4535.3 REV-1

CHAPTER 4

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CHAPTER 4. REPAYMENT, CANCELLATION OF REPAYMENT

AND LOAN INCREASES

4-1. REPAYMENT AND ACCOUNTING REQUIREMENTS.

a\. Anticipated Repayment Date. It is expected that all portions of

the \"seed money\" loan which have been disbursed as well as the

Borrower\'s share will normally be repaid at the initial closing

of the Section 202 loan. The initial closing cannot be

completed unless the Section 106(b) Borrower has given the Field

Office an accounting of all \"seed money\" expenditures as of the

date of closing. (See Appendix 6.) This accounting must be

submitted to the Field Office at least ten (10) days prior to

the scheduled initial closing.

b\. Evidence of \"Seed money\" Expenditures. All expenditures must be

supported by a listing of checks written on an account for the

Borrower\'s share and the Trust Account. These shall be listed

by date, check number, amount, payee and purpose. The listing

must be categorized by line items shown on Form HUD 92290, and

supported by copies of receipts. The Borrower must certify that

the information provided is true and correct to the best of the

Borrower\'s knowledge.

c\. Actions Prior to Scheduled Initial Closing Date. Prior to

initial closing of the Section 202 loan this accounting of

expenditures must be reviewed for accuracy in conjunction with

the first construction draw by the MCS. Unless a request for

deferment or cancellation of repayment has been made, the full

Section 106(b) loan amount which is outstanding must be repaid

at initial closing. The Field Office shall approve the full

amount of the first advance of mortgage proceeds rather than

deduct the Section 106(b) loan amount. The Borrower shall, in

turn, write a check to the Department of Housing and Urban

Development for the loan amount being repaid, and deliver such

check to the HUD-closing attorney at initial closing, before any

other checks are written against the first Section 202

disbursement.

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Page 4-1 6/79

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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(4-1)

d\. Handling of Check as Repayment of \"Seed Money\" Loan. The Field

Office Shall deposit the check under the accounting code fund

symbol 86X4042 and notify the Director, FAID, OFA, of the

deposit by memorandum identifying the Section 106(b) loan. The

Field Office shall provide evidence of the transaction covering

the deposit by transmitting with the memorandum copies of the

completed Forms FHA-2006, Official Receipt; FHA-906, Schedule of

Collections, and the confirmed copy of Form S.F.-215, Deposit

Ticket. To avoid depositing the check in a wrong account with

Treasury, it is imperative that the above forms clearly show the

appropriate accounting codes. Since these forms are not

specifically designed for the Section 106(b) program, it will be

necessary for the Field Office to adjust the forms in the

following manner to reflect the correct code numbers.

\(1\) Deposit Ticket, Form S.F.-215. This form contains two (2)

preprinted numbers which are inappropriate for the Section

106(b) program. The Field Office must delete the

preprinted numbers in Block 3 and Block 6 of this form and

instead insert the code numbers 86-01-0300 and 86X4042,

respectively (see Appendix 7).

\(2\) Official Receipt, Form FHA-2006. To ensure crediting to

the proper account, it is necessary for the Field Office to

insert in the Block headed \"Acctg. Code\", the accounting

code fund symbol 86X4042 (see Appendix 7).

\(3\) Schedule of Collections. Form FHA-906. To adjust this form

for the Section 106(b) program, the Field Office must

delete any one of the preprinted programs appearing under

the column headed \"Insuring Sections\", and insert \"106(b)\".

The Field Office must also include the accounting code fund

symbol 86X4042 on this form. Further, the official receipt

number, which is preprinted on Form FHA-2006, must be

accurately recorded on the Schedule of Collections in the

Block headed \"Receipt Numbers Used\" (see Appendix 8).

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6179 Page 4-2

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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e\. Requests for Cancellation of Payments. Requests for

cancellation of repayments of \"seed money\" loans may be accepted

by the Field Office only if the amount which may be recovered

from the Section 202 loan is less than the amount of the \"seed

money\" loan and if the Borrower has no other funds to repay the

loan. Funds recovered from Section 202 loans are to be applied

first to the Section 106(b) loan and then to the Borrower\'s

share of the \"seed money\" expenses. Few, if any, requests for

cancellation or deferral are expected with regard to projects

which reach initial closing.

4-2. RELEASE OF LIENS.

a\. Determining Existence of Mortgage Liens. Prior to the scheduled

initial closing of the section 202 loan, the MCS shall review

the project file to determine whether the Section 106(b) loan is

secured by a mortgage lien on the site. If so, it shall review

the accounting of all \"seed money\" expenditures submitted by the

Borrower together with Form FHA-2283, Financial Requirements for

Closing, and the Borrower\'s first requisition for Section 202

loan proceeds, Form HUD 92289, to determine whether the Section

106(b) loan can be repaid at initial closing.

b\. Alerting the Area Counsel. The MCS shall prepare a memorandum

from the Area Manager/Service Office Supervisor to the Area

Counsel directing that the lien be released provided the review

performed by the MCS discloses that:

\(1\) The \"seed money\" loan can be repaid from the proceeds of

the Section 202 loan at initial closing;

\(2\) The \"seed money\" loan will be repaid from other sources at

or prior to initial closing of the Section 202 loan; or

\(3\) The portion of the \"seed money\" loan which was disbursed

for the purchase of land can be repaid at initial closing,

and the Area Manager/Service Office Supervisor plans to

recommend cancellation of the balance of the \"seed money\"

loan.

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Page 4-3 6/79

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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c\. Area Counsel Responsibility. The Area Counsel shall take the

necessary actions to release the lien.

4-3. DEFERMENT OF REPAYMENT AND SUBORDINATION OF LIENS.

a\. Deferment of Repayment. If the MCS determines that sufficient

funds will not be available to the Borrower from the proceeds of

the Section 202 loan at initial closing to repay the Section

106(b) loan, it shall prepare a memorandum to the Area Manager/

Service Office Supervisor recommending deferment of repayment of

the Section 106(b) loan until final closing. The Area Manager/

Service Office Supervisor shall advise the Area Counsel to amend

the Section 106(b) loan closing documents accordingly.

b\. Subordination of liens. In the event the Section 106(b) loan is

secured by a mortgage lien on the site and the MCS determines

that a deferment of repayment should be granted, it shall

prepare a memorandum to the Area Manager/Service Office

Supervisor recommending deferment of repayment of the Section

106(b) loan and advising that the mortgage lien relating to the

Section 106(b) loan must be subordinated to the lien which will

be created securing the Section 202 loan. The Area Manager/

Service Office Supervisor shall refer the matter to the Area

Counsel for proper action.

4-4. REQUESTS FOR CANCELLATION.

a\. Determining Valid Cancellation Request. Subsequent to initial

closing and prior to final closing in cases where a deferment of

repayment of the Section 106(b) loan has been granted, the MCS

shall contact the Borrower to ascertain how the Borrower plans

to repay the Section 106(b) loan. If it becomes clear that

sufficient funds will not be available from the proceeds of the

Section 202 loan or from other sources to repay the Section

106(b) loan and provided the conditions cited in paragraph 4-5

of this Handbook are met, the MCS shall advise the Borrower that

it may submit a request for cancellation of repayment.

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6/79 Page 4-4

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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b\. Submission of Supporting Documentation. Together with its

letter requesting cancellation of repayment of the Section

106(b) loan, the Borrower must submit a listing certified by the

Borrower to be true and correct of all expenditures from the

account for its cash share and from the trust account by check

number, date, amount, payee and purpose. Checks listed must be

supported by bills and receipts. The list must be categorized

by line items shown in Block 8 of Form HUD 92290 and must be

submitted in accordance with the format found in Appendix 6 of

this Handbook.

4-5. CONDITIONS OF CANCELLATION. HUD may cancel the repayment of all or

any portion of the \"seed money\" loan provided the following

conditions are met:

a\. Compliance Under the Contract. The Borrower must be in full

compliance with the provisions of the Loan Contract and Trust

Agreement, the approved loan application, the provisions of this

Handbook and the Regulations.

b\. Non-Recovery and Infeasible Section 202 Proposals. Where it is

shown that either monies sufficient to repay the Section 106(b)

loan cannot be recovered from the Section 202 loan for the

project or the project proposed by the Borrower has proven to be

infeasible as determined by HUD and that neither the Borrower

nor any other entity intends to proceed with the project using a

method of financing other than Section 202, HUD may consider

cancelling all or a portion of the \"seed money\" loan.

c\. Partial Recovery. The amount of the debt which may be canceled

must be based upon the amount of approved \"seed money\" expense

that was not recovered and repaid from the proceeds of the

construction or permanent loan or from the sale of the

Borrower\'s assets as provided in paragraph 4-5d hereunder or

from any other source. In the event of partial recovery of

approved \"seed money\" expenditures, the amount recovered must be

applied first to the repayment of any outstanding \"seed money\"

loan obligations.

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Page 4-5 6/79

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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d\. Sale of Borrower\'s Assets. In cases where the \"seed money\" loan

is secured by a lien on the site or where a site or other assets

were purchased in part or totally with \"seed money\", and such

site or assets are not used by the Borrower for a project

eligible for Section 106(b) assistance, such site or assets must

be sold by the Borrower at fair market value as determined by

HUD and the net proceeds (sales price less indebtedness and

sales expense) used to repay the \"seed money\" loan to the extent

possible. Any excess shall be retained by the Borrower.

e\. Certification by Borrower. The Borrower must certify that the

\"seed money\" loan proceeds have not been used for expenses other

than allowable \"seed money\" expenses for proposed projects

approved for Section 106(b) assistance.

f\. Borrower\'s Contribution. That losses of \"seed money\" are first

covered by the Borrower\'s share. Example: Assume a Borrower\'s

share of \$12,500, a loan amount of \$50,000 and a loss of

\$14,500. The Borrower would lose \$12,500. HUD would consider

cancellation of \$2,000 of the loan amount and the Borrower would

repay at least \$48,000 of the loan amount.

4-6. FIELD OFFICE REVIEW.

a\. Review made by MCS. The MCS shall review the request for

cancellation to determine whether or not it is reasonable,

whether the loan proceeds were used in accordance with the Loan

Contract and Trust Agreement, the loan application, this

Handbook and the Regulations, whether funds cannot be recovered

from the Section 202 loan to repay the \"seed money\" loan, and

whether funds are otherwise unavailable for repayment.

b\. Review for Accuracy. The MCS must review all figures for

accuracy and must determine that all payments were made in a

timely fashion. The latter is particularly important with

regard to payments to the various professionals furnishing

services. All payments must have been in accordance with this

Handbook and any agreements, contracts or options.

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6/79 Page 4-6

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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c\. Unacceptable Items for Cancellation. Unauthorized payments to

the various professionals or for eligible \"seed money\" items

which exceed the amounts approved for these parties or items

must be borne by the Borrower and will not be considered for

cancellation purposes.

d\. Transmittal of Requests for Cancellation. The Field Office

shall transmit the Borrower\'s request together with a memorandum

to the Director, Office of Multifamily Housing Development

setting forth its recommendations for or against cancellation as

well as the rationale for such recommendation. These documents

shall be reviewed by the Loan Assistance Committee to determine

whether the request for cancellation shall be approved or

disapproved. A copy of the memorandum and the Borrower\'s

request should be forwarded to FAID, OFA.

4-7. LOAN ASSISTANCE COMMITTEE.

a\. Committee Members. This Committee shall consist of the

following or their designees:

Chairman, Director, Office of Multifamily Housing Development

Director, Office of Policy Development and Evaluation,

Housing

Director, Office of Management, Housing

Representative, Office of Finance and Accounting (by

agreement with the Assistant Secretary for

Administration).

b\. Responsibilities.

\(1\) The Committee shall meet as necessary to review and approve

or disapprove requests for cancellation of loans.

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Page 4-7 6/79

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4535.3 REV-1

CHAPTER 4

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\(2\) The Committee shall notify the Field Office in writing of

approval or disapproval and any need for additional

information. A copy of the memorandum must be provided to

the Director, FAID, OFA, and the Office of Multifamily

Housing Development.

4-8. COLLECTION PROCEDURES.

a\. Denial of Request for Cancellation. In the event the Borrower\'s

obligation to repay the Section 106(b) loan is not cancelled by

the Loan Assistance Committee, the MCS shall prepare a letter to

the Borrower from the Area Manager/Service Office Supervisor

requesting immediate repayment of the outstanding balance of the

Section 106(b) loan. The letter shall be sent to the Borrower by

certified mail, return receipt requested.

b\. Instructions to Borrower. The Borrower will be instructed to

make its repayment check payable to the Department of Housing

and Urban Development and to forward it to the Field Office to

the attention of the Mortgage Credit staff.

c\. Follow-up Procedures. If the payment is not received within

fifteen (15) calendar days, the MCS shall prepare a second

letter to the Borrower from the Area Manager/Service Office

Supervisor advising that repayment of its outstanding Section

106(b) loan is overdue and requesting that the Borrower\'s check

be sent to the office by a specified date (within fifteen

calendar days of the date of the letter). The letter shall also

state that if the Borrower\'s check is not received within the

allotted period, the matter will be referred to the Claims

Collection Officer (CCO) for further action. The letter shall

be sent to the Borrower by certified mail, return receipt

requested.

d\. Referral to Claims Collection Officer. If the Borrower\'s

payment is not received within the time specified in

subparagraph c above the MCS shall prepare a memorandum from the

Housing Division Director to the Field Office\'s CCO outlining

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6/79 Page 4-8

HUD-Wash., D. C.

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4535.3 REV-1

CHAPTER 4

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the MCS\' efforts to collect the overdue payments and referring

the matter to the CCO for further action. Copies of the

returned delivery receipts shall be maintained in the MCS\'

credit control binder and the originals shall be forwarded with

the memorandum to the CCO.

4-9. LOAN INCREASES. No increase shall be approved that causes the total

aggregate loan amount to exceed \$50,000. Requests for loan increases

shall be prepared using the same rules which apply to original

applications. The word \"INCREASE\" must be typed at the top and

bottom of the application and the Loan Contract and Trust Agreement.

The letter transmitting the application must indicate the reason for

the increase and Block 8 of Form HUD 92290 must combine the original

loan amount with the amount of the increase. The Borrower must

spend or obligate the additional amount of its share before any loan

funds can be advanced following approval of the increase.

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Page 4-9 6/79

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