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CHAPTER 7. SPECIAL ADMINISTRATIVE PROCEDURES FOR

SIMPLIFIED PROCESSING

\* 7-1. SIMPLIFIED PROCEDURES FOR INSURANCE UPON COMPLETION CASES WITH A

PRESALE CONDITION. Basic information concerning standard

procedures for condominium projects is set forth in Reference (1)

of the Foreword. In those instances where the sponsor is able

to complete construction of a condominium project composed of

detached, semi-detached, row, or walk-up apartment structures

without the need for HUD-insured construction advances on the

project, he/she may request the simplified procedure. These

simplified procedures are not applicable to elevator construction.

The project may be processed by using modified Section 203

underwriting procedures described in Chapter 10 of the Handbook

and in the instructions in Reference (5) of the Foreword. In

such cases, the units involved are essentially single family

units. \*

\* a. Administrative Procedures. The simplified administrative

procedures involve modifications which expedite processing.

\(1\) Application for Mortgage Insurance (Form FHA 3201).

\(a\) When the simplified procedure is to be used, the

mortgage amount indicated on the application

shall not be less than, and need not exceed the

amount arrived at by multiplying the number of

units by \$50 and dividing the total by .008,

i.e., 75 units x \$50.00 = \$3750 divided by .008 =

\$468,750 mortgage amount. (The application fee

will be collected at a rate of \$50 per unit.

This fee will be refunded after the Commitment to

Insure Upon Completion (Form FHA 3284-A) has been

issued. Authority for the refund is given 24 CFR

207.1.) \*

\(b\) Architectural exhibits, submitted for projects

whose basic design and construction is similar to

home mortgage design and construction, may be

exhibits similar to those required for home

mortgage cases. Construction inspection

procedures may follow those prescribed for home

mortgage cases.

\(c\) Section E, \"Estimate of Annual Common Expense\"

will include only those items that would be

chargeable to the unit owners by the condominium

association.

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\(d\) Section F, \"Annual Fixed Charges\"; Section H,

\"Estimated Replacement Cost\"; Section J, \"Total

Requirements for Settlement\"; and Section K,

\"Estimated Annual operating Statement need not be

completed.

\(2\) Commitment to Insure upon Completion, (Form FHA 3284-A).

This form must be used in all cases being processed

for insurance upon completion which use the simplified

home mortgage procedures. As in all other cases,

there may be certain conditions to be included in the

commitment which are applicable to the specific case.

\(3\) Prevailing Wages, Minimum Property Standards and Cost

Certification. All normal requirements apply except

that a simplified cost certification procedure may be

followed if it is clearly established that the

indicated amount of the loan is less than 90% of the

actual cost of construction. The amount of the loan

\* normally will be far less under the simplified

procedure as a result of the formula used in paragraph

7a(1) (a) above. \*

\(a\) The mortgagor and builder will be required to

certify as follows:

\"The undersigned hereby certifies that the actual

cost (exclusive of land) of (Project Name) is in

excess of \$\_\_\_\_\_\_\_\_\_ 1/ and that the cost includes

direct construction cost, interest, taxes,

insurance during construction and architect,

legal, inspection and examination fees pertaining

to the project.\"

\(b\) A certified public accountant will be required to

submit the following certification:

\"\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Construction Co.

Anytown, State

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To Whom it may Concern:

We have examined the books and records of \_\_\_\_\_\_

Construction Company, Inc., for the purpose of

ascertaining that the actual cost (exclusive of

land) of (Project Name) is in excess of \$\_\_\_\_\_\_.1/

Our examination was made in accordance with

generally accepted auditing standards and

accordingly include such tests of the accounting

records and such other auditing procedures as we

considered necessary under the circumstances.

The actual cost (exclusive of land) of (Project

Name) is in excess of \$\_\_\_\_\_\_\_\_\_.1 Cost includes

direct construction costs, interest, taxes, and

insurance during construction and architect,

legal, inspection and examination fees pertaining

to the project.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\"

Signature of Certified Public Accountant

\* 7-2. RESERVED \*

\* 7-3. CLOSING THE COMMITMENT. The number of sales shall total no less

than 70% of value of the units to bonafide purchasers. The

mortgagee may request insurance endorsement of the project

mortgage upon completion of the project and the sales information

shall be entered on the Schedule of Family Unit Sales, Form FHA

3282\. Simultaneously, the mortgagee must submit a request for

termination of project mortgage insurance. Payment of MIP will

be in accordance with paragraph 5(a) of the Commitment (Form FHA

3284-A). The documentation required in closing a transaction of

this nature is listed in Form FHA 3257-H. \*

1/ The mortgage must not exceed 90% of this amount.

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\* 7-4. CLOSING STAGE - INITIAL/FINAL ENDORSEMENT

a\. After construction of the project is completed and the 70

percent presale requirement has been confirmed by the Mortgage

Credit examiner, the Director of Housing/Area Manager requests

Area Counsel to hold closing of project commitment.

1\. Area Counsel determines that:

\(a\) Legal documents are satisfactory unless documents

have been certified by the developer\'s attorney; the

certification will state that the documents are

consistent with HUD legal policy statements and that

they do not conflict with any of HUD\'s regulations

and that they comply with applicable laws.

\(b\) Form HUD 92258 requirements have been complied with;

\(c\) Permission to Occupy forms have been completed;

\(d\) Final inspection report is complete;

\(e\) Cost certification and supplemental statement is

acceptable.

\(f\) Affirmative Fair Housing Marketing Plan has been

approved.

2\. Area Counsel closes project commitment in accordance

with Form FHA 3257-H. (The exhibits require may vary

according to State requirements.)

\(a\) Deed of Trust, Series 4100, not to be recorded

unless required by mortgagee

\(b\) Mortgage Note, Series 4100

\(c\) Contractor\'s Prevailing Wage Certificate, Form FHA

2403-A

\(d\) Evidence of zoning compliance (letter form local

official)

\(e\) Escrow Deposit Agreement for On Site Facilities,

Form FHA 2456 (as required)

\(f\) Escrow Agreement for Off Site Facilities, Form

FHA 244G (as required) \*

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\*

\(g\) Certificate of Mortgage, Form FHA 3224 (delete

inapplicable provisions)

\(h\) Mortgage amount endorsed shall not exceed the amount

of the commitment as supported by cost certification.

\(i\) Surety Bond Against Latent Defects, Form FHA 3259,

or an escrow deposit with the mortgagee in an amount

two and one-half times the total of all the eligible

mortgage amounts. The foregoing instruments shall

contain a clause permitting an assignment of the

mortgagor\'s rights thereunder to the Association of

owners and to the members of such association, as

their interests may appear.

\(j\) Evidence of compliance with any special conditions

of the commitment:

a\. 70% Subscription Letter

b\. Carpet Letter (if any)

c\. Completion, HUD Representative\'s Trip Report Form

HUD 5379

d\. Permission to Occupy, Form FHA 2485

\(k\) Declaration, Plan of Condominium Ownership, or

Master Deed and By-Laws in accord with State law,

together with Condominium plan and parcel map duly

recorded

\(l\) Association Legal Documentation

a\. Articles of incorporation

b\. By-Laws

c\. Minutes of first meeting- election of officers

d\. Information Bulletin

\(m\) Regulatory Agreement, Form FHA 3278

\(n\) Subscription and Purchase Agreement, Form FHA 3279

(with Exhibit \"A\" which sets forth the following:

Cash downpayment requirements; estimated monthly

payment including FHA insurance and estimated taxes

including homeowners exemption)

\(o\) Written assurances of approved mortgagee of financing

of the proposed condominium unit purchases (requirement

of basic commitment) \*

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\*

\(p\) Resolution of the mortgagor entity authorizing the

execution of Deed of Trust, Deed of Trust Note,

Regulatory Agreement and all other documents

required by HUD or the lender, or other interested

parties to the transaction in connection with the

endorsement of the project mortgage loan for

insurance by HUD.

\(q\) Resolution of Mortgagor Entity authorizing the

execution of the Declaration of Restrictions

\(r\) Borrowing Resolution of Mortgagor Entity

\(s\) Opinion of counsel of mortgagor addressed to HUD

directed to legal requirements and execution of

documents (requirement of basic commitment)

\(t\) Certification of CPA as to actual costs

\(u\) Escrow Agent (or lender) letter of assurances that

purchasers\' downpayment for individual condominium

units are being held in escrow

\(v\) Management Agreement, Form FHA 3281, duly approved

and executed by the Housing Management Division of

HUD and by the Management Agent for the property

\(w\) Mortgage Insurance Premium (MIP) check from

mortgagee

\(x\) Three-year budget for the condominium Association

that shows operating costs and reserve funds and

projected annual increase in assessments to unit

owners.

\(y\) Fire and hazard insurance policy for the entire

project, including all the units, for the replacement

value of the project.

b\. Mortgagee requests endorsement of the project mortgage and

simultaneously requests termination of the project mortgage

insurance.

c\. Individual unit titles may now be conveyed free and clear of

liens with mortgages insured under Section 234(c). \*

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\*7-5. FURTHER INSTRUCTIONS. Simplified processing may involve \*

developments done in stages with extensive community facilities.

Requirements in such proposals vary widely in different

jurisdictions. Proposals of this nature should be reviewed in

accordance with outstanding instructions from the Director,

Multifamily Development Division.

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