4550.6

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CHAPTER 5. CONSTRUCTION PERIOD

5-1. CONSTRUCTION CONTRACTS.

a\. Form of Contract - Sales Type Cases. Either a lump-sum

(FHA Form 2442) or cost-plus contract (FHA Form 2442-A) may

be used according to the wished of the contracting parties.

See discussion on these contract forms in the initial

endorsement section of Chapter 3.

b\. Construction Contract, Lump-Sum, FHA Form 2442. Incentive

Payment Rider, FHA Form 2443, is applicable and should be

prepared in accordance with the instructions contained therein.

5-2. WARRANTIES. The contract should contain an obligation on the

part of the contractor to deliver warranties on FHA Form 2544 and

it should also contain a provision to the effect that no payment

shall be due thereunder from the cooperative corporation until

the contract has been fully performed and cooperative purchasers

for all of the units in the project have been obtained and

approved by the Field Office Director.

5-3. CONSTRUCTION CHANGES. The procedures to be followed are the

same in Management and Sales Type projects. See instructions for

Management Type covered in the section titled \"Construction Period\".

5-4. PERMISSION TO OCCUPY. In Sales Type Insurance of advances

projects, the corporation should establish, subject to the approval

of the Field Office Director, a \"monthly carrying charge\" for

each unit to be occupied prior to completion of the entire

project. It is suggested that this monthly charge shall not be

more than rents charged for comparable dwelling units in the area,

or an amount equal to the estimated monthly cost of operation of

the project to the mortgagor corporation, whichever is the

greater. Occupancy may be permitted under an interim occupancy

agreement adopted from the Model Form of Occupancy Agreement

used in Section 213 Management Type Cases. In granting permission

to occupy prior to completion, the mortgagor and individuals

involved should be advised that the monies so collected shall be

considered as corporation income to be used for appropriate

corporation purposes and any amount remaining at the time of

release may be used in any of the following ways:

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Page 5-1 3/73

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4550.6

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(5-4) a. To Defray the Expenses of all Individual Members in

connection with the release from the blanket mortgage and

the transfer and recording of the individual mortgages;

b\. Disbursement to all Members as a patronage refund; or

c\. Application as a Prepayment to the blanket mortgage prior

to execution of releases, which will result in lower

individual mortgages.

NOTE: The above is based on the principle that income from occupancy

of projects prior to completion and commencement of amortization

accrues to the benefit of the mortgagor corporation as a whole,

and not for the sole benefit and credit of the individual

members from whom such interim payments are received. This

provision should be made a part of the interim Occupancy

Agreement.

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