CHAPTER 9: SPECIAL SITUATIONS

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9.1 INTRODUCTION

This chapter describes the requirements for processing loans in several special situations.

Section 1 discusses conditional commitments. Section 2 deals with processing requirements

surrounding condominium ownership, community land trusts, and planned unit developments.

The chapter concludes with Section 3, which describes the specific processing differences for

manufactured homes.

SECTION 1: CONDITIONAL COMMITMENTS [7 CFR 3550.70]

9.2 OVERVIEW OF CONDITIONAL COMMITMENTS

A conditional commitment is a written assurance from the Agency to a qualified builder,

dealer-contractor, or seller that a dwelling to be constructed or rehabilitated will be certified as

acceptable for purchase by qualified loan applicants, as long as the construction and sales price

meet certain conditions. The conditional commitment does not reserve loan funds, nor does it

guarantee that an eligible loan applicant will be available to purchase the property. It does,

however, provide a reasonable assurance to the builder that the home will be eligible for

financing once it is completed.

If the area does not remain rural, the conditional commitment will not be honored unless

a purchaser is found who applied for a loan before the rural area designation changed.

9.3 APPLICATION AND FEE

Builders, dealer-contractors, or sellers interested in becoming conditional commitment

contractors must apply using Form RD 1944-36, Application for Conditional Commitment. A

single application form may be used to request conditional commitments for multiple dwellings.

All required attachments must be included for each dwelling for which a conditional

commitment is requested, including the proposed selling price, address, evidence of building site

ownership, and detailed descriptions of all proposed construction.

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Paragraph 9.3 Application and Fee

Applicants must include a standard application fee for each dwelling for which a

conditional commitment is requested. This fee is updated periodically through an Unnumbered

Letter (UL) posted to the Agency’s Directives website. The UL will generally be posted 30 days

prior to the effective date of the fee change. If a preliminary inspection of the property or

investigation of the conditional commitment applicant indicates that a conditional commitment

will not be issued, the application fee should be refunded. Once the appraisal is conducted, the

application fee cannot be refunded. When a loan on a property with a conditional commitment is

closed, the appraisal fee collected from the purchaser is disbursed to the conditional commitment

contractor.

9.4 EVALUATING THE CONDITIONAL COMMITMENT APPLICATION

An application for a conditional commitment is evaluated based on the criteria discussed

below.

• Ownership. The applicant must have an adequate ownership interest in the property,

as described in Paragraph 5.11, before beginning construction.

• Capacity. The applicant must have the experience and ability to complete any

proposed work competently and must be financially responsible and able to finance or

obtain financing for any proposed work. The capacity of applicants for conditional

commitments should be evaluated in the same manner as for any construction

contractor, as discussed in Paragraph 5.25 A.

• Legal capacity. The applicant must have the legal capacity to enter into the required

agreements. Legal capacity can be verified by checking the applicant’s business

license and registration.

• Civil rights. The applicant must agree to comply with all applicable laws,

regulations, and Executive Orders relating to civil rights, as described in Paragraph

1.9.

• Affirmative marketing. Any company that receives 5 or more conditional

commitments during a 12-month period must develop an acceptable

Affirmative Fair Housing Marketing Plan, as described in RD Instruction 1901-E.

• Site requirements. The proposed site must meet the requirements listed in Section 1

of Chapter 5.

• Dwelling requirements. If the dwelling is to be constructed or substantially

rehabilitated, it must meet the requirements listed in Section 2 of Chapter 5. If it is a

new manufactured home, it must meet the requirements of Paragraph 9.19.

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Paragraph 9.4 Evaluating the Conditional Commitment Application

• Environmental Requirements. An environmental review must be completed as

described in Section 3 of Chapter 5.

• Start of construction. Conditional commitments for new or substantially

rehabilitated dwellings will not be issued after construction hasstarted.

• Local market demand. The number of conditional commitments issued in any

locality should not exceed existing market demand. In particular, the number of

outstanding commitments in the area must not exceed the number of loans that can

reasonably be expected to be made within 3 months of dwelling completion. To

determine this, the Loan Originator should consider the availability of loan funds and

the number of loan applications typically received in the office.

• Proposed price. The proposed price must not exceed the applicable area loan limit,

as described in Paragraph 6.6.

9.5 PRELIMINARY APPROVAL

In general, the Loan Originator must review the application materials within 7 days of

receiving a completed application. Staff is encouraged to use online resources, such as the

county assessor or taxing authority, to verify property details provided in the conditional

commitment application package.

A. Ordering an Appraisal

If the document review indicates that all of the requirements outlined in Paragraph 9.4

can reasonably be met (except for the site requirements which will be reviewed upon receipt of

an appraisal), an appraisal should be ordered in accordance with the guidelines set forth in

Paragraph 5.17. Because the application fee cannot be refunded after the appraisal is conducted,

the appraisal should never be ordered until the document review is complete.

B. Site Approval and Responsibility for Environmental Reviews

Upon receipt of the appraisal, the Loan Originator should ensure that construction has not

begun and that the site meets the requirements of Section 1 of Chapter 5. In addition, the Loan

Originator will initiate an environmental review as discussed in Section 3 of Chapter 5. Unless

there are unresolved environmental issues, the Loan Originator must determine within 7 days of

receipt of the appraisal, whether the application for a conditional commitment should be

accepted or rejected.

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Paragraph 9.5 Preliminary Approval

If there are environmental issues that will take additional time to resolve, the Loan Originator

must inform the conditional commitment applicant about the outstanding issues.

C. Rejecting the Application for Conditional Commitment

If any of the requirements outlined in Paragraph 9.4 are not met, the Loan Originator

must deny the application for a conditional commitment. The documents attached to the

application must be returned to the applicant, along with a letter explaining why the application

was not approved. The application, a copy of the supporting documents, and a copy of the

rejection letter should be retained in the conditional commitment applicant’s file.

If no appraisal has been conducted, the letter should indicate that the application fee will

be refunded separately. In this case, the Loan Originator should provide the Serving and Asset

Management Office (Servicing Office) with the information needed to send the refund check. If

the application was not approved because of the Loan Originator’s assessment of the

applicant’s experience or financial capacity, the letter should specify that the applicant has the

right to appeal the decision to the National Appeals Division (NAD).

9.6 FINAL APPROVAL

The final decision about approving an application for a conditional commitment depends

on the results of the appraisal. The proposed selling price listed on the conditional commitment

application must not exceed the property’s appraised value or the area loan limit, whichever is

lower.

A. Proposed Price Too High

If the proposed selling price exceeds the property’s appraised value, the Loan Originator

must notify the conditional commitment applicant that the application cannot be approved unless

the selling price is reduced. If the conditional commitment applicant decides to reduce the

proposed price, this decision must be provided to the Loan Originator in writing; the Loan

Originator cannot make changes based on verbal instructions. If the conditional commitment

applicant elects not to reduce the proposed price, the documents attached to the application

should be returned along with a letter explaining why the application was not approved.

B. Proposed Price Acceptable

If all of the eligibility requirements are met and the proposed price is acceptable, a

conditional commitment can be issued. The Loan Approval Official should complete and sign

Form RD 1944-11, Conditional Commitment, and forward a copy to the conditional commitment

applicant.
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9.7 DURATION OF COMMITMENT

Conditional commitments are valid for 12 months from the date of issuance. At the

conditional commitment contractor’s request, the Loan Approval Official may extend the

commitment period for up to an additional 6 months if there have been unexpected delays in

construction caused by such factors as bad weather, materials shortages, or marketing

difficulties. In order to document the extension, the Loan Originator should modify Form RD

1944-11, Conditional Commitment.

A conditional commitment will be canceled if construction does not begin within 60 days

after the commitment is issued, unless the Loan Approval Official determines that there were

unavoidable circumstances that justified the delay. The Agency’s construction inspector, or

other qualified inspector as set forth in Section 6 of Chapter 5, should visit the site to verify that

construction has begun. If the inspector finds that construction has not begun, the Loan

Originator should send a letter to the contractor indicating that the conditional commitment has

been canceled and specifying the reasons.

9.8 CHANGES IN PLANS, SPECIFICATIONS, OR COMMITMENT PRICE

The Loan Approval Official may approve changes in project plans, specifications, or

commitment price if the conditional commitment contractor requests the changes in writing, and

the conditions discussed below have been met.

• The property must continue to meet applicable development standards after any

changes;

• If a change is requested after a loan applicant has exercised an option on the property,

the change may be approved only if the loan applicant and the contractor both agree

to the changes in writing;

• Any increase in costs must have been caused by factors beyond the control of the

commitment holder, such as an unforeseeable materials shortage;

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Paragraph 9.8 Changes in Plans, Specifications, or Commitment Price

• The increased commitment price must remain at or below the lesser of the property’s

appraised value or the applicable area loan limit; and

• If the proposed change will alter the purpose, operation, location, or design of the

project as originally approved, the environmental review for the project must be

amended (or a new environmental review completed) prior to approval of the change.

Changes to plans and specifications must be noted on Form RD 1924-25, Plan Certification.

If an approved change will result in an increase in the conditional commitment price that

exceeds the original appraised value, a revised appraisal report (to be paid for by the conditional

commitment contractor) should be ordered by the Agency, and Form RD 1944-11, Conditional

Commitment, should be revised based upon the latest appraisal. The revised commitment should

be initialed and dated by the Loan Approval Official, and initialed by the commitment holder. A

new appraisal is not required if the new price does not exceed the original appraised value.

9.9 PROPERTY INSPECTIONS

Property inspections will be performed according to the procedures for new construction

and major rehabilitation set forth in Section 6 of Chapter 5. If the contractor fails to correct any

deficiencies detected during an inspection or to complete the work according to previously

approved plans and specifications, the Loan Approval Official may cancel the conditional

commitment.

9.10 BUILDER’S WARRANTY

The builder or seller, as appropriate, must execute either Form RD 1924-19, Builder’s

Warranty, or provide a 10-year insured warranty when construction is completed. Builder’s

warranties are discussed in Paragraph 5.24.
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9.11 CONDITIONAL COMMITMENTS INVOLVING PACKAGING OF

APPLICATIONS

A conditional commitment may be made to a seller, builder, or dealer-contractor who

packages a loan application for a prospective purchaser. In cases where the dwelling is to be

constructed for sale to a specific eligible applicant, all of the following conditions listed below

must be met.

• The conditional commitment will not be approved until the applicant’s loan has been

approved.

• Construction will not begin until funds are obligated for the loan. Exceptions may be

made when it appears likely that funding will be forthcoming and as long as the

Agency’s lien priority is not jeopardized. The sales agreement must indicate that the

loan has been approved, but not funded and must provide that if the loan is not closed

within 90 days of the date of approval, the contractor may terminate the sales

agreement and sell the property to another party. If the sales agreement is terminated,

the conditional commitment will be honored for another eligible loan applicant for the

remaining period of the commitment.

• The Agency loan will be closed only after the dwelling is constructed or the required

rehabilitation completed, and final inspection has been made.

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SECTION 2: SPECIAL FORMS OF OWNERSHIP

9.12 OVERVIEW

This section discusses processing requirements for loans for dwellings with three types of

special ownership: condominiums, community land trusts, and planned unit developments.

Unless otherwise indicated in this section, the same basic requirements for loan approval

discussed elsewhere in this handbook apply to these loans, along with the additional

requirements specified here. Documents related to the establishment and operation of community

land trusts must be reviewed by the Office of the General Counsel (OGC) to determine whether

the Agency’s rights are sufficiently protected. Other forms of ownership will be referred to OGC

when the Loan Approval Official determines it necessary to ensure the Agency’s rights are

protected.

9.13 LOANS FOR CONDOMINIUM UNITS [7 CFR 3550.71]

Loans may be made to finance the purchase of dwellings in condominium developments

if the conditions described in this paragraph are met, and the applicant and the property

otherwise meet the requirements outlined in this handbook.

A. Definition

A condominium is defined as a real estate project in which each unit owner has title to a

unit, an undivided interest in the common areas of the project, and sometimes the exclusive use

of certain limited common areas. The project may include dwelling units in detached, semidetached, row, garden-type, low or high rise structures.
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Paragraph 9.13 Loans for Condominium Units [7 CFR 3550.71]

B. Financing Approval

Loans cannot be approved for condominium units unless the project has been approved

for financing by:

• Department of Housing and Urban Development (HUD),

• Federal National Mortgage Association (Fannie Mae),

• Federal Home Loan Mortgage Corporation (Freddie Mac),

• Department of Veterans Affairs (VA),

• State Housing Finance Agency (SHFA),

The applicant must submit documentation from the appropriate agency showing that the

project is acceptable for financing. HUD approved projects can be found by conducting a search

for condominium on their website at http://portal.hud.gov/hudportal/HUD. The Fannie Mae

Project Eligibility Review Service (PERS) website can be found at:

https://singlefamily.fanniemae.com. Freddie Mac does not currently publish a list of approved 

projects on their website. VA approved projects can be found by conducting a search through 

the Veterans Information Portal at https://vip.vba.va.gov/portal/VBAH/Home.

If the project has not been approved by one of the sources listed above, the State Director

may approve the specific condominium unit in accordance with Attachment 9-C, Condominium

Questionnaire. This type of approval represents a greater risk to the Agency, and should be used

with caution.

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C. Condominium Status

Agency financing will not be considered for any condominium regardless of how

the project was approved unless, at the time of loan approval, the status of the

condominium projects meets the conditions listed below.

• At least 70 percent of the units must have been sold. (Multiple purchases of

condominium units by one owner are counted as one sale when determining if the

sales requirements have been met.)

• No more than 15 percent of the unit owners can be more than 1 month delinquent in

payment of homeowners’ association dues or assessments at the time the Agency loan

is approved.

• The condominium project must consist of a structure or structures containing four or

more units and must not contain any commercial space. Units in a rental project

which was converted to condominium ownership are not eligible.

• In addition, condominium projects that are considered ineligible by HUD, Fannie

Mae, Freddie Mac, or VA, such as condominium hotels, timeshares or houseboats,

etc., are not eligible for Agency financing.

D. Protection of Agency Rights and Lien Position

A loan may not be approved unless condominium documents preserve the rights and lien

position of the Agency described below.

1. Right of First Refusal

Any right of first refusal in the condominium documents must not impair the rights of

the Agency to: (1) foreclose or take title to a condominium unit under the remedies in the

mortgage; (2) accept a deed in lieu of foreclosure if a mortgagor defaults; and (3) sell or

lease a unit it acquires.

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2. Agency Obligation for Charges

If the Agency obtains title to a condominium unit under the remedies in its mortgage or

through foreclosure, it will not be liable for more than 6 months of the unit’s unpaid

regularly budgeted dues or charges accrued before it acquired title to the unit. The

homeowners’ association’s lien may include the cost of collecting unpaid dues.

All taxes, assessments, and charges that may become liens prior to the first mortgage

under local law must relate only to the individual condominium units and not to the

condominium project as a whole.

3. Provisions in the Case of Condemnation or Substantial Loss

In the case of condemnation or substantial loss to the units or common elements of

the condominium project, unless at least 51 percent of the first mortgagees of the

individual condominium units have given their consent, the homeowners’ association

may not:

• By act or omission seek to abandon or terminate the condominium project;

• Change the pro rata interest or obligations of any condominium unit in order to levy

assessments or charges, allocate hazard insurance proceeds or condemnation awards,

or determine the share of ownership in the common elements;

• Partition or subdivide any condominium unit;

• Seek to abandon, partition, subdivide, encumber, sell, or transfer the common

elements by act or omission (the granting of easements for public utilities or other

public purposes consistent with the intended use of the common elements by the

condominium project is not a transfer within the meaning of this clause); or

• Use hazard insurance proceeds for losses to any condominium property (whether

units or common elements) for purposes other than the repair, replacement, or

reconstruction of the condominium property

• The condominium documents must not give the condominium unit owner (or any

other party) priority over the Agency’s right to insurance proceeds or

condemnation awards for losses to, or taking of, condominium units or common

elements.

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• The condominium documents must not give the condominium unit owner (or any other party)

priority over the Agency’s right to insurance proceeds or condemnation awards for losses to,

or taking of, condominium units or common elements.

E. Closing Documents

Form RD 3550-10, Condominium Rider, must be used to amend and supplement the security

instruments to accommodate special requirements that apply because the owners’ association may hold

title to the property. For example, hazard insurance may be paid by the owners’ association, rather than

by the borrower.

Condominiums are a private residence owned by an individual homeowner/family in a building

with multiple units. Because there are multiple units located within one structure, the condominium

association purchases a Master Policy, which insures the structure against loss. A copy of this policy

must be provided at closing, and annually thereafter. This policy, however, does not provide “studs-in”

or contents coverage. If the unit owner opts to purchase this coverage under a HO-6 policy, they are

responsible for payment of the premium, as the Agency does not include this premium in escrow.

Condos are escrowed for taxes only.

F. Association Dues

The Agency also does not include the monthly fees or dues for the condo association in escrow.

The unit owner is responsible for that payment. In the event the unit owner becomes delinquent on their

dues and the association places a lien on the property, the Servicing Office’s Escrow Department may

pay delinquent dues and a fee will be amortized on the account.

9.14 LOANS FOR UNITS IN A COMMUNITY LAND TRUST

Loans may be made to finance the purchase of dwellings located on land owned by community

land trusts if the conditions described in this paragraph are met, and the applicant and the property

otherwise meet the requirements outlined in this handbook. Documents related to the establishment and

operation of community land trusts must be reviewed by the Office of the General Counsel (OGC) to

determine whether the Agency’s rights are sufficiently protected. These documents should include, but

are not limited to: articles of incorporation and bylaws; organizational resume or history summarizing the

organizations experience in affordable housing; list of staff responsible for the community land trust’s

homeownership program; current annual report; and ground lease.

Ground Leases. Some common issues which should be addressed in a ground lease include, but are not

limited to:

• Duration of lease (typically 99 years);

• Lease fee;
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Paragraph 9.14 Loans for Units in a Community Land Trust

• Use of the leased land (residential use only, maintenance of common areas, etc.);

• Taxes and assessments;

• Improvements to the home and/or land;

• Financing (permitted mortgages, excess sale proceeds);

• Liability, insurance, damage and destruction, eminent domain;

• Transfer/Sale of the home;

• Default (must contain language that ensures that all restrictions relating to community

land trusts will automatically and permanently terminate upon foreclosure or Agency

acceptance of a deed in lieu of foreclosure);

• Mediation / Arbitration

• Other General Provisions

When reviewing a ground lease, staff may also find it helpful to compare the submitted lease to

other model leases available through National Community Land Trust Network; which can be

searched at http://cltnetwork.org.

A. Definition

A community land trust is defined as a private nonprofit community housing

development organization that owns and leases land under a long-term ground lease to low- and

moderate-income households, at affordable prices. The organization must:

• Be organized under State or local laws;

• Have no part of its net earnings benefiting any member, founder, contributor, or

individual;

• Comply with standards of financial accountability;

• Have among its purposes significant activities related to the provision of decent

housing that is affordable to low- and moderate-income people;

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• Maintain, through significant representation on the organization’s governing board and

otherwise, accountability to low-income community residents with regard to decisions on the

design, sitting, development, and management of affordable housing;

• Have its corporate membership open to any adult resident of a particular geographic area

specified by the by-laws of the organization; and

• Is established to carry out all of the following activities:

◊ Acquire parcels of land, held in perpetuity, primarily for conveyance under long-term

ground leases;

◊ Transfer ownership of any structural improvements located on such leased parcels to the

lessees; and

◊ Retain a pre-emptive option to purchase any such structural improvements at a price

determined by a formula that is designed to ensure that the improvement remains

affordable to low- and moderate-income people in perpetuity.

B. Preservation of Agency Rights and Lien Position

The relevant legal documents must contain language that ensures that all restrictions relating to

community land trusts will automatically and permanently terminate upon foreclosure or Agency

acceptance of a deed in lieu of foreclosure. Language that merely subordinates the restrictions to the

mortgage is not sufficient -- the restrictions also cannot be forced upon subsequent purchasers following

resale by the Agency.

C. Restrictions on Resale Price

Restrictions on the limits to the resale price of the property or recapture of equity are permitted.

A maximum sales price may be imposed or the sales proceeds due the borrower may be limited, with any

excess payable to a governmental body or nonprofit organization for reuse in the community land trust. If

resale restrictions include income limits for prospective buyers, the limits may be as restrictive as

applicable Direct income limits in effect at the time of the purchase agreement, but must not be more

restrictive. When such restrictions apply, the requirements listed below must be met.

• The borrower must be permitted to recover at least the original purchase price, sales

commission and other typical selling expenses, and cost of capital improvements made by the

borrower, when the borrower sells the property.

• If the property has depreciated such that the original purchase price was greater than the

current market value, the borrower must be permitted to recover at least the current market

value (less typical selling expenses) when the borrower sells the property.
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Paragraph 9.14 Loans for Units in a Community Land Trust

• The borrower must be permitted to recover a reasonable amount of appreciation as

determined by the Agency below. Appreciation is measured by the difference

between the original purchase price and the actual price at which the property is

resold.

• If the program permits the borrower to sell the property at market value but recaptures

part of the equity, the Agency considers a reasonable share of appreciation to be at

least 50 percent. The Agency does not object to situations whereby the borrower’s

share of appreciation is on a sliding scale beginning at 0, provided that within 2 years

the homeowner would be permitted to retain 50 percent of the appreciation.

• If the program sets a maximum sales price restriction, the borrower must be permitted

to retain 100 percent of the appreciation.

• Other arrangements for sharing appreciation may be approved by the State Director.

D. Right of First Refusal

One method commonly used to ensure that housing remains part of an affordable housing

program is for the community land trust to hold a right of first refusal or an option right that can

be exercised when the borrower proposes to sell the home to a purchaser not eligible for the

program benefits. Such a provision is permitted if all of the requirements listed below are met.

• The rights must be held only by a governmental body or eligible nonprofit

organization and exercised by them or someone they have identified as an eligible

purchaser.

• Any right must be exercised within 45 days after the holder of these rights may

exercise them (for example, the rights are often triggered by a notice of sale from the

borrower).

• Payment Subsidy Recapture 

The borrower’s ability to repay payment subsidies may be affected by the resale

restrictions of the community land trust. Upon closing, the lease agreement and/or

any other document(s) containing information about the community land trust’s resale

restrictions should be sent to the Servicing Office with the other applicable closing

documents, to ensure accurate subsidy recapture calculations in the future.

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Paragraph 9.14 Loans for Units in a Community Land Trust

Case-by-case exceptions to Agency recapture requirements may be approved by the

Administrator if necessary to accommodate the restrictions imposed by the land trust.

E. Appraisals

A property located on a site owned by a community land trust must be appraised as a

leasehold interest, with thorough analysis of the ground lease, and resale and other restrictions

which may apply.

Because the community land trust may subsidize the sales price to a borrower, the sales

price may be significantly less than the market value of the leasehold interest in the property. The

appraised value of the leasehold interest must be accurately developed by the appraiser because

the resale restrictions, as well as other restrictions that may be included in the ground lease, can

also affect the value of the property.

The appraiser must use a three-step process to develop an opinion of value.

• Fee Simple Value = Sales Comparison Analysis Approach.

In determining the fee simple value of the subject property, the appraiser must use

comparable sales of similar properties that are owned as fee simple estates. If this

is not possible, the appraiser may use sales of properties that are subject to other

types of leasehold estates as long as he or she makes appropriate adjustments,

based on the terms of their leases, to reflect a fee simple interest.

When the community or neighborhood has sales activity for other leasehold estates

held by a community land trust, the appraiser must discuss them in the appraisal

report, but must not use them as comparable sales because, in all likelihood, the

sales prices will have been limited by

restrictions in the ground lease.

• Value of Leased Fee = Ground Rent / Capitalization Rate. The appraiser must

provide support for the capitalization rate selected.

• Value of Leasehold = Value of Fee Simple – Value of Leased Fee

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9.15 PLANNED UNIT DEVELOPMENTS

Loans may be made to finance the purchase of dwellings located in Planned Unit

Developments (PUD) if the conditions described in this paragraph are met and the applicant and

property otherwise meet the requirements outlined in this handbook.

A. Definition

A Planned Unit Development is a project or subdivision that includes common property

that is owned and maintained by a homeowners’ association for the benefit of and use by the

individual PUD unit owners. A PUD can consist of detached single family homes,

condominiums (which must also meet the requirements of Paragraph 9.13 of this Handbook), or

townhomes. Certain properties may have the physical appearance of a townhome, but are owned

as a condominium; in which case the requirements of Paragraph 9.13 of this Handbook must be

followed.

B. Preservation of Agency Rights and Lien Position

The Owners Association must be controlled by the homeowners and any restrictions

imposed on the owners in the PUD Constituent Documents must not jeopardize the Agency’s

rights or lien position. The “Constituent Documents” are the declaration, articles of

incorporation, trust instrument or any equivalent document which creates the Owners

Association and any by-laws or other rules or regulations of the Owners Association.

C. Closing Documents

Form RD 3550-11, “Planned Unit Development Rider” must be used to amend and

supplement the security instrument to accommodate special requirements. For example the

Owners’ Association may maintain a “master” or “blanket” Hazard Insurance Policy.

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SECTION 3: MANUFACTURED HOMES [7 CFR 3550.73]

9.16 AUTHORIZED LOAN PURPOSES

A. Definition

Manufactured homes are built to different construction standards and codes and have

different inspection requirements than those manufactured structures generally referred to as

“modular” or “panelized” homes. The major difference between manufactured homes and modular

or panelized homes is the construction standard or code to which they are built and the inspection

requirements. Modular or panelized homes, as described in Exhibit B of RD Instruction 1924-A, are

not affected by the requirements of this section.

B. Authorized Loan Purposes

When a real estate mortgage or deed of trust covers the unit and the site, Section 502

loans may be used to finance the following:

• Site development work that conforms to the requirements of RD Instruction

1924-A;

• Purchase of an eligible new unit, transportation and set-up costs, and purchase of an

eligible site if not already owned by the applicant;

• Subsequent loans for equity or repair in conjunction with an assumption or Real

Estate Owned (REO) sale; and

• Subsequent loans for repair of units that are financed with Section 502 loans.

C. Loan Restrictions

The Agency will not use Section 502 loan funds to finance:

• The purchase of an existing unit and site, unless the property is already financed with

a Section 502 loan or is Agency REO property;

• The purchase of a site without also financing the unit;

• A unit that does not meet Federal Manufactured Home Construction and Safety

Standards (FMHCSS);A unit that does not meet or exceed the FMHCSS thermal

requirements for the county in which the home is to be located (see Attachment 9-B,

Thermal Requirements for a Manufactured Home);
HB-1-3550

9-19

(01-23-03) SPECIAL PN 

Revised (11-18-22) PN 571 

Paragraph 9.16 Authorized Loan Purposes

• Alteration or remodeling of the unit when the initial loan is made, unless repairs are

needed in conjunction with an assumption or REO sale;

• Repairs not associated with a transfer, REO sale, or unit that is already financed with

a Section 502 loan;

• Existing debt owed by the applicant; or

• Furniture, including movable articles of personal property such as drapes, beds,

bedding, chairs, sofas, divans, lamps, tables, televisions, radios, stereo sets, and other

similar items of personal property (furniture does not include wall-to-wall carpeting,

refrigerators, ovens, ranges, washing machines, clothes dryers, heating or cooling

equipment, or other similar equipment).

9.17 DEALER-CONTRACTOR REQUIREMENTS

No loans will be made on a manufactured home sold or serviced by any entity that is not 

an approved dealer-contractor. Once the applicant has submitted the name of the selected dealercontractor, the Loan Originator should check the State Office’s list of approved dealercontractors. If the dealer-contractor is approved, the Loan Originator should notify the applicant 

of what information must be submitted to the Agency for review and approval. 

If the dealer-contractor is not approved, the Loan Originator should offer the applicant 

the opportunity to select another dealer-contractor who is on the approved list, or to request that

the Loan Originator inform the dealer-contractor about the Agency’s procedures for approval. 

The applicant and the dealer-contractor will be notified of the Agency’s thermal

requirements for the county in which the home is to be located. Rural Development accepts the

FMHCSS Uo Value Zones for new manufactured homes financed by the Agency. Attachment 

9-B lists the FMHCSS Uo Value Zones for each state, by county, and Puerto Rico.

All new manufactured homes built to the FMHCSS are provided with a Comfort Heating

and Cooling Certificate. This certificate (which may be combined with the Data Plate) is affixed

in a permanent manner near the main electrical panel or other readily accessible and visible

location inside the unit. The certificate specifies to FMHCSS Uo Value zone of the home as

Zone 1, 2 or 3. (The U/O Value Zone Map on the certificate does not apply.) An example of the 

Comfort Heating and Cooling Certificate is provided as Attachment 9-A.
HB-1-3550

9-20

Paragraph 9.17 Dealer-Contractor Requirements

An entity may apply to become an approved dealer-contractor by submitting Form RD

1944-5, Manufactured Housing Dealer-Contractor Application, supplementary data sources, 

such as financial statements and tax returns should be used to verify or determine employment,

income, held assets and credit history. An entity that owns multiple locations within a state, and

will be responsible for meeting all of the Agency requirements for each branch location listed on 

the application, needs only submit one application. The entity must identify sales personnel, 

sales area, and number of branches as well as the addresses of all branchlocations to be covered 

by the individual application. Independent retailers of manufactured homes are required to obtain 

individual approval in their company name. To qualify to participate, a dealer-contractor must 

be: (1) financially responsible; (2) qualified and equipped toset up the unit on a site-built 

permanent foundation and develop the site; and (3) willing to provide a warranty acceptable to 

the Agency.

The evaluation of applications for dealer-contractor status involves a joint effort by Loan

Originators, Loan Approval Officials, and State Directors.

When evaluating these applications, the Loan Originator should perform the following

tasks.

• Maintain an operational file for each dealer-contractor who submits Form RD1944-5

and a CPA prepared financial statement.

• Make direct checks on trade and bank references and check with the local Better

Business Bureau.

• Inspect the dealer's place of business to determine its permanency and the adequacy

of available equipment.

• Obtain copies of brochures, descriptive literature, guarantees, sales contracts, and price

lists.
HB-1-3550

9-21

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485

Paragraph 9.17 Dealer-Contractor Requirements

• Determine that the dealer-contractor has the necessary equipment and experience to

perform or subcontract all site development work. If the firm uses subcontractors,

obtain the names of the subcontractors and their qualifications. A field inspection of

recently-developed sites and set-ups is desirable in determining whether the dealercontractor has the necessary experience.

• Carefully analyze the collected information to determine if the dealer-contractor is

able to provide the full service of sales, service, erection, and warranty of

manufactured units and developing sites for them. Based on this analysis, the Loan

Originator should develop a recommendation with supporting documentation as to

whether or not the dealer-contractor is acceptable.

• If necessary, the Loan Originator should maintain a complaint file to establish a basis

for limiting future business with the dealer-contractor.

The Loan Approval Official should review the Loan Originator's recommendations and

forward them, with any additional comments, to the State Director for review.

The State Director will make the decision on the dealer-contractor's acceptability and, if

applicable, issue a letter of acceptance. The State Director also will issue a list of acceptable

dealer-contractors in the State. The list of dealer-contractors should include only acceptable

dealer-contractors that are active. Active is defined as a dealer-contractor who has sold a

manufactured home within the last two years that was financed by a Rural Development direct or

guaranteed loan borrower. Dealer-contractors that have not been active in a two year period may

be removed from the active list of approved dealer-contractors. If the State Director determines

that the dealer-contractor is not acceptable, appeal rights will be granted. Any dealer-contractor

determined to be unacceptable may reapply for acceptance at any time the dealer-contractor has

reason to believe the conditions leading to the determination have been removed.
HB-1-3550

9-22

9.18 PROCESSING PROCEDURES

A. Submission Requirements

In addition to the documents required for a standard Section 502 loan, the applicant must

submit the following before the loan can be approved:

• A plot plan and site development plan as described under RD Instruction 1924- A, Exhibits C

and J;

• A foundation plan per RD Instruction 1924-A, Exhibit C adapting manufacturer’s design to

the specific site conditions. Specific site conditions that may require modification may

include slope, soils type, frost depth and requirements of FD adopted code and/or local

codes.

• Certification of site and foundation designs on Form RD 1924-25, Plan Certification;

• An itemized cost breakdown of the total package, including the base unit, eligible options,

site development, installation, set up, lot costs, and any credit for wheels and axles;

• A statement signed by the dealer-contractor indicating that any cash payment or rebate as a

result of the purchase will be deducted from the price of the unit and not paid to the

applicant; and

• A statement signed by the dealer-contractor that the proposed cost is the full price of the unit

and all development activities, and if furniture is being purchased by the applicant with other

funds, that a lien will not be filed against the Agency’s security property.

B. Appraisal Techniques

The site and unit must be appraised before loan approval, using normal single family

residential appraisal techniques. Since other manufactured units and sites provide the most

similar comparables, every effort must be made to obtain such comparables, even if their

distance from the subject property is greater than preferred. If units are not available within a

reasonable distance, the appraiser may use homes other than manufactured homes, after adjusting

for factors such as location, construction material, size, and quality.

C. Loan Rates and Terms

The interest rates for manufactured homes are the same as for other real estate loans made

with Section 502 loan funds, but the maximum loan term is 30 years. Applicants for Section 502

loans on manufactured homes may receive payment subsidy, if they are eligible.
HB-1-3550

9-23

(01-23-03) SPECIAL PN

Revised (01-06-17) PN 492

9.19 CONSTRUCTION AND SITE REQUIREMENTS

The unit must meet the requirements for new dwellings contained in Section 2 of Chapter 5

and must have a floor area of 400 square feet or more, and a width of 12 feet or more for a singlewide unit, and 20 feet or more for a double-wide unit. In addition, the unit must meet the Agency’s

Thermal Performance Standards as set forth in RD Instruction 1924-A, for the winter degree day

zone where the unit will be located. Finally, site development and set up must conform to Exhibit

C and Exhibit J of RD Instruction 1924-A, and the environmental requirements of RD Instruction

1970 series “Environmental” must be met. Development under the Mutual Self-Help and borrower

construction methods is not permitted for manufactured homes.

9.20 LOAN CLOSING

In general, loan closing procedures are the same whether the Section 502 loan is made for

the purchase of a manufactured home or another type of single family home. However, the Loan

Originator should be aware of the following requirements.

A. Contract Requirements

The dealer-contractor must sign Form RD 1924-6, Construction Contract, which will cover

both the unit and site development work. Multiple contracts are prohibited, but a dealer-contractor

may use subcontractors if the dealer-contractor remains solely responsible for all work under the

contract. Payment for all work will be made in accordance with Form RD 1924-6 and RD

Instruction 1924-A, except that no payment will be made for materials or property stored on site

(for example, payment for a unit will be made only after it is permanently attached to the

foundation).

B. Lien Release Requirements

All firms furnishing materials or labor in connection with the contract must sign Form

RD 1924-10, Release by Claimants, except for the manufacturer of the unit. The manufacturer

of the unit must furnish an executed manufacturer's certificate of origin indicating that the unit is

free and clear of all legal encumbrances. Form RD 1924-10 and the manufacturer’s certificate of

origin should be filed in the case file.

C. Warranty Requirement

A dealer-contractor must provide the borrower with a warranty in accordance with the

provisions of RD Instruction 1924-A. The warranty must identify the unit by serial number. The

dealer-contractor must certify that the unit substantially complies with the plans and

specifications, and the home has sustained no hidden damage during
HB-1-3550

9-24

Paragraph 9.20 Loan Closing

transportation. If the home was manufactured in separate sections, the dealer-contractor also

should certify that the sections were properly joined and sealed according to the manufacturer's

specifications. The dealer-contractor must furnish the applicant with a copy of all

manufacturers’ warranties.

D. Real Estate Tax Requirement

Whether manufactured homes are considered personal or real property may vary stateto-state. When the loan closes, the unit and site must be taxed as real estate by the jurisdiction

in which it is located, if such taxation is permitted under applicable law.
HB-1-3550

(01-23-03) SPECIAL PN

Revised (09-23-09) PN 433

ATTACHMENT 9-A

Attachment 9-A

SAMPLE COMFORT HEATING AND COOLING CERTIFICATE
HB-1-3550

Attachment 9-B

Page 1 of 7

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485

ATTACHMENT 9-B

THERMAL REQUIREMENTS FOR MANUFACTURED HOMES

BACKGROUND: The minimum thermal requirement for new manufactured homes acceptable

to Rural Development is the Federal Manufactured Home Construction and Safety Standard

(FMHCSS) Uo Value Zone(s) indicated on the Comfort Heating and Cooling Certificate for the

following States:

NOTE: For a FMHCSS Uo Value Zone 1 or higher, higher means a FMHCSS Uo Value Zone 2

or 3. For a FMHCSS Uo Value Zone 2 or higher, higher means a FMHCSS Uo Value Zone 3.

Also, Attachment 9-A is an example of a Data Plate containing the Comfort Heating and Cooling

Certificate; however, the U/O Value Zone Map on the Certificate does not apply to Rural

Development. Rural Development will continue to use Attachment 9-B.

ALABAMA

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

ALASKA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

ARIZONA

FMHCSS Uo Value Zone 2 or higher is acceptable for the following counties:

Cochise Greenlee Mohave Santa Cruz

Gila

Graham

La Paz

Maricopa

Pima

Pinal

Yuma

FMHCSS Uo Value Zone 3 is acceptable for all other counties.

ARKANSAS

FMHCSS Uo Value Zone 2 or higher is acceptable for all counties in the State.
HB-1-3550

Attachment 9-B

Page 2 of 7

CALIFORNIA

FMHCSS Uo Value Zone 2 is acceptable for the following counties:

Alpine Modoc Nevada Sierra

Lassen Mono Plumas Siskiyou

FMHCSS Uo Value Zone 2 or higher is acceptable for all other counties.

COLORADO

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

DELAWARE / MARYLAND

FMHCSS Uo Value Zone 3 is acceptable for all counties in both States.

FLORIDA / VIRGIN ISLANDS

FMHCSS Uo Value Zone 1 or higher is acceptable for the following Florida counties and

the Virgin Islands:

Brevard

Broward

Charlotte

Citrus

Collier

Dade

DeSoto

Glades

Hardee

Hendry

Hernando

Highlands

Hillsborough

Indian River

Lake

Lee

Levy

Manatee

Marion

Martin

Monroe

Okeechobee

Orange

Osceola

Palm Beach

Pasco

Pinellas

Polk

Sarasota

Seminole

St Lucia

Sumter

Volusia

FMHCSS Uo Value Zone 1 or higher is acceptable for all other counties.
HB-1-3550

Attachment 9-B

Page 3 of 7

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485

GEORGIA

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

HAWAII

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

IDAHO

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

ILLINOIS

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

INDIANA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

IOWA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

KANSAS

FMHCSS Uo Value Zone 2 or higher is acceptable for the following counties:

Barber

Chautauqua

Cherokee

Comanche

Cowley

Crawford

Elk

Harper

Labette

Montgomery

Neosho

Sumner

Wilson

FMHCSS Uo Value Zone 2 is acceptable for all other counties.

KENTUCKY

FMHCSS Uo Value Zone 2 or higher is acceptable for all counties in the State.
HB-1-3550

Attachment 9-B

Page 4 of 7

LOUISIANA

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

MAINE

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

MASSACHUSETTS / RHODE ISLAND / CONNECTICUT

FMHCSS Uo Value Zone 3 is acceptable for all counties in the three States.

MICHIGAN

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

MINNESOTA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

MISSISSIPPI

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

MISSOURI

FMHCSS Uo Value Zone 2 or higher is acceptable for the following counties.

Barry

Butler

Cape Girardeau

Dunklin

Howell

Jasper

McDonald

Mississippi

New Madrid

Newton

Oregon

Ozark

Pemiscot

Ripley

Scott

Stoddard

Stone

Taney

FMHCSS Uo Value Zone 2 is acceptable for all other counties.
HB-1-3550

Attachment 9-B

Page 5 of 7

MONTANA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

NEBRASKA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

NEVADA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

NEW JERSEY

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

NEW MEXICO

FMHCSS Uo Value Zone 2 or higher is acceptable for the following counties:

Bernalillo

Chaves

Curry

De Baca

Dona Ana

Eddy

Grant

Guadalupe

Hidalgo

Lea

Lincoln

Luna

Otero

Quay

Roosevelt

Sierra

Socorro

FMHCSS Uo Value Zone 2 is acceptable for all other counties.

NEW YORK

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

NORTH CAROLINA

FMHCSS Uo Value Zone 2 or higher is acceptable for all counties in the State.

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485
HB-1-3550

Attachment 9-B

Page 6 of 7

NORTH DAKOTA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

OHIO

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

OKLAHOMA

FMHCSS Uo Value Zone 2 is acceptable for the following counties

Beaver Cimarron Texas

FMHCSS Uo Value Zone 2 or higher is acceptable for all other counties.

OREGON

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

PENNSYLVANIA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

PUERTO RICO

FMHCSS Uo Value Zone 1 or higher is acceptable for all of Puerto Rico.

SOUTH CAROLINA

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

SOUTH DAKOTA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

TENNESSEE

FMHCSS Uo Value Zone 2 or higher is acceptable for all counties in the State
TEXAS

HB-1-3550

Attachment 9-B

Page 7 of 7

UTAH

FMHCSS Uo Value Zone 1 or higher is acceptable for all counties in the State.

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

VERMONT / NEW HAMPSHIRE

FMHCSS Uo Value Zone 3 is acceptable for all counties in both States.

VIRGINIA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

WASHINGTON

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

WEST VIRGINIA

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

WISCONSIN

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

WYOMING

FMHCSS Uo Value Zone 3 is acceptable for all counties in the State.

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485
HB-1-3550

Attachment 9-C

Page 1 of 2

ATTACHMENT 9-C

CONDOMINIUM QUESTIONNAIRE

Project Name and Address:

Documents that are needed to complete this questionnaire are as follows:

Υ Recorded covenants, conditions and restrictions (CC&Rs)/Declaration/Master Deed;

Υ Articles of Incorporation (Articles of Association or Condominium Trust);

Υ Bylaws;

Υ Current year’s budget, and current balance sheet (less than 90 days old);

Υ Prior fiscal year-end financial statement(s)

Υ Minutes of last two (2) Homeowner Associations meetings;

Υ Condominium association master insurance policy (flood, liability, hazard insurance,

fidelity bond).

Questions: YES NO

1. Does the condominium consist of 4 or more units?

2. Have current and complete copies of the condominium project’s

legal documents been submitted for review?

3. Has OGC determined that the condominium project complies with

the requirements of the enabling statute and all applicable state and

local laws?

4. When required by state or local laws, has the “Condominium Resale

Certificate” been provided to the buyer?

5. Has OGC determined that the condominium project’s legal

documents preserve the rights and lien position of the Agency?

6. Has control of the owners’ association been turned over to the unit

owners?

7. Is the owners’ association currently involved in any litigation?

8. If the condominium project is on a leasehold, does the underlying

lease provide a term that is equal to or greater than the life of the

loan?

9. Is the project professionally managed?

(01-23-03) SPECIAL PN

Revised (04-27-16) PN 485
HB-1-3550

Attachment 9-C 

Page 2 of 2 

Questions: YES NO

10. Does the project contain commercial or non-residential space?

11. Did the owners’ association provide a current copy of the financial

statement (audited financial statement if the project contains 10 or

more units)?

12. Are the reserve funds clearly separate from the operating funds?

13. Is the reserve account funded at a level that is sufficient to meet

planned expenses and ongoing maintenance of the condominium

project, without assessing additional fees to the unit owners?

(Funding of replacement reserves for capital expenditures and deferred

maintenance should be at least 10% of the budgeted income.)

14. Are more than 15% of the unit owners more than 1 month delinquent

in payment of homeowners’ association dues or assessments?

15. Are at least 70% of the units sold?

16. Are the common elements of the project well maintained?

17. Does the owners association have adequate insurance coverage for

the project and common elements? (i.e. - hazard insurance must cover

100% of the replacement cost)

Comments: (Responses in any of the shaded boxes require explanation if approval is 

recommended)

Recommendation: The project has been reviewed and the unit (check one) Υ is Υ is not 

acceptable for Agency financing. 

SIGNATURE OF REVIEWER TITLE DATE OF INSPECTION

SIGNATURE OF STATE DIRECTOR DATE OF INSPECTION