+--------------------+-----------------------------+-------------------+
| Opinion by Counsel | **U.S. Department of        | OMB No. 2510-0010 |
| to the Mortgagor   | Housing and**               |                   |
| (FHA)              |                             | (exp 08/31/2009)  |
|                    | **Urban Development**       |                   |
|                    |                             |                   |
|                    | Federal Housing             |                   |
|                    | Administration              |                   |
|                    |                             |                   |
|                    | Office of General Counsel   |                   |
+--------------------+-----------------------------+-------------------+

For use in FHA-Insured Transactions

Public reporting burden for this collection of information is estimated
to average one hour per response, including the time for reviewing
instructions, searching existing data sources, gathering and maintaining
the data needed, and completing and reviewing the collection of
information. This agency may not collect this information, and you are
not required to use this guide, unless it displays a currently valid OMB
control number.

This information is required by 24 CFR 200.45, 200.46, and 200.60
through 200.78. The information will be used to assure that the
mortgagor or owner entity has been validly formed, lawfully exists, and
that the security property and the construction thereupon comply with
appropriate local laws. Responses are required to obtain benefits. This
information does not lend itself to confidentiality.

**APRIL 2003**

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

FEDERAL HOUSING ADMINISTRATION

INSTRUCTIONS TO GUIDE FOR OPINION OF MORTGAGOR\'S COUNSEL

EXPLANATORY COMMENTS

The Guide for this opinion was originally prepared in 1994 in view of
changes in opinion practice as reflected by the ABA Accord and various
State law bar reports on opinion letters and has been revised to reflect
approximately three years experience in using the Guide. The principal
purpose of this Guide remains to achieve a uniform format which can be
utilized throughout the Nation and which will be familiar to HUD counsel
in all jurisdictions. Such a standardized format is crucial in an era
when less resources are available to the Department; however, it should
be emphasized that certain limited changes can be authorized by HUD
field counsel as required by local law or by the unique nature of the
transaction. An effort has been made in these revised instructions to
specify examples in more (but not all) of those areas where such changes
can be authorized. Otherwise, the format of the Guide must be followed
and is not open to negotiation. In this regard, revisions cannot be
justified because of a particular Opinion having been approved by
another HUD field office. The exercise of discretion by one HUD field
counsel in unique circumstances cannot become the basis for any
modification to the Opinion. Any requested modification must be analyzed
on its own merit and in a particular context. In these explanatory
comments, the document may be referred to as the \"Guide\" or the
\"Opinion,\" depending upon the context.

The Department regards the counsel to the Mortgagor as the crucial,
central figure in the process of preparing and executing the legal and
administrative documents necessary to achieve a closing where the
mortgage note is endorsed for mortgage insurance by the Department.
Pursuant to 24 CFR Part 24, §24.105(p), attorneys or others in a
business relationship with the Mortgagor are defined as \"principals.\"
Even though the Guide is quite different in form from its predecessor
(FHA Form No. 1725), the substance is not intended to be substantially
different and the revision does not in any fashion relieve the counsel
to the Mortgagor of its obligations to its client, the Mortgagee and the
Department. In part, these responsibilities entail the exercise of due
diligence to assure the accurate and timely preparation, completion and
submission of the forms required by the Department in connection with
the transaction. Further, the counsel to the Mortgagor and any other
attorneys involved in the transaction should be thoroughly familiar with
the regulations, procedures and directives of the Department pertaining
to each mortgage insurance transaction in which counsel participates.
The Department takes seriously the preparation and completion of the
various documents involved in the mortgage insurance process (most of
which are HUD form documents) and cannot overemphasize the importance of
the following:

\"Warning: HUD will prosecute false claims and

statements. Conviction may result in criminal and/or

civil penalties. (18 U.S.C. 1001, 1010, 1012;

31 U.S.C. 3729, 3802)\"

With limited State law related exceptions, we expect that Mortgagor\'s
counsel will be able to follow the Guide in rendering an Opinion and HUD
field counsel should not accept Opinions that otherwise substantially or
materially deviate from the Guide. Although we understand that attorneys
and law firms may have evolved particular styles and forms of opinion,
HUD field counsel do not have time to negotiate each and every Opinion
for stylistic changes and it is essential that the Guide be followed in
both style and substance in order to ensure a timely closing. The
counsel to the Mortgagor is expected to complete a draft Opinion for
submission to HUD field counsel at least ten days prior to the closing
along with the other closing documents. Any deviations should be
specifically identified (redlined or highlighted) and discussed with
field counsel at that time. Any material deviation not required by State
or local law or otherwise authorized by these instructions must be
brought to the attention of the Assistant General Counsel, Multifamily
Mortgage Division, by field counsel along with an explanation as to the
necessity for the deviation.

It was anticipated that the Guide could be utilized in connection with
all types of closings: insured advances or insurance upon completion
(for new construction or substantial rehabilitation); final closings
(for refinancings, etc.). This has proved to be the case and,
furthermore, the Guide format has been adapted and used in Transfers of
Physical Assets (TPAs). However, numerous questions have been
raised\--particularly in cases involving Section 241 supplemental and
equity loans and the various refinancing transactions under Section 223.
Therefore, it is important that the correct options be selected in
instances where choices are provided and that appropriate deletions or
modifications be made to accommodate unique circumstances or programs.
On the other hand, it should be emphasized that this does not authorize
field counsel to approve changes to the Guide in cases other than where
the Guide is being adapted for a special use, e.g. refinancing or equity
loan transaction, TPA, etc. Furthermore, HUD has made an administrative
policy decision to not require an opinion by counsel to the mortgagor
for projects within the \"Small Projects Mortgage Insurance Pilot
Program (SPP).\" A Notice will be issued defining small project and
clarifying the parameters of the SMPP. The mortgagee will have the
option of requiring an opinion by counsel to the mortgagor if the
mortgagee so elects. It is anticipated that the Certification of the
Owner will be expanded slightly for use in the SMPP to provide
assurances and comfort to HUD in such cases. Otherwise, the Guide or a
variation thereof should be utilized in all FHA-insured multifamily
rental project and health care facility closings.

The Guide **is not intended to serve as a closing checklist**;
therefore, HUD field counsel may update or modify existing closing
checklists as necessary to meet constantly changing program needs and
handbook instructions and directives. For example, many deletions from
the list of Guide documents are appropriate for various types of
refinancings, operating loans, equity loans, etc. whereas several
additions are necessary in the case of loans for health care facilities
(e.g. certificate of need), supplemental loans, and certain complex
refinancings.

Brackets continue to be used in the Guide to indicate alternate
language, insertions, documents, or instructions depending on the
applicable facts and underlining is used to indicate blanks that must be
completed.

The Guide contains some instructions and definitions and is largely
self-explanatory; however, the following expanded instructions and
clarifications should provide additional assistance to both private
counsel and HUD counsel. The numbers and letters used below relate to
the paragraph numbers and letters in the Guide unless page numbers are
specifically designated.

[Page 1 and Introductory Paragraph:]{.underline}

•Letterhead and date: The Opinion must be typed on the firm letterhead
and dated the date of endorsement of the mortgage note by HUD.

•Reference: Data regarding the project (name, HUD project number, and
location and the name or title of the Mortgagor must be accurate and
inserted in the appropriate blanks.

•Addressees: The Opinion must be delivered to HUD as well as the
Mortgagee making the loan to establish the explicit right of each to
rely on the Opinion. The Mortgagee\'s counsel may be relying on the
Opinion for certain aspects of its opinion. If so, the Opinion must also
be addressed to counsel to the Mortgagee. HUD is aware that recent case
law has raised issues about the extent to which a mortgagee can rely
upon such an opinion; therefore, this matter of reliance by the
mortgagee could be clarified by the parties at the outset in
jurisdictions where the issue has been raised. Regardless of case law,
HUD continues to believe that this is a unique transaction where the
federal interest as insurer of the mortgagee is clear from the outset
and that it is as a result of the unique federal requirements that
counsel to the mortgagor is retained to represent the mortgagor in such
a fashion that the Opinion rendered by counsel to the mortgagor
necessarily must be addressed to, and relied upon by, HUD as the insurer
of the mortgagee and the mortgagee in order for the loan transaction to
go forward. In cases where counsel to the mortgagee **elects not** rely
upon the Opinion or counsel to the Mortgagor does not wish to permit
reliance by counsel to the mortgagee, the Opinion should not be
addressed to and/or delivered to the mortgagee\'s counsel.

•Description of the Loan: The loan amount is the original principal
amount of the loan being insured unless a modification is necessitated
in connection with the closing.

•Source of funds for the Loan: In the second full sentence on page 2 the
source of funds must be accurately identified.

[List of Documents:]{.underline}

•In General: If there are no brackets around a particular document, the
document is one which is commonly used for initial endorsements for
insured advances completion cases; however, it should be emphasized that
it is impossible to list every document for every insured loan. Further,
no attempt has been made to list all documents utilized in all types of
refinancings and certain specialized programs, e.g. certificates of need
and licenses for health care programs. Conversely, some documents may
not be utilized in a particular transaction and should be deleted from
the list in the actual Opinion. Brackets around the name of the document
indicate that the document may or may not be used for every loan. If
bracketed documents are not used in a particular loan transaction, then
delete such documents from the list in the actual Opinion. Each document
executed in connection with the loan must be listed by its correct
title, showing each party executing it and its date. If documents are
dated \"as of\" a particular date, then such phrase should be included
in the description in the text. **It is imperative that care must be
taken to compile a list that accurately and completely reflects the
transaction in the submission to HUD of the initial draft. After HUD
review of the initial draft, the Opinion may have to be modified, as
necessary, to satisfy HUD.**

All documents executed in connection with the loan transaction must be
listed regardless of whether the document is required by HUD or whether
the Mortgagor is a party to the document. It should be emphasized that
counsel to the Mortgagor is not assuming resuming responsibility for the
content of documents that counsel does not prepare and that the
Mortgagor does not execute. The review is necessary to provide assurance
of consistency from document to document. The appropriate HUD or FHA
form number, if applicable, must be indicated in parenthesis after each
document. Please note that the Guide lists a four digit number after
virtually all of the standard HUD documents. In many instances as these
forms have been updated, the four digit numbers have been changed so
that they are now preceded by a \"9.\" The ultimate plan is to
standardize a four digit number for each form; therefore, the four digit
number has been used to avoid any need for future change.

A. Organizational Documents: All of the Organizational Documents must be
reviewed and care should be taken to ensure adherence to the HUD
guidelines and directives pertaining to such documents as set forth in:

1\. The Instructions to HUD Form 92466 which pertains to corporate,
partnership and trust mortgagors;

2\. HUD Form 1732 which pertains to nonprofit corporations; and

3\. HUD Notice H-95-66 which pertains to partnerships and limited
liability companies (LLCs) to the extent Housing determines that the
policy of the Notice remains applicable to a particular transaction.

G. In the original version of the Guide, the requirement that HUD be
named in the Financing Statements as a secured party or as its interests
may appear was standardized through requiring the insertion of
appropriate language in the Security Agreement. The purpose was to
clarify that, under certain circumstances, HUD may assert some rights in
the personalty arising under the Regulatory Agreement which would
precede an assignment of the mortgage. Based upon experience to date, a
decision has been made that HUD need not be so named in the Financing
Statements and Security Agreement. This decision makes it more
imperative that there be specificity in the UCC documentation with
respect to the securitization of items such as receivables (particularly
in the case of hospitals and nursing homes for example) in order to
protect the interest of HUD in the securitization of personalty.
Furthermore, it is imperative that Counsel to the Mortgagor be aware of
the recent changes to Article IX of the UCC. Field Counsel may require
appropriate modifications in the Opinion to cover this major change in
State law.

J. Building Loan Agreement: This document is a \"bracketed document\"
which should only be used in cases involving new construction or
substantial rehabilitation. Hence, the document is not required in
equity loan transactions and most refinancing transactions and many
supplemental loan transactions.

K. Construction Contract. See J. above.

L. Mortgagee\'s Certificate: It has been argued that this document is
unnecessary in the context of certain insured secondary loan
transactions because the form is used to document the first mortgagee\'s
consent to the second loan. The first mortgagee would not be involved in
such situations. In cases where the consent of the first lender is
obtained for a second mortgage insured by HUD, a separate document (for
which there is no specified format) is utilized.

The Mortgagee\'s Certificate is executed by the lender making the loan
being insured, which in the cases at issue would be the lender making
the second loan, and is one of the most significant closing documents.
HUD places great reliance upon the mortgagee\'s certificate and
considers it necessary to reveal all fees, side transactions, etc.
Counsel to the Mortgagor is not responsible for the execution of the
document and only needs to review the document in the capacity as
counsel to the mortgagor.

M. Mortgagor\'s Certificate: This document may overlap somewhat with
other documents as several private attorneys have indicated;
nonetheless, the mortgagor\'s certificate is a significant document upon
which HUD relies. This document and the Opinion should be dated the date
of the closing.

P. Certification of Owner: Several persons have questioned whether the
references in Paragraph 6 to the Public Entity Agreement and the
Regulatory Agreement should be changed so that both refer instead to the
Public Entity Agreement. The references should not be changed because
HUD wants assurance that there will be no violations of the Regulatory
Agreement as a result of events that have occurred with the passage of
time.

Q. UCC searches: The UCC Search must be conducted within thirty days of
closing and can be conducted by either the title insurance company, a
reputable document search firm, the counsel to the Mortgagor or any
other attorney licensed in the jurisdiction.

R. Flood insurance receipt: Arguments have been made that this document
is not necessary in equity loan, supplemental loan and refinancing
transactions. Flood plain maps change. In insuring a first or a second
mortgage, it is just as significant that HUD know whether the property
is located in an area where flood insurance is required and, if so,
whether the insurance is in effect regardless of whether a prior
HUD-insured first mortgage is in effect. HUD would not necessarily have
the data on file, and it was determined that this is a matter which
counsel to the mortgagor could confirm under item (e) near the end of
the Guide. Note that no opinion is required, and the factual
determinations necessitated by the Guide are considered within the usual
duties of counsel to the mortgagor.

S. Title Insurance Policy: Currently the 1992 ALTA Format (with
appropriate endorsements) is required by HUD in most jurisdictions.

T. Evidence of zoning compliance: The evidence of zoning compliance will
vary depending on the circumstances. The evidence should establish that
the building, if constructed according to plans and circumstances, will
comply with all zoning requirements. The evidence may be in the form of
a letter or certificate from the appropriate local official stating
that, if the building is constructed according to the plans and
specifications submitted for review, the building will comply with all
zoning requirements. In refinancing cases where no construction is
involved, the evidence may be in the form of a letter certifying that
the existing building(s) is (are) in compliance with outstanding zoning
requirements or, if not, the nonconforming variance, etc., is
acceptable. If the locality has no zoning ordinance, a letter should be
submitted from the chief executive stating such. In those circumstances,
it may be necessary to obtain a letter from the local planning body of
the county in which the project is located, that the proposed
development is compatible with the county\'s comprehensive plan. If the
zoning approval is based upon a variance or other special action, the
closing may have to be delayed until the time for appeals has run. In
extremely complex cases, an opinion may need to be obtained from legal
counsel specializing in local zoning matters. Such letter must be
attached as an exhibit and referenced in the appropriate paragraphs of
the Opinion.

In cases involving refinancings, it has been suggested by some attorneys
that HUD should have zoning information on hand either as a result of
the closing of the first HUD-insured loan or due to periodic site
reviews. HUD would not normally maintain data pertaining to local zoning
law and the data with respect to the first loan would only be valid with
respect to the closing date of that loan. Paragraphs 7, 8 and 9 of the
Opinion contain several options with respect to local zoning law. It has
also been suggested that evidence of zoning compliance should not be
required in Section 241(f) equity loans. The only language applicable to
Section 241(f) equity loans is the wording at the end of 9 which
pertains to refinancings, **viz.** \"Based solely on the Certificate,
the Project complies with all applicable land use and zoning
requirements.\" After considering the issue, it has been determined that
a zoning certificate is not essential in Section 241(f) equity loan
cases; however, the attorney for the mortgagor will have to state: \"The
project complies with all applicable land use and zoning requirements.\"
It is important that HUD be assured that there have been no changes in
the land use or zoning which would adversely affect the continued use of
the property as a rental housing project. In this context, we
reemphasize that the attorney responsible for this matter must be
licensed in the property jurisdiction.

U. Building permit(s): If no building permit is required (as would
normally be the case in a pure Section 241(f) equity loan), this
document is not applicable and should be deleted from the Opinion. (This
would also be true with respect to occupancy permits (under V.) unless
new permits are required under local law in connection with \"pure\"
refinancing transactions.)

V. Permits required for the operation of the project: Several
practitioners have argued that the documentation is unnecessary in
equity loan and refinancing transactions; however, they have not
indicated whether such a position would affect their wording of
Paragraph 4 of the Guide. In all cases (including Section 241(f) equity
loans), HUD is concerned that any permits required for the continued
operation of the project be proper and in place such that an opinion can
be rendered with respect to Paragraph 4. It is crucial in existing
projects that HUD be assured that no new requirements have been imposed
which would thwart continued operation of the project. If no such
permits are required, Paragraph 4 should be amended accordingly. This is
a matter which counsel to the mortgagor, as a specialist in the property
jurisdiction, should be able to ascertain.

W. Surveyor\'s plat or survey: The survey must be signed, sealed and
dated within 90 days of the closing. In a pure Section 241(f) equity
loan and certain refinancing transactions, a survey would not normally
be required because no new construction would have taken place and,
presumably, nothing would have changed with respect to the building(s)
and the site. In such situations, if there is other satisfactory
evidence that no site changes have occurred, an administrative waiver
would necessitate the deletion of the item from the Opinion. See X.
below. If the mortgagor\'s attorney were to become aware of any changes,
this would have to be addressed in the Opinion and a survey could be
required by HUD depending upon the circumstances.

X. Surveyor\'s Report: Unless there is a title endorsement protecting
against any encroachments, etc., there will have to be a surveyor\'s
certificate indicating that nothing has changed since the last survey
with respect to encroachments, lot line violations, construction
activity, etc. HUD should not be incurring the risk of insuring any loan
if there has been any action which would impair the lender\'s and HUD\'s
respective positions. As an alternative to a surveyor\'s certificate,
the mortgagor\'s attorney could rely upon an appropriate certificate
from a qualified architect and insert appropriate language in the
Opinion.

Z. Assurance of completion (bonds or agreement): This documentation (now
bracketed) would not be utilized in a pure refinancing or equity loan
transaction and, therefore, would only be used in cases involving some
construction where the regulation pertaining to assurance of completion
is applicable.

AA. Owner-Architect Agreement: This document (now bracketed like
Documents J and K) should only be indicated (where the Guide indicates
\"**{INSERT DESIGN AND/OR CONSTRUCTION ARCHITECT}**\") in cases
involving new construction or substantial rehabilitation.

BB. Off-Site Bond or Agreement: This document should only be used in
cases where off-site work is involved. As such, the document would not
normally be used in pure equity loan transactions or in refinancing
transactions involving no construction.

CC\. Assurance of utility services: These documents do not pertain to
pure Section 241(f) equity loan transactions and certain refinancing
transactions and, therefore, should be deleted in those instances.

FF. Escrow Deposit for On-Site Improvements: If any such improvements
are required in connection with an equity loan, supplemental loan or
refinancing transaction, the form document specified should be tailored
to the situation as determined by field counsel. In a situation where
such an escrow is necessary, counsel to the mortgagor should modify the
form as necessary and present it to field counsel for review.

GG. Contractor\'s Prevailing Wage Certificate: This item is no longer
required in the HUD closing checklist; therefore, some attorneys have
taken the position that it can be eliminated from the Opinion. HUD
believes the item should be reviewed by counsel to the Mortgagor for the
purpose of assuring consistency between the documents and performance
under the Construction Contract to which the Mortgagor is a party.

KK. Public Entity Agreement: The references to this document and to the
Regulatory Agreement in Paragraph 6 of the Certification of Mortgagor
have created some confusion about whether the reference to the
Regulatory Agreement should be changed to Public Entity Agreement. The
two separate references were intended, and no change should be made.

LL. Bond Documents: This does not include all documents involved in the
typical bond financing. It does include those principal documents such
as the Prospectus, the Indenture, a sample Bond, etc. All documents
executed by the Mortgagor or which establish or describe any obligations
of the Mortgagor must be included.

NN. Certificate issued by architect or other professional: Normally such
a document would not be necessary in the case of a pure Section 241(f)
equity loan and certain refinancing transactions and should be deleted
unless those circumstances mentioned under the last sentence pertaining
to Document X, above, make the certificate appropriate. Note that
\"Certificate\" is a defined term and that the Certificate can come from
\"an architect or other professional.\" Consequently, there is no form
for the Certificate and HUD field counsel should defer to HUD
administrators specializing in architectural and engineering matters in
determining the acceptability of the Certificate. It is referenced in
Paragraph 9 of the Opinion and should not be confused with the Zoning
Certificate which is also a defined term and is referenced in Paragraph
8.

OO. Docket search: The Docket Search can be conducted by either the
title insurance company, a reputable document search firm, the counsel
to the Mortgagor or any other attorney licensed in the jurisdiction.
Arguments have been made by private counsel that such a docket search is
not necessary in all transactions. One of the main purposes of the new
Guide was to clearly define the work to be performed by counsel to the
mortgagor. It was determined that such a search was within the scope of
the fees permitted as a mortgage line item for counsel to the mortgagor.
Such a search is important in the case of an existing subsidized project
where matters of public record could reveal circumstances wherein it
would be inadvisable for HUD to go forward with insuring another loan.

An argument has also been made that several record searches in separate
jurisdictions could be necessitated in some cases and that this would
cost a significant amount of money with little benefit. As the Guide was
being developed, HUD was cognizant of such a scenario; however, the
benefit to HUD of establishing that the public records are clear
outweighs the costs to the mortgagor of conducting such searches. In the
case where a sole-asset mortgagor is being created, however, a search of
the public records in the jurisdiction where the mortgagor is located
(assuming a different location from the others iterated) is unnecessary.
The Opinion could be amended in those instances to indicate that
particular state of facts; however, all of the other searches would have
to be done.

[Opinions:]{.underline}

1\. This paragraph contains several options depending upon whether the
Mortgagor\'s organizational documents were prepared by counsel rendering
the Opinion and the type of mortgagor entity. Care should be taken to
ensure that the correct option is selected and that the requisite
information is inserted correctly. It is intended that, where the
mortgagor entity or general partner of the mortgagor entity is
established by counsel to the Mortgagor, no reliance on other sources is
permitted and counsel must opine as to the due organization of the
Mortgagor. If a Certificate of Good Standing is not available in the
State, but an equivalent document is (i.e., Certificate of Existence),
then the bracketed language must be revised to reflect the name/title of
the equivalent document so obtained. Any Certificate of Good Standing or
equivalent document issued by the applicable governmental authority must
be dated no more than 30 days prior to the date of the Opinion of
Mortgagor\'s counsel. If the Mortgagor is a foreign corporation or
partnership, the Opinion must recite the review of all government
approvals required to do business in the Property jurisdiction. If a
Certificate of Good Standing or equivalent document cannot be obtained
from the applicable governmental authority (e.g., for general
partnerships, then the Mortgagor\'s attorney will be required to do the
due diligence necessary to give the opinion or may engage other counsel
to render such opinion). If the Property jurisdiction is not the State
of formation for the mortgagor entity, counsel must also opine that the
Mortgagor is qualified to transact business in the Property
jurisdiction. Such opinion may be made solely on the basis of a
certificate from the applicable governmental authorities of the Property
jurisdiction, and if counsel is relying on such certificate(s), then the
opinion must expressly identify those certificate(s) and they must be
attached to the Opinion as an exhibit. If the Mortgagor is an
individual, paragraph one should be deleted from the Opinion.

2\. This paragraph provides, among other things, that the Mortgagor
possesses all the necessary governmental certificates, permits,
licenses, qualifications and approvals to own and operate the Property.
This particular provision has generated considerable
controversy\--particularly where health care facilities are being
constructed or substantially rehabilitated in large, urban jurisdictions
having a multitude of regulatory requirements pertaining to ownership
and operation. Consequently, field counsel have discretion to permit a
modification in which Counsel to the Mortgagor itemizes those local
governmental requirements which have been evaluated and indicates that,
after due diligence inquiry and insofar as the attorney is aware, these
local requirements comprise the entire universe of such requirements.
The Opinion should further state that, based upon such itemized local
requirements and compliance therewith (with all permits, certificates,
etc. being itemized), the Mortgagor possesses the power and authority
necessary to own and operate the Property and to carry out all of the
transactions required by the Loan Documents and to comply with
applicable federal statutes and regulations of HUD in effect on the date
of the FHA commitment. In most instances involving new construction, a
certificate of occupancy will not have been obtained by the time of
closing. In such instances, field counsel have discretion to permit an
appropriate clarification with respect to that particular instrument.

11\. If the Mortgagor or any principal of the Mortgagor is involved in
any litigation, [all]{.underline} such litigation matter(s) must be
disclosed in writing to HUD field counsel in order that the Department
can determine whether the endorsement of the loan is possible. Note that
litigation involving a principal of the Mortgagor must be disclosed.
Confusion has developed when there has been litigation involving lower
tiers of a partnership. If the issue cannot be resolved through
reference to the definition of \"principal\" in the 2530 regulations,
HUD field counsel should consult with HUD program administrators and
determine whether the litigation should be disclosed. If the litigation
involves HUD\'s compliance with civil rights requirements, it must
immediately be brought to the attention of appropriate Fair Housing and
Equal Opportunity personnel (regardless of whether a \"principal\" or
some lesser component of the Mortgagor is the subject of the
litigation). As an example, it is not uncommon for neighbors of a
proposed site for a group home for persons with disabilities to harbor
discriminatory attitudes toward persons with disabilities and to sue to
attempt to block the establishment or operation of a group home.

13\. If any UCC Financing Statements have been filed on the Personalty
in conjunction with any transaction other than the Loan, they must be
identified to the HUD field counsel as well as details with respect to
how such Financing Statements will be terminated at the time of
closings.

If the property is an elderly housing project or a health care facility
or if the loan otherwise is to be secured by significant amounts of
personal property, the matter should be discussed with field counsel. In
the event further discussion is necessary, field counsel should contact
the Assistant General Counsel, Multifamily Mortgage Division. For
projects in which the personalty is mostly household appliances (e.g.,
refrigerators) or a limited quantity of smaller equipment, the Opinion
will be limited as shown. In other instances, the Opinion may have to be
expanded particularly with respect to ensuring that items such as
receivables, income stream, etc. are security property.

One or more UCC searches performed not more than 30 days prior to the
date of the Opinion must be made and attached to the Opinion.

15\. If the Mortgagor is a trust (other than a land trust), then
Paragraph 15 must be included in the Opinion. The second sentence need
only be included if the trust was formed in a jurisdiction other than
the Property jurisdiction.

[Acceptability of Counsel:]{.underline}

• Mortgagor\'s counsel must opine as to the law of the Property
jurisdiction and the State of Mortgagor\'s organization, if different
from the Property jurisdiction. HUD requires that Mortgagor\'s counsel
be admitted to practice law in each jurisdiction in which such admission
is required by the laws or ethical considerations of the bar to be able
to give the opinion. If multiple jurisdictions are involved, two
opinions may be required: one with respect to the organization of the
Mortgagor and another with respect to the real property and loan issues.
A combination of the Mortgagor\'s regular counsel and special local
counsel may be required to satisfy this requirement. If counsel\'s
satisfaction of these requirements is not evident from the letterhead of
the firm, the field counsel should include a written explanation in the
Washington docket. In all events, each provision in the Guide must be
addressed whether one or more opinions is required to do so.

[Signatures:]{.underline}

• The Opinion may be signed by an authorized person of the law firm, in
that person\'s name.

[Certification of Mortgagor:]{.underline}

• A form of Certification of Mortgagor is attached. The form represents
the minimum amount of information that should be obtained from the
Mortgagor (but additions, revisions and rephrasings are acceptable so
long as the Mortgagor is certifying as to factual matters and not legal
conclusions). The Certification of Mortgagor must be dated the same date
as the Loan Documents.

[Identity of Interest:]{.underline}

• Numerous issues have been raised with respect to the confirmation in
(d) of the penultimate paragraph of the Guide. A decision was made that
the attorney signing the Opinion could not have an identity of interest
with the Mortgagor entity. No waivers are possible in such instance. In
instances where other members of the firm have an interest in the
Mortgagor entity, such interest must be disclosed and such interest must
be acceptable to field counsel based upon the ethics rules of the
applicable bar. Furthermore, any interest must be administratively
acceptable to HUD and 2530 clearance must be obtained. In addition,
there appears to be an increasing trend wherein mortgagees are insisting
upon using counsel to the mortgagee to handle many aspects of the
transaction even though the Opinion is being signed by a separate
attorney. There have been some instances where counsel to the mortgagee
has asked to represent the mortgagor in whole or in part and to provide
all or a part of the Opinion. Confirmation (d) in the penultimate
paragraph has been clarified to reflect the intent of HUD from the
inception of the Opinion that any such representation of both parties is
not permitted.

[Liens:]{.underline}

• Paragraph (f), which is in the penultimate paragraph of the Opinion,
contains a statement that there are no liens or encumbrances against the
Property. Several attorneys have objected to making the statement
because they indicate that, at the time of closing, there may be liens
that have actually not been released even though the title company has
received funds and/or release documents to do so and intends to process
the release after the closing. Except in cases involving the insurance
of secondary loans, HUD is only authorized to insure first mortgages;
consequently, there cannot be any liens and encumbrances on the property
when HUD endorses the mortgage note for insurance. As a result, there
cannot be any liens outstanding which would prime the insured mortgage
loan. Hence, Paragraph (f) should not be changed.

[Reliance on other opinions:]{.underline}

• The issue of proper wording and format has probably surfaced most
often in cases where counsel to the Mortgagor is relying on opinions
issued by other attorneys. This has occurred most often in cases
involving a separate opinion for bond financing documentation, property
jurisdiction vs. organizational jurisdiction, zoning, etc. In this area,
it is imperative that counsel to the Mortgagor specifically reference
and attach the additional opinion(s) and that such opinions track the
language of the Guide as close as is practical under the circumstances.
HUD field counsel should exercise discretion in this area, taking the
unique circumstances into account.