4550.6

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

CHAPTER 4. INITIAL ENDORSEMENT

4-1. CONVEYANCE OF TITLE. In a Sales Type project, it is intended

that title to the project will be vested in the mortgagor

corporation only during the construction period, and that upon

completion of construction of the project, the individual

dwelling units will be released from the project mortgage. The

property description must show individual lot lines to establish

the separate estates. The member will thereupon become the

owner of an individual estate on which there is a dwelling unit

constructed (single family detached, semi-detached or row)

subject to an individual mortgage thereon, which is eligible

for insurance as an individual home mortgage under Section 213.

The closing requirements for the individual home will be covered

under final endorsement procedures.

4-2. CLOSING CHECK LIST. The closing check list to be used in

connection with the project closing is FHA Form 3257-A.

4-3. AFFIDAVIT REGARDING DELIVERY OF WARRANTIES. In Sales Type cases,

the general contractor should certify that he has executed and

turned over to the mortgagee for delivery to the purchaser a

warranty on FHA Form 2544 for each of the properties in the

project.

4-4. PRESALE REQUIREMENTS. Membership totaling 100 percent of the units

must be procured and approved by HUD-FHA prior to endorsement.

4-5. DOWN PAYMENTS. A minimum cash down payment is required from each

subscriber in the same amount as would be required in the Section

203 home mortgage program. Any borrowing by the mortgagor is

likewise restricted in the same manner as in Section 203. Where

the cost of acquisition is more than the HUD-FHA estimate of values,

the minimum required investment will be increased in the same

manner as under Section 203(b)(2).

4-6. MORTGAGE RIDER, FHA FORM 3214. This instrument is a part of all

sales type project mortgages. The release prices set forth on

the reverse side of the form must be the same as those approved

by the Chief Underwriter or Assistant Director for Technical

Services.

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

Page 4-1 3/73

HUD-Wash., D. C.

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

4550.6

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

4-7. MODEL FORMS.

a\. Model Form of Information Bulletin, Sales Type, Insurance of

Advances, FHA Form 3243. This form is self-explanatory.

b\. Model Form of Subscription and Purchase Agreement.

\(1\) Insurance upon Completion, FHA Form 3233. This model

form combines the information bulletin and subscription

agreement and is self-explanatory. The references to

working capital in the footnote on page one and in

paragraph three on page two should be deleted.

\(2\) Insurance of Advances, FHA Form 3231. This form is

self-explanatory and can be found in the forms appendix

in this chapter.

c\. Model Form of Certification of Incorporation for Sales Type

Cooperative Corporations Organized on a Stock Basis Under

Section 213 Involving Community Facilities and One or More

Project Mortgages, FHA Form 3235-A.

d\. Model Form of Certification of Incorporation for Cooperative

Corporations, FHA Form 3235.

e\. Model Form of By-Laws for Management and Sales Type Mortgagor

Corporations, FHA Form 3245. This is the standard By-Law

format and is used by Sales Type cooperatives as well as

management type.

4-8. INCORPORATION. The HUD Area Counsel will require a certification

from the appropriate state incorporation official evidencing the

filing of the Certificate of Incorporation in the form previously

approved by HUD. In situations where the mortgagor has been

incorporated in a \"foreign\" state, HUD should also be furnished

with a certificate of domestication (sometimes known as a

certificate of authority) by the appropriate official of the state

in which the project is located.

4-9. COMMUNITY FACILITY REQUIREMENTS.

a\. Insured Advances: The commitment form to be used where only

one project mortgage is involved is Commitment for Insurance

of Advances, Section 213, Sales Type, FHA Form 3207. In

the form as presently printed, delete from 9b, \"if any\" and

make reference to the required community facilities.

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

3/73 Page 4-2

HUD-Wash., D. C.

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

4550.6

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

(4-9) (1) Multiple Mortgage Parcels. In situations where more

than one project mortgage is involved the proper form is

Commitment for Insurance of Advances, Sales Type,

Involving One Mortgagor Corporation, Two or More Project

Mortgages, and a Community Facility, FHA Form 3207-A.

The legislation contemplates that a number of contiguous

projects may join in the construction of centrally

located community facilities. Where this type of

operation is involved, the mortgage amount in each

project allocated to the community facility will be held

in escrow until all of the constituent projects have

been initially endorsed for insurance. This commitment

form provides for one cooperative corporation to handle

the entire transaction where several projects are

collaborating in the construction of a central facility.

The one corporation will be the mortgagor of each

individual section of homes as well as the owner of the

community facilities.

\(2\) Prevailing Wages. It is to be noted that a single

prevailing wage determination will cover all of the work

to be done on all of the projects plus the community

facilities covered by the commitment facilities covered

by the commitment.

\(3\) Inspection Fee. Reference to an inspection fee and

Replacement Reserve should be deleted from the

commitment form as presently printed.

b\. Insurance Upon Completion: The commitment form to be used

where only one project mortgage is involved is Commitment to

Insure Upon Completion, Section 213, Sales Type, FHA Form

3210\. There is no prescribed type of contract. Either a

lump sum or cost plus contract may be used. In situations

where more than one project mortgage is involved the proper

form is Commitment to Insure Upon Completion, Section 213,

Sales Type, Involving One Mortgagor Corporation, Two or More

Project Mortgages, and a Community Facility, FHA Form 3210-A.

The instructions above relating to insured advances are in

general applicable, except that the mortgages are insured,

upon completion and do not include interim advances.

References to an inspection fee and replacement reserve

should be deleted from the commitment form as presently

printed.

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

Page 4-3 3/73

HUD-Wash., D. C.

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

4550.6

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

4-10. INSURANCE OF INDIVIDUAL SALES TYPE MORTGAGES UPON RELEASE FROM

PROJECT MORTGAGE. The required form is Commitment for Insurance

of Individual Mortgage Under Section 213, FHA Form 3216. This

form, which is similar in many respects to the commitment form

used in the Section 203 program, relates to the insurance of

individual home mortgages on property which has been released

from a Sales Type project mortgage. The mortgage amount applicable

to each individual property is ascertained from Schedule A

of the Mortgage Rider (FHA Form 3214). In fact, practically

the only issue not determined in connection with the project

processing is the identity and HUD-FHA credit acceptance of the

individual mortgagor, which is handled in accordance with

mortgage credit instructions in the Underwriting Chapters of

this handbook.

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

3/73 Page 4-4

HUD-Wash., D. C.