HB-1-3560 

Moving from Loan Approval 

to Loan Closing 

It is important for the process to move 

quickly from loan approval through loan 

closing. Once a loan is obligated, as 

described in Chapter 5, Processing Final 

Aplications – Stage 2, a debt to the U.S. 

treasury is established, resulting in interest 

costs to the Agency and taxpayers. The 

Loan Originator must work with the 

borrower to establish realistic expectations 

of the construction period so that after funds 

have been obligated, construction can be 

completed and funds can be disbursed as 

quickly as possible. Moving a project from 

loan approval to loan closing in a timely 

manner will help make the most effective 

use of program funds.

CHAPTER 8: LOAN CLOSING AND 

PROJECT LEASE-UP 

8.1 INTRODUCTION 

After a loan has been approved, as described in Chapters 4 and 5, the Loan Originator 

takes steps to prepare for loan closing and project 

lease-up. This chapter describes the rules and 

procedures of these activities. 

Section 1 addresses the loan closing 

process in three parts: 

y Preparing for closing, 

y Going to closing, and 

y Post-closing activities. 

Prior to closing, a number of documents 

must be prepared. At closing, documents are 

executed and ownership of the property is 

transferred to the borrower. Post-closing, the 

loan docket is completed, documents are filed, 

and the loan file is forwarded to the Loan 

Servicing staff. 

Section 2 describes Agency responsibilities during project lease-up. When the loan is 

closed and construction completed, the borrower begins to lease up the project. At this point, the 

Agency must begin to monitor the borrower’s compliance with rent and occupancy rules, which 

will involve meetings with the borrower and visits to the site. 

SECTION 1: LOAN CLOSING [7 CFR 3560.72] 

8.2 OVERVIEW 

This section addresses the timing and general requirements of loan closing and then 

describes the key responsibilities of each actor in the loan closing process. It discusses the 

borrower’s and the Agency’s roles in choosing a closing agent, the closing agent’s 

responsibilities, and the role of the Loan Processing Staff. The section then describes the actual 

process of loan closing and the actions that take place after closing to complete the loan docket. 

8.3 TIMING OF LOAN CLOSING 

The timing of loan closing depends on the method of project financing. As described in 

Paragraph 4.18 C.5, there are two methods of financing construction for Multi-Family Housing 

projects: interim financing and multiple advances. The method approved for the project is 

8-1 

(02-24-05) SPECIAL PN 
HB-1-3560 

specified in the final application. Exhibit 8-1 shows the timing of the loan closing activities in 

relation to project construction. 

• For interim financing, Agency loan closing takes place after construction is complete. 

• For multiple advances, loan closing takes place prior to construction. 

8.4 LOAN CLOSING REQUIREMENTS 

At loan closing, the Agency and the borrower execute all necessary documents to secure 

financing for the project. At this time, they may collect any items not already provided to meet 

the conditions indicated in the letter. 

A closing agent selected by the borrower and approved by the Agency must be present. 

Before the loan can be closed, the borrower must demonstrate that all program and 

property requirements have been met and that the loan is adequately secured as specified in the 

Handbook Letter 102 (3560), Letter of Conditions, Loan Approval, or Obligation of Funds that 

was sent to the borrower at loan approval. Briefly, the borrower must demonstrate that the 

following conditions are met: 

• The financing is secure. All funds sources proposed in the application are brought to 

loan closing for disbursement. 

• The construction has been completed (or in the case of multiple advances, the funds 

are adequate to ensure completion) in accordance with the plans and specifications for 

the costs projected in the application. 

• The property is adequately secured and the Agency’s lien position requirements are 

met. Chapter 7 provides further details on security requirements. 

• The borrower has met program and civil rights requirements. 

8-2 

 
HB-1-3560 

Exhibit 8-1 

Summary of Loan Closing Activities 

Performed by Agency Staff

ConstructionÆ

Performed for 

Interim Financing 

Preparing for Closing

y Select closing agent or title insurance company; 

y Review title opinion/insurance binder; 

y Provide necessary documents to the Office of General 

Counsel (OGC) to prepare/finalize closing instructions; 

and 

y Provide closing instructions and necessary documents to 

closing agent (see Attachment 8-A). 

****** 

Closing agent arranges closing date and 

prepares closing documents. 

y Review promissory note and interest credit agreement; 

y Determine size of initial check (if financing is by 

multiple advances); and 

y Order loan check from St. Louis Office. 

Loan Closing

y Attend closing (if necessary). 

Closing agent reviews closing documents with all parties, 

and obtains applicant signature on all closing documents, 

and disburses loan funds. 

***** 

Post-Closing Activities

Closing agent records mortgage or deed of trust and secures 

title. 

y Obtain closing documents, review them to determine 

acceptability, and sign the closing instructions; 

y Enter closing data into Automated Multi-Family 

Housing Accounting System (AMAS) [M1F] and 

establish the Amortization Effective Date (AED); 

y Compile final documents in the loan file and forward 

them to OGC for review (if required); and 

y Forward completed loan docket to Loan Servicing staff.

Å Construction 

Begins for Multiple 

Advances 

8-3 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

8.5 CHOOSING THE CLOSING AGENT AND TITLE COMPANY 

Every loan closing requires a closing agent to close Agency real estate loans, provide 

necessary title clearance services, and perform other closing-related duties prescribed by the 

Agency. An attorney or title company, chosen by the borrower and approved by the Agency, 

may perform this role. A closing agent or title company will be selected in accordance with 

RD Instruction 1927-B. 

8.6 CLOSING AGENT RESPONSIBILITIES 

To allow the Agency the ability to minimize potential fraud, waste, abuse, kick backs, 

referral fees and equity skimming; all closing agents/attorneys must indicate the recipient and 

amount of section 514 loans and section 516 grants. This information must be stated on the Form 

HUD-1 Settlement Statement. The recipients of payments and the amount of the payment from 

section 514 loans and section 516 grants must be stated on Form RD 3550-25, section Other. If all 

recipients and the amounts received can not be stated on Form RD 3550-25, an attachment may be added. 

If an attachment is added indicate on Form RD 3550-25:” See Attachment”. 

The closing agent conducts the loan closing and has certain other pre- and post-closing 

responsibilities in accordance with RD Instruction 1927-B. The list of tasks performed by the 

closing agent is provided in Exhibit 8-2. 

8-4 

 
HB-1-3560 

Exhibit 8-2 

Responsibilities of a Closing Agent 

Prior to Closing 

• Provide a title insurance binder within 10 days of the date of the transmittal letter. 

• Assess whether there will be any problems meeting the closing conditions as provided in the closing 

instructions: 

◊ Assess whether, after closing, the lien position will be as required by the Agency; 

◊ Ensure that the applicant provides a copy of an acceptable hazard insurance policy or insurance 

binder and evidence that one year’s premium has been paid; 

◊ Confirm that the applicant has flood insurance, if applicable; 

◊ Confirm that all required taxes have been paid; 

◊ Collect any other information the Agency has instructed the applicant to provide; 

◊ Ensure that the applicant is aware of any funds that must be brought to closing; 

◊ If interim financing, make sure that there are no outstanding demands for payment from a contractor 

or supplier for construction work; and 

◊ If required by State Supplement, require that an affidavit regarding work of improvement, provided 

by the Agency, be completed and executed. Form RD 1927-5, Affidavit Regarding Work of 

Improvement, may be used for this purpose. The affidavit must be signed at closing by the borrower 

when a loan is being made to a borrower who already owns the real estate to be mortgaged. The 

affidavit must be signed at closing by the seller when a loan is being made to a borrower to enable 

the borrower to acquire the property. 

• Establish a mutually convenient date for the loan closing. 

On Day of Loan Closing 

• Complete Closing Statement, which itemizes the costs to be paid by the applicant at closing. 

• Confirm that the applicant has no outstanding judgments. If any additional entries of record are 

identified, the loan cannot be closed until these entries are cleared or approved. 

• Review closing documents with all parties and obtain required signatures. 

• Disburse funds as required. 

After Closing 

• Record security documents.

• Return to the Agency executed documents and other loan information provided by it.

• Secure a title insurance policy within 14 days of loan closing.

8-5 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

8.7 LOAN PROCESSING STAFF RESPONSIBILITIES 

The Loan Originator is responsible for coordinating all aspects of the loan closing 

process so that all of the conditions for loan closing are met and the required documents are 

prepared and ready to be signed by the day of closing. 

Between the time the loan is approved and the day of closing, the Loan Originator must 

work with the applicant and the closing agent to ensure that all appropriate documents are 

prepared prior to closing. The Loan Originator must also work with the OGC to obtain loan 

closing instructions from them. Closing must not take place until the applicant has met all of the 

conditions outlined in Handbook Letter 102 (3560), Letter of Conditions, Loan Approval, or 

Obligation of Funds for loan closing sent to them by the Agency when the loan was approved 

(see Paragraph 5.21 for details on the letter of conditions). 

A. Work with the Applicant 

The Loan Originator must work with applicants to ensure that they understand the 

steps required to reach closing successfully and that they are fully aware of the 

responsibilities they will assume when the loan closes. Items to cover prior to closing 

include: 

• Prior to loan closing, meeting all conditions specified in Handbook Letter 102 (3560), 

Letter of Conditions, Loan Approval, or Obligation of Funds;

• Requirements for the selection of a closing agent; 

• A list of current Agency-approved closing agents; 

• Documents and information that must be provided prior to closing; 

• Insurance requirements; and 

• Applicant responsibilities at loan closing. 

These items might be covered at the preconstruction meeting (see Chapter 9), the 

prelease-up meeting (see Section 2 of this chapter), or, if necessary, at a preclosing 

meeting. 

B. Review Title Insurance Binder 

Upon receipt of a title insurance binder from the closing agent, the Loan Originator 

must carefully review it to ensure that: 

• The borrower will become the owner of the property; 

• All prior liens have been removed; 

• Outstanding judgments have been resolved; and 

8-6 
HB-1-3560 

• Property rights intended as security are available. 

In consultation with OGC, the Loan Originator should review the legal description 

and any exceptions to the title to determine if the lien position is in jeopardy. If the 

exceptions will adversely affect the property’s title, suitability, or security value, the loan 

cannot be closed. 

If any required information is omitted, or if the title insurance binder is not 

satisfactory, the Loan Originator should return it to the closing agent for corrections. 

C. Prepare Documents for Closing Instructions 

The Loan Originator must obtain loan closing instructions from OGC and then 

forward these instructions to the loan closing agent. The Loan Originator should not 

request closing instructions from OGC until the Loan Originator has determined that the 

applicant will meet the loan closing conditions specified in the Handbook Letter 102 

(3560), Letter of Conditions, Loan Approval, or Obligation of Funds sent to the applicant 

by the Agency at loan approval. The Loan Originator will take the following steps: 

• Assemble the loan docket to be provided to OGC, including the documents and 

information provided as Attachment 8-A; and

• Forward to OGC the docket and documents. OGC will review the information 

provided and complete any portions if necessary. If the loan docket includes any 

documents that require special attention, such as a bond (replacing a promissory note) 

or an intercreditor agreement, OGC will review these also. 

D. Provide Closing Agent with Closing Instructions and Materials 

When OGC completes its review of the loan docket and documents and determines 

that the loan can be closed, it will provide the Loan Originator with the loan closing 

instructions. The Loan Originator must forward these instructions and the documents and 

information listed in Attachment 8-A to the closing agent. 

All forms needed for loan closing, as well as copies of other documents to facilitate 

the closing agent’s review (e.g., tax bills, legal descriptions, or surveys), will be attached 

to the closing instructions. The closing agent must ensure that they are executed at loan 

closing and returned to the Agency along with the other closing documents. 

E. Obtain Loan Check 

The amount of the check will depend on whether the borrower is obtaining interim 

financing or multiple advances. Funds cannot be disbursed until the mortgage is filed. 

If the applicant obtained interim financing, the check will be for the entire amount of 

the loan. If any funds are being held back for any reason (e.g., incomplete construction), 

8-8 

 

8-7 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

these funds will be put in a supervised account. 

• In the case of multiple advances, the check will be for an initial amount. Additional 

checks will be requested on a periodic basis to cover costs as the borrower requests 

them. See Chapter 9 for guidance on preparing partial payments. 

To obtain a loan check, the Loan Originator must use AMAS as described below. The 

check request can take as long as 5 days from request to receipt. 

• Check the screen [M1AI] for the undisbursed amount of the loan and the Maximum 

Debt Limit (MDL). 

• Check the screen [M1XI] for the disbursed amount and accrued interest. 

• Make sure that the disbursed amount plus accrued interest does not exceed the MDL. 

If it exceeds the MDL, the check amount will default to the amount available. 

• Complete screen Request Loan/Grant Check [M1C]. 

F. Establish Payment Schedule 

The borrower is required to make loan payments on a monthly basis, payable on the 

first of each month. If closing does not occur on the first of the month, principal and 

interest payments for the period before the first payment are added to the loan amount as 

described in the Forms Manual Insert for Form RD 3560-52, Promissory Note. 

G. Establish Initial Disbursement 

For interim financing, all loan funds are disbursed at the Agency closing. If there is a 

reason to retain funds (e.g., if small construction tasks still need to be completed) these 

funds will still be disbursed, but they will be held in a supervised account in accordance 

with RD Instruction 1902-A. 

For multiple advances, however, funds are disbursed over time. The initial 

disbursement will cover initial expenses such as the cost of the land, attorney fees, and 

other closing costs. Prior to closing, the borrower will inform the Agency of the amount 

needed for the initial disbursement. (Disbursements after closing are requested on a 

monthly basis for expenses incurred during the month. See Chapter 9 for a discussion of 

how to request partial payments.) 

8.8 ACTIONS AT LOAN CLOSING 

At loan closing, the Agency and the borrower must execute all necessary documents to 

transfer ownership and secure financing for the project. 

8-8 
HB-1-3560 

At loan closing, the following actions must take place. 

• Each document listed in Attachment 8-A is reviewed and executed as necessary. 

• If any changes need to be made to the text of a security instrument or promissory 

note, a line should be drawn through only the specific language to be deleted. All 

persons signing the security instrument or promissory note must initial the changes. 

• Funds will be dispersed, as appropriate. 

8.9 POSTCLOSING ACTIVITIES 

After closing, all documents need to be accounted for, recorded, and filed as necessary. 

A. Obtain and Review Closing Documents 

The closing agent will provide all closing documents to the Agency. The Loan 

Originator will review the mortgage to ensure the Agency received proper lien priority 

and review all other documents to ensure that they were properly executed and recorded. 

A final copy of the mortgage and the title insurance policy may be delivered later as 

described in Paragraphs 8.9 B and C. 

When all documents have been reviewed, the Loan Originator will sign the Loan 

Closing Instructions to show that loan was closed in accordance with the instructions. 

B. Record Mortgage or Deed 

The closing agent must record the mortgage (or deed of trust) after closing. The 

closing agent will submit an unrecorded copy to the agency along with other closing 

documents. The recorded copy should be provided to the Agency as soon as it is 

completed. If the original is retained by the filing official, a confirmed copy showing the 

date and place of record must be provided. 

C. Secure Title 

The closing agent must secure the title insurance policy and deliver it to the Loan 

Originator and applicant within 14 days of closing. 

D. Establish the Amortization Effective Date 

The AED is the date that the system begins accruing interest on the loan and 

establishes the schedule of payments. Once the closing date occurs or the last advance 

check is distributed, whichever occurs last, the AED is established. If the closing date or 

the last advance is distributed on the first day of the month, the AED is the same day. If 

the loan closing occurs on any other day, the AED is the first day of the following month. 

8-9 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

E. Put Closing Information into AMAS 

When all closing documents are complete, the Loan Originator should enter the 

closing information into AMAS using screen Loan Closing [M1F]. 

F. Complete Loan Docket and Transfer to Servicing Staff 

Once the information has been entered into AMAS and all closing documents are 

filed, as necessary, the Loan Originator should put all loan closing documents in the loan 

docket and forward the loan docket to appropriate staff for servicing. (The Loan 

Servicing Staff will service the loan in accordance with procedures outlined in HB-3-

3560.) 

G. Populate Multi-Family Housing Information System (MFIS) 

The Loan Originator will enter appropriate information into MFIS.

8-10 

 
HB-1-3560 

SECTION 2: PROJECT LEASE-UP 

8.10 PROJECT LEASE-UP REQUIREMENTS 

Once the loan is closed, the applicant becomes a borrower. Borrowers are then subject to 

program requirements regarding project management, occupancy, rents, subsidies, and financial 

management. Marketing, as required by the borrower’s approved Affirmative Fair Housing 

Marketing Plan (AFHMP), must begin no less than 90 days prior to any rental activity. During 

project lease-up, borrowers should make special efforts to ensure that they comply with program 

rent and occupancy requirements as they lease available units. The Agency will take steps to 

help borrowers understand their responsibilities and will monitor the project closely in the early 

stages to ensure that these requirements are met. HB-2-3560 provides detailed guidance on these 

requirements. Exhibit 8-3 shows where the applicable requirements can be found in the 

regulation. 

Exhibit 8-3 

Project Management Requirements 

7 CFR part 3560, subpart C: Borrower Management and Operations Responsibilities 

7 CFR part 3560, subpart D: Multi-Family Housing Occupancy 

7 CFR part 3560, subpart E: Rents 

7 CFR part 3560, subpart F: Rental Subsidies 

7 CFR part 3560, subpart G: Financial Management 

8.11 MONITORING PROJECT LEASE-UP 

Borrowers should be prepared to reach full occupancy with eligible tenants as quickly as 

possible. Loan Processing Staff must coordinate with Loan Servicing Staff to monitor the leaseup process to make sure that the following key program requirements are being met: 

• Affirmative marketing has been taking place at least 90 days prior to any rental 

activity, as required by an approved AFHMP, to market the property to all eligible 

persons. 

• Program occupancy rules are being observed. (All tenants admitted are eligible and 

all eligible tenants are being admitted.) 

• Program rent rules are being observed. Tenants are being charged the correct rents as 

evidenced in their leases. 

The Agency will receive project worksheets and tenant certifications on a monthly basis 

as the project leases up. Field Office Staff with the responsibility for monitoring project leaseups must check, as part of their review of these documents, that rent and occupancy requirements 

are being observed. 

8-11 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

In addition, there are three key occasions early in the project’s life to monitor project 

operations and address issues with the borrower: the pre-occupancy conference, the 90-day visit, 

and the 11-month warranty inspection. 

A. Pre-Occupancy Conference 

The pre-occupancy conference takes place 90 to 120 days before lease-up begins and 

includes the Agency, the borrower, and the management agent. This meeting is a time to 

explain program requirements and reach agreement on how property will be operated. At 

a minimum, the Loan Originator should explain the following items: 

• Management documents. The Agency should discuss the management plan, 

management certification, lease, and budget and point out aspects that are particularly 

important to program compliance. Examples of documents to review at this meeting 

include:

◊ Form RD 3560-9, Interest Credit and Rental Assistance Agreement; 

◊ Form RD 3560-29, Notice of Payment Due Report; 

◊ Form RD 3560-8, Tenant Certification; 

◊ Form RD 1910-5, Request for Verification of Employment;

◊ Form HUD 935.2, Affirmative Fair Housing Marketing Plan; 

◊ Form RD 400-4, Assurance Agreement; 

◊ Form HUD 928.1, HUD Fair Housing Poster (English); 

◊ Form HUD 928.1A, HUD Fair Housing Poster (Spanish) in addition to the 

English version of the poster, when appropriate; and

◊ Form AD-475-C, USDA “...and Justice for All” Poster. 

• Initial operating issues. In accordance with Forms RD 3560-33 and -34, the 

borrower is required to provide initial operating capital (2 percent contribution) by the 

time the loan is closed or interim funds are obtained, whichever occurs first. The 

Loan Originator should ensure that these funds are deposited in the General Operating 

Account and made available to the project. The Loan Originator should also review 

with the borrower the list of expenses that the Agency approved during the loan 

application stage (Paragraph 5.9 D). 

• Tenant issues. Initial tenant issues are likely to include tenant eligibility, waiting list 

procedures, and tenant grievances (see Chapter 6 of HB-2-3560).

• Civil rights issues. The borrower must understand that marketing, in accordance 

with their approved AFHMP, must begin no less than 90 days prior to the beginning 

8-12 
HB-1-3560 

of rental activities. Also the “approved plan” must be posted in a conspicuous 

location, along with the Form HUD 928.1, HUD Fair Housing Poster (English), and 

Form AD 475-C, USDA “...and Justice for All” Poster. The borrower must be 

provided with the required posters and the approved marketing plan at this time. It is 

also an opportunity to review with the borrower the requirements of Form RD 400-4. 

This form requires the borrower to collect and maintain statistical data concerning 

race, national origin, and sex in a manner that will enable the Agency to complete 

periodic civil rights compliance reviews. 

Where a significant number or proportion of the population needs information in a 

language other than English, the borrower will take reasonable steps to provide 

information in appropriate languages to such persons. This requirement applies with 

regard to written material of the type that is ordinarily distributed to the public. 

B. The 90-Day Visit 

The 90-day visit is a chance to see that the project is making progress with lease-up 

and that program rules are being observed. It should take place between the sixtieth and 

ninetieth days that a project is open for occupancy. 

The 90-day visit is similar to the supervisory visit described in Chapter 9 of HB-2-

3560, but will concentrate on issues appropriate to a new project (e.g., there is generally 

no need for a physical inspection since all units are new). The following key items 

should be examined during the visit: 

• Tenant files. Confirm that tenant files reflect compliance with program rent and 

occupancy rules. 

◊ Do the files demonstrate that the units are occupied by eligible tenants? 

◊ Are the rents indicated in the lease consistent with program rent requirements? 

◊ Do the leases conform with agency requirements? 

• Marketing plan. Confirm that the borrower is following the AFHMP. 

• Waiting list. Check the waiting list for rejections, acceptances, and withdrawals to 

confirm that selection priorities were observed and applied correctly. 

• Borrower contribution. Confirm that 2 percent operating capital is being used for 

initial operating expenses. In particular, make sure that the borrower understands that 

these funds are to be spent on initial operating expenses. 

• Financial management. Confirm that all appropriate accounts have been set up and 

systems are in place to track funds. See HB-2-3560 for guidance on financial 

management. 

8-13 

(02-24-05) SPECIAL PN 

Revised (05-27-09) PN 429 
HB-1-3560 

• Project maintenance. Confirm that the project has a maintenance plan and that 

initial maintenance has been performed satisfactorily. 

C. The 11-Month Warranty Inspection 

Eleven months after project completion, the Agency should conduct a physical 

inspection of the property to verify the condition of items under the 1-year builder’s 

warranty and ensure that there are no repairs to be made before the warranty expires. 

This inspection is a good time to check on the property’s general physical condition and 

address any other physical property or maintenance issues that are identified. 

The 11-month warranty inspection should be monitored through the MFIS. 

8-14 

HB-1-3560 

ATTACHMENT 8-A 

LOAN CLOSING DOCUMENTS 

The following documents must be prepared prior to closing and will be executed/ 

submitted at closing: 

y Promissory Note (Form RD 3560-52); 

y Interest credit and rental assistance agreement (Form RD 3560-9); 

y Mortgage; 

y Financing statements and/or security agreements, if applicable; 

y Title insurance (borrower must provide binder prior to closing; policy, after closing); 

y Organization papers (Certificate of Good Standing, Partnership Agreement); 

y Affidavits — as appropriate; 

y Evidence of payment of taxes; 

y Evidence of all required insurance policies (property, liability, and fidelity bond) as 

required by [7 CFR 3560.105]; 

y Deeds; and 

y Loan Closing Instructions. 

Other items to be completed not later than loan closing: 

y Meeting conditions identified in Handbook Letter 102 (3560), Letter of Conditions, 

Loan Approval, or Obligation of Funds (must be signed by the borrower and filed 

with the Agency); 

y Evidence of deposit of initial operating capital; 

y Evidence of initial equity contribution; and 

y Applicant’s certification of availability or unavailability of other Government 

assistance. 

(02-24-05) SPECIAL PN 

Attachment 8-A

1 of 1