Source: http://www.docstoc.com/docs/86929117/Rider-to-the-Agreement
Timestamp: 2014-07-10 05:10:37
Document Index: 395990780

Matched Legal Cases: ['art 1', 'art 1', 'art 2', 'art 2', 'art 1', 'art 1', 'art 2', 'art 2', 'art 3', 'art 3', 'art 2', 'art 1', 'art 1', 'art 1', 'art 2', 'art 2', 'art 1', 'art 1', 'art 2', 'art 1', 'art 2', 'art 2', 'art 1', 'art 1', 'art 2', 'art 2', 'art 3', 'art 3', 'art 1', 'art 1', 'art 2']

Rider to the Agreement
b9e0e233-cf84-42a4-8b92-2893ff7146ba.xls
Category, Key Words    released        Number     Question                                                                         Answer
IPF, account #s            2004            7      If an IPF is earned for the year, how should it be reflected in the annual       Do not reflect the IPF as an obligation on the Surplus Cash schedule; instead, the IPF is calculated on the Surplus Cash schedule (FASS S1300-203).
financial statements?                                                            The IPF should be shown as an expense on the Profit and Loss Statement (FASS 7115) and as an accrued liability on the balance sheet (FASS 2190
OMHAR recommends that accountants include in the audited financial statements an explanation of how any IPF was calculated, and an explanation
of how any Mortgage Restructuring Note / Contingent Repayment Note payment was calculated.
in the Mortgage Restructuring Note (and subject to all other applicable HUD requirements). If no IPF is payable for the year, all positive Surplus
Cash is split between the MRN and the owner. By statute, the percentage due on the Mortgage Restructuring Note cannot be less than 75%.
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Category, Key Words      released        Number     Question                                                                          Answer
CRP, IPF, distribution       2005            1a     If earned, when can I take distribution of CRP and IPF payments, and must I       (Part 1 of 2) CRP is made in monthly payments from property funds to the owner as earned, assuming all preconditions are met, including that “all
wait for permission from HUD to do so? (Part 1 of 2)                              Project expenses are paid.” IPF is payable to the owner at the end of the accounting year, assuming all preconditions have been met. None of these
CRP, IPF, distribution       2005           1b      If earned, when can I take distribution of CRP and IPF payments, and must I       (Part 2 of 2) If a financial review by HUD concludes that CRP and/or IPF were paid when preconditions had not been met, any improperly distributed
wait for permission from HUD to do so? (Part 2 of 2)                              amounts will have to be repaid to the project accounts, which will increase the Surplus Cash and resulting payments due on the Mortgage
OCAF, 9250                   2005            2      My M2M Restructuring and post-M2M Section 8 contract call for annual              Post-M2M rents are expected to increase, and are limited in increase, by the OCAF. Adjustments will be processed as provided in the HAP contract
OCAF adjustments to rents, as well as Reserve for Replacements deposits.          and the Section 8 Renewal Guide; the annual adjustment process must be initiated by the property owner. The Renewal Guide also requires an annual
How do these occur? How do I account for them?                                    OCAF adjustment to the Reserve for Replacement (R4R) deposits (except in the few cases where the sole source of the R4R deposits is the reuse of
R4R,                         2005            3a     How should owners manage withdrawals from the Reserve for Replacements,           (Part 1 of 2) Generally, properties will achieve Surplus Cash over time when they are operating with positive cash flow, but there are timing issues
reimbursements,                                     so as not to adversely impact Surplus Cash in a post-M2M project? (Part 1 of      that can affect Surplus Cash, especially in the year following the M2M closing. Owners wishing to take the benefit of the IPF and CRP should
reserve for                                         2)
replacements                                                                                                                          consider, for example, that restricted escrows (such as the Reserve for Replacements and the Rehabilitation Escrow) are not included in available cash
R4R,                         2005           3b      How should owners manage withdrawals from the Reserve for Replacements,           (Part 2 of 2) As a result, while owners should not change their physical management and operation of the property in consideration of these issues,
reimbursements,                                     so as not to adversely impact Surplus Cash in a post-M2M project? (Part 2 of      they may find it advisable to manage the submissions for reimbursement to reasonably assure that there are not large reimbursements in process at the
replacements                                                                                                                          end of the fiscal period.
TPA, partial year,           2005            4      After closing the M2M restructure I sold the subject project via a Transfer of   Yes, you are required to file a Partial year AFS because all closed Full M2M projects are subject to a M2M Regulatory Agreement. The seller‟s
purchaser                                           Physical Assets (TPA). Am I required to file a partial year AFS for the year in obligation to file a Partial year AFS is also referenced in the TPA Application (HUD-92266). The seller‟s Partial year AFS should cover the period
which the TPA was completed? Can I collect a partial year CRP and IPF? Am from the beginning of the fiscal year to the day before the property transfer closes. Note that the TPA purchaser is also required to submit a Partial
I required to include a Surplus Cash Schedule in the partial year AFS, and am I year AFS to cover from the date the property transfer closes until the end of the purchaser‟s fiscal year end. The CRP and IPF, if earned, are prorated
HUD via the Real Estate Assessment Center‟s FASS system. The owner would report the special computation using the FASS account numbers
S1400-010 through S1400-250, the account numbers normally associated with a semiannual computation of surplus cash. If the special computation
indicates that the owner is entitled to a distribution, then the amount available for distribution should be counted as a current obligation on the year-
end computation of surplus cash. This will prevent the funds from being subject to the MRN payment calculation. The owner may distribute these
funds any time during the next fiscal year. (Answer is continued in 5c for 2005.)
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partial year, surplus        2005            5c     In the year of the M2M closing, how do I account for the prorated portions of        (Part 3 of 3)
cash, distribution                                  the year pre- and post-M2M, and how do I calculate Surplus Cash for the              Exception: If the M2M closing occurs during the last half of the fisal year, the owner may be entitled to a mid-year distribution under the existing
partial year? (Part 3 of 3)                                                          regulatory agreement. In these instances, the audited financial statements would contain 3 computations of surplus cash (the semiannual computation,
account #s, FASS             2005            6      How are accrued interest and unpaid principal balance of the M2M Mortgage            Any MRN / CRN principal balance that is to be paid from current Surplus Cash should be shown as a short term obligation in the AFS (FASS account
schedules                                           Restructuring Notes and Contingent Repayment Notes reflected in the AFS?             2172 Other Mortgages Payable Short Term). The long term portion of the unpaid principal balance of MRN / CRN should be reflected in the AFS
CRP, account #s              2005            7      How should Capital Recovery Payments (CRPs) be reflected in the AFS?                 See also 2007 #8 for further clarification (strikeout below). In the AFS, the owner‟s investment (on which the CRPs provide a return) is treated as a
mail, payments               2005            8      How, where, and when do I send payments for my M2M Note (MRN –                       Superseded. See 2007 #13.
M2M Notes payments?                                                               analysis of projects to ensure appropriate calculation of Surplus Cash and subsequent MRN and CRN payments. DP Services, Inc. has been retained
as the notes servicer and cash manager for the M2M Notes portfolio, responsible for monthly statements, billings and collections, and collection and
file, Surplus Cash                                  Cash in a prior year‟s AFS. Must I re-file for that year? How should I            Computation of Surplus Cash in hard copy form to the HUD Project Manager (PM). The revised Computation of Surplus Cash should also be
document the adjustment? Does it matter if the revision changes the payment       entered in the footnotes of the project‟s next AFS along with an explanation as to why the revised calculation was required. That footnote should
due on my MRN?                                                                    identify and summarize all such correspondence from HUD and/or HUD‟s contractors regarding adjustments to prior year AFS, whether or not they
resulted in additional payments to HUD on the M2M debt. This is applicable whether or not the payment amount on the MRN changes.
overpayment to HUD. What should I do to resolve this?                             simply result in less Surplus Cash (and a smaller payment) in the following year. However, if the overpayment is in excess of $1000, HUD will
consider requests for refunds submitted in writing to the M2M note payment address specified in your Note (HUD‟s Lockbox--new address as of
December 2006), including all relevant information. HUD‟s PCPM contractor will determine if an overpayment indeed occurred, and make a refund
cash                                                Surplus Cash as of the M2M closing date, and to distribute that Surplus Cash positive Surplus Cash as of the M2M closing date should be reflected as an obligation on the Surplus Cash schedule as of fiscal year end (i.e., the post-
in accordance with the pre-M2M cash distribution rules. How should I         M2M Surplus Cash schedule). The pre-M2M Surplus Cash (and any post-M2M Surplus Cash) can be distributed after the fiscal year end date. Also
document this in the AFS?                                                    see the 2005 Letter, part 2 of question #5.
year                                                restructure transaction. I am having trouble getting the REAC FASS system to Management System (REMS) has been updated with your Tax Identification number, your date of acquisition (“FASS Date”), your fiscal year end
accept the partial year AFS starting on the purchase date. What can I do to  date (such as December 31), and any other data that affect FASS. Also be sure that your “FASS Coordinator” has been properly registered with
obtain assistance?                                                           REAC. Applicable submission and registration rules are contained in the FASS Industry User Guide available at the REAC website at:
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Category, Key Words     released        Number     Question                                                                        Answer
(Part 1 of 2)                                                                   MRN/CRN payments must be segregated from all other debt payments, in the Statement of Cash Flows. The following FASS accounts should be
used to reflect M2M debt:
SCA, contractor             2006            10     I have not received any correspondence regarding my Surplus Cash        No. Going forward, you will receive a demand letter from HUD if the annual M2M payment amount reflected in your project‟s annual financial
computation or regarding payments on my M2M debt. Can I assume that HUD statement has not been paid within 30 days of the filing date. That delinquent amount will also appear on your next monthly billing statement from
accepted my computations?                                               HUD‟s servicer for these Notes, DynAccSys.
stated that my response to their review findings of the Annual Financial        both reviews, and the controlling legal documents require your cooperation with both. The Surplus Cash analysis is specifically focused on
Statements had been reviewed and the matter was now closed. I was recently      protecting the value of the M2M portfolio. Either the HUD PM, or the PCPM (at the HUD PM‟s direction) may contact you regarding the analysis.
DEMO, account #s        2006 DEMO           3      Where do we reflect the Demo loan payment amount in the FASS template?          To date, payment amounts on Demo Notes have been reflected in Notes to the financial statements, as there was no specific template for filing a Demo
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Category, Key Words      released        Number     Question                                                                         Answer
DEMO, contractor         2006 DEMO           7      I have not received any communication from HUD about my prior AFS             No. OAHP‟s review process for servicing these Demo Notes is very similar to the process currently operational for M2M permanent program notes.
submissions. Does this mean HUD agreed with my computations and accepted      HUD‟s PCPM contractor will review your most recent and prior years‟AFS submissions for accuracy, and to review “reasonable and necessary
my prior year payment amounts?                                                operating expenses” per your Regulatory Agreement. The results of those analyses and any adjustments necessitated by their findings will be
communicated to you in writing with a detailed explanation of HUD‟s analysis. All payments due, and all payments received to date, will be
reconciled and reflected on your monthly billing statement (sent monthly to the project owner or managing agent by HUD‟s servicer for these Demo
Notes, DynAccSys).
DEMO, policy             2006 DEMO           8      My accountant has received other accounting letters from HUD relating to      We encourage you to review the prior accounting letters posted on our webpage at http://www.hud.gov/offices/hsg/omhar/mhrowner.cfm. These
M2M accounting issues (and posted on the OAHP Owner‟s webpage); how are letters were written to specifically address accounting issues relevant to M2M permanent program projects (not Demo Notes), so not all will be
those applicable to Demo Notes?                                               applicable to Demo properties. If you have questions regarding how to apply the subject of a specific M2M Q&amp;A to a Demo project, please send a
DEMO, payments           2006 DEMO           9      Where do I send payments for my Demo Note?                                    Superseded. SEE 2007 #13
Post restructuring,         2007             1      If a property with M2M or DEMO debt is sold, can the subordinate debt be      M2M and DEMO notes are due on sale or refinance and MAY NOT be assumed without prior approval of HUD; contact your HUD PM for
TPA, due on sale,                                   assumed or is the entire debt due on sale? Can the subordinate debt be        guidance. Assumption approval is not automatic, if granted typically will require partial paydown of the subordinate debt and ALWAYS requires
assumption                                          transferred to the new owner via warranty deed, subject to the existing       execution of M2M or DEMO modification and assumption documents by the buyer, seller and HUD. Transfer of ownership subject to the existing
(original) M2M or DEMO notes, mortgages, Regulatory Agreements and Use        (original) legal documents places unacceptable conditions on the title and violates the terms of the M2M/DEMO Notes and Regulatory Agreements.If
Agreements in lieu of mod/assumption documents? Who needs copies of the
HUD approval is granted, copies of the following documents must be forwarded to HUD MF Notes Servicing Branch, (attention Debbie Courtright),
transfer documents?
PO Box 44804 W, Washington DC 20026-4804 immediately after a new owner takes title: executed (recorded, if applicable) documents assuming the
M2M or DEMO Notes, Mortgages, Regulatory Agreements (and Riders) and Use Agreements, and a signed W-9 providing the new owner&#39;s tax ID.
Tterms and conditions of the assumption approval must be incorporated into the legal documents (e.g., elimination of Capital Recovery Payment
(CRP), subordination of the M2M/DEMO Notes to a new first subject to prescribed terms, etc.).
TPA, post                     2007           2a     How is the annual payment on M2M or DEMO notes calculated in the year of (Part 1 of 2)
restructuring, payment                              an approved TPA? Is the annual payment amount allocated between the buyer M2M and DEMO Notes require payment based on the annual surplus cash computation. HUD requires that the buyer and seller each submit partial
and seller based on their Partial year AFS submissions? When is the seller&#39;s  year AFSs for the year of a sale in FASS. Currently, under the terms of the Note the annual loan payment is not due until after the end of the fiscal
payment due? (Part 1 of 2)                                                    year. To preclude disputes regarding prorata shares of the required annual payment in the year of a TPA, HUD requires, as a condition of approval for
surplus cash, to the HUD Field Office with a copy to OAHP as part of the request for HUD approval for all TPAs involving assumption,
subordination, assignment or forgiveness of M2M/DEMO debt. (Answer is continued in 2b for 2007.)
TPA, post                     2007           2b     How is the annual payment on M2M or DEMO notes calculated in the year of (Part 2 of 2)
restructuring, payment                              an approved TPA? Is the annual payment amount allocated between the buyer The HUD Field Office will work with OAHP to determine the required payment amount for the partial year ending on the closing date. The purchaser
and seller based on their Partial year AFS submissions? When is the seller&#39;s  will file its partial year AFS after the end of the fiscal year, and is responsible to make payment to the holder of the notes (generally HUD) from the
payment due? (Part 2 of 2)                                                    year-end Surplus Cash.
account #s, QNP, TPA          2007            3     A property that went through a M2M full restructuring was sold to a Qualified Qualified Non-Profit owners that received debt assignment or modification (for any M2M debt) must file in FASS using the M2M FASS
Non-Profit and was approved for “debt relief”. The insured first mortgage     templates. As long as a M2M Rider(s) to the Reg Agmt is still in place, the M2M templates must be used. The M2M Regulatory Agreements and
remains in place, what FASS accounting templates should the new owner use in Riders remain in place and thus the M2M templates are needed for the QNP to access the unique M2M distributions.
filing AFS?                                                                   Qualified Non-Profit owners that received debt forgiveness (for all M2M debt) must file in FASS based on the requirements of the underlying form
TPA, partial year             2007            4     When a TPA occurs at the same time as the M2M closing, the seller and buyer A FASS upgrade is anticipated in late spring 2007 which will address this, but in the interim, contact your HUD Project Manager and ask that they
submissions, account                                must both file partial year AFS submissions in FASS. But once the M2M         contact REAC‟s Technical Assistance Center at http://www.hud.gov/offices/reac/contactus/fass-mfh.cfm or by phone at (888-245-4860) for
#s                                                  closing date has been entered, the seller can‟t access the standard FASS      assistance accessing the standard FASS template for the seller‟s partial year submission.
the seller access the correct templates for the period prior to restructuring?
(The 2006 accounting letter addressed a related question for the buyer).
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TPA, partial year           2007            5      Question 5 in the 2006 M2M accounting letter addressed problems a purchaserFirst contact your local HUD Project Manager and ask that they confirm that the Real Estate Management System (REMS) has been updated with
submissions, account                              has in accessing the M2M accounts in the FASS templates when a transfer/saleyour Tax Identification number, your date of acquisition (“FASS Date”), your fiscal year end date (such as December 31), and any other data that
#s                                                occurs subsequent to the M2M closing. Since modification and assumption of  affect FASS. Also be sure that your “FASS Coordinator” has been properly registered with REAC. Applicable submission and registration rules are
the legal documents is a requirement for any HUD approved assumption, the   contained in the FASS Industry User Guide available at the REAC website at:
contractor contacted us recently with questions about our calculations of   PCPM contractor will make the appropriate adjustments in the final Surplus Cash Analysis and report the required revisions to you directly.
DEMO loan payment amounts for those prior years. They are questioning our
Payoff, maturity            2007            7     Is it true that upon maturity, any outstanding balance on the M2M/DEMO             No. The remaining principal balance, accrued interest and fees, are due upon maturity of the M2M/DEMO notes. Occasionally we see inaccurate
notes will be forgiven by HUD?                                                     comments in the Notes to Financial Statement indicating that upon maturity, HUD will forgive any outstanding balance on the M2M/DEMO notes.
CRP, account #s             2007           8a     If a property did not meet the pre-conditions for CRPs during all of 2006 and      (Part 1 of 2)
did not make any of the payments, should the current portion of the note include   Question #7 in the 2005 letter responded partially to this question. We repeat the earlier answer below and provide additional comments to further
just the twelve payments that should have been made during 2006, or should the     clarify.
current portion include the twelve 2006 payments plus the twelve 2007              In the AFS, the owner‟s investment (on which the CRPs provide a return) is treated as a loan, with the interest rate and term determined in the M2M
schedule.) (Part 1 of 2)                                                           195 (interest portion).
CRP, account #s             2007           8b     If a property did not meet the pre-conditions for CRPs during all of 2006 and      (Part 2 of 2)
did not make any of the payments, should the current portion of the note include   The current principal portion of the CRP (FASS account 2179) would include principal payments due within the next twelve months and the principal
just the twelve payments that should have been made during 2006, or should the     portion of any back payments that the owner was unable to pay due to the preconditions not being met.
current portion include the twelve 2006 payments plus the twelve 2007               In the Computation of Surplus Cash, CRP payments that are due but that have not been paid may be included as Other Obligations only if, as of
fiscal year end, the preconditions for payment had been satisfied.
IPF, unpaid                 2007           10      An owner earns an IPF of $5,000 for 2006 (and there is surplus cash to pay       It is not acceptable to set up an account payable and include IPF as an obligation on the 2007 computation of surplus cash. Owners must either take
it). If the owner chooses not to take the fee in 2007 does he permanently forfeit the distribution or deposit the funds into a separate entity cash account or it becomes part of surplus cash at the end of the next fiscal year.
the money? Does the $5,000 become part of surplus cash at 12/31/07 or can
the owner set up an account payable for $5,000 and include it as an obligation
on the 2007 computation of surplus cash?
final SCA report,           2007           12     As a result of HUD&#39;s review of the Surplus Cash Analyses for my property for       Conditions addressed in final Surplus Cash Analyses are requirements of HUD and must be complied with, without regard to whether other HUD
adjustments                                       2004 and 2005, HUD required I repay ineligible CRP payments to the project         correspondence includes a similar requirement. HUD conducts a separate detailed review of Surplus Cash Analyses on M2M and DEMO properties
account. But other feedback I received from FASS and REAC staff about my           after the AFS screening reviews by REAC and FASS systems and staff. In future, items noted in final SCA reports are more likely to be reflected in
AFS did not require any such adjustments. How do these reviews and                 FASS&#39; automated screening reviews, as REAC/FASS staff recently implemented changes to FASS that will flag owner failure to make required MRN
HUD Project Managers for use when screening AFS&#39; for subsequent filing periods for compliance. (Examples of conditions include a requirement
that the owner repay funds to the project account for ineligible CRP, IPF, or other distributions or make a supplemental payment to HUD on those
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Category, Key Words   released        Number     Question                                                                    Answer
Mailing payments,          2007           13     Where do I send my annual M2M or DEMO loan payments? I heard the                 The address for HUD‟s lockbox for receipt of payments on HUD-held notes changed effective 12/20/2006 and is provided below. Be sure to include
lockbox, address                                 address recently changed.                                                        a transmittal letter/memo identifying the property name and FHA loan number, and provide a contact person‟s name and phone number.
contractor                2007           intro   Transition to MBI as the contractors to assist in the review and analysis of AFS Most of the backlog of prior year Surplus Cash Analyses (SCA) have now been finalized and issued to owners by HUD‟s Post-Closing Portfolio
policy                    2007             1     Why is HUD paying such close attention to property operations after a            A M2M restructuring implements the plan agreed to by HUD and the owner regarding the current and future needs of the property. HUD takes a
acronyms                  2007            2a     These Accounting Q&amp;A letters are helpful but are full of acronyms that I (Part 1 of 2)
.       (Answer is
continued in 2b of Supplemental 2007.)
acronyms                  2007            2b     These Accounting Q&amp;A letters are helpful but are full of acronyms that I (Part 2 of 2)
Supplemental               don‟t understand, please help! Why are the same terms capitalized in             MRN – Mortgage Restructuring Note (usually the M2M “second mortgage”)
some answers but not in others (e.g., surplus cash)? (Part 2 of 2)               OAHP – HUD‟s Office of Affordable Housing Preservation
negative Surplus          2007             3     Can a property have negative surplus cash at the end of its fiscal year     No. Positive surplus cash is an absolute requirement to earn and pay the IPF (or any other distribution) to the owner. This requirement is discussed in
Cash, CRP, IPF,       Supplemental               and still be eligible to pay itself an IPF?                                 Question 2 in the 2004 Accounting Letter, and is prescribed in the Rider to the Regulatory Agreement, as well as paragraph 2-25 of HUD Handbook
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Category, Key Words    released        Number      Question                                                                        Answer
negative Surplus           2007             4      An owner took monthly payments of CRP during part of the year but           Generally when a property has negative surplus cash it cannot meet the first CRP precondition (all expenses paid) and should not have taken CRP.
Cash, CRP, IPF,        Supplemental                had negative surplus cash at year-end. Does CRP paid monthly have to        However, if the owner took monthly CRP payments during part of the year based on a reasonable expectation that the property would have positive
be repaid because the property had negative surplus cash at year-end?       surplus cash and unanticipated changes occurred, the owner may only be required to reimburse the project account for monthly CRP disbursements
REAC score,                2007             5      If a project had negative surplus cash last fiscal year is the owner barred Yes, the M2M Rider to the Regulatory Agreement (paragraph 7a.) states that when a project has negative surplus cash in a filing period, the owner is
by HUD, that there is sufficient cash then available to resume.” However, while HUD reserves the right to require strict compliance with this
provision on a case by case basis, owners may resume payment of CRP once a subsequent AFS shows positive surplus cash. See also question 1 in the
2005 accounting letter. (See also 2004 #2)
REAC score,                2007             6      A project scored a “58” on its physical inspection in May of 2006, prior Yes, if the other preconditions are satisfied, CRP and IPF for FY2006 can be paid. In performing the surplus cash analysis each year, OAHP uses the
inspection scheduled and completed by December 31, 2006. In                 M2M restructuring will address or has addressed all repairs necessary to obtain a passing score in the M2M rehabilitation plan. OAHP monitors rehab
February 2007, the project received a passing score. Can the ownership escrow progress and can issue management findings if progress is not satisfactory.
pay itself the CRP and the IPF for FY2006?
REAC score,                2007             7      A project scored a “58” on its physical inspection in May of 2006, three No, the owner is ineligible for the IPF for FY2006. While CRP disbursed prior to the failing inspection may be retained if all other preconditions were
Delinquent,                2007             8       Please clarify the implications of a late M2M loan payment to HUD on           Yes, in this case, the owner forfeits IPF for FY2006 because of the late 2006 payment to HUD and if IPF was disbursed already (at year-end) it must
payments,              Supplemental                the owner‟s eligibility for IPF. For example, if a project has a December       be repaid to the project account. Satisfaction of the precondition that “all required payments have been made on the Mortgage Restructuring Note
31, 2006 FYE, and the payment was due April 10, 2007 and paid May               and on any 1st mortgage” is based on whether the payment due for that period was made timely. However two other caveats should be noted:
22, 2007, does the late payment impact eligibility for FY2006 IPF?              1. If the owner paid on time, but an error in the calculation was later discovered, so long as any additional amount due is promptly remitted there is no
explanatory                2007        NOTE re NOTE : The fact patterns presented in questions 9 through 12 below are
comment, violations,   Supplemental    question very similar, but the slight variations in each result in significant
preconditions,                         9 thru 12 differences in the answers. To assist the reader, the distinctive differences
are bolded in each of these questions.
violations,                2007            9     The owner had positive surplus cash on its FYE date (December 31,                 Yes to all of those questions.
preconditions,         Supplemental                2006). However, on April 23, 2006, HUD notified the owner of a Fair
Housing violation, and the owner disputed the violation. On October
14, 2006 HUD notified the owner that no violation had occurred. As
of December 31, 2006, the remaining CRP and IPF preconditions were
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Category, Key Words     released        Number     Question                                                                     Answer
violations,                 2007            10     The owner had positive surplus cash at the end of FY2006 (December           No. The FY2006 IPF may neither be earned nor paid. Beginning with the May 2006 CRP (the first CRP after the notice of alleged default), no further
preconditions,          Supplemental               31, 2006). However, on April 23, 2006, HUD notified the owner of a           CRPs may be paid unless and until HUD notifies the owner that the Regulatory Agreement default has been cured. The FY2006 “owner‟s split” may
Fair Housing violation, and the owner disputed the violation. On             not be distributed, does not accrue, and may not be distributed (as a FY2006 distribution) in subsequent periods. The funds must remain in the project
October 14, 2006 HUD notified the owner that a final determination           account, increasing surplus cash and the required FY2006 payment due to HUD. The HUD Regulatory Agreement prohibits any distributions when
had been made, that a violation had occurred, and that the Fair              there is a default under the Regulatory Agreement, Note or mortgage.
Housing violation constituted a default under the Regulatory
Agreement. As of December 31, 2006, the remaining CRP and IPF
preconditions were satisfied. Can the owner earn and pay the FY2006
IPF? Pay CRPs that have become due through December 1, 2006?
Distribute the owner‟s share of FY2006 surplus cash (Surplus Cash
minus IPF minus Restricted Surplus Cash) also sometimes called the
“owner‟s split”? Variations from the questions presented in #9, 11 and
12 are highlighted in bold.
violations,                 2007            11     The owner had positive surplus cash at the end of FY2006 (December           The HUD Regulatory Agreement prohibits any distributions when there is a default under the Regulatory Agreement, Note or mortgage.
preconditions,          Supplemental               31, 2006). However, on April 23, 2006, HUD notified the owner of a           ►With respect to FY2006:
Fair Housing violation, and the owner disputed the violation. On             • The FY2006 IPF may neither be earned nor paid.
January 22, 2007 HUD notified the owner that a final determination            The May 2006 through December 2006 CRPs may not be paid unless and until HUD notifies the owner that the Regulatory Agreement default has
had been made, that a violation had occurred, and that the Fair              been cured.
Housing violation constituted a default under the Regulatory                  • The FY2006 “owner‟s split” may not be distributed, does not accrue, and may not be distributed (as a FY2006 distribution) in subsequent periods.
Agreement. As of December 31, 2006, the remaining CRP and IPF                The funds must remain in the project account, increasing surplus cash and the required FY2006 payment due HUD.
preconditions were satisfied. Can the owner earn and pay the FY2006          ►With respect to FY2007: unless, prior to 12/31/2007, HUD notifies the owner that the Regulatory Agreement default has been cured.
IPF? Pay CRPs that have become due through December 1, 2006?                 • The FY2007 IPF may neither be earned nor paid.
Distribute the owner‟s share of FY2006 surplus cash (Surplus Cash            • The January 2007 through December 2007 CRPs may not be paid (but remain for potential future payment if the preconditions are satisfied at some
minus IPF minus Restricted Surplus Cash) also sometimes called the           future point).
“owner‟s split”? Is there any effect on the 2007 IPF, CRPs and “owner‟s      •The FY2007 “owner‟s split” may not be distributed, does not accrue, and may not be distributed (as a 2007 distribution) in subsequent periods. The
split”? Variations from the questions presented in #9, 10 and 12 are         funds must remain in the project account,
highlighted in bold.                                                         increasing surplus cash and the required FY2007 payment due to HUD.
violations,                 2007            12     The owner had positive surplus cash at the end of FY2006 (December           ►With respect to FY2006:
preconditions,          Supplemental               31, 2006). However, on April 23, 2006, HUD notified the owner of a           The FY2006 IPF may now be earned and paid, subject to satisfying the remaining IPF preconditions.
Fair Housing violation, and the owner disputed the violation. On March       Any CRPs not paid while HUD was reviewing the owner‟s appeal may now be paid, subject to satisfying the remaining CRP preconditions.
13, 2007 HUD notified the owner that a final determination had been          The FY2006 “owner‟s split” may now be distributed.
made, and that a violation had not occurred. As of December 31,              If the FY2006 AFS has already been submitted to HUD, reflecting no IPF, the owner should communicate with HUD and the PCPM in order to
2006, the remaining CRP and IPF preconditions were satisfied. Can the        agree on how to document the post-submission change to reinstate the IPF and re-calculate the MRN payment and “owner‟s split”.
owner earn and pay the 2006 IPF? Pay CRPs that have become due               ►With respect to FY2007: there is no effect on the FY2007 IPF, CRPs or “owner‟s split”.
through December 1, 2006? Distribute the owner‟s share of FY2006
surplus cash (Surplus Cash minus IPF minus Restricted Surplus Cash)
also sometimes called the “owner‟s split”? Is there any effect on the
FY2007 IPF, CRPs and “owner‟s split”? Variations from the questions
presented in #9,10, and 11 above are highlighted in bold.
preconditions, waiver       2007            13     Is a HUD PM authorized to waive a precondition for payment of CRP            No, the preconditions are a function of the HUD Regulatory Agreement and are not waivable by the PM. If unusual circumstances (outside of the
Supplemental               and IPF?                                                                     owner‟s control) occurred which resulted in the owner‟s failure to meet the preconditions, the local HUB Director may submit a request for waiver to
preconditions, CRP          2007            14     Please clarify whether all unpaid CRP are to be listed as obligations or     This question has been addressed in prior years, but warrants clarification here. The correct treatment is that all unpaid CRP should be listed as
accrual                 Supplemental               only those for years in which the preconditions were satisfied?              obligations, whether or not the preconditions have been satisfied. While CRP may accrue (and will reduce surplus cash by the amount of that accrual)
HUD                                                                                                                                           Page 9                                                                                                                                     7/25/2011
Category, Key Words   released        Number     Question                                                                     Answer
HAP receivable,           2007           15a     Section 8 HAP payments have been delayed for many months for some            (Part 1 of 3)
preconditions         Supplemental               projects this year, for reasons that are outside of the owners‟ control.     Specific guidance that enables owners to accurately and fairly reflect whether a project had surplus cash when a HAP receivable (in excess of 30 days)
What are the implications on surplus cash if those HAP payments have         remains at FYE, and avoids unduly penalizing the owner for the lack of cash on hand, is provided below:
not been received as of FYE, and as a result the owner does not meet         ►Reflect the HAP receivable as follows:
the preconditions for CRP and IPF payments? What are the implications        T
Ÿhe full amount of the HAP receivable must be included in the cash portion of the CSC (using account 1135) even if the HAP receivable isn&#39;t expected
on CRP and IPF payment and accrual? (Part 1 of 3)                            to be paid within 30 days of year end. Accountants may segregate the late HAP receivables from normal HAP receivables in the Notes to the AFS.
HAP receivable,           2007           15b     Section 8 HAP payments have been delayed for many months for some            (Part 2 of 3)
Supplemental                                                                                            ►Reflect the offsetting obligation(s) on the CSC. The full HAP receivable and the full offsetting obligation must be included in the CSC. If they
What are the implications on surplus cash if those HAP payments have         are treated inconsistently (receivable as current on CSC, payable as long term), this will distort surplus cash.
not been received as of FYE, and as a result the owner does not meet         If owners were approved to borrow funds from the R4R account the borrowed amount should be reflected as an obligation (using account S1300-
the preconditions for CRP and IPF payments? What are the implications        110) on the CSC.
on CRP and IPF payment and accrual? (Part 2 of 3)                            If owners were approved to suspend monthly deposits to the R4R and the suspended/deferred deposits remained unpaid at FYE, the
HAP receivable,           2007           15c     Section 8 HAP payments have been delayed for many months for some            (Part 3 of 3)
not been received as of FYE, and as a result the owner does not meet         and reasonably document that monthly cash flow is adequate to pay all project expenses. If the CSC at year end shows positive surplus cash, CRP
the preconditions for CRP and IPF payments? What are the implications        may be disbursed then for all eligible months in the year.
on CRP and IPF payment and accrual? (Part 3 of 3)                            ► No changes are required in accounting for IPF for the reporting period.
►The HAP receivable does not distort (increase) surplus cash when the offsetting obligation is included in the CSC. HUD‟s PCPM contractor and
the HUD PM will review carefully to assure that the preconditions for CRP and IPF are satisfied. Owners are encouraged to provide comments in the
preconditions ,           2007            16     If HUD approved suspension of monthly deposits to the R4R account            No. Suspending deposits to the R4R is a form of relief to the owner which makes them ineligible for any distributions for that filing period. The
remained unpaid at FYE, the suspended/deferred deposits must be shown as an obligation on the CSC, an explanation must be included in the Notes
to the AFS, and no distributions may be paid until the suspended/deferred deposits have actually been paid to the R4R.
operating expenses,       2007            17     The owner of a project with significant surplus cash prefers not to          No, this practice is not acceptable for a M2M or DEMO property. The M2M statute and regulations, and the property-specific M2M underwriting, to
operating expenses,       2007            18                                                                       The PCA, developed by the owner and HUD and agreed upon in the Restructuring Plan, includes a 20-year schedule of R4R needs. In general,
What type of expenses should be reimbursed from the R4R after being
R4R, reimbursement    Supplemental               paid for out of operating accounts?                               reimbursement from the R4R should be sought for all expenditures for items included in the PCA, so long as such reimbursements would not lead to a
operating expenses,       2007            19     How should an owner reflect R4R-eligible expenses in the AFS that 1) If a request for R4R reimbursement has been approved by the HUD PM but not yet received, it should be shown as an expense in operations and as
R4R, reimbursement    Supplemental               were paid for from operating accounts when they are either: 1)    “other cash” Account S1300-030 on the CSC (the detail for this account should explain that the R4R release was approved by the PM but has not
approved for reimbursement from the R4R by the HUD PM but the     been received).
funds have not been received at FYE, or 2) the request for        2) If the HUD PM has not acted upon the request yet, it cannot be reflected on the CSC. Any such requests pending with the HUD PM should be
reimbursement from the R4R has not been acted upon by the HUD PM? described in the notes to the AFS.
HUD                                                                                                                                         Page 10                                                                                                                                      7/25/2011
Category, Key Words     released        Number     Question                                                                   Answer
operating expenses,         2007           20a     HUD‟s PCPM review of my AFS refers back to the operating expenses          (Part 1 of 2) During the M2M restructuring process, the owner and HUD examined historic, current, and projected operating expenses for the
baseline                Supplemental               as underwritten at the time of restructuring, and a principle of           property based on the best information available. This expense baseline, agreed upon by all parties in the restructuring (and adjusted annually for
“reasonable and necessary” operating expenses. What does HUD               inflation), is what owners should use to develop their budget post-restructuring. By executing the Restructuring Commitment, which survives M2M
consider “reasonable and necessary” operating expenses for a project       closing, the owner and HUD acknowledged the terms of the restructure including the expense underwriting. The annual PCPM review examines
post-restructuring? (Part 1 of 2)                                          expenses that are materially above or below those expected from the adjusted, agreed-upon baseline, and the PCPM will ask the owner for
operating expenses,         2007           20b     HUD‟s PCPM review of my AFS refers back to the operating expenses          (Part 2 of 2) Whenever expenses diverge significantly from the baseline, the owner should keep the HUD PM apprised of the reasons for such
baseline                Supplemental               as underwritten at the time of restructuring, and a principle of           changes. Question #17 above illustrates one of the most common disallowed expense categories, repairs and replacements made from operating
“reasonable and necessary” operating expenses. What does HUD               accounts without a concurrent request for reimbursement from the R4R account.
entity expenses,           2007            21     FASS provides accounts for various entity expenses (FASS 7100 series       Entity expenses are any expenses not directly related to the operation of the project (e.g. legal fees related to the ownership, supervisory asset
distributions           Supplemental               accounts). How do these accounts impact surplus cash?                      management fees, general partner fees, owner income taxes, etc.) and do not impact the calculation of surplus cash.
nonresponsive owner         2007            22     The owner received a letter from HUD saying that, because the owner        HUD‟s PCPM contractor contacts the owner (by means of a series of emails and letters) to request clarification regarding questionable expense items, significant
Supplemental               failed to respond to questions from the PCPM contractor, HUD‟s SCA         variances from baseline expenses, or unusual accounting treatments. Most owners respond fully, but if the owner fails to fully respond, does not respond in a timely
will be finalized without the owner‟s input. What does this mean?          fashion, or does not respond at all, HUD will finalize the SCA without the owner‟s input and notify the owner accordingly.
partial year, IPF           2007            23     Question # 5 from the 2005 M2M Accounting Letter regarding the             OAHP has revised its policy for AFS submissions for FYE December 31, 2006 and thereafter.
proration               Supplemental               prorating of IPF during the year in which the M2M closing took place       IPF no longer has to be prorated during the year of closing. If the owner chooses to follow the M2M requirements for the entire year then the IPF
stated that the owner could choose to follow the new M2M                   may be paid for a full year.
requirements for the full year, but the IPF had to be prorated. Owners     Alternately, the owner may still elect to compute surplus cash up to the date of the M2M closing under the old Regulatory Agreement and take pre-
have asked OAHP to reconsider this position. Currently, if the owner       M2M distributions through that date, and then prorate the IPF for the period of time from the first day of the month following the M2M restructuring
elects to treat the property as if it were under M2M for the full year,    through the end of the fiscal year.
then for the period prior to the closing they lose access to any           The owner has one opportunity to decide which approach to use (when preparing the AFS for the year of closing) and that choice is final.
distributions available under the previous Regulatory Agreement and yet
gain only a portion of the M2M owner distributions covering the same
period (no IPF for that period).
correction account #s       2007            24     Question # 6 in the 2005 M2M Accounting Letter had a typo, and the         FASS Account 2322 – Other mortgages payable long-term, is the correct account number to use for the long term portion of the unpaid principal
Supplemental               wrong account number was given for the long term principal portion of      balance of all M2M or DEMO notes. The following reiterates the other accounts to be used to reflect the short term principal and interest payments
the balance on the M2M or DEMO notes. What is the correct account          from the 2005 Q&amp;A:
information? Also please clarify what accounts to use the following year   Any MRN / CRN principal balance that is to be paid from current surplus cash should be shown as a short term obligation in the AFS (FASS account
to reflect those actual loan payments on the Statement of Cash Flows.      2172) and
filing deadline             2007            25     The owner submitted a question to OAHP and REAC that was not               No, the owner must complete and file the AFS for the current period and make any payment required on the MRN/ CRN timely unless an extension
HUD                                                                                                                                          Page 11                                                                                                                                                 7/25/2011
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