4600.1 REV-1

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CHAPTER 2. PROPERTY AND MORTGAGOR ELIGIBILITY

2-1. ELIGIBLE FACILITIES.

A. Project. A nursing home, intermediate care facility,

board and care facility, or any combination eligible

under the Section 232 program. It includes the land on

which it sits, major movable equipment necessary for

its operation as determined by HUD, and may include a

nonresident day care component.

B. Nursing Home.

1\. A public facility, proprietary facility or facility

of a private nonprofit corporation or association,

licensed or regulated by the State, municipality or

other political subdivision in which the facility

is located.

2\. Provides for the accommodation of convalescents or

other persons who are not acutely ill and not in

need of hospital care, but who require skilled

nursing care and related medical services.

3\. Corresponds to the Department of Health and Human

Services \"Skilled Nursing Facility\" (SNF).

4\. The nursing care and medical services must be

prescribed by, or performed under the general

direction of, persons licensed to provide such care

or services in accordance with the laws of the

State where the facility is located.

C. Intermediate Care Facility.

1\. A proprietary residential facility or a facility of

a private nonprofit corporation or association

licensed or regulated by the State, the

municipality or other political subdivision in

which the facility is located.

2\. Provides for the accommodation of persons who

require minimum but continuous care but are not in

need of continuous medical or nursing services.

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2-1 9/92

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4600.1 REV-1

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(2-1) 3. Corresponds to the Department of Health and Human

Services \"Intermediate Care Facility\" (ICF).

D. Board and Care Home.

1\. A proprietary residential facility or a residential

facility owned by a private nonprofit corporation

or association.

2\. Provides room, board and continuous protective

oversight. \"Continuous protective oversight\" must

include the availability of both scheduled and

unscheduled assistance for defined special needs of

the occupants on a 24-hour basis and involves a

range of activities or services such as:

a\. For relatively independent occupants, awareness

by management and staff of the occupants\'

condition and whereabouts as well as the

availability of assistance for the occupants as

needed; or

b\. For relatively dependent occupants, supervision

of nutrition and medication with assistance for

the activities of daily living - bathing,

dressing, shopping, eating - and continuous

responsibility for the occupants\' welfare.

c\. Continuous protective oversight is not limited

to the above activities nor must it include the

examples given.

3\. Must be regulated by the state in accordance with

Section 1616(e) of the Social Security Act (Keys

Amendment) and meet the State\'s eligibility

requirements. The State also must have certified

to HUD that it is in compliance with the provisions

of 1616(e).

4\. Board and care homes are known by many different

names in different States, including domiciliary

care, shelter care, adult congregate living

facility, personal care, etc.

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9/92 2-2

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4600.1 REV-1

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(2-1) E. Day Care Component.

1\. Provides nonresidential care for elderly

individuals and others (e.g., persons with physical

or mental disabilities) who require care during the

day.

2\. Must be associated with a nursing home,

intermediate care facility and/or board and care

facility. A project which contains only a day care

facility is not eligible.

F. Specialized Use Facility. A nursing home, intermediate

care facility or board and care home for the care of a

specific type of patient.

1\. Proposals must include information on the

objectives of the sponsoring organization, details

of occupancy and type of facility contemplated,

type and extent of care and resources proposed,

details of staffing, rates, expenses, resources of

sponsors and any other necessary information.

2\. The facility must:

a\. Be designed so that it could be operated as a

general residential care facility with appeal

and marketability unimpaired by special

features or facilities.

b\. Obtain a State Certification of Need or market

study for the specialized use as described in

paragraph 2-2B.

c\. Be licensed or regulated by the State or other

political subdivision for the specialized use.

3\. The continuing existence of a market must be

established, especially if a major source of

patients and referrals will come from a single

source such as a public welfare agency.

G. Health Care Reimbursement. Residential care facilities

generally receive reimbursement from various public and

private third party payors, including Medicare and

Medicaid. See Chapter 11 for details.

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2-3 9/92

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4600.1 REV-1

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(2-1) H. Ineligible Facilities.

1\. Projects without continuous oversight or with

services other than those associated with Section

232 facilities. Examples of programs that exceed

the intent of the Section 232 program are

hospitals, clinics, diagnostic and treatment

centers, group practice facilities, and halfway

houses.

(Residential care facilities may include clinics,

medical offices, and similar related service as

commercial space.) Examples of operations that do

not provide the minimum assistance required would

include retirement homes, boarding houses or single

room occupancy residences that provide only food

and shelter.

2\. No \"founders fees,\" \"life care fees\" or other

similar charges or fees are allowed. Only

reasonable and customary security deposits and the

first month\'s charges may be required.

3\. No mortgage shall be insured under Section 232

unless the appropriate State agency furnishes HUD

acceptable assurance that the required licensing

and operating standards will be applied and

enforced at the care facility.

2-2. PROPERTY AND DEVELOPMENT REQUIREMENTS.

A. Proposals may be for:

1\. New construction is when all project and

construction elements are installed as part of the

work. An addition to an existing facility may be

insured as new construction only if:

a\. The existing project qualifies as substantial

rehabilitation (see paragraph 2-lA.2 below), or

b\. The addition is a separate and complete

self-sufficient entity with independent means

of ingress and egress, utilities, etc. New

construction proposals submitted as separate

and complete additions may not include

refinancing of existing debt unless there is

substantial rehabilitation of the existing

facility.

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9/92 2-4

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4600.1 REV-1

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(2-2) 2. Substantial rehabilitation is when:

a\. The hard cost of repairs, replacements, and

improvements (including major movable equipment

eligible for inclusion in the mortgage) and

additions exceeds 15 percent of the property\'s

value after completion of all repairs,

replacements and improvements, or

Two or more major building components are

replaced. Major building components comprise:

1\) roof structures;

2\) ceiling, wall or floor structures;

3\) foundations;

4\) plumbing systems;

5\) heating and air conditioning systems; and

6\) electrical systems.

NOTE: \"Additions\" refers to new project elements,

such as addition of a whirlpool, and not building

additions. See paragraph c. below.

b\. The repairs, replacements, improvements and

major movable equipment constituting the 15

percent of value may include work necessary to:

\_\_ meet current State and local standards

(e.g., installation of sprinkler systems),

\_\_ improve marketability (e.g., conversion of

large wards to private or semiprivate

rooms), and

\_\_ upgrade project elements that are peculiar

to residential health care facilities

(e.g., renovation of nursing stations

including call systems, utility and staff

work areas, medication, nourishment and

physical therapy rooms and other related

components).

c\. Additions to the property may be built as part

of the rehabilitation of an existing facility.

However, the existing facility must require

substantial rehabilitation as defined above.

The cost of the new addition may not be

included in the 15 percent of the property\'s

value for eligibility as described in a, above.

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2-5 9/92

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4600.1 REV-1

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(2-2) 3. Refinancing or purchase of an existing Project. A

project currently insured under Section 232 that

does not need substantial rehabilitation as defined

above may be insured pursuant to Section 223(f).

Existing projects insured pursuant to Section

223(f) must be under a separate mortgage with a

separate mortgagor entity if done in combination

with a Section 232 new or rehabilitated project,

since they are insured under different sections of

the National Housing Act.

4\. Construction may not start before initial

endorsement for insurance of advances or issuance

of the firm commitment for insurance upon

completion except upon approval by the Field office

of an early start through execution of a Form

FHA-2415.

5\. Start of construction/rehabilitation is when work

begins on the project. Once work begins, it must

be continuous without appreciable delays and earn

the inspection fee, such as placement of any

permanent construction (e.g., foundations,

footings, demolition for rehabilitation, etc.).

B. State Review Requirements.

1\. Nursing home or intermediate care facility. A

certification on Form HUD-2576-HF, Certificate of

Need (CoN), issued by the State agency with

jurisdiction designated under Section 604(a)(1) or

Section 1521 of the Public Health Service Act.

(Appendix 1.)

a\. The State certification must evidence that:

1\) There is a need for the project.

2\) There are reasonable minimum standards in

force for licensure and for operating the

project in the State or other political

subdivision in which the project is

located.

3\) These standards will be enforced for the

HUD-insured project.

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9/92 2-6

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4600.1 REV-1

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(2-2) b. If no authorized State agency exists or if it

is not empowered to execute a CoN:

1\) The State may conduct or commission an

independent study of market need and

feasibility acceptable to HUD that:

a\) Meets the standards of the American

Institute of Certified Public

Accountants as certified to by the

State and/or preparer of the market

study.

b\) Adequately covers:

\-- Assessment of need on a market wide

basis, including excess beds and

typical market wide operating

occupancy rates of existing

facilities.

\-- Impact of the proposed project on

other health care facilities and

services in the area.

\-- Demographic projections (size,

density, distribution and vital

statistics) for the proposed

project and the market area.

\-- Alternative health care delivery

systems (extended care, board and

care, etc.).

\-- Reimbursement structure of the

proposed project and that of the

competing projects in the following

areas:

\- Percentage of self-pay clients

and daily cost to client.

\- Percentage of Medicaid clients

and reimbursement rate.

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2-7 9/92

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4600.1 REV-1

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(2-2) - Percentage of Medicare clients

and reimbursement rate.

\- Percentage of other clients and

reimbursement rate.

\-- Estimated market absorption period

of beds in the proposed project by

month including discussion of

market supply, market reaction to

bed density (private, semiprivate,

three-bed, etc.) and turnover.

2\) If the State is not authorized to conduct,

commission or certify the study as to form

and substance, the mortgagee may approve a

financial consultant acceptable to HUD to

prepare the study.

3\) The proposed mortgagor may reimburse the

State for the costs of the independent

market and feasibility study.

4\) For small intermediate care facilities for

the mentally retarded or developmentally

disabled housing less than 50 individuals,

the State program agency responsible for

licensing, certifying, financing or

monitoring the project may provide HUD with

a written statement of need for the project

instead of the independent study of market

need and feasibility.

5\) The State must provide a certification with

regard to a2. and a3. above.

c\. Substantial Rehabilitation. Submission

requirements are modified as follows:

1\) If the authorized State agency requires a

new CoN, a new certification on Form

HUD-2576-HF must be completed and included as

an exhibit.

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9/92 2-8

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4600.1 REV-1

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(2-2) 2) If the authorized State agency does not

require a new CoN, a statement from the

State agency that a new CoN is not

required, a copy of the original Form

HUD-2576-HF (if previously insured) or State

CoN (if not previously insured) and a

current operating license.

3\) If there is no authorized State agency and

the rehabilitation involves no new beds, a

current operating license.

4\) If there is no authorized State agency and

the rehabilitation involves the addition of

new beds, an alternative market study as

described in b. above and a current

operating license.

d\. Purchase or refinancing of an existing project.

Submission requirements are modified as

follows:

1\) If the authorized State agency requires a

new CoN, a new certification on Form

HUD-2576-HF.

2\) If the authorized State agency does not

require a new CoN, a statement from the

State agency that a new CoN is not

required, a copy of the original Form

HUD-2576-HF and a current operating license.

3\) If there is no authorized State agency, a

copy of the original Form HUD-2576-HF and a

current operating license.

2\. Board and care facility.

a\. A certification from the appropriate State

agency that the State is in compliance with

Section 1616(e) of the Social Security Act

(Keys Amendment). This amendment requires, in

part, that each State designate one or more

State or local authorities to establish and

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2-9 9/92

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4600.1 REV-1

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(2-2) ensure continuing enforcement of standards for

any category of facilities in which a

significant number of recipients of

Supplemental Security Income (SSI) is residing

or is likely to reside. (Clearance from the

designated State health planning agency under

Section 1122 of the Social Security Act is not

required.)

b\. A CoN and operating license are not necessary

unless required by applicable State or local

law. If either is required, a copy must be

submitted with the application.

3\. Any State CoN must be pledged as security for the

term of the mortgage and may not be transferred to

another project upon assignment or foreclosure.

Operating licenses and provider agreements also

must stay with the project and may not be

transferred.

4\. Each license shall be issued only to the operating

entity and those persons named in the license

application. The license is valid only for the

operation of the facility at the location specified

in the licensed application. A license is good

only for the operator designated in the license; it

cannot be sold or otherwise transferred.

5\. HUD must agree in writing to any voluntary

reduction in bed capacity.

C. Project Size.

1\. Nursing home or intermediate care facility - at

least 20 beds. Skilled nursing or intermediate

care beds must be separated from board and care

beds in the facility.

2\. Board and care facility - a freestanding structure

or other structure with at least five residential

accommodations and a maximum of four persons for

each accommodation and each full bath. (Must meet

State and local regulations if they require fewer

persons per bath or accommodation.) Group dining

facilities must be available.

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9/92 2-10

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4600.1 REV-1

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(2-2) 3. Day care component - no minimum size, but usually

provides service for 15 to 60 clients. Nonresident

day care space or income may not exceed 20 percent

of the total project space or income. Because of

the space percentage limitation, day care would

likely be feasible only in larger projects.

D. Project Site. Generally, all buildings of the project

must be on one site (contiguous parcel of land).

However, there may be cases in which project

feasibility requires that buildings be located on more

than one site, as long as the Field Office determines

that all the building sites are in the same immediate

neighborhood and can be managed efficiently. Any day

care component may not be located on a noncontiguous

site as a stand-alone building.

E. Real Estate Requirements. Must be on real estate held

or to be held:

1\. in fee simple;

2\. under a renewable lease for not less than 99 years;

3\. under a lease running at least 55 years from the

date the mortgage is executed; or

4\. Under a lease executed by a government agency or

other lessor approved by HUD, for up to the maximum

term the agency or lessor may enter into, but not

less than 50 years from the date the mortgage is

executed.

(If a leasehold exists, Form FHA-2070, Lease

Addendum, must be used. See HUD Handbook 4430.1,

Initial Closing.)

F. Leasing of Section 232 Facility. May be leased in its

entirety to a qualified operator, subject to HUD\'s

prior written approval.

1\. The lessee must execute the Regulatory Agreement in

addition to the mortgagor. (See Appendix 6.)

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2-11 9/92

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4600.1 REV-1

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(2-2) 2. The proposed lease agreement must be consistent

with the National Housing Act and Section 232

regulations and contain a restriction against its

assignment without HUD\'s prior approval.

3\. The lease must ensure that the property will be

properly maintained and that payments under the

lease are sufficient to enable the lessor to meet

debt service requirements and other operating

expenses.

4\. The lease must require HUD approval in writing for

any voluntary reduction in the bed capacity.

5\. A nonprofit facility must be leased only to another

nonprofit entity.

G. Liens and Mortgage Security.

1\. The mortgagor must certify at endorsement (initial

and final endorsement for insurance of advances)

that:

a\. The mortgage is a first lien and covers the

entire project, including the equipment

financed with mortgage proceeds.

b\. The property upon which the improvements have

been made or constructed and the equipment

financed with mortgage proceeds are free and

clear of all liens other than the HUD-insured

mortgage and such other liens as may be

approved by HUD.

c\. The certificate sets forth all unpaid

obligations in connection with the mortgage

transaction, the purchase of the mortgaged

property, the construction or rehabilitation of

the project or the purchase of the equipment

purchased with mortgage proceeds.

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9/92 2-12

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4600.1 REV-1

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(2-2) 2. Equipment and furniture in replacement cost, even

if paid for by the mortgagor, must be included in

the HUD mortgage security and covered by a security

agreement or other instrument, that creates a

security interest made to the mortgagee. No

leasing or lease purchase agreements are permitted

for these items.

H. Property Standards. Refer to paragraph 5-3 for

currently required standards.

I. Zoning. Projects must comply with all applicable

zoning or deed restrictions.

J. Commercial Areas. Projects must be designed primarily

for residential use and related care services.

1\. Commercial space will be limited to 10 percent of

the total gross floor area in a project. Any

commercial activity must be compatible with the use

of the project.

2\. Commercial space that is exclusively to serve

residents of the facility is not counted toward the

10 percent limit.

3\. Day care space is not considered commercial space.

2-3. AREA ELIGIBILITY\--GENERAL. Staff must consider all aspects

of general livability during analysis of the location

(e.g., freedom from adverse environmental conditions,

accessibility to community facilities). Project location

must:

A. Be suitable for the type of facility, occupancy

proposed and market to be served.

B. Meet applicable environmental standards of 24 CFR Parts

50 and 51 as determined by environmental analysis

including:

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2-13 9/92

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4600.1 REV-1

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(2-3) 1. Floodplain management, including requirements

regarding \"critical actions\" such as location of

certain projects, including residential care

facilities, above the 500-year floodplain.

2\. Historic preservation

3\. Coastal zone management

4\. Barrier islands

5\. Noise

6\. Hazards such as toxic waste, explosive materials,

airplane runway clear zones, etc.

(See Handbook 1390.1 for details on environmental

processing.)

2-4. MORTGAGOR ELIGIBILITY.

A. All mortgagors must be approved by HUD and regulated

through a Regulatory Agreement. This agreement

establishes the mortgagor\'s obligations in project

operations and the mortgagee\'s and HUD\'s rights if it

is violated. (See Appendices 4 and 5.)

B. A mortgagor must possess the legal powers necessary to

operate the project except when it leases the project

to a qualified operator. In that case, the lessee must

be approved by HUD and must possess the legal powers

necessary to operate the project. Regardless of who

(mortgagor or lessee) holds the CoN, the operating

license, and the Medicare/Medicaid provider agreement,

these items must be pledged as security for the

mortgage and may not be transferred to another project

or terminated by the owner upon assignment or

foreclosure.

C. All mortgagors under Section 232 must be single asset

mortgagors.

D. All mortgagors must be approved by HUD and are subject

to HUD\'s regulation and restriction as long as HUD is

the insurer, holder or reinsurer of the mortgage. This

\"regulation\" may be the regulatory agreement, corporate

charter, etc., as HUD approves.

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9/92 2-14

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4600.1 REV-1

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(2-4) E. Eligible Mortgagor Types. Proprietary and nonprofit

mortgagors may develop and own any type of residential

care facilities eligible under Section 232. Public

mortgagors may develop and own nursing homes only.

1\. Proprietary Mortgagor. An owner that is

profit-motivated. It may be a corporation, partnership,

trust, individual, or any other qualified legal

entity.

2\. Nonprofit Mortgagor. An entity organized for

reasons other than financial gain which is not

controlled or directed by persons or firms seeking

financial gain from it. Its operation must be

regulated under Federal or State law.

3\. Public Mortgagor. A Federal or State

instrumentality, a municipal corporate

instrumentality of one or more States, or a

redevelopment or housing corporation formed under

and restricted by Federal or State laws or

regulations of a State banking or insurance

department as to charges, capital structures, rate

of return, or methods of operations.

F. Special Requirements for Nonprofit and Public

Mortgagors.

1\. Charter and/or Regulatory Agreement. If a

corporation is to be formed, the Certificate of

Incorporation should conform to the instructions in

Appendix 15. Existing corporations must amend

their charters as required to permit them to own

and operate a residential care facility. All

nonprofit and public mortgagors must execute a

Regulatory Agreement, Form
[HUD-92466-E](http://www.hud.gov/utilities/intercept.cfm?/offices/adm/hudclips/forms/files/92466-e.pdf).

(Appendix 5).

2\. Construction Contract.

a\. A cost-plus fixed fee contract with a maximum

upset price, Form HUD-92442A, must be used in

most cases to protect the interests of HUD and

the mortgagor and must always be used where an

identity of interest exists between the owner

and contractor.

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2-15 9/92

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4600.1 REV-1

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(2-4) b. A lump sum (Form HUD-92442) may be authorized

by the Field office where it is in the

mortgagor\'s and HUD\'s interest.

3\. Consultants. Must have residential care facilities

experience and expertise in market evaluation,

procurement of financing, evaluation of attorneys,

architects, building contractors, residential care

facility administrators, etc., and provide

assistance in the preparation of applications and

related documents. May be used to help nonprofit

organizations and public mortgagors that lack the

staff and experience to develop a project. A

reasonable fee for such service may be included in

the mortgage.

a\. Selection and Approval. Responsibility of the

mortgagor subject to HUD approval. (See Form

HUD-92531A, Standard Contract for Housing

Consultant Services.)

b\. Consultant\'s Relationship with the Mortgagor.

To make sure the consultant\'s efforts are

directed exclusively toward serving the

mortgagor, the consultant must certify on Forms

HUD-92531 and HUD-92531B that he/she has not

and will not receive payment from any parties

to the transaction other than the consultant\'s

fee specified in the contract with the

mortgagor. No other party, including the

builder, architect, and mortgagor, may receive

payment for consultant services in addition to

fees from other work for the project.

c\. Allowable Consultant\'s Fee. The actual fee for

consultant services is negotiated between the

mortgagor and consultant, subject to the

limitations in HUD Handbook 4500.1 REV-1. When

a consultant\'s fee is included, the

Organizational Expense should be reduced

accordingly.

d\. See HUD Handbook 4500.1 REV-1, Allowance for

Making Nonprofit Projects Operational (AMPO)

and Use of Housing Consultants.

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9/92 2-16

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4600.1 REV-1

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(2-4) 4. Loans and Donations. Nonprofit mortgagors may

borrow funds for project purposes under certain

conditions.

a\. Loans from parties involved with the project.

1\) Funds may be borrowed from the contractors

or other parties furnishing supplies and

services only for items covered in the

mortgage.

2\) Loans must be repaid:

a\) For insurance of advances, when

mortgage proceeds are advanced for the

item for which the loan was made.

b\) For insurance upon completion, when the

note is endorsed.

b\. Loans from sponsors or disinterested third

parties may be used for any project purpose as

long as:

1\) The indebtedness does not create a

situation where the third party can

exercise any direction or control over the

mortgagor.

2\) Loans for items not included in the

mortgage are secured by a promissory note

executed by the mortgagor on Form FHA-1710.

The form provides for prior written

approval by HUD for payments on the loan.

However, for Section 232 mortgagors, the

notes may be endorsed as follows:

\"Approval to make repayment of this loan

from Residual Receipts is hereby granted

this \_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_, 19 \_\_\_.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Commissioner by Authorized Agent

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2-17 9/92

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4600.1 REV-1

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(2-4) 3) If the mortgagor receives any gifts or

donations from the general contractor or

any other parties furnishing supplies or

services, the amount must be deducted by

the mortgagor in cost certification.

2-5. CONSTRUCTION, HIRING AND WAGES.

A. Construction Contract.

1\. A construction contract is required in all cases

except where the mortgagor and the contractor are a

single individual.

2\. The Field Office must exercise special care in

approving an individual to act as his own

contractor to ensure that the individual has acted

in the same role for others and is duly licensed in

the jurisdiction of the project. \"Paper\"

contractors who do not actually perform as

contractors on other projects are not permitted.

3\. Form of Contract. Form of contract for nonprofit

and public mortgagors is covered in paragraph

2-4E.2. For proprietary mortgagors:

a\. Lump sum contract. May be used where the Field

Office determines there is no identity of

interest existing between the mortgagor (or any

of its officers, stockholders or partners) and

the general contractor.

b\. Cost plus contract. Must be used where the

Field Office determines that an identity of

interest exists between the mortgagor and the

general contractor.

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9/92 2-18

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4600.1 REV-1

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(2-5) B. Prevailing Wages.

1\. New Construction and Substantial Rehabilitation

projects:

a\. Payment of no less than the wages prevailing in

the locality, as predetermined by the Secretary

of Labor pursuant to the Davis-Bacon Act (40

U.S.C. Section 276a-276a-5), to all laborers

and mechanics employed in the development of

any project, and

b\. Compliance with all other related rules and

regulations under Davis-Bacon (see 6-15 and

Handbook 1344.1 REV-1, Federal Labor Standards

Compliance in Housing and Community Development

Programs) and the Copeland Act (40 U.S.C.

Section 276c).

2\. Existing projects pursuant to Section 223(f).

Prevailing wage requirements do not apply except

when the project receives benefits under 24 CFR

Part 511 (Rental Rehabilitation Grants), 24 CFR

Part 850, Housing Development Grants, or other

program which requires payment for prevailing

wages.

NOTE: Section 212(a) of the National Housing Act

contains a limited exception to payment of

prevailing wages for certain volunteer

labor on nonprofit projects. Contact HUD

Headquarters for case-by-case approval.

(See Handbook 1344.1 REV-1 for details on

prevailing wage requirements.)

C. Equal Employment Opportunity. Compliance with

Executive Order 11246 and 41 CFR Part 60 regarding

equal employment on Federally assisted construction

contracts is required. They:

1\. Prohibit discrimination because of race, color,

religion, sex or national origin.

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2-19 9/92

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4600.1 REV-1

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(2-5) 2. Require affirmative action to ensure fair treatment

in: employment, upgrading, demotion or transfer,

recruitment or recruitment advertising, layoff or

termination, rates of pay or other forms of

compensation and selection for training

apprenticeship.

3\. Incorporate, or cause to be incorporated, into any

contact for construction work, as defined in

Section 130.5 of HUD regulations, the equal

opportunity clause required by 24 CFR Part

130.15(b) of the HUD regulations.

2-6. OCCUPANCY. All individuals are eligible for occupancy

subject to normal selection. The mortgagor must:

A. Recognize that any restrictive covenant on property

covered by the mortgage relating to race, color,

religion, sex, or national origin, familial status or

handicap is illegal, void and specifically denied.

B. Comply with the Fair Housing Act and implementing

regulations (24 CFR Part 100) and administrative

procedures that prohibit discrimination because of

race, color, religion, sex, national origin, familial

status, or handicap; administer the project and related

activities to further fair housing in an affirmative

manner; the fair housing poster regulations (24 CFR

Part 110); advertising guidelines (24 CFR Part 109),

and State and local fair housing laws and regulations.

C. Comply with Executive Order 11063 and associated

regulations preventing discrimination because of race,

color, religion (creed), sex, or national origin in

housing and related facilities assisted by Federal

funds.

D. Utilize tenant selection procedures that will not

discriminate against persons because of race, color,

religion, sex, national origin, handicap, or familial

status (unless the project was specifically designed

for housing the elderly and meets the requirements of

24 CFR 100.300 to .304 (Housing for Older Persons

subpart E of the regulations implementing the Fair

Housing Act));

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9/92 2-20

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4600.1 REV-1

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(2-6) E. Recognize that it, or anyone authorized to act for it,

shall not refuse to sell or rent, after the making of a

bona fide offer, or refuse to negotiate for the sale or

rental of, otherwise make unavailable or deny the

property covered by the mortgage to any person because

of race, color, religion, sex, familial status, or

national origin, or not discriminate against any person

in the sale or rental of a dwelling because of

handicap;

F. Recognize that preventative relief may be sought

through the Department\'s administrative proceedings

before an Administrative Law Judge pursuant to the Fair

Housing Act, or by civil action through the U. S.

District Court against any person responsible for a

violation of this certification;

G. Identify a site and neighborhood suitable from the

standpoint of facilitating and furthering full

compliance with the applicable provisions of the Fair

Housing Act, Executive Order 11063 and implementing HUD

regulations;

H. Market the Project in accordance with the HUD-approved

Affirmative Fair Housing Marketing Plan and regulations

at 24 CFR Part 200, Subpart M; and

I. Maintain records containing information on the race,

ethnicity, and gender of program applicants and

participants and make them available for inspection by

the Secretary or designee.

2-7. DAY CARE.

A. Target Population. The type of day care is determined

by the target population which needs the specific

service or combination of services offered and

includes:

1\. Physically disabled or impaired elderly,

2\. Disabled (young, old, long-term, short-term),

3\. Developmentally disabled (young, old, varying

severity of disability),

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2-21 9/92

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4600.1 REV-1

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(2-7) 4. Adults with mental health problems associated with

physical impairment, or behavior management (e.g.,

Alzheimer\'s Disease).

5\. Disabled as a result of trauma (stroke, accident

and other disabling events).

B. Program Types.

1\. Restorative. Offers intensive, health-supportive

services prescribed in individual care plans.

Therapeutic services may be prescribed on a

one-to-one basis. Constant health monitoring and

psychosocial services are an integral part of the

total program.

2\. Maintenance. Has health professionals on staff and

appropriate equipment to carry out an individual\'s

care plan based on physician\'s recommendations and

developed by the multidisciplinary program team.

Services include health monitoring, supervised

therapeutic individual and/or group activities and

psychosocial services.

3\. Social. Varies widely in nature and scope of

services offered and places great stress on health

maintenance with associated nursing services. Some

programs are linked with local clinics or health

departments, transporting participants to needed

services. Others are concerned solely with

socialization, lunches, and general assistance with

the needs of daily living. There is no \"typical\"

social day care program.

C. Physical Characteristics.

1\. New construction or substantial rehabilitation

residential care facilities may include space for

day care.

2\. Existing residential care facilities may include

existing day care space but may not add additional

space.

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9/92 2-22

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4600.1 REV-1

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(2-7) 3. Day care space must be a part or extension of a

residential care facility. A project that consists

only of a freestanding day care facility cannot be

financed under this program.

4\. Nonresident day care space or income may not exceed

20 percent of the gross floor area and total income

respectively. Day care space is not considered

commercial space.

5\. A residential care facility may have day care space

located in or adjacent to the project or at another

site in the same neighborhood. The day care space

must have:

a\. adequate toilet and bathing accommodations,

b\. cooking facilities, and

c\. adequate transportation available for its

clients.

6\. A day care facility must meet the minimum property

requirements of any third party reimbursement

agencies in the local jurisdiction. (See paragraph

D.2 below.)

D. Feasibility. The day care space must be self-supporting.

1\. The mortgagor must supply adequate data and

documentation from reimbursement agencies, etc.,

indicating that the day care space will be able to

produce sufficient income to pay:

a\. operating expenses,

b\. its share of the debt service, and

c\. reserve for replacement fund requirements.

2\. The primary sources of reimbursement for day care

are:

a\. Title XIX (Medicaid) and Title XX (vocational

rehabilitation) of the Social Security Act,

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2-23 9/92

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4600.1 REV-1

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(2-7) b. participant payment,

c\. commercial (private) health insurance, and

d\. miscellaneous sources such as revenue sharing,

philanthropic funding, Area Agencies on Aging,

mental health departments and the United Way.

E. A CoN and operating license are not required unless

required by the applicable State or local law. If

either is required, a copy must be submitted with the

application.

2-8. BOARD AND CARE FACILITIES.

A. Eligible Facilities:

1\. Must be a freestanding structure or an identifiable

and separate portion of an intermediate care

facility or nursing home.

2\. Intermediate care or nursing services may not be

carried out in a board and care facility or the

board and care portion of a residential care

facility. However, to accommodate a couple, a

board and care resident may reside in the

nursing/intermediate care area.

3\. Must provide areas for central dining, kitchen (or

preparation area where food is supplied from an

offsite location), lounges, recreation, and other

appropriate purposes. Where food is provided from

an offsite location, the preparation area in the

facility must be of sufficient size to allow for

the installation of a full kitchen if it becomes

necessary, or additional land must be available to

add kitchen space.

4\. Where a board and care facility is being added to

an existing structure that does not have an

FHA-insured mortgage and that is not being

substantially rehabilitated under the program, the

board and care addition must be a complete,

self-contained, operating, mortgageable entity. It

must not be dependent on the other structure for

utilities, ingress, egress, etc.

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9/92 2-24

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4600.1 REV-1

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(2-8) 5. Where a board and care facility is being added to

an existing nursing home and/or intermediate care

facility that is being substantially rehabilitated,

the entire facility may be insured under Section

232\. A CoN (Form HUD-2570-HF) executed by the

appropriate State agency or alternate study

covering the nursing and/or intermediate care beds

is required. (Refer to 2-2B.)

B. Independent Living Units.

1\. Limitation. May not exceed 25 percent of the total

projected number of residents in any board and care

project.

2\. Required Reserves and Escrows. A board and care

project with independent living units (efficiency,

or one bedroom units with complete kitchen and bath

facilities) requires certain reserves or escrows.

a\. Operating deficit escrow. Must:

\(1\) Cover the period between construction

completion and the time HUD estimates

sustaining occupancy will be reached.

\(2\) Be held until sustaining occupancy has been

reached and maintained for 90 days

thereafter.

b\. Debt service reserve. Any combination of

independent living units with a nursing

home/intermediate care facility or a board and

care facility requires a prorated debt service

reserve (e.g., 25 percent independent living

units would require 25 percent of the 12-month

debt service reserve for the portion of the

project used as a board and care facility).

c\. Establishment of the operating deficit escrow

and debt service reserve must be provided at

initial endorsement by:

\(1\) Agreement of Sponsors to Furnish Additional

Funds and Bond Guaranteeing sponsor\'s

Performance (Forms FHA-2476 and 2477).

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2-25 9/92

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4600.1 REV-1

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(2-8) (2) Escrow Agreement \-- Additional Contribution

by Sponsors (Form HUD-92476A).

d\. Disbursement. When both an operating deficit

escrow and debt service reserve are required,

disburse first from the escrow and then from

the reserve to fund operating expenses, debt

service payments, initial marketing and rent-up

costs, etc.

3\. Use of a personal note to satisfy debt service

reserve requirement

Between initial endorsement and the estimated date

of completion, the mortgagee may accept a personal

note, which is treated the same as cash and

deducted from any insurance claim payment due the

mortgagee in the event of default.

a\. The mortgagee must agree in the Mortgagee\'s

Certificate that any personal note will be

treated as a cash item if there is a default

during this period and the mortgagee files a

claim for insurance benefits. Insurance

benefits will be reduced by the amount of the

note.

b\. The following must be added to the Mortgagee\'s

Certificate to show the mortgagee\'s acceptance

of the surcharge provision:

We have accepted a personal note from

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ (mortgagor) for

\$\_\_\_\_\_\_\_\_\_\_\_\_\_ which we will hold until the

estimated date of completion and a Bond

Guaranteeing Sponsor\'s Performance. The note

will then be converted to cash or a letter of

credit. We agree that HUD will treat the note

as a cash item and reduce the insurance

benefits by the amount of the note if there is

a mortgage default and we make a claim for

insurance benefits before the note is

converted.\"

4\. Required special conditions for firm Commitments

for board and care facilities with independent

living units:

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9/92 2-26

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4600.1 REV-1

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(2-8) If the mortgagee accepts a personal note from the

mortgagor for \$\_\_\_\_\_\_\_\_\_\_\_\_ for the debt service

reserve for the time between initial endorsement

and the estimated date of completion, the mortgagee

must agree in the Mortgagee\'s Certificate that the

note will be treated as a cash item and insurance

benefits will be reduced by the amount of the note

if a default occurs during this period and the

mortgagee files a claim for insurance benefits.

C. Mandatory and optional services.

1\. Mandatory continuous protective oversight involves

a range of activities. Services for relatively

independent occupants may include such things as

awareness by management and staff of the occupants\'

condition and location as well as the ability to

intervene in a crisis. (See 2-lD.)

2\. Board and care facilities must offer three meals

per day to each resident.

a\. Residents in accommodations without kitchens

must take the three meals a day provided by the

facility.

b\. Residents whose accommodations have a kitchen

must take at least one meal a day provided by

the facility.

3\. Charges may be assessed for providing other

services that are in addition to those services

included in the basic residential fee. Such

services may include housekeeping, laundry,

supervision of nutrition or medication and

assistance with daily living (bathing, dressing,

shopping, eating).

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2-27 9/92

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4600.1 REV-1

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2-9. EXISTING RESIDENTIAL CARE PROJECTS (PURSUANT TO SECTION

223(f).

Only currently FHA-insured projects to be acquired or

refinanced without equity take-outs are eligible.

A. Projects must:

1\. Meet general livability criteria without

substantial rehabilitation. Property is eligible

if:

a\. The cost of repairs, replacements, improvements

or additions does not exceed 15 percent of the

property\'s value after completion of all

repairs, replacements, improvements or

additions, or

b\. It requires replacement of not more than one

major building component. These include roof

structures; ceiling, wall or floor structures;

foundations; plumbing systems; heating and air

conditioning systems; or electrical systems.

2\. Be at least 3 years old; i.e., on the date of the

insurance application, 3 years must have passed

since the later of:

a\. Completion of construction or substantial

rehabilitation of the project (the date the

final inspection report was issued for the

entire project), or

b\. Initial occupancy (the date on which a

certificate of occupancy, or equivalent, was

issued).

3\. Be on real estate held or to be held:

a\. In fee simple;

b\. Under a renewable lease for not less than 99

years;

c\. Under a lease running at least 55 years from

the date the mortgage is endorsed, or

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4600.1 REV-1

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(2-9) d. Under a lease executed by a government agency,

or other lessor approved by HUD, for up to the

maximum term the agency or lessor may enter

into, but not less than 50 years from the date

the mortgage is executed.

NOTE: If a leasehold is used, Form FHA-2070,

Lease Addendum, must be used. See HUD

Handbook 4430.1, Initial Closing.

4\. Upon completion of repairs and improvements, comply

with applicable property standards. (See Chapter

5.)

5\. Have a remaining economic life sufficient to

support the requested mortgage term. (See Chapter

7.)

6\. Have attained sustaining occupancy (occupancy that

would produce income sufficient to pay operating

expenses, annual debt service and reserve for

replacement requirements) before endorsement.

a\. Alternatively, an operating deficit escrow must

be established at endorsement sufficient to

carry the project until sustaining occupancy is

likely to be reached (not to exceed 18 months).

b\. If sustaining occupancy is not expected to be

achieved within 18 months, the project is not

eligible for mortgage insurance.

7\. The property must be held by an eligible mortgagor

and must be free and clear of all liens other than

the mortgage, except for inferior liens made or

held by a Federal, State or local government agency

and approved by HUD. Repayment of the inferior

lien must be limited to surplus cash or residual

receipts.

NOTE: An operating deficit is not to be

established to support an artificially

increased mortgage nor is it a substitute

for sound underwriting, such as where

projected market rent increases (necessary

to support a given mortgage) cannot be

supported by market analysis.

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4600.1 REV-1

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(2-9) B. Older, Declining Areas.

1\. If the property is located in an older, declining

urban area, refinancing may not be used to lower

the monthly debt service except as necessary to

assure economic viability of the project.

2\. The following factors should be considered in

determining whether a project is located in an

older, declining area:

a\. location of the project in a neighborhood

comprised predominantly of dwellings built

prior to 1940;

b\. trends in property values in the past 5 years

compared to those in other parts of the

community;

c\. population density; and

d\. proximity to industrial or heavy commercial

areas.

3\. Exhibit 1 in Chapter 8 should be used for computing

the mortgage term, principal and interest payments

for projects located in older, declining areas.

4\. Processing files must contain documentation

supporting the determination that the project is or

is not in an older, declining area.

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