#### Chapter

> **7**

## Chapter 7 Closing

**Executive Summary**

SECTION 7-1

> This chapter describes the preparation, execution and recordation of
> the closing and internal control documents needed to consummate a
> Restructuring Plan for a Mark-to-Market debt restructuring
> transaction. It discusses the roles and responsibilities of the: PAE,
> owner, existing and new mortgagees, and their attorneys; title company
> and escrow agent; OMHAR Portfolio Director and business staff; and HUD
> Multifamily Hub or Program Center, Multifamily Claims Branch,
> Multifamily Notes Servicing Branch, and Multifamily Insurance
> Operations Branch (MFIOB). *Within sixty (60) days of the execution of
> the Restructuring Commitment by the owner, all closing documents
> should be properly executed and recorded, title policy issued, all
> funds disbursed, and escrow closed.*

**Overview**

SECTION 7-2

> **7-3 General Closing Roles and Responsibilities**

A.  Special OMHAR Production Office Delegations

B.  PAE Responsibilities

C.  Closing Escrow Agent Responsibilities

D.  Take-out Financing Closing Responsibilities

> **7-4 Working Parties**

A.  PAE Responsibilities

B.  Closing Escrow Agent Responsibilities

C.  Owner and Owner's Attorney

D.  OMHAR Production Office

E.  HUD Multifamily Hub or Program Center

F.  Existing Mortgagee or Loan Servicer

G.  New Mortgagee or Loan Servicer

H.  Title Company

I.  HUD Multifamily Claims Branch

J.  HUD Multifamily Insurance Operations Branch

> **7-5 Pre-Closing**

A.  Restructuring Commitment

B.  Choosing the Title Company and Closing Escrow Agent

C.  Closing Instructions from the PAE to the Owner

D.  PAE Notice to the Existing Mortgagee of Debt Restructuring

> **7-6 Settlement of Payments and Funds Disbursement**

A.  Settlement of Payments

B.  Disbursement of Funds

> **7-7 Partial Payment of Claim**

A.  General

B.  Preparation of Section 541(b) Claim and other Internal Control
    Documents

C.  Payment of Section 541(b) Claim

> **7-8 Closing Document Preparation, Execution, and Recordation**

A.  Completion of Closing Documents

B.  Managing Closing Document Execution

C.  Review and Certification of Legal Documents

D.  Closing Escrow Agent Document Holding

E.  Setting Final Closing Date

F.  Transmitting Closing Information from PAE to All Working Parties

G.  Recordation and Final Closing

H.  Endorsement for Full Mortgage Insurance under Section 223(a)(7)

I.  Endorsement under Section 542(c) HFA Risk-Sharing

J.  Endorsement under Section 542(b) GSE Risk-Sharing

> **7-9 Section 221(d)(4) Substantial Rehabilitation or Section 223(f)
> Refinancing**

A.  General

B.  Document Execution

C.  Internal Control

    10. **Section 8 HAP Contract**

    11. **HUD-Held Notes**

    12. **Non HUD-Held/Non 541(b) restructurings -- Full Restructurings
        with no Claim payment but were not previously HUD held.**

> **7-13 List of Business Forms, Legal Forms**

**General Closing Roles and Responsibilities**

SECTION 7-3

A.  **Special OMHAR Production Office Delegations**. The OMHAR Portfolio
    Director has the authority to execute Restructuring Commitments and
    OMHAR loan documents, to modify existing mortgages, and to endorse
    mortgages for the Mark to Market program that are insured by FHA
    under Section 223(a)(7) of the National Housing Act, Section 542(c)
    HFA Risk-Sharing, and Section 542(b) GSE Risk-Sharing.

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A.  **PAE Responsibilities**. The PAE business staff and PAE closing
    attorney are responsible for successfully closing the restructured
    deal as approved by OMHAR.

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B.  **Closing Escrow Agent (Third Party Fiduciary) Responsibilities**.
    The Closing Escrow Agent will be responsible for handling the
    closing of each restructured deal according to the closing escrow
    instructions provided by the PAE attorney.

C.  **Take-out Financing Closing Responsibilities**. The type of
    financing will determine which party is responsible for preparation
    of the take-out financing documents. The following matrix provides
    closing responsibilities based on financing alternatives:

**Closing Responsibilities**

**by Financing Alternative\***

+-------------------+----------------+----------------+----------------+
| **Type of         | **Prepares     | **Reviews Loan | **Conducts     |
| Financing**       | Loan           | Documents**    | Re             |
|                   | D              |                | structuring/** |
| **Alternative**   | ocuments\*\*** |                |                |
|                   |                |                | **Loan         |
|                   |                |                | Closing**      |
+-------------------+----------------+----------------+----------------+
| Modification of   | Existing       | PAE attorney   | Existing       |
| existing loan     | mortgagee      |                | mortgagee      |
|                   | attorney       |                | attorney       |
|                   |                |                | acting with    |
|                   |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| FHA-insured       | New mortgagee  | PAE attorney   | PAE attorney   |
| Section 223(a)(7) | attorney       |                |                |
+-------------------+----------------+----------------+----------------+
| HFA risk-sharing  | New mortgagee  | PAE attorney   | New mortgagee  |
| or other          | attorney       |                | attorney       |
| state/local       |                |                | acting with    |
| government        |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| Conventional loan | New Mortgagee  | PAE attorney   | New Mortgagee  |
|                   | attorney       |                | acting with    |
|                   |                |                | PAE attorney   |
+-------------------+----------------+----------------+----------------+
| FHA-insured       | New Mortgagee  | PAE attorney   | HUD Field      |
| Section 221(d)(4) | attorney       | and HUD MF Hub | Office OGC     |
| or 223(f)         |                | or Program     | attorney will  |
|                   |                | Center Housing | handle closing |
|                   |                | staff and OGC  | of new         |
|                   |                | attorney       | 221(d)(4) or   |
|                   |                |                | 223(f)         |
|                   |                |                | mortgage in    |
|                   |                |                | conjunction    |
|                   |                |                | with the PAE   |
|                   |                |                | attorney who   |
|                   |                |                | closes the     |
|                   |                |                | OMHAR portion  |
|                   |                |                | of the overall |
|                   |                |                | closing        |
+-------------------+----------------+----------------+----------------+

\*The chart addresses the loan financing aspects of the closing, and not
the mortgage restructuring function.

\*\*Refers to takeout financing documents; PAE Attorney always prepares
the M2M loan documents

**Working Parties**

SECTION 7-4

A.  **PAE Responsibilities**. The PAE business staff and PAE closing
    attorney are responsible for the following:

### Business Staff 

1.  Overall coordination of the closing of each mortgage restructuring
    transaction

2.  Select Closing Attorney

3.  Select Closing Escrow Agent (in conjunction with Closing Parties)

4.  Work with closing parties to select Title Company

5.  Review and approve Closing Attorney's work product; including review
    of all legal documents for accuracy, compliance with the approved
    deal, and consistency with the Official Term Sheet, Form 7.19

6.  Verify that HUD Mortgagee of Record and Unpaid Principal Balance
    information (F47) is correct and, if necessary, have existing
    mortgagee arrange for corrections as early in the restructuring
    process as possible

7.  Provide the initial (and any revisions) Official Term Sheet to the
    PAE Attorney and OMHAR Production Office

8.  Work with PAE Attorney in the preparation and full execution of the
    Restructuring Commitment and Amendments

9.  Fax copy of fully executed Restructuring Commitment and all
    Amendments to OMHAR Closing Team

10. Coordinate preparation of and receipt of the Section 223(a)(7) Firm
    Commitment Application Package from the New Mortgagee

11. Review and recommend approval of Section 223(a)(7) Firm Commitment
    Application (pursuant to Appendix N)

12. Coordinate the execution of the Section 223(a)(7) Firm Commitment
    with the OMHAR Portfolio Director

13. Prepare and distribute Closing Parties Checklist (Form 7.7) to all
    parties

14. Provide formal notification to existing mortgagee of pending
    restructure (Form 7.9) and provide copy of Restructuring Commitment

15. Coordinate receipt of necessary closing information and
    documentation from existing mortgagee

16. Coordinate preparation of Section 8 HAP Contract by OMHAR Production
    Office

17. Notify Multifamily Hub or Program Center of need for reservation of
    Section 8 HAP funds

18. Coordinate the full execution of Section 8 HAP Contract by HUD Field
    Office Director and Owner to ensure timely closing

19. Arrange for Rehabilitation Escrow Deposit Agreement (if applicable)
    including selecting the Contractor responsible for the cash
    management and repair review and providing for payment

20. Prepare and forward Partial Payment of Claim package to OMHAR
    Relationship Manager at least eighteen (18) days prior to scheduled
    closing date, and coordinate with OMHAR HQ Closing staff

21. Prepare and provide final Sources and Uses statement to Closing
    Escrow Agent and OMHAR HQ Closing staff

22. Coordinate with the HUD Field Office the transfer of Section 8
    contract administration responsibility, when appropriate

23. Forward electronic copy of final underwriting model to OMHAR
    Production Office Data Integrity Person immediately upon closing

24. Update the M2M MIS in a timely fashion

### PAE Attorney

> 1\. Upon receipt of the Official Term Sheet Form 7.19, prepare the
> Restructuring Commitment and certify that the Restructuring
> Commitment:

-   accurately reflects the approved restructuring plan and terms

-   the form has not been altered, and

-   any changes to the form have been approved in writing by OMHAR HQ

> 2\. Draft M2M loan documents pursuant to the Official Terms Sheet Form
> 7.19 and the Instructions to PAE Attorneys, Appendix F, and this
> chapter
>
> 3\. Coordinate with HUD Field Office attorney to ensure a simultaneous
> closing when take out financing is insured under Section 221(d)(4) or
> 223(f)
>
> 4\. Draft closing instructions for the Closing Escrow Agent

5.  Provide title company with title instructions pursuant to Appendix F
    Title Instructions, and review pro forma title report

6.  Coordinate review of the M2M loan documents by OMHAR Portfolio
    Director

7.  Coordinate execution of restructuring documents by Portfolio
    Director

8.  Review new title policy for accuracy pursuant to OPG Appendix F
    prior to closing

9.  When requesting review of all legal documents and execution of loan
    documents by OMHAR Portfolio Director Office Director, provide the
    Official Terms Sheet Form 7.19, a checklist of documents requiring
    execution and a [letter]{.underline}, the first of four
    certifications submitted by the PAE Attorney, certifying the
    following:

-   the closing documents accurately reflect the approved Restructuring
    Plan and the Official Term Sheet

-   the standard legal forms have not been altered, and

-   any changes to the forms have been approved in writing by the OGC
    attorney assigned to OMHAR

10. In a Section 223(a)(7) transaction, provide to the OMHAR Portfolio
    Director the original executed new FHA-insured Note and submit the
    second of four certifications submitted by the PAE Attorney, a
    [Certification of Closing Attorney, Form 7.8,]{.underline} to the
    OMHAR Portfolio Director requesting Endorsement of the new
    FHA-insured Note and requesting authorization for Partial Payment of
    Claim. The Certification of Closing Attorney and request for
    authorization for Partial Payment of Claim must not be submitted
    until the following have occurred, without exception:

-   Loan documents have been recorded

-   All funds except FHA claim have been deposited with Closing Escrow
    Agent

-   Title policy has been issued

> Provide instruction to the OMHAR Portfolio Director regarding the
> faxing and forwarding of the original endorsed note to the new
> mortgagee

11. When requesting a Partial Payment of Claim authorization from the
    OMHAR Portfolio Director in financing transactions other than
    Section 223(a)(7), provide the third of four certifications
    submitted by the PAE attorney, [a Certification of Closing, Form
    7.11]{.underline}, certifying that the loan documents have been
    recorded, and that all funds except the FHA claim have been
    deposited with the Closing Agent and title policies have been issued

-   In a restructuring of a HUD-Held Note with FHA insured financing, or
    a non-HUD-held restructuring that does not require a 541(b) payment,
    provides to the OMHAR Production Office a Certification of Closing,
    Form 7.14

11. If there is a Section 223(a)(7) refinancing, prepares the HUD Form
    290, Closing Memorandum

12. Fax copies of new notes, mortgages and final Exhibit F from the
    underwriting model to OMHAR HQ Closing/Post-Closing Representative
    immediately after closing (unrecorded mortgages are acceptable at
    this time)

13. Provides to OMHAR Portfolio Director a final certification (the
    fourth and final certification) on letterhead stating that all
    required actions have been taken, the Closing has been consummated
    and the Restructuring has been completed according to the guidelines
    and approved terms.

14. Prepare and distribute the Closing Dockets pursuant to guidance in
    Chapter 8, if selected to do so by the PAE

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B.  **Closing Escrow Agent (Third Party Fiduciary) Responsibilities**.

> The Closing Escrow Agent will be selected by the PAE with the approval
> of all parties. The Closing Escrow Agent must be an experienced third
> party fiduciary, be bonded and insured, and have multifamily real
> estate closing experience. The Closing Escrow Agent must have an arms
> length relationship with all parties to the closing. It is recommended
> that the Closing Escrow Agent be part of a major title company. If not
> part of a major title company, the closing escrow agent must execute a
> Closing Protection Service Letter. The Closing Escrow Agent expense
> may be included in the transaction costs.

The following list identifies usual responsibilities of the Closing
Escrow Agent. It is not all-inclusive and is intended as information
only. The Closing Escrow Instructions prepared by the PAE Attorney will
provide deal specific directions.

1.  Capture all closing documents, including specific HUD documents, as
    listed in the Closing Documents Checklist (Form 7.2)

2.  Capture and forward via FAX to 202 708 5755 the following items to
    the OMHAR HQ Closing Team:

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a)  Prior to closing, a copy of the request for formal payoff demand

b)  Prior to the request for 541(b) payment, the Closing Escrow Agent
    must verify to the OMHAR HQ Closing Team that ALL funds from all
    other parties have been received

c)  On day of closing, a copy of the final settlement statement, the
    current property tax bill, M2M Notes, Mortgages and 236 Grant
    Agreement (if applicable) (The PAE may choose to provide some of
    these items.)

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3.  Capture and disburse all funds

4.  Provide recording instructions to the title company

5.  Capture an IRS Form W-9

6.  Capture an M2M Form 7.16 Owner/Manager Information

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C.  **Owner and Owner's Attorney**.

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1.  Owner triggers start of closing by executing the Restructuring
    Commitment

2.  Owner is first to execute closing documents

3.  Owner's attorney issues Opinion of Owner\'s Counsel (Form Legal
    Opinion in Appendix F) and, if applicable, FHA Opinion of Owner's
    Counsel

4.  Owner pays his or her portion of rehabilitation and transaction
    costs to the Closing Escrow Agent

5.  Owner executes final closing documents

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D.  **OMHAR Production** **Office**.

### Relationship Manager and/or Regional Closing Coordinator

1.  Monitors the closing process, assisting the PAE business staff and
    attorney

2.  Acts as liaison between PAE and Portfolio Director

3.  Forwards Partial Payment of Claim Package to the OMHAR HQ Closing
    staff at least sixteen (16) days prior to closing

4.  Acts as liaison between PAE and OMHAR Closing Team for issues
    arising from the Partial Payment of Claim Package and Restructuring
    Commitment

5.  Coordinates execution of Restructuring Commitment, Firm Commitment
    and final closing documents by Portfolio Director

### Portfolio Director

1.  Executes Restructuring Commitment and Amendments after review using
    the Form 7.19 Official Term Sheet; Amendments must be numbered; a
    Final Administrative Amendment is required which must match the
    information contained in the Final Form 7.19 Official Term Sheet.
    The Final Official Term Sheet becomes part of the Final
    Administrative Amendment.

2.  Responsible for review of all legal documents for accuracy,
    completeness, consistency and compliance with approved deal, using
    the Form 7.19 Official Term Sheet.

3.  Executes all required legal documents as instructed by the PAE
    Attorney

4.  Executes Section 223(a)(7) Firm Commitment if applicable

5.  Receives Partial Payment of Claim Package from the PAE, prepares and
    executes forms as applicable

6.  Coordinates with the PAE Attorney, OMHAR Closing Team, and Closing
    Escrow Agent to facilitate claim payment

7.  Upon receipt of partially executed closing documents, Certification
    of Closing (Form 7.3), loan document checklist, pro forma title
    policy and opinions of the owner's and mortgagee's attorneys from
    the PAE Attorney, executes final closing documents as applicable and
    returns executed documents to the Closing Escrow Agent

8.  Executes HUD Form 290, if applicable

9.  In a restructuring using Section 223(a)(7) financing, upon receipt
    of Certificate of Closing Attorney, Form 7.8, endorses new mortgage
    note, faxes a copy, and forwards original, to new mortgagee

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1.  Upon receipt of Certificate of Closing Attorney (either Form 7.8,
    7.11 or 7.15 as appropriate), authorizes the request for Partial
    Payment of Claim by the OMHAR HQ Closing Coordinator

2.  Reviews and executes HUD-Held Summary (Form 7.12) or
    Non-541b/Non-HUD Held Post Restructuring Summary (Form 7.13), and
    forwards with a copy of the Payoff Demand and Final Sources and Uses
    to the OMHAR HQ Closing Team

3.  Reviews at a high-level the Closing Docket to ensure completeness,
    consistency and compliance with the approved deal

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E.  **HUD Multifamily Hub or Program Center**.

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1.  When notified by OMHAR Production Office, reserves or prepares to
    recapture Section 8 funding, as needed

2.  Executes Section 8 HAP and Section 236 contracts and Recapture
    Agreement, as needed, and notifies the PAE Attorney for coordination
    of contract in Closing Escrow

3.  Where using Section 221(d)(4) or Section 223(f) FHA insured takeout
    financing, the Multifamily Hub or Program Center executes a Firm
    Commitment and coordinates with PAE attorney for a simultaneous
    closing

4.  Receives Transmittal Memo and arranges for transition meeting

5.  Receives Closing Docket and acknowledges receipt

6.  Enters HUD Form 290 information into DAP

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F.  **Existing Mortgagee or Loan Servicer**.

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1.  If a loan modification, an attorney representing the lender or
    current servicer of the existing FHA-insured mortgage should work
    closely with the owner\'s attorney to complete the closing documents
    and draft Settlement Sheet.

2.  If applicable, mortgagee executes loan modification documents and
    forwards to the Closing Escrow Agent.

3.  If the existing mortgage is to be paid off, executes Release of
    Mortgage and forwards to the Closing Escrow Agent.

4.  If requesting a Section 541(b) Claim payment, prepares and submits
    to Closing Escrow Agent or PAE:

-   the Section 541(b) Claim form,

-   Certification of Current Mortgage Balance,

-   Authorization letter and corporate resolution to allow Claim payment
    to be paid through the Closing Escrow, and

-   HUD 9807

G.  **New Mortgagee or Loan Servicer**

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1.  New Mortgagee's attorney works closely with the PAE attorney and the
    owner's attorney to prepare the closing documents and coordinates
    review of new loan documents to ensure consistency and accuracy

2.  Executes applicable loan documents

3.  At the appropriate time, wire transfers new first mortgage funds to
    the Closing Escrow Agent

4.  Pays mortgage insurance premium to the Closing Escrow Agent, if new
    loan has FHA mortgage insurance

5.  Acts as post-closing Rehabilitation Escrow Account holder, if
    applicable

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H.  **Title Company**.

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1.  Provides preliminary title report

2.  Provides pro forma title policy prior to closing pursuant to OMHAR's
    guidelines

3.  Records documents pursuant to closing escrow instructions

4.  Issues final title policy prior to 541(b) payment disbursed

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I.  **HUD Multifamily Claims Branch**.

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1.  Branch Chief or designee receives Partial Payment of Claim Package
    from the OMHAR Closing Team at least fifteen (15) days prior to
    closing

2.  Reviews Partial Payment of Claim Package and notifies OMHAR Closing
    Team of any necessary changes

3.  Receives authorization to request Section 541(b) Claim payment from
    OMHAR HQ Closing Coordinator after all required actions have taken
    place

4.  Submits Section 541(b) Claim payment request to Treasury Department

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I.  **HUD's Multifamily Insurance Operations Branch**. Where applicable,
    receives from Closing Liaison and processes the following documents:
    HUD Form 290 ("Closing Memorandum"), new first Mortgage Note,
    Initial Premium Receipt, HUD Form 9807 ("Request for Insurance
    Termination"), HUD Form 92080 ("Mortgagee Change Form"), Request for
    Firm Commitment/Risk Sharing Authorization or Credit Subsidy
    Obligation.

**Pre-Closing**

SECTION 7-5

A.  **Restructuring Commitment**. The PAE and OMHAR Production Office
    should coordinate closely to ensure that the owner and his or her
    attorney receive the necessary instructions to begin closing.
    \[Pursuant to Chapter 4 of the OPG, the Restructuring Commitment
    cannot be executed prior to the completion of the Environmental
    Evaluation Form 4.4 and the Environmental Assessment and Compliance
    Findings, HUD Form-4128, available on HUDClips).\]

> 1\. [Execution]{.underline}. Preparation for closing starts when the
> owner executes the Restructuring Commitment (see Chapter 6) and:

a)  the owner and new mortgagee both execute the Firm Commitment for FHA
    mortgage insurance, if the Restructuring Plan calls for FHA-insured
    financing;

b)  the owner receives a commitment for conventional financing from a
    new mortgagee; or

c)  the OMHAR Production Office issues a Firm Approval Letter, if the
    Restructuring Plan calls for financing under the HFA 542(c)
    Risk-sharing program.

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2.  [Forwarding to PAE and OMHAR]{.underline}. The owner should return
    the Restructuring Commitment and the original of any Firm
    Commitment/Firm Approval Letter to the PAE upon execution. The PAE
    will forward the original Firm Commitment/Firm Approval Letter to
    the OMHAR Production Office.

3.  [Notifying OMHAR Production Office]{.underline}. The PAE must update
    the Mark-to-Market MIS tracking system when it receives the
    Restructuring Commitment executed by the owner and the Firm
    Commitment/Firm Approval Letter, as required under the terms of the
    Restructuring Plan. The PAE should advise the OMHAR Production
    Office if problems arise or are anticipated in closing the
    transaction.

4.  [Preliminary Closing Deadline]{.underline}. The PAE should set a
    preliminary closing date that is no more than sixty (60) days from
    the date the owner executed the Restructuring Commitment. The
    closing process should take no more than sixty (60) days to
    complete. The Restructuring Commitment expires at the end of the
    sixty (60) days unless OMHAR provides a written extension executed
    by the original approving authority.

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B.  **Choosing the Title Company and Closing Escrow Agent (third party
    fiduciary).** The PAE must select a title company and closing escrow
    agent satisfactory to all parties. It is recommended that the title
    company and closing escrow agent have experience in multi-family
    project FHA insured restructurings. Since they are serving as a
    third party fiduciary, a key factor in selecting the title company
    and closing escrow agent is that the transaction be an arm's length
    transaction.

C.  **Closing Instructions from the PAE to the Owner**. Upon receiving
    the fully executed Restructuring Commitment and any Firm
    Commitment/Firm Letter, the PAE should forward to the owner and his
    or her attorney the following closing materials:

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1.  [Transmittal Letter]{.underline}. Explains mortgage restructuring
    closing and provides general instructions. (Form 7.1)

2.  [Closing Documents Checklist]{.underline}. Lists mortgage
    restructuring closing documents for each mortgage financing
    alternative. (Form 7.2)

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1.  [Closing Parties Checklist]{.underline}. Identifies and provides
    contact information for key parties involved in the closing process.
    (Form 7.7)

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D.  **PAE Notice to the Existing Mortgagee of Debt Restructuring**. The
    PAE must provide formal notification (Form 7.9) to the existing
    mortgagee of the debt restructuring, stating that the Restructuring
    Commitment constitutes authority for the existing mortgagee to
    accept prepayment conditioned on completion of restructuring and
    execution and recordation of the Use Agreement. Authority to accept
    prepayment expires simultaneously with the expiration of the
    Restructuring Commitment. A copy of the executed Restructuring
    Commitment is part of the formal notification. Further, the PAE
    should provide information regarding the closing escrow and request
    that the existing mortgagee provide the following to the closing
    escrow:

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1.  Executed Application for Section 541(b) Payment (Form 7.6)

2.  Authorization for payment of claim to be made to the Closing Escrow
    Agent (or other) and official corporate resolution naming corporate
    officers (Authorization should be typed on mortgagee's letterhead
    and signed by authorized party.)

3.  Executed Release of Deed of Trust/Mortgage

4.  Executed Insurance Termination Request for Multifamily Mortgage HUD
    Form 9807

**Settlement of Payments and Funds Disbursement**

SECTION 7-6

A.  **Settlement of Payments**. The Closing Escrow Agent is responsible
    for settling payments, in accordance with the wiring instructions
    from the PAE attorney. Payments to escrow must be settled prior to
    closing. Payments that must be settled include:

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1.  [Owner's Contribution]{.underline}. Unless the owner is a housing
    cooperative, the owner must deliver the contribution amount for
    rehabilitation costs and all other costs, as called for in the
    Restructuring Commitment, to the closing escrow for appropriate
    disbursement.

2.  [Disbursement of New Mortgage.]{.underline} If there is take-out
    financing, the new mortgagee must deliver the loan amount to the
    Closing Escrow Agent for disbursement to the existing mortgagee or
    loan servicer and/or to the rehabilitation escrow account.

3.  [Reserve for Replacement Funds and other existing
    escrows.]{.underline} The PAE must address the flow of funds from
    project specific reserve and escrow accounts (e.g., reserve for
    replacement account, taxes, insurance, MIP, etc.) in the Closing
    Escrow Instructions and Exhibit F Sources and Uses. Additionally,
    the handling of the escrows at closing should be addressed in the
    Restructuring Commitment using the project specific language in #38
    of the RC (i.e., whether the existing lender nets escrows from
    payoff, funds are sent by existing lender to the closing escrow, or
    the lender send funds after closing to new escrow holder). If the
    requirements will be different for each type of escrow, each escrow
    needs to be addressed clearly in the RC. See also Section 7-11I. for
    additional guidance regarding escrows when the existing debt is
    HUD-held.

It is essential that Exhibit F Sources and Uses reflect both existing
(Sources) and new (Uses) escrow balances so funds can be properly
reconciled.

> []{.mark}

4.  [Partial Payment of Claim.]{.underline} The payment from the FHA
    insurance fund will be paid to the Closing Escrow Agent pursuant to
    the existing mortgagee's authorization (or to the existing mortgagee
    or servicer as authorized) for disbursement to the existing
    mortgagee in order to pay off the first lien.

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B.  **Disbursement of Funds**. The Sources and Uses of Funds statement
    will provide disbursement details. The following is a general
    overview of the disbursements. The source of funds being disbursed
    may include the following: new first mortgage, the partial payment
    of claim, reserve for replacement funds, residual receipts, grants,
    owner contribution. The claim funds will be paid to the existing
    mortgagee or its servicer. The new first mortgage funds will be
    disbursed partially to the existing mortgagee, partially to the new
    mortgagee to fund the reserve for replacement funds escrow account
    with the remainder to be disbursed pursuant to the Sources and Uses
    statement. The owner's contribution will be disbursed partially to
    the rehabilitation escrow account with the remainder disbursed
    according to the Sources and Uses statement. The Final Sources and
    Uses Statement will be the source document for the Closing Escrow
    Agent's disbursement instructions. Any items not captured on the
    Final Sources and Uses Statement will be captured in the Closing
    Escrow Instructions.

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1.  [Reserve for Replacement]{.underline}. The Closing Escrow Agent
    should disburse said funds to the first mortgagee to be held in an
    escrow account. In the event that the existing mortgage is 100%
    written down, and not refinanced with a new insured first mortgage,
    the HUD Multifamily Notes Servicing Branch will service the loans.
    In this event, the Closing Escrow Agent should disburse the reserve
    for replacement funds to the HUD Multifamily Notes Servicing Branch
    at the following address:

> HUD Multifamily Payment Processing Center\
> PO Box 70764\
> Chicago, IL 60673

If the owner wants the Reserve for Replacement invested, a letter must
be sent requesting investment instructions to the HUD Multifamily Note
Servicing Branch at the following address:

> P.O. Box 44804\
> Washington, D.C. 20026-4804

2.  [Rehabilitation Escrow Account]{.underline}. Where the restructuring
    transaction provides financing for rehabilitation needs
    (twelve-month physical needs other than those that the owner must
    correct prior to approval of the Restructuring Plan), the owner must
    establish a rehabilitation escrow account with the new mortgagee for
    the first mortgage, or with an escrow agent, if there is no first
    mortgage (or the new first mortgagee does not accept the
    responsibility). The rehabilitation escrow holder releases funds
    from the rehabilitation escrow account, upon authorization from the
    rehabilitation escrow administrator.

3.  [Mortgage Insurance Premium (MIP).]{.underline}

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a)  The up-front (first year's) MIP must be paid by the mortgagee at
    closing. The OMHAR Production Office (RO) will provide an official
    receipt, Form HUD-27038, and schedule, Form HUD-3416 for the Closing
    Escrow Agent or PAE to prepare at closing. The Closing Escrow Agent
    or PAE, as appropriate, will provide copies to the RO upon
    execution.

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b)  Each receipt issued must be identified by a unique official receipt
    number. The OMHAR RO should assign the receipt number at closing.
    Each OMHAR RO should designate an individual to handle assignment of
    receipt numbers and maintain a log of issued receipt numbers for the
    region. See Appendix N, Attachment 2 Receipt Instructions for more
    information receipt and schedule numbering and submission.

c)  At closing, the Closing Escrow Agent will issue an official receipt
    for the up-front MIP from the lender and forward the check for
    deposit by HUD. The original receipt and schedule with the original
    check should be sent to the **Department of Housing and Urban
    Development, Box 277167, Atlanta, GA 30384-1767.** Checks or
    receipts from different Section 223(a)(7) closings should be sent to
    the lockbox separately. A copy of the receipt should be sent to the
    new lender. A copy of the receipt should be retained by the PAE to
    be included in the closing dockets and Form 290 Closing Memorandum
    Package.

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4.  [Payments to Existing HUD-held Note]{.underline}

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a)  The Closing Escrow Agent should disburse funds to be applied to the
    existing HUD-held Note to the HUD Multifamily Notes Servicing Branch
    by check. Refer to paragraph 7-6B.7. below for specific
    instructions.

b)  The transmittal memo, required for wires or checks, must identify
    the original FHA project name and number and state the reason for
    the payment and how funds are to be applied (M2M restructuring,
    apply to the existing HUD-held debt ).

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5.  [Excess Funds/Shortfalls at Settlement]{.underline} Transaction
    costs included in the Exhibit F Sources and Uses are estimates at
    the time the claim amount is determined. The RC specifically states
    that in the event that the actual transaction costs associated with
    the Transaction **exceed** the estimated amount, OMHAR will not
    permit any such excess costs to be financed in the New Loan. It
    further states the Owner shall be solely responsible for bringing
    any such excess funds to the closing table. In the event that the
    actual transaction costs are **less** than estimated, any excess
    funds remaining after will generally be applied as a partial payment
    toward the Mortgage Restructuring Note. Because the Owner generally
    contributes toward transaction costs, it is sometimes assumed that
    the owner's cash contribution should be reduced at closing. However,
    a reduction is inappropriate because the owner's Capital Recovery
    Payment (CRP) is based on the owner's *estimated* contribution. To
    return a portion of the excess to the owner would require adjusting
    (reducing) the CRP (and making necessary revisions to closing
    documents). Instead, the owner contribution should not change, and
    any excess funds should be applied to the MRN in accordance with the
    Closing Escrow Instructions.

    a.  Refer to paragraph 7-6B.7.c) below for specific instructions for
        sending payments to HUD MF Notes Servicing Branch.

    b.  The transmittal memo, required for wires or checks, must
        identify the original FHA project name and number, the MRN
        number or CRN if applicable and state how the funds are to be
        applied.

        i.  Generally funds will be applied to the MRN as of the date of
            closing.

        ii. If there is no MRN or CRN (or the MRN and CRN has already
            been assigned or forgiven in accordance with OPG Appendix
            C), payment must be made to HUD Multifamily Claims. The
            transmittal must identify the original FHA project name and
            number, and state how the funds are to be applied. It must
            also state that the excess funds will be applied to the FHA
            Fund, Miscellaneous Income Account.

        iii. If the MRN/CRN is in the process of being forgiven or
             assigned (in accordance with OPG Appendix C), contact Jo
             Anne Garrison, OMHAR HQ at 202-708.3856 ext 3651, for deal
             specific guidance. Depending on the status of the debt
             relief and related bookkeeping entries, payments will
             sometimes be applied to the MRN/CRN prior to write
             off/assignment and other times sent to MF Claims to be
             applied to HUD's Miscellaneous Income Account.

6.  [Excess Bond Reserve Funds]{.underline} When mortgage loans funded
    with bond proceeds (typically tax-exempt housing bonds) are prepaid,
    the Trustee for the bonds is required to do a final accounting of
    the bonds. The final accounting includes, in addition to paying
    bondholders, the disposition of all bond accounts. The Trustee
    performs the final accounting in accordance with the terms of the
    trust indenture (or bond resolution). The trust indenture also
    dictates the party to whom any final balances should be sent: HUD,
    in many instances. The PAE must provide the Trustee with
    instructions for sending the final balances to HUD as part of the
    Closing process (wire is the preferred method). The following
    instructions apply when the indenture requires that excess bond
    funds come back to HUD (generally required). If the indenture
    requires a different application, contact the OMHAR HQ Closing or HQ
    Bond Departments for specific guidance.

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a)  Refer to paragraph 7-6B.7.b. below for specific address and wiring
    instructions for HUD MF Claims Branch.

b)  The transmittal memo, required for wires or checks, must identify
    the original FHA project name and number, and state that the funds
    are excess bond funds to be posted to the FHA Fund, Miscellaneous
    Income Account. Provide a Trustee name and contact phone number for
    questions.

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7.  Address and wiring instructions for payments ***TO*** HUD, at or
    subsequent to M2M Closing. Payments to HUD must be directed to
    either

-   HUD Multifamily Claims or

-   HUD Multifamily Notes Servicing or

-   HUD Multifamily Insurance Operations Branch.

See paragraphs 7-6B.1, 3, 4, 5 and 6 above for assistance determining
where funds should be directed. Each has a different mailing address
(for checks) and different wiring instructions. It is essential that a
transmittal be included with any payments to HUD, providing detailed
information on how the funds are to be applied.

a)  **Payments to HUD Multifamily Insurance Operations** **Branch**:

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i.  Upfront MIP payments should be made by check to Department of
    Housing and Urban Development, Box 277167, Atlanta, GA 30384-1767.
    Note: no other payments should be directed to this address!

ii. No wires.

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b)  **Payments to HUD Multifamily Claims:**

    i.  Wires are discouraged, but [if necessary]{.underline}, contact
        MF Claims at 202-401-2168 (attention Betty Belin at ext. 2807)
        for instructions. [Do not]{.underline} reuse wiring instructions
        previously received from Claims (and never modify wiring
        instructions from a different Branch). [Always]{.underline} call
        Claims for new deal-specific guidance if a wire will be sent.

    ii. Checks should be made payable to the Secretary, Department of
        Housing and Urban Development, and be mailed to HUD Multifamily
        Claims Branch, PO Box 44003, Washington DC, 20026.

    iii. A transmittal must be provided with check or wire, that
         includes the project name and old FHA project number in the
         transmittal, the reason the funds are being transmitted, and
         state how the funds are to be applied (e.g., posted to the FHA
         Fund, Miscellaneous Income Account, if they are excess bond
         reserve funds or excess New Reg. Residual Receipts). Provide
         contact name and phone number for questions.

c)  **Payments to HUD Multifamily Notes Servicing Branch:**

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i.  Wires are not encouraged, but [if necessary]{.underline}, contact MF
    Notes Servicing at 202-708-4035 (attention Debbie Courtright at
    ext. 2753) for instructions. [Do not]{.underline} reuse wiring
    instructions previously received from Notes Servicing (and never
    modify wiring instructions from a different Branch).
    [Always]{.underline} call Notes Servicing directly for new
    deal-specific guidance if a wire will be sent.

ii. Checks should be made out to HUD and sent to Multifamily Notes
    Servicing Branch at HUD Multifamily Payment Processing Center, PO
    Box 70764, Chicago, IL, 60673.

iii. The transmittal must include the project name and FHA project
     number for the M2M debt (old FHA number with a V or W), in the
     transmittal and state how the funds are to be applied (e.g., excess
     claim proceeds to be applied as a payment on the MRN effective the
     date of Closing, excess Old Reg. Residual Receipts, or funds to
     establish new HUD-held reserve for replacement (and/or other
     reserve) account, etc.). Provide contact name and phone number for
     questions.

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8.  [Questions]{.underline}

> Questions regarding issues such as receipt of payments, wiring
> instructions, issuance of official receipts, and determining whether
> payments to HUD should be sent to HUD Claims or Notes Servicing, may
> all be directed to the HQ Closing Team.

**Partial Payment of Claim**

SECTION 7-7

A.  **General**. The 541(b) payment is the most important part of the
    full restructuring transaction and the most difficult to implement
    in a timely manner. The following process was developed to ensure
    all necessary information has been provided and authority given to
    request payment from the FHA insurance fund. The information
    compiled for the Multifamily Claims Branch must be in its office NO
    LATER THAN FIFTEEN (15) days prior to the funding request. If the
    information is not received by that time or is incomplete, the
    funding and/or closing date of the transaction will be adjusted
    accordingly.

B.  **Preparation of Section 541(b) Claim and Other Internal Control
    Documents**. HUD\'s Multifamily Claims Branch must have sufficient
    advance notice of the Section 541(b) Claim.

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1.  Immediately following the owner's execution of the Restructuring
    Commitment, the PAE notifies the existing mortgagee of the debt
    restructuring, provides a copy of the Restructuring Commitment, and
    requests the necessary information and documentation.

2.  The existing mortgagee should provide the requested information
    within a few weeks of the request. At least 45 days prior to
    closing, if necessary, the PAE should follow up with the existing
    mortgagee in order to ensure timely receipt of the information. The
    existing mortgagee should submit said documents directly to the
    Closing Escrow Agent, who will arrange with the PAE for the delivery
    of the appropriate documents for inclusion in the Partial Payment of
    Claim Package.

3.  [At Least Eighteen (18) Days Prior to Closing]{.underline}. The PAE
    business staff assembles the Partial Payment of Claim Package which
    contains the documents listed in the Claim Payment Checklist (Form
    7.4):

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d)  Form 7.4 Claim Payment Checklist

e)  Form 7.5 Claim Payment Summary

f)  Restructuring Commitment, including Sources and Uses and Special
    Terms and Conditions

g)  Certification of Mortgage Balance (from existing mortgagee)

h)  Wiring Instructions for Partial Payment of Claim, Payment
    Information Form HUD-1044D. The form is available through HUDCLIPS
    and at
    [http://www.hud.gov/offices/hsg/omhar/readingrm/opglinks.cfm,]{.underline}
    scroll down and click on Chapter 7 Forms. Scroll to the bottom of
    the forms page, look under the heading Additional Forms. **Note:**
    the 1044D anticipates that the claim payment will be wired directly
    to the HUD insured Mortgagee and therefore asks for the name of the
    mortgagee in block 1. Instead, enter the exact Bank Account Name for
    wiring the claim funds -- this name must match exactly the name
    shown in Section III. of Form 7.5.

i)  Written Authorization from Existing Mortgagee for Payment to be Sent
    to Servicer or Other Entity and official corporate resolution naming
    corporate officers

j)  Form 7.6 Application for Section 541(b) Claim Payment

k)  Mortgagee Record Change (HUD 92080) (if applicable)

l)  Insurance Termination Request for Multifamily Mortgage (HUD 9807)

> 3\. [At Least Sixteen (16) Days Prior to Closing]{.underline}. The
> OMHAR Production Office should prepare and execute, as necessary, and
> submit to the OMHAR Closing Team the Partial Payment of Claim Package.

4.  [At Least Fifteen (15) Days prior to Closing]{.underline}. OMHAR
    Closing Coordinator delivers the executed claim documents (Partial
    Payment of Claim Package) to HUD Multifamily Claims Branch Chief, or
    designee. If there are any problems with the information submitted,
    the Multifamily Claims Branch will notify the OMHAR Closing Team,
    who will notify the PAE business staff or attorney.

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C.  **Payment of Section 541(b) Payment**. HUD settles its Section
    541(b) Payment obligations at closing.

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1.  [Notification of OMHAR Portfolio Director]{.underline}. The OMHAR
    Portfolio Director receives notification from the PAE attorney of
    the following in order to authorize the claim submission:

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d)  Appropriate documents have been recorded

e)  Title policy has been issued

f)  Form Legal Opinion from the owner's attorney has been received and
    is acceptable

g)  All prerequisite closing funding requirements have been met

h)  Upon receipt of Section 541(b) Payment, the Closing Escrow Agent is
    prepared to disburse payments as necessary

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2.  The OMHAR Closing Coordinator will notify the HUD Multifamily Claims
    Branch Chief or designee, via email and follow up telephone call
    that authority is granted to submit the request for Section 541(b)
    Payment.

3.  [HUD\'s Multifamily Claims Branch Chief or Designee]{.underline}.
    Upon receipt of proper notification from the OMHAR Closing
    Coordinator, the HUD Multifamily Claims Branch Chief or designee
    submits the request to the appropriate Treasury office to wire
    transfer the funds in accordance with the wiring instructions
    provided earlier.

**Closing Document Preparation, Execution, and Recordation**

SECTION 7-8

A.  **Completion of Closing Documents**. The PAE attorney, working with
    the Closing Escrow Agent, the owner, the owner's attorney, and an
    attorney for the existing mortgagee (in the case of a loan
    modification) or the new mortgagee, and Multifamily Hub or Program
    Center, if FHA-insured (in the case of 221(d)(4) or 223(f) take-out
    financing), must oversee the completion of all closing documents and
    provide copies and the Certification of Closing Documents (Form 7.3)
    to the OMHAR Portfolio Director. For more specific guidelines for
    completing the legal documents, see Closing Instructions to PAE
    Attorney in Appendix F.

> 1\. [Timing]{.underline}. Document preparation starts as soon as the
> owner receives closing instructions from the PAE. It should take no
> more than forty-five (45) days. All documents should be completed and
> submitted to the PAE (or the Closing Escrow Agent, as applicable) at
> least ten (10) days prior to closing, with the exception of the HUD
> Multifamily Claims documents. (See Section 7-7 above for a detailed
> explanation of the claim payment process.)

2.  [Legal Requirements]{.underline}.

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a)  *Hiring an Attorney*. The PAE should use an attorney experienced in
    multifamily restructuring finance (including FHA insurance programs)
    to complete the closing documents. Any outside attorney will be
    subject to the conflict of interest rules. The PAE Attorney is
    responsible for drafting all M2M legal documents and for reviewing
    all legal documents in the closing.

b)  *Paying Attorney\'s Costs*. Attorney fees will be recognized to the
    extent allowed in the Portfolio Restructuring Agreement (PRA).

c)  *Using Standardized Documents*. The PAE attorney shall use the
    standard form closing documents provided by OMHAR and HUD that are
    appropriate to the first mortgage financing alternative agreed to
    under the terms of the Restructuring Commitment. "Standard form
    closing document" means that neither the PAE attorney nor any other
    party is permitted to alter the document, except for changes
    required under state law, such as notary acknowledgments.

d)  Using Form 7.3, the PAE attorney must certify that all standard form
    legal documents are complete, accurate, executed, consistent with
    the terms of the Restructuring Commitment as shown on the Official
    Term Sheet and with the other documents.

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3.  [General Instructions for Completing Closing Documents]{.underline}.
    The PAE attorney has primary responsibility for preparing the OMHAR
    legal documents and in completing or reviewing Section 223(a)(7)
    required closing documents. For additional guidance, see Form 7.2
    Closing Document Checklist, and Closing Instructions to PAE Attorney
    in Appendix F.

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a)  *FHA Number.* If there will be FHA-insured takeout financing, the
    **new** FHA Project Number should be typed on each take out
    financing closing document if not otherwise included in the
    document. (The PAE contacts the local HUD field office for the new
    FHA number.) **The old FHA number should be typed on each OMHAR
    closing document.** In most cases, the first five digits of the FHA#
    should be identical to the existing FHA#. In all cases, the last
    three digits should be higher than the existing FHA#.

b)  *Specific State and Local Requirements.* Any changes in the forms
    required by state or local law must be set out in an addendum to the
    document with a statement clarifying that the change is required by
    State or local law and must include specific citations to the state
    or local law requiring the change.

c)  *Recorded Documents.* The PAE Attorney is responsible for capturing
    all recorded documents after recordation. Each recorded document
    must contain the return address of either the PAE Attorney or the
    OMHAR closing team. All recorded documents to be returned to OMHAR
    must be marked with the following return address:

> HUD-OMHAR
>
> 1280 Maryland Avenue SW, Suite 4000
>
> Washington, D.C. 20024
>
> Attn: Closing Coordinator

4.  [Cooperating with the Owner's and Mortgagee's
    Attorneys]{.underline}. The PAE attorney should work closely with
    the owner's attorney and mortgagee's (or loan servicer's) attorneys
    to complete the closing documents.

5.  [Wiring Instructions]{.underline}. The PAE should obtain wiring
    instructions from all working parties with payments to settle at
    closing and address in the Closing Escrow Instructions (see 6
    below). HUD must be included as often excess funds after final
    settlement must be wired **[to]{.underline}** HUD (see paragraph
    7-6B.7). Instructions should include the following information:

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a)  Wiring numbers for lenders or servicers

b)  Names, addresses, telephone numbers and points of contact

c)  Tax identification numbers

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6.  [Closing Escrow Instructions from the PAE Attorney to the Closing
    Escrow Agent]{.underline}.

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a)  *Preparation and Review*. About forty-five (45) days prior to
    closing, the PAE attorney is responsible for drafting instructions
    for the Closing Escrow Agent who will be responsible for the closing
    escrow. The instructions must include specific information in order
    to close the escrow correctly and expeditiously. It is suggested
    that all parties utilize the closing escrow instructions to include
    their triggers and facilitate clear coordination of effort. The
    OMHAR HQ Legal Liaison and Closing Coordinator may review the
    instructions for accuracy and completeness. The instructions should
    include the following information:

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i.  names, addresses, points of contact, and other contact information
    for all parties to the escrow, including HUD departments;

ii. wiring instruction or payment information from all parties as
    applicable (reminder, HUD is usually the recipient of any excess
    funds after final settlement so instructions for wiring or other
    payment **[to]{.underline}** HUD must be included, see paragraph
    7-6B.5);

iii. all required executed and miscellaneous documents (including
     Section 8 documents);

iv. [all]{.underline} sources of funds (including other sources when
    processed in accordance with OPG Appendix R as an Additional Funds
    transaction);

v.  all disbursements of funds and specific information regarding the
    timing and recipient of funding;

vi. identify any funding sources that will not be available at the time
    of closing that have been accepted by OMHAR (specifically addressed
    in the RC for delayed pay-in);

vii. specific funding instructions if all funds will not be funneled
     through the escrow (e.g., notification of receipt of funds from the
     mortgagee, etc.);

viii. if takeout financing includes construction financing (draws up to
      a maximum amount over time in lieu of a permanent loan all
      disbursed at closing) address requirements documenting
      availability of funds;

ix. specific requirements relative to application of any excess funds
    (see 7-6B.5.);

x.  the order in which the documents must be recorded; and

xi. a clause stating that the executed Release of Mortgage will not be
    recorded until the disbursement to the existing mortgagee has been
    made

xii. method of unwinding the escrow if the closing does not occur
     (see c) below)

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b)  At least thirty (30) days prior to closing, the Closing Escrow Agent
    should execute the Escrow Instructions and return it to the PAE
    attorney

c)  Prior to execution of documents, the owner must execute the Escrow
    Instructions. The unwind feature of the escrow instructions will
    have no value if the owner has not agreed in writing prior to
    closing

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B.  **Managing Closing Document Execution**.

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1.  [PAE Attorney's Central Coordinating Role]{.underline}. The PAE
    attorney manages closing document execution and confirms that the
    appropriate parties receive, execute, notarize (as needed), and
    return all documents to the appropriate parties. All documents may
    be forwarded to the PAE, who in turn will ensure that the Closing
    Escrow Agent receives the documents in a timely manner. The
    [exception to this rule]{.underline} is the existing mortgagee. In
    order to minimize confusion, the existing mortgagee is requested to
    forward all documents directly to the Closing Escrow Agent. The
    Closing Escrow Agent will coordinate with the PAE Attorney regarding
    documents requiring PAE administration.

2.  [Preparation, Execution and Distribution of Closing
    Documents]{.underline}. The Closing Document Checklist (Form 7.2)
    provides required standard form closing documents for most financing
    arrangements. (If a specific financing arrangement is not listed,
    contact the OMHAR Closing Team for assistance.) The PAE Attorney
    prepares the M2M closing documents, reviews the documents for
    accuracy, completeness, compliance with the Official Term Sheet,
    arranges for PAE business staff and OMHAR Production Office review
    of the documents; arranges for execution of the documents, reviews
    take out financing loan documents for consistency with the
    Restructuring Commitment and coordinates the Closing Date and
    Closing structure with the Closing Parties.

3.  [Title Insurance]{.underline}. With respect to the status of title
    to a project, for review and certification purposes, the PAE and PAE
    Attorney may rely upon such title reports, title commitments, new
    title policy, or other endorsements to an existing title policy
    provided by the title company. See Title Instructions in Appendix F
    for specific title requirements.

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C.  **Review and Certification of Legal Documents**.

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1.  When the owner, new mortgagee and existing mortgagee have properly
    executed all relevant closing documents, the PAE Attorney must
    review them to ensure they are complete, have not been altered, and
    conform to the terms and conditions of the Official Term Sheet,
    Restructuring Commitment and Firm Commitment for FHA Insurance, if
    applicable. At least nine (9) days prior to closing, after the
    appropriate parties have executed the closing documents, and the PAE
    Attorney has approved them, the PAE Attorney should forward the
    partially-executed closing documents that require OMHAR's execution
    to the OMHAR Production Office with the following information:

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a)  Certification of Closing Documents (Form 7.3)

b)  Legal Opinion of Owner's Attorney (Appendix F)

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2.  [Review by OMHAR Production Office]{.underline}. The OMHAR
    Production Office staff should conduct a full detailed review of the
    documents to ensure that all appropriate documents are included
    (using the Closing Document Checklist Form 7.2) and all documents
    are consistent, comply with the approved deal as revealed by the
    Official Term Sheet, correct and complete and are properly executed.

3.  [Execution by OMHAR Production Office]{.underline}. The OMHAR
    Portfolio Director should execute the appropriate closing documents
    as outlined in Form 7.2, Closing Documents Checklist, and as advised
    by the PAE Attorney.

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4.  [Returning Documents to the Closing Escrow Agent]{.underline}. The
    OMHAR Portfolio Director should return the executed closing
    documents directly to the Closing Escrow Agent or as instructed by
    the PAE Attorney at least five (5) days prior to closing by
    overnight mail, and notify the PAE that this has been completed. The
    logistics of this action should be determined by the PAE Attorney
    based on the Closing Escrow schedule.

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D.  **Closing Escrow Agent Document Holding**. The Closing Escrow Agent
    captures all closing documentation from the PAE, the OMHAR
    Production Office, and the existing mortgagee, whether or not the
    document requires recordation. The Closing Escrow Agent will capture
    all funds from applicable parties, disburse funds as instructed, and
    ensure the recordation of all necessary documents in the appropriate
    order. The Closing Escrow Agent will provide to the PAE all
    remaining unrecorded, executed documents to be filed in the
    appropriate closing dockets.

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E.  **Setting Final Closing Date**. The PAE, the title company, and the
    Closing Escrow Agent must coordinate with one another, as well as
    the OMHAR Production Office, the OMHAR Closing Coordinator, and any
    other interested parties, to set a final closing date. At least
    thirty (30) business days prior to closing, the PAE should work with
    all parties to set a final date.

F.  **Transmitting Closing Information from the PAE to All Working
    Parties**. After coordinating reviews and establishing the closing
    date, the PAE should prepare and send a transmittal letter to all
    working parties. The letter should: 1) be sent within five (5) days
    of the final closing date; 2) advise that the closing documents are
    complete and conform to the Restructuring Commitment and the Firm
    Commitment (if applicable); 3) indicate the final date of closing;
    and 4) provide instructions for completing an escrow closing.

G.  **Recordation and Final Closing**.

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1.  [Recordation]{.underline}. The order of recordation should be:

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a)  Release of Regulatory Agreement;

b)  Use Agreement;

c)  Section 236 Use Agreement, if there is no new take out financing

d)  Subordination Agreement of Existing FHA-insured Mortgage (if loan
    modification);

e)  New First Mortgage, Modification of FHA-insured Mortgage, or
    Modification and Subordination of HUD-held Mortgage;

f)  New FHA First Mortgage Regulatory Agreement with M2M Rider;

g)  Security Agreement (if applicable);

h)  Section 236 Use Agreement, if there is new takeout financing

i)  Mortgage Restructuring Mortgage/Deed of Trust with M2M Rider;

j)  Appropriate FHA Regulatory Agreement with M2M Rider;

k)  Security Agreement (if applicable);

l)  Contingent Repayment Mortgage with M2M Rider;

m)  Appropriate FHA Regulatory Agreement with M2M Rider;

n)  Security Agreement (if applicable); and

o)  UCC Financing Statements (recorded with appropriate governmental
    agency)

p)  Release of existing Mortgage/Deed of Trust;

q)  Release of existing Security Agreement (if applicable);

r)  UCC Termination Statements

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2.  [Closing Completed]{.underline}. Closing is complete when the PAE
    attorney drafts and submits a Certificate of Closing to the OMHAR
    Portfolio Director.

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H.  **Endorsement for Full Mortgage Insurance under Section 223(a)(7)**.

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1.  [Conditions for Endorsement]{.underline}. The OMHAR Portfolio
    Director will endorse the Note for full mortgage insurance when all
    of the following have occurred.

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a)  All required Section 223(a)(7) insured mortgage closing documents,
    and all M2M required closing documents to consummate the
    restructuring transaction, have been properly executed, notarized,
    as needed, and recorded.

b)  All of the conditions of the Firm Commitment have been satisfied.

c)  The mortgagee has paid the initial mortgage insurance premium, equal
    to the first year's payment, in the case of Section 223(a)(7)
    mortgage insurance.

d)  Request for Final Endorsement of Credit Instrument (FHA Form 92023)
    has been executed by the new mortgagee and mortgagor and delivered
    with the Note to be endorsed for FHA mortgage insurance. The
    mortgagee must make appropriate arrangements for handling the
    original promissory Note, both before and after endorsement.

e)  Title Policy for the Section 223(a)(7) insured mortgage as per the
    Title Insurance Instructions set out in Appendix F.

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2.  [Required Actions Immediately Following Endorsement]{.underline}.
    Immediately following endorsement for full FHA mortgage insurance,
    the OMHAR Production Office should:

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a)  follow the established procedures for paying mortgage insurance fees
    and premiums (see Section 7-6.B.3.);

b)  fax a copy of the endorsed Note to the insured mortgagee and deliver
    the original endorsed Note directly to the insured mortgagee in
    accordance with the arrangements made in advance by the mortgagee.

c)  forward the Closing Memorandum (HUD Form 290) and backup
    documentation to the OMHAR Closing Liaison in OMHAR HQ (see Chapter
    8, Internal Document Distribution and OPG Appendix N (for 290
    instructions))

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I.  **Endorsement under Section 542(c) HFA Risk-Sharing**. If the new
    mortgagee is providing refinancing under the Section 542(c) HFA
    Risk-Sharing program, the HFA will present to the OMHAR Production
    Office for endorsement at closing: (1) the closing Risk-Sharing
    docket, and (2) evidence that the initial mortgage insurance premium
    has been paid to the Mortgage Insurance Operations Branch in the FHA
    Comptroller's Office in headquarters.

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1.  [Conditions for Endorsement]{.underline}. If the OMHAR Production
    Office determines that all documentation and certifications are
    complete and in conformance with the terms and conditions of the
    Restructuring Commitment and OMHAR's Firm Approval Letter, the OMHAR
    Portfolio Director will endorse the Note for mortgage insurance and
    forward it to the Closing Escrow Agent for disbursement.

2.  [Required Actions Immediately Following Endorsement]{.underline}.
    Within five (5) days of escrow closing, the PAE must provide
    complete closing documents to the Multifamily Hub or Program Center
    with jurisdiction. The OMHAR Production Office must provide the
    completed closing memorandum (HUD Form 290) to the Closing Liaison
    in OMHAR HQ. The Closing Liaison will hand deliver the package to
    the Mortgage Insurance Operations Branch in the FHA Comptroller's
    Office in headquarters , and will fax a copy to the Multifamily Hub
    or Program Center (See Chapter 8 Internal Documentation
    Distribution).

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J.  **Endorsement under Section 542(b) GSE Risk-Sharing**.
    Government-sponsored enterprises (GSEs) that have entered into
    Risk-Sharing Agreements with HUD may reinsure project mortgages and
    present mortgage notes to the OMHAR Production Office for
    endorsement; this occurs after the loan has closed. GSEs are
    prohibited from refinancing their own loans without prior OMHAR
    approval.

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1.  [Submission Requirements]{.underline}. The GSE will submit through
    the PAE to the OMHAR Production Office the following:

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a)  initial mortgage insurance premium;

b)  signed addendum to the Risk-Sharing Agreement;

c)  computer diskette with basic project information;

d)  Transmittal Letter containing certification by the PAE and the GSE
    of the proposed reinsurance transaction's consistency with the
    Restructuring Plan;

e)  the completed subsidy layering analysis performed by the PAE; and

f)  the Environmental Checklist (Form 4.4) prepared by the PAE.

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2.  [OMHAR Processing]{.underline}. Upon receipt of the request, the
    OMHAR Production Office must do the following:

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a)  notify the Multifamily Hub that the project number needs to be
    electronically entered into the DAP system;

b)  notify the Multifamily Hub with jurisdiction to take the required
    Section 8 funding actions, if not already done;

c)  execute the Risk-Sharing Addendum, unless the OMHAR Portfolio
    Director determines that the addendum does not comply with the
    requirements of the Risk-Sharing Agreement; and

d)  notify the Multifamily Hub that the closing consummated so the DAP
    system can be updated

e)  provide complete closing memorandum (HUD Form 290) to the Closing
    Liaison in OMHAR HQ. The Closing Liaison will hand deliver the
    package to the Mortgage Insurance Operations Branch in the FHA
    Comptroller's Office in headquarters , and will fax a copy to the
    Multifamily Hub or Program Center. (See Chapter 8 - Internal
    Documentation Distribution)

Section 221(d)(4) Substantial Rehabilitation or Section 223(f)
Refinancing

SECTION 7-9

A.  **General**. The closing process for assets under Section 221(d)(4)
    and Section 223(f) mortgage insurance follows the closing guidance
    above, with the exception of the process for closing the first
    mortgage. The OMHAR Production Office, Multifamily Hub or Program
    Center, PAE, new mortgagee, and owner will follow HUD's current
    procedures for closing on a first mortgage with a Firm Commitment
    for FHA mortgage insurance under Section 221(d)(4) or Section 223(f)
    with the exception that the loan closes concurrently with the
    Mark-to-Market closing. This Operating Procedures Guide does not
    include detailed instructions for the first mortgages under these
    sections.

B.  **Document Execution**. The PAE attorney and business staff will
    review all mortgage Restructuring documents and ensure consistency
    between the terms of the FHA mortgage insurance closing and the
    terms of the Restructuring Commitment before submitting them to the
    OMHAR Production Office.

C.  **Internal Control**. The internal control process will be the same
    as with other first mortgage financing alternatives. The Section
    221(d)(4) and 223(f) closings should be simultaneous with the
    Mark-to-Market closing. The closing escrow instructions should
    include the needs of all parties to ensure an accurate, smooth
    closing. All funds should flow through the OMHAR closing escrow
    agent, including the full loan disbursement from the new FHA insured
    lender. The HUD attorney closing a Section 221(d)(4) or Section
    223(f) loan handles only the new insured takeout -- the PAE is still
    responsible for closing the restructuring and must coordinate the
    entire process. Contact the Closing Department if there are
    questions regarding roles and responsibilities.

**Section 8 HAP Contract**

SECTION 7-10

> The OMHAR Production Office is responsible for preparation of the
> appropriate Section 8 HAP Contract, coordinating contract execution,
> and forwarding the contract to the HUD Multifamily Hub or Program
> Center for execution. Reservation of Section 8 funds, data tracking,
> and the many details necessary to initiate and fully implement the
> Section 8 contract are described in other guidance, and must be
> coordinated between the OMHAR Production Office, the PAE, and the
> Multifamily Hub or Program Center Please contact the OMHAR HQs Closing
> staff for more information.

**HUD-Held Notes**

SECTION 7-11

A.  **General**. HUD-held notes are formerly FHA-insured notes which
    have already been through the FHA claim process and are now assets
    owned by HUD. A M2M restructuring of a HUD-held note does not
    require a partial payment of claim package. A Closing Escrow Agent
    is required to act as third party fiduciary. As mortgagee, HUD must
    issue a final Payoff Demand. The Payoff Demand must be fully
    satisfied through the Restructuring. The OMHAR Portfolio Director
    must receive required PAE Attorney Certifications and must authorize
    closing by reviewing for accuracy, comparing with the payoff demand
    to ensure the existing obligation will be fully resolved and
    executing a HUD-Held Restructuring Summary Form 7.12, prior to
    closing. Production Office Directors must notify the Closing
    Department when they have the signed attorney certification in hand
    (generally the Form 7.8 or the Form 7.11 or 7.14 (if HUD-held) and
    are authorizing the closing. Until this step is completed, the
    closing is not official. If the closing date is delayed, additional
    per diem interest will be due to HUD and could result in a shortfall
    at the closing table.

B.  **Closing Escrow Agent**. The Closing Escrow Agent is a vital part
    of this closing process and acts as the third party fiduciary (not
    the PAE nor the Owner). The Closing Escrow Agent has the same
    responsibilities in the closing as it would for any other closing. A
    final settlement statement is required and must provide sufficient
    information to resolve the HUD payoff demand and any/all funds in
    the escrow (see comment in A. above regarding shortfalls if the
    closing date is delayed). The owner must sign the settlement
    statement.

C.  **Payoff Demand from HUD - Multifamily Notes Servicing**. The
    Production Office Closing Coordinator must request and receive a
    final and unqualified Payoff Demand from Multifamily Notes Servicing
    via fax (Debbie Courtright, Multifamily Notes Servicing Branch
    Manager, Fax 202 708 619-8408) prior to closing.

D.  **Legal Documentation**. The legal documentation, title insurance
    and title requirements are the same as a restructuring requiring a
    claim payment. The Chapter 7 Form 7.2 Closing Document Checklist is
    provided to assist in determining appropriate documentation in
    various financing alternatives.

E.  **PAE Attorney Certifications**. The PAE attorney provides to the
    OMHAR Portfolio Director all four Certifications to direct the
    Closing sequence (when the Restructuring Commitment is ready to
    execute, when the legal documents are ready to execute, when the
    closing is ready to consummate and when the closing is complete).

F.  **HUD-Held Restructuring Summary, Form 7.12**. A Form 7.12 HUD-Held
    Restructuring Summary (the counterpart to the Form 7.5 Claim Payment
    Summary) and the Form 7.4a HUD-Held or Non-Claim/Non-HUD-Held
    Restructuring Summary Checklist (the counterpart to the Form 7.4
    Claim Payment Checklist) must be prepared prior to closing by the
    PAE business staff and submitted with a copy of the Certification of
    PAE Attorney Form 7.14, a copy of the official Payoff Demand, and
    the final Exhibit F Sources and Uses Statement from the underwriting
    model to the OMHAR Portfolio Director for review, approval and
    execution. The OMHAR Portfolio Director forwards the executed Form
    7.12 and Form 7.4a and backup material to the Closing Team.

G.  **Projects with a HUD-Held and HUD Insured Loan.** Projects with
    more than one loan, where at least one loan is still HUD insured and
    one is HUD-held, require an ad hoc edit to the model. Contact the
    Resource Desk for assistance. Generally in such a situation, the
    project number assigned to the MRN and CRN should match the
    previously HUD-held FHA project number, contact HQ Closing for
    further assistance.

H.  **FHA-Insured Takeout Financing.** If the takeout financing is a FHA
    insured Section 223(a)(7) loan, the processing is the same as any
    other Section 223(a)(7). The PAE Attorney will provide a
    Certification 7.8, and the Portfolio Director will trigger the
    closing just as if a claim is involved by contacting the Closing
    Coordinator and triggering the closing.

I.  **Payments to HUD.** The Closing Escrow Agent must disburse any
    funds that are to be applied to either the existing HUD-held Note or
    to fund escrows being held in trust for the owner by HUD (if no
    takeout financing) to the HUD Multifamily Notes Servicing Branch.
    Refer to paragraph 7-6B.7.c for address and wiring instructions for
    payments to HUD MF Notes Servicing Branch.

-   A transmittal memo must accompany wires and checks, identifying the
    original FHA project name and number, the reason for the payment and
    how funds are to be applied (M2M restructuring, apply to the
    existing HUD-held debt ).

-   The OMHAR PO Closing Coordinator is responsible for submitting a
    completed form 7.12 which provides M/F Notes Servicing Branch all
    required information to resolve the HUD Held obligation and address
    application of all existing escrows being held in trust for the
    owner. To do this accurately, the form 7.12 and Exhibit F Sources
    and Uses [must]{.underline} reflect both the existing and new escrow
    account balances post closing.

J.  **Disbursements by HUD from Escrow.** Application of any existing
    escrow balances must be addressed by the PAE in condition #38 of the
    Restructuring Commitment (and addressed in Closing Escrow
    Instructions and in Exhibit F Sources and Uses). Refer to paragraph
    7-6A.3. above. When the existing loan is HUD-held, the PAE should
    generally include the language in #38A.i.of the RC (Escrows to be
    Deducted from Payoff Amount).

> After the M2M closing, OMHAR HQ Closing staff will review the closing
> escrow agent's final settlement statement and provide specific
> instructions to HUD for application of the existing escrows. Often the
> total of the new loan takeout and owner contribution (in Sources) are
> adequate to fund all the new escrows and will be disbursed to the new
> lender from the closing escrow agent. If HQ closing determines
> additional funds are needed, we will instruct HUD how existing escrow
> balances are to be disbursed to the new lender and how remaining funds
> (if any) are to be applied. Generally, if there are funds remaining,
> they are applied to reduce the write off of the existing HUD-held
> note.
>
> It is essential that Exhibit F Sources and Uses reflect both existing
> (Sources) and new (Uses) escrow balances so funds can be properly
> reconciled.
>
> Sometimes new lenders may insist they want the existing escrowed funds
> be deposited in the closing escrow account and disbursed at Closing.
> They may fear the new escrows will not be fully funded. We [do not
> recommend]{.underline} this for HUD-held loans. Such requests must
> generally be submitted at least a week in advance of closing in order
> for the funds to be received on the scheduled closing date and it's
> not uncommon (with M2M Closings), for there to be changes in the
> identified closing escrow agent (agent name, account number etc)
> immediately prior to closing. This type of change could be very
> problematic if the escrow funds have already been sent (to the wrong
> place), and could delay closing. PAEs need to explain these issues and
> concerns to new lenders.

K.  **Closing**. The closing is considered consummated when the
    documents have been executed and recorded, title policy(ies) has
    been issued and funds have been captured and disbursed by the
    Closing Escrow Agent.

L.  **Post-Closing Responsibilities.** On the day of closing, the
    Closing Escrow Agent faxes to the OMHAR Closing Team a copy of the
    signed settlement statement, the M2M notes and mortgages, final
    Exhibit F and, if there is no takeout financing, a copy of the most
    recent tax bill.

**NON-HUD-HELD/NON-541(b) RESTRUCTURINGS -- FULL Restructurings with no
541(b) Payment**

SECTION 7-12

> **General**. For transactions with existing FHA-insured Notes that
> will not require a Section 541(b) Payment, the PAE business staff and
> PAE attorney should coordinate the transaction with the OMHAR HQ
> Closing Team. An example of such a transaction would be a deal with a
> large balance in the residual receipts account (available to reduce
> the Section 541(b) Payment amount when it is part of a M2M FULL debt
> restructuring) which eliminates the 541(b) Payment entirely, instead
> of just reducing it.
>
> The closing requirements for these are the same as HUD-held and 541(b)
> transactions, with the exception of the closing authority. The PAE
> must provide to the OMHAR Portfolio Director for execution prior to
> closing, a Form 7.13: Non-HUD-held / Non-PPC Closing Summary, and Form
> 7.4a HUD-Held or Non-Claim/Non-HUD-Held Restructuring Summary
> Checklist to request authorization to close the transaction.

A.  In some instances there will be excess funds in the residual
    receipts and/or reserve for replacement account after restructuring.
    Disbursement of those excess reserve funds must be addressed in the
    Restructuring Commitment. If the RC requires payment of the funds to
    HUD, the Closing Escrow Agent should disburse in accordance with the
    instructions in paragraph 7-6B.5.except that the transmittal should
    indicate the funds are to be applied to either:

    1.  HUD's Miscellaneous Income Account when the project is under the
        New Section 8 Regulations (New Reg) for Residual Receipts (that
        would belong to HUD at HAP expiration).

    2.  The MRN when the project is under the Old Section 8 Regulations
        (Old Reg) for Residual Receipts (that would belong to the owner
        at HAP expiration).

    3.  Refer to the Resource Desk for questions regarding Old Reg/New
        Reg Residual Receipts.

**List of Business Forms**

SECTION 7-13

No. Title

7.1 Transmittal Letter from PAE or PAE Attorney to Owner with Closing
Instructions

7.2 Closing Documents Checklist

3.  Certification of Closing Documents from PAE Attorney to OMHAR
    Portfolio Director

7.3-TPA Certification of Transfer of Physical Asset Documents from PAE
to OMHAR Portfolio Director

4.  Claim Payment Checklist

    7.4a HUD-Held or Non-Claim/Non-HUD-Held Restructuring Summary
    Checklist

5.  Claim Payment Summary

6.  Application for Claim Payment

7.  Closing Parties Checklist

8.  Certification of Closing Attorney -- with 223(a)(7) Takeout AND with
    541(b) Claim

9.  Notification Letter from PAE to Existing Mortgagee

10. Unassigned

11. Certificate of Closing Attorney --with 541(b) Payment BUT NO
    223(a)(7) Takeout

12. HUD-Held Closing Summary

13. Non HUD-Held/Non 541(b) Closing Summary (not HUD held, but no 541(b)
    Claim)

14. Certification of Closing Attorney - No 541(b) Claim AND NO 223(a)(7)
    Takeout

15. Authorization for Write-Off of M2M Notes and Release of Legal
    Documentation (OPG Appendix C)

16. Certification of Mortgagor Information

7.17 Docket Review Checklist

7.18 Authorization for Assignment of M2M Notes (OPG Appendix C)

7.19 Official Term Sheet

**List of Legal Forms**

For a complete list of Legal Forms, see Form 7.2 Closing Document
Checklist in Appendix F.

**Appendices**

Appendix C addresses sales to qualified non-profits and related
forgiveness or assignment of M2M debt.

Appendix D contains HUD requirements for TPAs

Appendix F contains the following information:

-   Guide to PAE Attorney - Closing Documentation

-   Title Instructions

-   Mark-to-Market Closing Checklist for Section 223(a)(7)

-   Standard Form Legal Documents (available on the OMHAR web site)

Appendix N describes the HUD requirements for processing a Section
223(a)(7) FHA-Insured Loan

Appendix P addresses requirements when a project has existing Flexible
Subsidy Loans including subordination issues to be dealt with at
Closing.

Appendix Q describes the requirements for processing IRP re-use for a
236 project and includes language for the Restructuring Commitment and
documenting the re-use.

Appendix R describes the requirements for processing a M2M project when
new sources of funds are brought to the deal, generally to achieve a
greater level of up-front rehab than possible under a standard M2M
transaction. These transactions typically involve multiple funding
sources with special conditions for funding approval. These conditions
must be reviewed and addressed early as they can affect the M2M Closing.
Early coordination between the PAE Closing Attorney, OMHAR Closing
Coordinator, owner and lender attorneys is essential.