approval, completion

certificates, dealer-contractor\'s contract or sales agreements,

advance notices, and borrower authorization certificates are not

required for such loans if the dealer-contractor does not assist

the borrower in obtaining financing. A loan is not a direct

loan if the dealer-contractor participates in the financing in

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Page 2-7 9/83

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4700.1 REV-1

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(2-11)any manner, such as presenting the loan application to the

lending institution, receiving the check or money order

(although made payable to the borrower), or accompanying the

borrower to the institution for the purpose of receiving payment.

In other words, disbursement must be made to the borrower in

such a way that he/she will have complete control of the funds

at all times.

a\. To qualify as a \"direct loan\", the loan must be applied for

by and disbursed directly to the borrower without any

intervention on the part of the dealer either in the

application for or the disbursement of the loan. The

\"direct loan\" procedures will be used only where all

contracts and arrangements for the loan are made by the

borrower.

b\. The credit application, bearing the borrower\'s signature

must be filled out and completed by one of the following:

\(1\) The borrower or borrowers; or

\(2\) The maker of the note other than a borrower; or

\(3\) A person acting at the direction of a borrower who has

no financial interest, directly or indirectly, in the

contract for the repair, alteration or improvement of

the loan borrower\'s property. (An officer of the

lending institution will normally qualify under this

category.)

c\. Before a loan may be made to a lessee of commercial

property, the owner of the property must join in signing the

note. If the owner is unwilling to sign, this requirement

will be waived if prior credit approval of the applicant by

the Commissioner is obtained, The requirement that prior

credit approval be obtained on loans made to lessee\'s in

those instances where the owner does not join in execution

of the note is applicable to all such loans without regard

to the amount involved. A loan in excess of \$2,500 will

require the owners to sign a mortgage regardless if he or

she signs the note or prior approval is obtained.

\(1\) In submitting the transaction for approval, all papers

bearing on the case, including the recommendation of

the institution, the credit application, balance sheet,

profit and loss statement, credit reports, and other

supporting papers should be forwarded to the local HUD

office in order to insured prompt consideration.

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9/83 Page 2-8

HUD-Wash., D. C.

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4700.1 REV-1

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\(2\) The Commissioner\'s letter granting prior credit

approval when required in accordance with the above,

must be included in the file if a claim for loss is

made.

2-12. DEALER/CONTRACTOR LOANS. On loans not made directly to the

borrower, the financial institution must have investigated and

approved the dealer-contractor, who must be in good standing with

the insured (see Chapter 1). The lender must have in its

possession a properly signed and dated completion certificate,

a copy of dealer-contractor\'s contract or sales agreement, and

a borrower\'s authorization certificate, if the note is payable

to the insured. (The authorization certificate is not necessary

if the note is purchased from dealer-contractor who is the

original payee).

a\. An advance notice of the intention to disburse the loan to

the dealer-contractor must be mailed or delivered to the

borrower, at least six days prior to disbursement to the

dealer-contractor, (see Section 2-17).

b\. The purpose of the foregoing disbursement procedure is to

protect the borrower, the lending institution, and the

Government by making certain that all improvements

contracted for are actually completed to the borrower\'s

satisfaction and that other persons do not obtain the loan

proceeds without the work being completed.

2-13. LOAN DOCUMENTS. In addition to the credit application and note,

other documents are required when disbursing loans under certain

circumstances. These documents, when applicable, must be

included in the file if a claim for loss is made. Figure 1 is

self-explanatory and may be used as a convenient reference to

determine the loan documents required.

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Page 2-9 9/83

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4700.1 REV-1

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FIGURE 1

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\* GRAPHICS MATERIAL IN ORIGINAL DOCUMENT OMITTED \*

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9/83 Page 2-10

HUD-Wash., D. C.

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4700.1 REV-1

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a\. On loans for civil defense shelters, Statement of

Eligibility is required (FHA Form 226).

b\. On loans including permanently installed carpeting,

Certification 802 (see appendix 2) is required.

c\. On loans including permanently installed kitchen equipment,

certification 801 (See appendix 2) is required.

d\. On loans including the installation of a septic tank a

certification executed by the borrower and dealer stating

the tank is in conformance with local sanitary and zoning

regulation is required.

2-14. BORROWER\'S AND DEALER\'S COMPLETION CERTIFICATE, FORM HUD 56002.

The completion certificate provides for two types of

transactions: first, the furnishing and installation of articles

and materials and completion of all work, and second, the

delivery of articles and materials only.

a\. In either case the service performed by the

dealer-contractor must constitute the entire consideration

for which the note was executed and delivery by the maker.

Under this provision, articles and materials or services not

being delivered or performed by the dealer-contractor may

not be included in the transaction. The completion

certificate may not be attached to the note or credit

application, nor may it have any other appendage.

b\. The certificate must be dated and signed. The signature of

only one eligible borrower is required as well as the

signature of the person approved by the lender as dealer.

As a precaution against forgery, the signature on the

borrower\'s portion of the certification must be compared

with the signature on the credit application and note.

2-15. DEALER-CONTRACTOR\'S CONTRACT OR SALES AGREEMENT. In

dealer-contractor disbursement transactions, lending

institutions are required to obtain a copy of the contract or

sales agreement, signed by the borrower and the

dealer-contractor, describing the type and extent of

improvements to be made and the material to be used. The unit

cost should be shown, and the stated cost of the improvements

must be in agreement with the credit application.

a\. The contract or sales agreement must be a type regularly

used by the dealer-contractor in his business. Signatures

on the lender\'s copy may be a carbon imprint of the

signatures on the original. A copy of the signed contract

or sales agreement must be attached to the credit

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-11 9/83

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

application when the application is submitted to the lending

institution.

b\. HUD does not approve or furnish dealer-contractor contract

or sales agreement forms. If a dealer-contractor has any

question regarding a contract or sales agreement, he/she

should obtain the advice of counsel in the jurisdiction

where operations are contemplated.

2-16. BORROWER\'S AUTHORIZATION CERTIFICATE. The certificate must be

properly dated and signed by all borrowers, makers and

co-signers on the note. All signatures must be genuine. The

signatures must be compared with the signatures on the credit

application and note as a precaution against forgery. It is

permissible to incorporate the contents of the borrower\'s

authorization certificate in the note, credit application, or

completion certificate. Lending institutions are urged to

consult their own attorneys as to what effect, if any, such

incorporation will have on the validity and enforceability of

the note. HUD does not furnish this form, Figure 2,

illustrates an acceptable form of borrower\'s authorization

certificate.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FIGURE 2

BORROWER\'S AUTHORIZATION CERTIFICATE

(FOR DEALER LOANS ONLY)

\_\_\_\_\_\_\_\_\_\_\_, 19

I/(We) hereby authorize and direct the
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
to pay the proceeds

of my/(our) note dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
for \$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

to
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

(Signature)\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

(Signature)\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

2-17. ADVANCE NOTICE TO BORROWER. At least six days prior to making

disbursement to a dealer-contractor, the lending institution is

required to mail or personally deliver to the borrower written

notice of its intention to make the loan if there is no

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-12

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(2-17)objection from the applicant. It is not required that the

borrower acknowledge receipt of the notice; however, the insured

must have a record of having mailed or delivered such notice.

The suggested record of such delivery is a dated carbon copy of

the notice or a dated notation in the loan file.

a\. Supplies of the advance notice are not furnished by HUD as

it is believed that the institutions should issue the notice

on their own stationary. As the regulations require such

notice to be on a form approved by the Commissioner, this

shall be considered as official approval of any notice

containing in its text the minimum data in either of the

suggested forms illustrated below.

b\. Lenders should add to this notice any additional information

that may be helpful to the homeowner in fully understanding

the transaction. Frequently, a warning is expressed against

bonus selling and the borrower is cautioned that the

completion certificate should not be signed until he is

satisfied as to the completion of the job.

c\. In case the amount of a HUD property improvement loan is to

be increased, a second advance notice reflecting the new

amount must be mailed to the borrower and disbursement not

made until at least six days thereafter. If, for example,

the notice is mailed on the first day of the month,

disbursement shall not be made before the seventh day of the

month. In a case where the amount of the loan turns out to

be less than the amount indicated in the notice, it will not

be necessary to send the customer another notice.

d\. Suggested Notice Forms. Figures 3-5.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-13 9/83

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FIGURE 3

(Letterhead of Institution)

OUR NOTICE OF INTENTION TO EXTEND A

PROPERTY IMPROVEMENT LOAN TO YOU

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19

Dear :

We are pleased to have received your application for credit in

the net amount of \$\_\_\_\_\_ for \_\_\_\_\_\_months, under Title I of
the

National Housing Act as presented to us by
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

In the event the application is approved, the face amount of your note

will be \$\_\_\_\_\_\_\_\_\_\_\_\_\_ which included financing charges
and will be

payable in monthly installments of \$\_\_\_\_\_\_\_\_\_\_.

If you have any questions regarding this transaction, or if we

can be of assistance in any way, kindly let us hear from you within 6

days from the date of this notice. Otherwise, if the loan is finally

approved, we shall purchase your note and pay the proceeds to the

dealer named above. It will be a pleasure to have you as a customer.

Cordially,

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-14

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FIGURE 4

(Letterhead of Institution)

ADVANCE NOTICE TO THE APPLICANT FOR AN

FHA PROPERTY IMPROVEMENT LOAN

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19

Dear :

We have found your credit to be satisfactory for the net amount

of \$ \_\_\_\_, for \_\_\_\_\_\_ months, under Title I of the National
Housing

Act as presented to us by
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.

The face amount of your note will be \$\_\_\_\_, which includes

financing charges and will be payable in installments of \$\_\_\_\_\_\_
per

month.

It is our intention to make this loan by disbursing the funds to

the above named dealer when all necessary documents, including a

certificate indicating the work has been completed, are received in

proper order, but not earlier than 6 days from this date.

If you have any questions regarding this transaction, or if we

can be helpful in anyway, kindly let us hear from you within 6 days

from this date.

Cordially,

\(1\) Lender may want to provide for an expiration on this letter.

\(2\) Lender may add provision that gives protection in case of

changing conditions of the borrower or dealer that impact the

approval of the loan.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-15 9/83

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

FIGURE 5

(Letterhead of Institution)

ADVANCE NOTICE OF ACCEPTANCE AND INTENT

TO PURCHASE AN FHA TITLE I NOTE

\_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19

Dear :

We will purchase the note payable to the contractor listed below.

The face amount of your note will be \$\_\_\_\_\_\_, which includes
financing

charges and will be payable in monthly installments of
\$\_\_\_\_\_\_\_\_\_\_.

It is our intention to disburse the funds to the dealer when all

the necessary documents, including a completion certificate indicating

the work has been satisfactorily completed, are received in proper

order, but not earlier than 6 days from this date.

If you have any questions regarding this transaction, or if we

can be of assistance in any way, kindly let us hear from you within

6 days from this date.

Cordially,

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-16

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

SECTION 2 - HISTORIC PRESERVATION LOANS

2-18. ELIGIBLE IMPROVEMENTS. To be eligible under this part a loan

must be for the purpose of rehabilitating, preserving, or

restoring a historic residential structure which is listed or

determined eligible for inclusion in the National Register of

Historic Places, either individually or as part of the district.

Eligibility of improvements to any structure may be determined

by the State Historic Preservation Officer or any other person

authorized by the Secretary of Interior. Whenever possible,

accessibility for the handicapped or disabled should be

considered when preserving a building (for technical assistance

see ANSI A.117.1-1980 Standard).

a\. \"Rehabilitation\" means the process of returning a structure

to a state of utility, through repair or alteration, which

makes possible an efficient contemporary use. In

rehabilitation, those portions of the property important in

illustrating historic, architectural, and cultural values

are preserved or restored.

b\. \"Preservation\" means the process of sustaining the form and

extent of a structure essentially as it now exists.

Preservation aims at halting further deterioration and

providing structural stability, but does not contemplate

significant rebuilding.

c\. \"Restoration\" is defined as the process of accurately

recovering the form and details of a structure as it

appeared at a particular period of time by means of removal

of later work and the placement of the original missing

work.

d\. \"Non-Residential use\". A building which has an incidental

non-residential use may be eligible for a historic

preservation loan, provided the non-residential use does not

exceed 20 percent of the total usable floor area of the

structure. Likewise a building which has more than 20

percent non-residential use, but will be fully residential

when rehabilitation, preservation, or restoration is

completed is eligible.

2-19. INELIGIBLE IMPROVEMENTS. A loan may not be made to improve

libraries, bridges, industrial, or commercial structures even

though such places or structures are listed in the National

Register of Historic Places.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-17 9/83

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

a\. No part of the proceeds may be used for the following

exterior walls, except where the proposal receives the

approval of the State Historic Preservation Officer.

\(1\) Sandblasting.

\(2\) Application of primastone

\(3\) Application of aluminum siding.

\(4\) Application of asbestos shingles.

\(5\) Application of plastic siding.

2-20. ELIGIBILITY REQUIREMENTS. Before an application for a loan can

be made, the borrower must obtain a Certificate of Eligibility,

Form FH-1(HP), (see Appendix 2), from the lender and submit it

to the State Historic Preservation Officer for review and

approval. Under no circumstances may the improvements be

started before an application for the loan is approved by the

lender. (See Appendix 2 for a listing of the name and address

of State Historic Preservation Officers.)

a\. A \$25.00 review fee must accompany the Certificate of

Eligibility submitted to the State Historic Preservation

Officer (SHPO).

b\. The SHPO will verify the property\'s National Register status

and will take one of the following actions regarding the

proposed improvements:

\(1\) Approve them,

\(2\) Approve them conditioned upon the incorporation of some

modification that the SHPO will outline,

\(3\) Disapprove them, or

\(4\) Make no comment.

If the SHPO approves the improvements, approves them

conditionally, or does not comment, the applicant may then

apply to the lender for a loan using the regular credit

application for Property Improvement Loan (Form HUD 56001)

to which the FH-1(HP) must be attached. It is expected that

the SHPO will act on the Certificate of Eligibility within

45 days after receiving it.

c\. If the SHPO makes no comment, the review fee is to be

returned to the applicant. If the SHPO disapproves the

proposed improvements, they must be changed and the

certificate resubmitted for further review.

d\. The \$25.00 application fee will be retained by the SHPO only

in those instances where approval, disapproved or

modification recommendations concerning the improvements

have been made.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-18

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

2-21. ELIGIBLE LOANS. A direct-to-borrower loan, obtained by the

borrower direct from the lender, without the intervention of

anyone having a financial interest, is the only acceptable and

eligible loan transaction.

a\. A dealer/contractor, although furnishing the contract or

proposal, may not participate in the application for, or the

disbursement of the loan proceeds.

b\. A person acting at the direction of the borrower who has no

financial interest, directly or indirectly, in the contract

for the rehabilitation, preservation, or restoration of

the historic structure may assist in the making of the

application. (An officer of the lending institution will

normally qualify under this category).

2-22. LOAN DOCUMENTS. Other than the certificate of eligibility and

the credit application and promissory note, there is no further

documentation needed in support of a historic preservation loan.

The entire general administrative policy; including security,

prior credit approval, credit investigation, etc., outlined in

Chapter 1 is applicable to all historic preservation loans.

SECTION 3 - FIRE SAFETY EQUIPMENT IN HEALTH CARE FACILITIES

2-23. GENERAL. This section contains the requirements which financial

institutions may obtain insurance on loans made for the purchase

and installation of fire safety equipment for nursing homes,

extended health care facilities, intermediate health care

facilities and other comparable health care facilities.

2-24. ELIGIBLE IMPROVEMENTS. A loan for purchasing and installing

fire safety equipment and other related items are the only

eligible improvements under this section.

a\. \"Fire Safety Equipment\" means any device or facility which

is designed to reduce the risk of personal injury or

property damage resulting from fire in nursing homes,

extended care facilities, intermediate health care

facilities, or comparable health care facilities. The

safety equipment includes any device or construction feature

which is recognized in the latest edition of the

Department\'s Minimum Property Standards for Care Type

Housing (4920.1) or the Life Safety Code of the National

Fire Protection Association (NFPA).

b\. Other related items include changes to improve egress

(widening of doors, construction or improvements of ramps,

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-19 9/83

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

etc.) as well as warning detection systems recognized by

such standards.

2-25. ELIGIBLE BORROWERS. The borrower must be the owner of a nursing

home, extended care facilities, intermediate care facility or

other comparable health care facility where the installation of

fire safety equipment in such facility is provided for and

required by fire safety codes.

2-26. ELIGIBLE PROPERTIES. In addition to qualifying as a proprietary

facility or a facility of a private non-profit corporation or

association properly licensed and regulated by state,

municipality or other political subdivision, the facility must

be free and clear of all liens other than those specifically

approved by the Commissioner.

2-27. FEES AND CHARGES. A loan may not include expenses incurred in

perfecting security, i.e., recording fees, documentary stamp

taxes, title examination charges, and hazard insurance premiums.

These costs may, however, be collected from the borrower in

cash.

a\. An origination fee or initial service charge not to exceed

1-1/2 percent of the original principle amount of the loan

may be collected from the borrower as compensation for

setting up the loan.

b\. A handling charge of \$500, may be assessed the borrower for

any transaction wherein a refinancing is consummated.

c\. A late charge not to exceed 5 cents per \$1.00 of each

installment past due more than 15 days may be collected. A

late charge may not exceed a maximum of \$50.00 for any one

installment.

d\. The insurance charge of .50 of 1 percent per year on the net

proceeds may be passed on to the borrower provided such

charge is fully disclosed to the borrower.

e\. In the event of prepayment of the loan, the lender may

assess a reasonable penalty provided the approval of the

Commissioner is obtained.

2-28. PRIOR APPROVAL. Any proposal to purchase and install fire

safety equipment under this part must first be approved by the

Fire Safety Marshal or other state or local official or agency

having primary jurisdiction for fire safety equipment of the

health care facility.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-20

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

a\. A proposal, properly approved, and together with an

application for credit with supporting credit investigation

must be submitted to the local HUD office for prior credit

approval. Upon approval of the credit worthiness and

stability of the applicant borrower, a letter shall be

issued by the Commissioner setting forth the terms and

conditions upon which a fire safety loan will be deemed

eligible for loan insurance.

2-29. DIRECT LOANS. The loan must be initiated and obtained by a

borrower directly from the lender. In these cases the

application for and disbursement of monies must be made by the

borrower without the intervention or participation of a dealer

or other intermediary having a financial interest in the

transaction.

2-30. DEALER LOANS. Loans may be initiated and obtained through a

dealer-contractor that has previously been approved by the

lender. A loan of this type requires supportive documentation

(in Chapter 1).

2-31. SECURITY. In all states except Louisiana, the loan shall be

secured by a properly recorded and perfected financing statement

and security agreement covering the fire safety equipment.

a\. The security agreement shall be perfected in the manner

specified by the Union Commercial Code as adopted in each

state.

b\. If prior liens on the underlying realty by operation of law

attach to the fire safety equipment the Commissioner or the

lender may require the borrower to obtain a subordination

agreement or a disclaimer from the holder of the prior lien.

c\. As additional security, a recorded lien on the improved

real estate shall be required for any loan in excess of

\$25,000. The lien shall be in the form of a real estate

mortgage, deed of trust or other form of security instrument

approved by the Commissioner.

d\. In the State of Louisiana, the loan shall be secured by a

chattel mortgage covering the fire safety equipment, which

shall be filed or recorded as required by law. If prior

liens on the underlying realty attach to the collateral the

Commissioner or the lender may require that a severance

agreement be obtained from each person, other than the

borrower, having any interest in the real estate on which

the equipment is installed.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Page 2-21 9/83

HUD-Wash., D. C.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

4700.1 REV-1

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

2-32. LOAN REQUIREMENTS. The note and security instrument or

instruments, shall be on forms approved by the Commissioner and

valid and enforceable in the jurisdiction in which the property

to be improved is located.

a\. The minimum principal amount permitted under this part is

\$10,000.

b\. The loan shall be written as a simple interest obligation

and provide for equal monthly payments scheduled in

accordance with amortization tables provided by the

Commissioner.

c\. The obligation must contain a provision for acceleration of

maturity, at the option of the holder, upon default in the

payment of any installment.

d\. The note and security instrument must contain a provision

permitting prepayment of the loan in whole or in part upon

any due date a payment is due.

e\. It is permissible to enter into a new obligation for the

purpose of liquidating a previously insured loan. The new

obligation may not provide for an additional advance;

however, the rewritten obligation may include the unpaid

principle, uncollected earned interest and a handling fee.

In rewriting an obligation, care must be exercised in

assuring the protection and continued validity of the

original security instrument.

2-33. CONTRACT PROPOSALS. The contract proposal must be a lump sum

contract of a specified amount and limited only to the purchase

and installation of fire safety equipment.

a\. The Commissioner may prescribe assurance of completion of

the contract.

b\. Upon full completion of the contract, a completed

certificate, on a form approved by the Commissioner, must be

signed by the borrower and the dealer/contractor.

c\. Any contract or subcontract executed for the purchase and

installation of fire safety equipment shall provide that

there will be no discrimination against any employee or

applicant for employment because of sex, religion, race,

color, or national origin.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

9/83 Page 2-22

HUD-Wash., D. C.

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4700.1 REV-1

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(2-23)d. The contract or proposal must be of a type generally used by

the dealer\'s business. A copy of the signed contract must

be attached to the credit application when the application

is submitted to the lending institution.

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HUD-Wash., D. C.