**Appendix F:**

Detailed Guidance for PAE's Attorney Closing Document Preparation

## Revised to reflect new Owner Certification Form 4.10

This section is dedicated to specific information and guidelines for the
PAE's attorney regarding closing document preparation.

A.  **Ground Leaseholds**. Ground leaseholds must conform to the FHA
    Lease Addendum Form FHA-2070.

    1.  The term of the Lease Addendum may be varied to conform with
        applicable State and local law except any term changes must be
        consistent with the Section of the National Housing Act under
        which the project is underwritten:

        a.  Mortgages insured under Sections 220, 221(d), and 236
            pursuant to Section 223(a)(7) must have a lease term that
            satisfies one of the following requirements:

            i.  Term is 99 years and is renewable, or

            ii. Term has at least 10 years to run after maturity date of
                the mortgage.

        b.  Mortgages insured under Section 207 pursuant to Section
            223(a)(7) must have a lease term that satisfies one of the
            following requirements:

            i.  Term is 99 years and is renewable, or

            ii. Term is at least 50 years from the date the mortgage is
                executed.

    2.  PAE\'s counsel needs to ensure the non-default status of any
        ground lease that exists at the time of closing. This can be
        done by collecting an estoppel certificate from the lessor as
        part of the closing package. This certificate must be dated
        within 30 days of closing and state that the lessee is current
        on all rents due, the lessee is not in default of any lease
        provision and no event has occurred which, with the passage of
        time, would be a default under the lease.

B.  **Organizational Documents of Mortgagor Entity.** Organizational
    documents are required to be submitted with Form 4.10 (within 30
    days after the kickoff meeting) and to be updated at closing. They
    must expressly indicate that the duration of the ownership entity is
    at least coextensive with the term of **the FHA-insured Section
    223(a)(7) mortgage and any HUD-held secondary mortgage financing**,
    that the terms of the Regulatory Agreement as modified by the M2M
    Modification of the Existing Regulatory Agreement take precedence in
    the event of any conflict with the terms of the organizational
    documents, that the ownership entity has authority to enter into the
    transaction and to comply with the requirements of the applicable
    mortgage insurance program and that unless previously approved
    otherwise by HUD, the mortgagor is a single asset entity.

    1.  If the mortgagor entity applying for the FHA-insured financing
        is newly created, the operating partnership agreements, articles
        of incorporation, or articles of organization must include
        provisions stating that:

        a.  If any of the provisions of the organizational documents
            conflict with the terms of the Note, Mortgage, Security
            Agreement, or FHA Regulatory Agreement, the provisions of
            the Note, Mortgage, Security Agreement or FHA Regulatory
            Agreement control.

        b.  No provision required by HUD to be inserted into the
            organizational documents may be amended without prior
            OMHAR/HUD approval, for so long as FHA is the insurer or the
            holder of the Note.

        c.  No provision in the organizational documents that results in
            any of the following will have any force or effect without
            the prior written consent of OMHAR/HUD:

            i.  Any amendment that modifies the term of the mortgagor
                entity;

            ii. Any amendment that activates the requirement that a HUD
                previous participation certification be obtained from
                any additional partner, or an additional member of a
                limited liability company;

            iii. Any amendment that in any way affects the Note,
                 Mortgage, Security Agreement, or the Regulatory
                 Agreement;

            iv. Any amendment that would authorize any member of a
                limited liability company, other than the Managing
                Member or pre-approved Successor Managing Member to bind
                the company for all matters concerning the project which
                required HUD consent or approval;

            v.  A change in the Managing Member/General Partner or
                pre-approved Successor Managing Member of the mortgagor
                entity; or

            vi. Any change in a guarantor of any obligation to the
                Secretary.

        d.  The mortgagor entity is authorized to execute a Note,
            Mortgage, or Security Agreement in order to secure a loan to
            be insured by the Secretary and to execute the Regulatory
            Agreement and other documents required by the Secretary in
            connection with the insured Section 223(a)(7) mortgage.

        e.  Any incoming partner/member/owner must as a condition of
            receiving an interest in the partnership/company agree to be
            bound by the Note, Mortgage, Security Agreement, Regulatory
            Agreement, and any other documents required in connection
            with the Section 223(a)(7) insured mortgage loan to the same
            extent and on the same terms as the other
            partners/members/owners.

        f.  Notwithstanding any other provisions, upon any dissolution,
            no title or right to possession and control of the Project,
            and no right to collect the rents from the Project, shall
            pass to any person who is not bound by the Regulatory
            Agreement in a manner satisfactory to the Secretary.

    2.  *Corporate Mortgagor*.

        a.  Copy of Articles of Incorporation and Code of Regulations or
            Bylaws and all amendments thereto, certified by jurisdiction
            where filed;

        b.  Certificate of Good Standing. If the mortgagor is a foreign
            corporation, a certificate of good standing from the
            State/Commonwealth where the project is located and the
            state of incorporation or an opinion from mortgagor\'s
            attorney that such certificate is not required in that
            jurisdiction;

        c.  Enabling resolution which authorizes the loan and designates
            the appropriate officer(s) to execute the loan documents;
            and

        d.  Incumbency Certificate certified by corporate officer.

        e.  Corporate articles of incorporation and bylaw provisions,
            which make the corporation responsible for indemnifying its
            board members are not acceptable, except to the extent
            mandated by State law.

    3.  *Partnership Mortgagor*.

        a.  Certified copy of Partnership Agreement and all amendments
            thereto;

        b.  Copy of Certificate of Partnership, if applicable, which has
            been recorded in the appropriate jurisdiction, if required.
            If the mortgagor is a foreign partnership, a copy of the
            application for registration as a foreign partnership, and
            an indication that it is qualified to do business in the
            State/Commonwealth where the project is located;

        c.  Copy of the \"Full, Force and Effect\" Certificate, or
            Certificate of Good Standing, if any provided by the
            State/Commonwealth; and

        d.  If less than all the general partners are signing the loan
            documents, a partnership resolution which authorizes the
            loan and designates the appropriate partner for signing.

    4.  *Limited Liability Company Mortgagor*.

        a.  Certified copy of Articles of Organization and Operating
            Agreement or Code of Regulations and all amendments thereto;

        b.  Certificate of Continued Existence. If the mortgagor is a
            foreign limited liability company holding a license, and a
            Certificate of Continued Existence from the State with
            jurisdiction, or, alternatively, a legal opinion from an
            attorney licensed to practice in the State in which the
            project is located to the effect that the limited liability
            company is qualified to do business and hold title to real
            estate in that State;

        c.  Enabling resolution which authorizes the loan and designates
            the appropriate Managing Member to execute the loan
            documents; and

        d.  Incumbency Certificate with authorized Member\'s signature

C.  **Section 223(a)(7) Mortgage (Deed of Trust) and Security
    Agreement**.

    1.  [Section 223(a)(7) Mortgage (or Deed of Trust)]{.underline}. The
        Section 223(a)(7) insured mortgage/deed of trust must be a first
        lien on the entire property. The property also includes major
        kitchen appliances financed from mortgage proceeds. The Mortgage
        (or Deed of Trust) must the one approved for use by HUD\'s
        Office of General Counsel for the State/Commonwealth in which
        the project is located.

    2.  [Security Agreement and Financing Statement]{.underline}. The
        appropriate Uniform Commercial Code documentation (chattel
        mortgage where applicable) must be used as the security
        instrument for nonrealty equipment and furnishings in accordance
        with State/local requirements. The mortgagor\'s attorney\'s
        opinion should address the situation in which the owner is an
        out-of-state entity and UCC Financing Statement needs to be
        filed in the owner entity\'s home state.

        a.  HUD should be named as an additional secured party, as its
            interest appears, under the Security Agreement and the UCC
            Financing Statements.

        b.  The documents must be filed and/or recorded as specified by
            State/local law, which may include the appropriate local
            court, register of deeds, Secretary of State/Commonwealth or
            the State/Commonwealth corporation commission.

        c.  Attach a property description (list(s) of major movable
            equipment) to the financing statement covering all the
            nonrealty equipment and furnishings. Furnishings do not need
            to be identified individually or with identification or
            serial numbers, unless is it is customary in the
            jurisdiction to do so.

        d.  The legal description attached to the financing statement
            should be identical with that used in the Regulatory
            Agreement.

        e.  The financing statement should provide that it encumbers
            property that also is encumbered by a mortgage lien or real
            estate and should state the maturity date of the mortgage as
            follows:

The real property described in Exhibit A is subject to a mortgage/deed
of trust recorded in Book \_\_\_\_\_\_\_\_\_, Page \_\_\_\_\_\_\_\_\_\_
of the \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ County Register of
Deeds/Recorder\'s Office on \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
\_\_\_\_\_\_. Final payment date on said mortgage/deed of trust is
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_. Record title owner of
said real estate is
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_. This financing
statement also relates to an obligation secured by a Security Agreement
of even date herewith.

3.  [Liens]{.underline}. The property, including any non-realty
    equipment and furnishings covered by the mortgage/deed of trust,
    must be free and clear of all liens other than the insured mortgage,
    the mortgage restructuring and/or contingent repayment mortgage.

4.  Standard Exculpatory Language to be added to the FHA
    State/Commonwealth form Mortgage/Deed of Trust:

5.  Notwithstanding any other provision contained herein or in the Note,
    it is agreed that the execution of the Note shall impose no personal
    liability upon the mortgagor for payment of the indebtedness
    evidenced thereby and in the event of a default, the holder of the
    Note shall look solely to the property subject this Mortgage/Deed of
    Trust and to the rents, issues and profit thereof in satisfaction of
    the indebtedness evidenced by the Note and will not seek or obtain
    any deficiency or personal judgment against the mortgagor except
    such judgment or decree as may be necessary to foreclose or bar its
    interest in the property subject to this Mortgage/Deed of Trust and
    all other property mortgaged, pledged, conveyed or assigned to
    secure payment of the Note; provided, that nothing in this condition
    and no action so taken shall operate to impair any obligation of the
    mortgagor under the Regulatory Agreement herein referred to and made
    a part hereof.

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D.  **Mortgage (Deed of Trust) Note**. The Mortgage (Deed of Trust) Note
    must be in the form approved by HUD\'s Office of General Counsel for
    use in the State/Commonwealth in which the project is located. The
    mortgage/deed of trust is insured under the same Section of the
    National Housing Act as the existing insured first mortgage pursuant
    to Section 223(a)(7), *e.g.*, Section 221(d)(4) pursuant to Section
    223(a)(7) and PAE\'s counsel should insert the statutory reference
    in the endorsement panel of the Note along with the following
    standard language:

> **For purposes of compliance with Section 223(a)(7)(D) of the National
> Housing Act, the contract of mortgage insurance regarding FHA Project
> No. \[*[Old Project Number]{.underline}*\] is transferred to FHA
> Project No. \[*[New Project Number]{.underline}*\], and said contract
> of mortgage insurance is hereby amended to reflect the terms,
> conditions and provisions of the National Housing Act as evidenced by
> the Federal Housing Commissioner\'s endorsement for insurance of this
> Note dated \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, \_\_\_\_\_\_,
> executed by
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, (Maker),
> and payable to
> \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
> in the amount of
> \$\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_.**

1.  The principal amount of the insured Note must be the same as that
    which is set out in the firm commitment for mortgage insurance, but
    shall not exceed the original principal amount of the existing
    insured first mortgage Note.

2.  The term of the insured Note must be the same as included in the
    firm commitment for mortgage insurance, so long as the maximum term
    set out in the firm commitment does not exceed the unexpired term of
    the existing insured first mortgage, unless OMHAR determines that
    the insurance of a mortgage for an additional term inures to the
    benefit of the applicable insurance fund and has approved an
    additional term not more than twelve years in excess of the
    unexpired term of the existing insured first mortgage and **the
    duration of the ownership entity is at least coextensive with the
    term of the FHA-insured Section 223(a)(7) mortgage and any HUD-held
    secondary mortgage financing.**

3.  The mortgage term starts on the date of commencement of
    amortization.

4.  Prepayment Provisions. Except as specifically permitted herein, and
    subject to the conditions in paragraph 5 below, the Note must
    contain the following prepayment provisions:

    a.  For-Profit Ownership Entity.

        i.  Prepayment must be permitted in whole or in part so long as
            30 days advance written notice is given to the mortgagee of
            the mortgagor\'s intent to prepay, except as is provided in
            paragraph 4.e. below.

        ii. Prepayments must be permitted for up to 15 percent of the
            original principal amount in any one calendar year without a
            prepayment charge. Prepayments exceeding 15 percent may be
            subject to a charge agreed to by the mortgagor and mortgagee
            and included in the mortgage.

    b.  Nonprofit Ownership Entity.

        i.  Upon prior consent of the FHA Commissioner, the mortgage
            debt may be prepaid in full.

        ii. The Commissioner may approve partial payment to reduce
            succeeding monthly payments over the remaining portion of
            the original mortgage term.

        iii. The Commissioner may also approve partial prepayments made
             after 30 days written notice. Prepayments exceeding 15
             percent of the original principal amount may be subject to
             a reasonable charge on such excess agreed to by the
             mortgagor and mortgagee and included in the mortgage.

    c.  State and Local Bond Financed Project. Subject to compliance
        with paragraph 5 below, projects funded from tax-exempt or
        taxable bonds issued by State or local government bodies may
        include the following prepayment restrictions and prepayment
        penalty charges:

        i.  A prepayment restriction period (lockout) shall not exceed
            ten (10) years from the date of commencement of
            amortization, and

        ii. A prepayment penalty may be charged after expiration of the
            lockout stated in paragraph (1) above, provided the charge:

        iii. During the first year following the lockout does not exceed
             five (5) percent of the unpaid principal balance of the
             insured Note, and

        iv. Declines on a graduated basis (to the extent practicable,
            the decline in the penalty percentage should be the same
            each year), and

        v.  Does not exceed one (1) percent at the end of the fifth year
            following the lockout period.

    d.  Other Bond Obligations or GNMA Mortgage-Backed Securities. The
        term \"Other Bond Obligations\" refers to any agreement under
        which the insured mortgagee has obtained the mortgage funds from
        third party investors and has agreed in writing to repay such
        investors at a stated interest rate and in accordance with a
        fixed repayment schedule. Mortgages funded with the proceeds of
        GNMA mortgage-backed securities or \"other bond obligations
        acceptable to OMHAR/HUD\" may include the following prepayment
        restrictions and prepayment penalty charges, subject to
        compliance with paragraph 5 below:

        i.  A lockout not to exceed ten (10) years from the date of
            commencement of amortization;

        ii. A penalty charge provided the charge:

-   Does not exceed ten (10) percent at the end of the first year
    following the date of commencement of amortization,

-   Declines on a graduated basis, and

-   Does not exceed one (1) percent at the end of the tenth year
    following the date of commencement of amortization.

-   If the initial penalty is three (3) percent or less, the HUD
    override language, set out in paragraph 5 below, is not required.

    i.  A combination lockout and penalty charge in which:

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-   The lockout period does not exceed ten (10) years from the date of
    commencement of amortization, and

-   The prepayment penalty does not exceed one (1) percent at the end of
    the tenth year following the date of commencement of amortization.

    a.  Section 223(a)(7) mortgages containing both bond financing,
        other than state or local government and GNMA Mortgage-Backed
        Securities may be subject to both a lockout provision and a
        penalty charge as set out in paragraph (d) above.

    b.  For all other Section 223(a)(7) mortgages prepayment lockout
        provisions are not permitted.

    c.  Prepayment provisions, which are preprinted in the FHA form Note
        may be deleted if this Guide authorizes alternative provisions
        which supersede the printed provisions.

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    1.  Conditions for including Prepayment Penalties and/or Lockout
        provisions in the Note. Compliance with the following conditions
        is required when prepayment penalties and/or lockouts are
        permitted.

        a.  Rider to the Note. Use of the language set out below is a
            condition of permitting lockouts for \"State and Local Bond
            Financed Projects, \"Other Bond Obligations or GNMA
            Mortgage-Backed Securities,\" and for any Note that contains
            a prepayment penalty that initially exceeds three (3)
            percent. The following language, must be included in a Rider
            attached to the Note, allowing HUD to override any
            prepayment penalty and/or lockout provision(s) in the event
            of a default:

> **Notwithstanding any prepayment prohibition imposed and/or penalty
> required by this Note with respect to prepayments made prior to
> \[enter first date on which prepayments may be made with a penalty of
> one percent or less\] \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
> \_\_\_\_\_\_, the indebtedness may be prepaid in part, or in full,
> without the consent of the mortgagee and without prepayment penalty if
> HUD determines that prepayment will avoid a mortgage insurance claim
> and is, therefore, in the best interest of the Federal Government.**
>
> Mortgagees are permitted to request that PAE\'s counsel add the
> statement set out below, immediately following the above paragraph:
>
> **HUD will consider exercising an override of the mortgagee\'s
> prepayment penalty and/or lockout provision only if the following
> conditions are met:**

i.  **the project mortgagor has defaulted and HUD has received notice
    from the mortgagee as required by the regulations;**

ii. **HUD determines that the project has been experiencing a net income
    deficiency, which has not been caused solely by management
    inadequacy or lack of owner interest, and which is of such a
    magnitude that the mortgagor is currently unable to make required
    debt service payment, pay all project operating expenses and fund
    all required HUD reserves;**

iii. **HUD finds that there is a reasonable likelihood that the
     mortgagor can arrange to refinance the defaulted loan at a lower
     interest rate or otherwise reduce the debt service payments through
     a partial prepayment; and**

iv. **HUD determines that refinancing the defaulted loan at a lower rate
    or partial prepayment is necessary to restore the project to a
    financially viable condition and to avoid a full insurance claim.**

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b.  Rider to the Mortgagee\'s Certificate. The mortgagee is required to
    certify that in the event of a default during the term of the
    prepayment lockout and/or penalty (i.e., prior to the date on which
    prepayment may be made with a penalty of one percent or less), it
    will:

    i.  Request a 3-month extension of the deadline prescribed by 24 CFR
        207.258 for filing a notice of its intention to file an
        insurance claim, and its election to assign the mortgage;

    ii. Assist the mortgagor to arrange a refinancing to cure the
        default and avert an insurance claim, if HUD grants the
        requested (or shorter) extension of the notice fining deadline;

    iii. Report to HUD at least monthly on any progress in arranging a
         refinancing;

    iv. Otherwise cooperate with HUD in taking reasonable steps to avoid
        an insurance claim

    v.  Require any successors or assigns to certify in writing that
        they agree to be bound by these conditions for the remainder of
        the term of the prepayment lockout and/or penalty period;

    vi. Notify HUD of the delinquency where a payment is not received by
        the 16th day of the month in which it is due.

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2.  [Late Charge Provisions]{.underline}. The mortgagee may collect a
    late charge for the cost of handling delinquent payments, subject to
    the following:

    a.  Charges must not exceed two cents per dollar of principal and
        interest more than 15 days in arrears.

    b.  Late charges must be separately charged to and collected from
        the mortgagor and cannot be deducted from any total monthly
        mortgage payment, or collected from any reserve escrow or from
        any interest accruals thereto.

3.  Standard Exculpatory Language for the Section 223(a)(70
    Mortgage/Deed of Trust Note:

Notwithstanding any other provision contained in this Note, it is agreed
that the execution of this Note shall impose no personal liability on
the maker hereof for payment of the indebtedness evidenced hereby, and
in the event of a default, the holder of this Note shall look solely to
the property described in the Mortgage/Deed of Trust, and to the rents,
issues and profits therefrom, in satisfaction of the indebtedness
evidenced hereby, and will not seek or obtain any deficiency or personal
judgment against the maker hereof except such judgment or decree as may
be necessary to foreclose or bar its interest in the property and all
other property mortgaged, pledged, conveyed or assigned to secure
payment of this Note, except as set out in the Mortgage/Deed of Trust of
even date given to secure this indebtedness.

E.  **Regulatory Agreement**. Because Section 223(a)(7) of the National
    Housing Act does not contain independent insurance authority,
    projects that obtain a Section 223(a)(7) refinancing will have the
    new mortgage insured under the same insurance section of the
    National Housing Act that the pre-existing first mortgage was
    insured under, pursuant to Section 223(a)(7). Therefore, the
    project\'s ownership entity must execute a new form regulatory
    agreement approved for the mortgage insurance program under which
    the pre-existing first mortgage was insured. Therefore, PAE\'s
    counsel needs to ascertain which form regulatory agreement the
    project is currently operating under and have the mortgagor entity
    execute the same form FHA Regulatory Agreement in conjunction with
    the OHMAR/Mark-to-Market Rider to the Existing FHA Regulatory
    Agreement and incorporate the new FHA Regulatory Agreement, with the
    Mark-to-Market Rider attached thereto, into the new Section
    223(a)(7) insured mortgage by reference, in order to ensure HUD\'s
    regulation of the mortgagor entity.

F.  **Recordation and Final Closing.** Except for the title policy, the
    Mortgagor's Attorney's Opinion for the M2M part of the overall
    transaction, the Mortgagor's Attorney's Opinion for the Section
    223(a)(7) insured Mortgage (if applicable), and the incumbency
    certificate, if any, the closing documents may be dated and/or
    recorded prior to the day that the OMHAR Regional Director endorses
    the original promissory Note.

G.  **Section 223(a)(7) Endorsement**. The title policy, Mortgagor's
    Attorney's Opinion for the M2M part of the overall transaction,
    Mortgagor's Attorney's Opinion for the Section 223 (a)(7) Insured
    Mortgage (if applicable), and the incumbency certificate, if any,
    must be dated the day of the endorsement of the Section 223(a)(7)
    insured Note by OMHAR. The new FHA-approved mortgagee must make
    appropriate arrangements for delivering the original promissory Note
    to the OMHAR Regional Director for endorsement; as well as the
    appropriate arrangements for the OMHAR Regional Director's immediate
    return of the insured Note to the mortgagee following endorsement.