4440.1

CHAPTER 6. MORTGAGE

6-1. DETERMINATION OF MAXIMUM MORTGAGE.

a\. Before Final Closing. On completion of the review of certificates

of actual cost and acceptance thereof by the Field Office

Director, FHA Form 2580, Maximum Insurable Mortgage, shall be

executed by the Field Office Director for the purpose of

indicating to the mortgagee and mortgagor whether or not a

reduction in the original amount of the mortgage is necessary.

\(1\) Upon execution of FHA Form 2580, the original shall be

forwarded to the mortgagee and an executed copy shall be

forwarded to the mortgagor.

\(2\) One copy shall be placed in the field office docket and one

copy in the Washington docket with copies of the cost

certification exhibits.

b\. After Final Closing:

\(1\) Follow-up for Supplemental Certification. If at final

closing, a supplemental certification is required for items

\"to be paid in cash within 45 days,\" an appropriate follow-

up for obtaining the certification must be established.

(This is in addition to the follow-up required by Paragraph

5-11.)

\(2\) Review and Action re Supplemental Certification.

Supplemental statements, certified by an accountant in the

same manner as the original submissions, are required for

any estimated amounts included under Paragraphs 5-11 and 5-

12 for any items \"to be paid in cash within 45 days,\" and

shall be reviewed by the Director under the same conditions

as followed in the review of FHA Form 2330.

\(a\) When this supplemental certification is received, the

Director shall determine whether or not an adjustment

in the mortgage amount is required. This is ascertained

by substituting actual costs for the amounts estimated

in the original certification of costs (before final

closing) and computing a new maximum mortgage.

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4440.1

\(b\) If this computation produces an amount less than the insured

mortgage, the Field Office Director shall make demand upon

the mortgagor for payment in accordance with the provisions

of the \"Agreement and Certification.\" Copies of this letter

shall be forwarded to the mortgagee, and to the Director,

Office of Loan Management for insertion in the Washington

docket. A copy of this supplemental certification shall also

be forwarded to the Director, Office of Loan Management for

the Washington docket.

\(c\) Any prepayment on the mortgage required as a result of this

supplemental cost certification is to be considered

mandatory. Instructions set forth in Paragraph 5-11 with

respect to mandatory prepayments will also apply to this

prepayment.

6-2. EXCESS MORTGAGE PROCEEDS. There is a remote possibility that the
cash

paid out for completion of a project may be less than the mortgage

proceeds. In such circumstances, the Field Office Director shall

require that any part of the mortgage proceeds which have not been

expended to pay necessary costs of completing the project shall be

deposited in a special account of the mortgagor, from which

disbursements may be made only with the prior written consent of the

Assistant Secretary-FHA Commissioner. This requirement is stated in

paragraph (4) of the Agreement and Certification, FHA Form 3305. There

will be no obligation to the investment of such funds in obligations

of, or fully guaranteed as to principal by, the United States of

America, or to their deposit in institutions whose accounts are

insured by the United States. The establishment of the fund can be

avoided by an immediate reduction of the mortgage at closing, before

establishment of the amortization schedule.

a\. Any request received by the Field Office Director for use of the

funds for purposes other than reduction of the mortgage will be

forwarded with his comments and recommendations to the Director,

Office of Loan Management. The Office of Loan Management will

advise the Field Office Director whether the request may be

granted.

b\. If the mortgage proceeds exceed the cash paid out for completion

solely because there is a difference between the purchase price

of land held for a period of years and its \"fair market value in

fee simple and as is\", as determined by HUD-FHA, request may be

made to the Director, Office of Loan Management for waiver of

this requirement.

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c\. The request for waiver should be accompanied by full information

as to the date of purchase and purchase price of the land and

normally will be approved in situations such as the case of an

individual mortgagor who obviously cannot \"buy\" the land from

himself, as contrasted with a corporate mortgagor, which could

buy land from its sole or majority stockholder.

6-3. MORTGAGOR\'S INVESTMENT.

a\. The amount of the mortgagor\'s initial equity investment is to be

determined as follows:

\(1\) New Construction: Line 6, FHA Form 2580 minus finally

endorsed mortgage amount = equity.

\(2\) Rehabilitation-Property Owned: Line 4, FHA Form 2580 plus

HUD-FHA estimate of \"as is\" value of the existing land and

improvements before rehabilitation, minus finally endorsed

mortgage amount = equity.

\(3\) Rehabilitation-Property Acquired: Line 4, FHA Form 2580

plus the lesser of (1) FHA \"as is\" value of the existing

land and improvements before rehabilitation or (2)

acquisition cost of property minus finally endorsed mortgage

amount = equity.

b\. To the base amount as determined by (1), (2), or (3) above,

whichever is applicable, there may be added certain cash out lays

for furnishings, equipment, or other betterments essential to the

operation of the project. The nature and extent of such outlays

shall be substantiated by a supporting schedule in a manner

satisfactory to the Field Office Director. The schedule shall set

forth the vendor\'s name, a description of the item or items

purchased, the total price, and the cash paid on account of the

price. The schedule shall be signed by an authorized

representative of the mortgagor.

c\. Once the aforesaid determination has been made, the Field Office

Director will immediately notify the mortgagor in writing as to

the amount of the initial equity investments. A copy of such

determination shall be attached to each copy of the FHA Form

2580\.

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6-4. APPLICATION FOR INSURANCE OF ADVANCE OF MORTGAGE PROCEEDS. FHA Form

2403 is the same form used during the course of construction for the

advance of mortgage proceeds. When the final advance is in order, the

mortgagee, the mortgagor, the contractor, and the architect will

execute the completed form, and the form will be submitted by the

mortgagee in triplicate. The form shall be accompanied by: (1) a

completed Contractor\'s Requisition, FHA Form 2448; (2) Contractor\'s

Prevailing Wage Certificate, FHA Form 2403-A; and (3) a final survey.

a\. The survey accompanying this request must show the exact location

of all buildings, water, sewer, gas and electric mains, and all

easements for such existing utilities. It must be prepared by a

licensed surveyor who must certify that the project is installed

and erected entirely on the land covered by the insured mortgage

and within the building restriction lines, if any, on said land,

and does not overhang or encroach upon any easement or right-of-

way of others.

b\. On receipt, all copies of the Form and attachments will be routed

to the DO/CU, processed, and submitted to the Field Office

Director. On ascertaining that the advance will be final advance

of mortgage proceeds, the Field Office Director will determine

whether:

\(1\) Any items of on-site construction are incomplete;

\(2\) Any off-site facilities are incomplete;

\(3\) Any revisions are required in connection with hazard

insurance; and

\(4\) The necessary chattel mortgage or certificate of mortgagee\'s

attorney has been submitted (as required by Paragraphs 2-1

through 4-1) and the Field Office Director will be guided

accordingly.

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(6-4) c. If no items of on-site construction are incomplete, type into
the

Certificate of Mortgage Insurance on FHA Form 2403, in the space

provided for the amount of the escrow deposit, the word \"None\".

If items of on-site construction are incomplete and an escrow

deposit (in accordance with paragraph 3-1) is in order, attach to

FHA Form 2403 an itemized list of incomplete items; and type into

the Certificate of Mortgage Insurance, in the space provided, the

amount of the escrow deposit required for completion of

incomplete items.

d\. Following execution of the Form, the Field Office Director will

forward the executed original to the mortgagee, with necessary

attachments listing incomplete items, if any. If the Form is in

connection with the final advance of mortgage proceeds, at the

time the Field Office Director returns the Form to the mortgagee,

the mortgagee\'s attention must be called to the proviso in the

\"Certificate\" section of the Form concerning the fact that this

last advance shall not be considered insured until the occurrence

of the events set forth in such proviso. An executed copy will be

filed in the Washington docket, and one copy will be forwarded to

the DO/CU for use of the Mortgage Credit Staff and eventual

filing in the duplicate docket.

e\. In accordance with the Certificate of Mortgage Insurance, it is

then the responsibility of the mortgagee to submit a completed

Request for Final Endorsement of Credit Instrument, FHA Form

2023, with the credit instrument and any necessary escrow

agreement. It is desirable, however, that the Field Office

Director in forwarding the completed Form to the mortgagee, call

to the mortgagee\'s attention such additional submissions as are

required, and at the same time forward to the mortgagee copies of

FHA Form 2023 and, if necessary, Escrow Deposit Agreement, FHA

Form 2456.

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