Source: http://www.docstoc.com/docs/76732606/Late-Notice-Templates---Excel
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Late Notice Templates - Excel by lkx18630
76732606
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Late Notice Templates document sample
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User Notice: This table is provided as a tool to assist users searching for answers to M2M/DEMO Accounting questions. Please review the source documents posted at
http://www.hud.gov/offices/hsg/omhar/mhrowner.cfm. OAHP staff have annotated when answer changed a prior decision or if there are questions that are similar with different nuances - look for the phrase &quot;see
also&quot; or &quot;superseded&quot; in the answer column. Some answers would not fit in a single cell in column E, so check to be sure you are reviewing the ENTIRE answer (eg, column C lists the first question from 2005 as
#1a and 1b because the answer had to be split into two cells).
Accounting      Original
letter-- year   Question
Category, Key Words    released        Number     Question                                                                          Answer
negative Surplus           2004            1      If a post-M2M property has negative Surplus Cash at the end of its fiscal There are several impacts. No Incentive Performance Fee (IPF) is earned, accrued, or paid to the Owner for the year just ended. No payment is due
Cash, CRP, IPF,                                   year, what happens?                                                       under the Mortgage Restructuring Note (MRN) or Contingent Repayment Note (CRN) for that year. Finally, it is possible that the property may not
meet the preconditions for continued payment of Capital Recovery Payments (CRPs).
CRP, IPF,                 2004            2      What are the preconditions for CRPs and IPFs to be earned and paid?       The following paraphrases the Regulatory Agreement Rider; see the Rider for the exact wording:
preconditions                                                                                                               (a) all project expenses have been paid;
(b) all required payments have been made on the Mortgage Restructuring Note and on any 1st mortgage;
(c) the most recent REAC physical inspection score is 60 or above;
(d) there are no outstanding HUD audit or management findings; and
(e) the owner is not in default under any of the key governing documents such as the Regulatory Agreement.
As noted elsewhere, in addition to these general performance and compliance criteria, IPF is earned and paid only from positive Surplus cash.
CRP                        2004            3      Say that the M2M closing occurs on October 10th. Is the owner eligible to        No. The first CRP that the owner may receive (provided all preconditions for payment have been satisfied) would be the December 1 CRP. No CRP is
receive a Capital Recovery Payment (CRP) on November 1?                          allowed for the partial month in which the M2M closing occurs.
CRP, accrual               2004            4      If the CRP is not payable, due to lack of sufficient cash or failure to meet     See also 2005 #7 and 2007 #8 for further clarification. Accrued and unpaid CRPs should be listed as obligations on the Surplus Cash calculation;
performance criteria, how is it treated from an accounting standpoint?           there is no surplus cash until those have been covered.
IPF, partial year          2004            5      For the year in which the M2M closing occurs, how is the Incentive               The IPF is calculated based on the Effective Gross Income for the period beginning the day after the M2M closing and continuing through year-end.
Performance Fee (IPF) calculated?                                                Owners who claim an IPF for the Partial year in which the M2M closing occurs must include a computation of Partial year Effective Gross Income
(EGI) in the notes to the audited financial statements.
EGI, account #s,           2004            6      How is EGI calculated?                                                           Effective Gross Income is:
Effective Gross                                                                                                                    Gross Potential Rents (FASS account 5100T Total Rent Revenue, but excluding FASS accounts 5180 Flexible Subsidy Revenue and FASS account
5191 Excess Rents);
Minus Vacancy and Bad Debt (FASS account 5200T Total Vacancies plus FASS account 6370 Bad Debt)
Plus Other Income (FASS account 5900T Total Other Revenue, but excluding FASS account 5945 Interest Reduction Payments Revenue).
Note: FASS account 5400T Total Financial Revenue is not included in EGI because these line items were not included in the M2M underwriting and
because (for the most Part) this represents interest income on the Reserve for Replacements that is not available for operations.
IPF, account #s            2004            7      If an IPF is earned for the year, how should it be reflected in the annual financial 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).
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
Miscellaneous Current Liabilities).
account #s, payments       2004            8      How does the owner document the distribution of Surplus Cash after M2M?          The actual payment of Capital Recovery Payments, payment of Incentive Performance Fees, and/or payments on the Mortgage Restructuring Note /
Contingent Repayment Note must be reflected in the Statement of Changes in Financial Condition in the audited financial statements for the year in
which payment was made. In addition:
--Any CRPs that were due but not paid as of year-end (for example, because the REAC physical inspection score was too low) must be reflected as
liabilities on the balance sheet.
--Any IPF that was earned for the year (to be paid to the Owner in cash after completion of the audited financial statements) must be reflected as an
expense on the Profit and Loss Statement.
--The proposed distribution of positive year-end Surplus Cash must be reflected on Part B of the Surplus Cash Schedule in the audited financial
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.
payments, MRN,             2004            9      How are Mortgage Restructuring Note payments calculated?                         Start with audited positive Surplus Cash. Subtract any IPF that was earned for the year just ended. Any remaining positive Surplus Cash is divided
Mortgage                                                                                                                           between the Mortgage Restructuring Note and the owner according to a percentage determined by the PAE, approved by OMHAR, and documented
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%.
footnotes, FASS            2004            10     Will HUD read footnotes and explanations regarding post-M2M accounting            HUD and its servicer find supplemental information very valuable in understanding the accounting treatments. Such information may forestall
treatments?                                                                      questions and accountants are encouraged to make use of the opportunity to provide explanations.
HUD                                                                                                                                              Page 1                                                                                                                                      4/15/2011
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
payments require explicit permission in advance from HUD. However, by submitting an AFS reflecting that IPF was earned, or that CRPs were paid,
the owner is certifying that those preconditions were met. (See also the 2004 Q&amp;A for clarification of CRP and IPF preconditions and calculation.)
Improper CRP/IPF payments are violations of the Regulatory Agreement (Rider) and can result in enforcement remedies including acceleration of the
MRN/CRN. Additionally, improper payment may result in the issuance by HUD of an audit or management finding that, until resolved, would prohibit
payment of future CRP and IPF. (Answer is continued in 1b for 2005)
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
Restructuring Note. The owner will be invoiced for any amounts due on the Note that result from such a review and recalculation, and these amounts
become due and payable when invoiced. An adjusted computation of Surplus Cash must be included in the following year‟s AFS (do not re-file the
AFS for the year in question).
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
fixed-stream Section 236 IRP funds). This adjustment will be reflected annually on form 9250, provided to the owner by the Multifamily Project
R4R, reimbursements,         2005            3a     How should owners manage withdrawals from the Reserve for Replacements, so (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
reserve for                                         as not to adversely impact Surplus Cash in a post-M2M project? (Part 1 of 2) 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
consider, for example, that restricted escrows (such as the Reserve for Replacements and the Rehabilitation Escrow) are not included in available cash
for calculating Surplus Cash, therefore:
--Reserve for Replacement withdrawals must be approved by HUD or its authorized agent before the end of the fiscal period or the effect will be to
diminish Surplus Cash;
--Rehabilitation expenditures that are covered by the Rehabilitation Escrow must have been reimbursed before the end of the fiscal year to have a
neutral effect on Surplus Cash;
--If insured loss reimbursements can be managed to achieve reimbursement before the end of the fiscal period, this will also neutralize the otherwise
negative effect on Surplus Cash; (Answer is continued in 3b for 2005)
R4R, reimbursements,         2005           3b      How should owners manage withdrawals from the Reserve for Replacements, so (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,
reserve for                                         as not to adversely impact Surplus Cash in a post-M2M project? (Part 2 of 2) they may find it advisable to manage the submissions for reimbursement to reasonably assure that there are not large reimbursements in process at the
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 I       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
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
obligated to make an MRN payment if there is Surplus Cash?
for the portion of the year reported; a Calculation of Surplus Cash must be completed as of the date of sale, and a payment to the MRN must be made
per the terms of the Note if Surplus Cash was available as of the date of TPA.
partial year, surplus        2005            5a     In the year of the M2M closing, how do I account for the prorated portions of     (Part 1 of 3) In the full year after a M2M closing, the old rules regarding distributions and accrued distributions no longer apply. The old regulatory
cash, distribution                                  the year pre- and post-M2M, and how do I calculate Surplus Cash for the           agreement is set aside, and the owner must follow the rules in the M2M documents. In the year of M2M closing, however, the owner is subject to
Partial year? (Part 1 of 3)                                                       both the original regulatory requirements and the new M2M requirements. The owner has two accounting options available during the year of closing:
1. The owner may choose to follow the new M2M requirements for the entire year. If this option is chosen, surplus cash would be computed at the
end of the year and any surplus cash would be distributed in accordance with the M2M documents. Please note, the Incentive Performance Fee must
be prorated; the owner would only be entitled to a fee based on gross collections beginning from the date of the M2M closing through the end of the
fiscal year. (Answer is continued in 5b and 5c for 2005.)
partial year, surplus        2005           5b      In the year of the M2M closing, how do I account for the prorated portions of     (Part 2 of 3)
cash, distribution                                  the year pre- and post-M2M, and how do I calculate Surplus Cash for the           2. The owner may choose to perform a special computation of surplus cash as of the date of M2M closing. This special computation of surplus cash
Partial year? (Part 2 of 3)                                                       would allow the owner to take any distributions they may be entitled to under the old regulatory agreement. The special computation would be in
addition to the year-end computation of surplus cash. Both computations must be a part of the audited financial statements, and must be reported to
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.)
HUD                                                                                                                                                  Page 2                                                                                                                                     4/15/2011
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,
the special M2M closing computation, and the yearend computation). The owner would use the semiannual surplus cash FASS account numbers to
report the semiannual computation. The special M2M closing computation would have to be submitted as part of the notes to financial statements.
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
(FASS account 2322). The accrued interest on the MRN / CRN should be shown in FASS account 2132 – Accrued Interest Payable – Other
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
loan, with the interest rate and term determined in the M2M underwriting. Each monthly payment is treated as having principal and interest portions.
CRP payments during a fiscal year are reported on the Statement of Cash Flows in FASS accounts S1200-417 (principal portion) and S1200-195
(interest portion). At the end of a fiscal year, the loan will have a remaining principal balance (some of which is to be paid within twelve months and is
reflected as a current liability reflected in FASS account 2179, with the balance being a long term liability reflected in FASS account 2329). If any
payments have become due but have not been paid as of fiscal year end, there will also be accrued interest payable, which should be shown in FASS
account 2139 – Accrued Interest Payable – Capital Recovery Payment (M2M). CRP payments that are due but that have not been paid may be
included as obligations on the computation of surplus cash only if, as of fiscal year end, the preconditions for payment had been satisfied.
mail, payments               2005            8      How, where, and when do I send payments for my M2M Note (MRN –                     Superseded. See 2007 #13.
Mortgage Restructuring Note, or CRN – Contingent Repayment Note)?
SCA, contractor              2005            9      I have received correspondence from HUD contractors on post-M2M issues.           Yes. Representatives from HUD contractors may directly contact a property owner only when expressly directed to do so by HUD. RER Solutions,
Has HUD engaged contractors to assist in the review and analysis of AFS and       Inc. (and its subcontractor Value Recovery Group), have been retained as OAHP‟s portfolio management advisor, responsible for financial review and
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
management of escrows when HUD‟s note is in first lien position. If HUD‟s analysis of submitted financials results in recalculated Surplus Cash and
MRN/CRN payments, supplemental billings for amounts due will be from DP Services, Inc., or directly from HUD. UPDATED in intro to 2007
Supplemental Accounting Letter -new PCPM contractor.
footnotes, AFS, Notes        2005            10     If there is additional information regarding explanations or calculations of      HUD and its contractors find supplemental footnote information in the annual financial statement filings very valuable in understanding underlying
accounts, can those be included in the footnotes, and will those be accessible to calculations and accounting treatment of M2M items. Accountants are strongly encouraged to make use of footnotes in the AFS for all projects. For
HUD and OAHP?                                                                     projects closed prior to 2000 in the Portfolio Reengineering Program Demonstration program, explanations of the calculation of “Net Cash” are very
helpful in reconciling Notes payments.
errors, footnotes, re-       2006            1       I received correspondence notifying me of an error made in calculating Surplus HUD does not require you to amend or re-file the prior year AFS, in fact HUD discourages you from doing so. The owner should submit a revised
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 entered
document the adjustment? Does it matter if the revision changes the payment       in the footnotes of the project‟s next AFS along with an explanation as to why the revised calculation was required. That footnote should identify and
due on my MRN?                                                                    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.
errors, footnotes, re-       2006            2      After reviewing your M2M Accounting Q&amp;As, I believe the amount due on my Please do not re-file or amend your AFS. When HUD‟s PCPM contractor reviews your AFS they will note any adjustments to the M2M payment (up
file, amend                                         MRN was incorrectly reflected in my prior year AFS and thus I have made an or down) and provide specific guidance on how to proceed. We recommend that the excess payment be retained by HUD, as the excess payment will
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
recommendation to OAHP.
account #s, partial          2006            3      I am submitting my AFS for the year in which the M2M closing occurred. The Contact your HUD Project Manager and ask that they confirm that the Real Estate Management System (REMS) has been updated to reflect the
year                                                REAC FASS system presents the non-M2M Surplus Cash template instead of project as a M2M project. After assuring that all of this is correct, if the problem continues, contact REAC‟s Technical Assistance Center at
the M2M Surplus Cash template. What should I do?                                  http://www.hud.gov/offices/reac/contactus/fass-mfh.cfm or by phone at (888-245-4860).
partial year, surplus        2006            4      For the partial year after closing the M2M restructuring, I elected to calculate
Include a footnote that documents your election. Include the Surplus Cash computation as of the M2M closing date, as part of the footnote. Any
cash                                                Surplus Cash as of the M2M closing date, and to distribute that Surplus Cash in
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-
accordance with the pre-M2M cash distribution rules. How should I document   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
this in the AFS?                                                             see the 2005 Letter, part 2 of question #5.
account #s, partial          2006            5      I am the new owner of a project that previously went through a M2M debt      See also 2007 #5 for additional requirements. First contact your local HUD office project manager and ask that they confirm that the Real Estate
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 date
accept the partial year AFS starting on the purchase date. What can I do to  (such as December 31), and any other data that affect FASS. Also be sure that your “FASS Coordinator” has been properly registered with REAC.
obtain assistance?                                                           Applicable submission and registration rules are contained in the FASS Industry User Guide available at the REAC website at:
http://www.hud.gov/offices/reac/products/fass/fassmf_guideChanges.cfm. If your FASS submission is still not accepted, contact REAC‟s Technical
Assistance Center at http://www.hud.gov/offices/reac/contactus/fass-mfh.cfm or by phone at (888-245-4860).
HUD                                                                                                                                                  Page 3                                                                                                                                         4/15/2011
Category, Key Words     released        Number     Question                                                                         Answer
payments, account #s        2006            6a     How should I reflect MRN/CRN payments in the Statement of Cash Flows?           (Part 1 of 2)
(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:
(MRN Principal Payments) S1200-361 Principal Payments - Second Mortgage
(MRN Interest Payments) S1200-181 Interest Payments - Second Mortgage
 (CRN Principal Payments) S1200-362 Principal Payments - Third Mortgage
(CRN Interest Payments) S1200-182 Interest Payments - Third Mortgage.
(Answer is continued in 6b for 2006.)
payments, account #s        2006           6b      How should I reflect MRN/CRN payments in the Statement of Cash Flows?           (Part 2 of 2)
(Part 2 of 2)                                                                   If the MRN/CRN is in first lien position, please do not use the FASS accounts for first mortgage payments to reflect MRN/CRN payments. Use the
FASS accounts identified above (regardless of lien position). If it is not possible to dedicate the above-mentioned FASS accounts solely for
MRN/CRN payments, owners should use a reporting approach that separately identifies payments made toward the MRN/CRN (for example, detailing
MRN/CRN payments in a footnote).
account #s                  2006            7      What are some common errors in post-M2M AFS?                                    Common errors include:
a. In the Statement of Cash Flows, not recording CRP payments correctly. The correct FASS accounts are:
S1200-417 Principal Payments on Capital Recovery Payment (M2M)
S1200-195 Interest on Capital Recovery Payment (M2M) (see 2005 Letter question #7)
b. Showing the current year Incentive Performance Fee (IPF) as an obligation on the Surplus Cash schedule (see the 2004 Letter, question #7, for how
to correctly reflect IPF).
c. In the Statement of Cash Flows, not recording IPF payments correctly. The correct FASS account is S1200-223 Entity - Incentive Performance
d. In the Statement of Cash Flows, not recording payment of the cash flow “split” from the prior year‟s Surplus Cash correctly. The correct FASS
account is S1200-420 Distributions for the owner portion of the split.
distributions, timing       2006            8      When can Surplus Cash be distributed, for a post-M2M property?                For a property that completed a M2M debt restructure transaction, Surplus Cash cannot be distributed until after the AFS is filed. Also, Surplus Cash
cannot be distributed until all other requirements have been satisfied (for example, the Incentive Performance Fee cannot be earned or paid unless
certain preconditions have been satisfied, see 2004 Letter, question #2). That is, the December 31, 2005 Surplus Cash cannot be distributed until the
spring of 2006 at the earliest. Mid-year distributions are not allowed for post-M2M projects.
CRP, accrual                2006            9      In the AFS, how do I reflect Capital Recovery Payment (CRP) installments that Unpaid CRP installments will be reflected on the balance sheet as liabilities (the principal amount will be reflected as a result of recording the CRP loan
have become due but, as of the AFS date, have not been paid?                  at the time of the M2M closing, and the interest amount will be reflected because the interest will have accrued). Note, however, that no additional
interest may be accrued because of the delay in payment.
If, as of the FYE date, the pre-conditions for payment of these CRP installments have been satisfied, reflect the unpaid installments as obligations on
the Surplus Cash schedule. Otherwise, do not reflect the unpaid installments as obligations on the Surplus Cash schedule. Also see the 2005 Letter,
question #7.
SCA, contractor             2006            10     I have not received any correspondence regarding my Surplus Cash computation No. Going forward, you will receive a demand letter from HUD if the annual M2M payment amount reflected in your project‟s annual financial
or regarding payments on my M2M debt. Can I assume that HUD accepted my 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
computations?                                                                HUD‟s servicer for these Notes, DynAccSys.
HUD‟s PCPM Contractor is currently performing in-depth analyses of AFSs for HUD for all years since M2M closing. 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. That process
requires input from the HUD PM and owners and thus is/has been very time intensive. 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 Notes,
DynAccSys).
SCA, contractor             2006            11     Last year I received correspondence from the HUD PM for my project which        The two reviews focus on distinct aspects of the AFS, and are therefore not redundant in scope. You may receive correspondence regarding one or
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 protecting
Statements had been reviewed and the matter was now closed. I was recently      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.
contacted by HUD‟s PCPM Contractor with similar questions. Why must I
respond to them? This is redundant.
DEMO, net cash,         2006 DEMO           1      How should the owner of a Demo Project interpret the definitions of “Net         “Net Cash” is equal to Surplus Cash as reflected on FASS account S1300-150 from the Computation of Surplus Cash (or zero, if Surplus Cash is
surplus cash                                       Income” and “Net Cash” in the Demo Note?                                        negative). Owners will no longer compute “Net Income” to determine Demo Note payments.
DEMO, payment           2006 DEMO           2      How should the owner of a Demo Project interpret the definition of “Payment     Owners should construe Payment Period to be the project‟s fiscal year as documented and approved in HUD‟s Financial Accounting Sub System
Period” found in their Demo Note?                                               (FASS). If the approved fiscal year end (FYE) does not match the Payment Period in the Note, OAHP will accept that the FYE date in FASS reflects
specific owner action and approvals by the HUD PM, and thus will regard the FASS FYE as the Payment Period for calculation and billing purposes.
HUD                                                                                                                                              Page 4                                                                                                                                        4/15/2011
Category, Key Words      released        Number     Question                                                                             Answer
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
Note audit. HUD is currently modifying FASS to enable owners to file AFS‟s for Demo Notes using the same AFS template as for regular M2M
projects. We anticipate that these FASS changes will be completed in time for submission of AFS‟s for fiscal year periods ending 12/31/2005. Please
refer to the 2006 M2M Accounting Q&amp;A‟s which provide additional guidance on the regular M2M AFS template.
DEMO, CRP, IPF           2006 DEMO           4      If we will now file Demo AFS‟s using the M2M permanent AFS template in        No, while the FASS template will include all M2M accounts (CRP, IPF, Surplus Cash, distributions, etc.) accountants must carefully review Demo
FASS, can we also receive CRP and IPF like on M2M permanent program           Notes and only claim provisions that are reflected in the terms and conditions of the Demo Note (e.g., some Demo Notes provide for a distribution to
notes?                                                                        the Owner of a fixed amount per unit per annum, similar to IPF; others include an amount similar to CRP which is sometimes referred to as New
Equity Distribution, based on a % of new cash equity invested by the owner).
DEMO, payment            2006 DEMO           5      My M2M Demonstration Note defines “Payment Date” so that a payment may HUD values the audit process. HUD will not regard payments as late, notwithstanding the language in the relevant Demo Note, if payment in full is
be required before my accountant has finished the Annual Financial Statements received within ten (10) days of the date the AFS are submitted to HUD (provided that such AFS are submitted on or before the deadline established
(AFS). Will I be penalized if I submit payment within 10 days after the due   by HUD).
date for filing Annual Financial Statements?
DEMO, note sale          2006 DEMO           6      If my Demo Note is ever transferred to a third party, will the responses to these OAHP anticipates that some Demo Notes may eventually be sold by HUD. HUD‟s experience in previous notes sales has been that purchasers prefer
questions bind the new noteholder?                                                to continue the practices HUD has put in place despite any ambiguous language appearing in the loan documentation. However, if Demo Notes are
sold, the purchaser will determine its own practices.
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,
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
request via email to OAHP‟s resource desk at resourcedeskweb@oahp.net .
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 guidance.
TPA, due on sale,                                   assumed or is the entire debt due on sale? Can the subordinate debt be               Assumption approval is not automatic, if granted typically will require partial paydown of the subordinate debt and ALWAYS requires execution of
assumption                                          transferred to the new owner via warranty deed, subject to the existing (original)   M2M or DEMO modification and assumption documents by the buyer, seller and HUD. Transfer of ownership subject to the existing (original) legal
M2M or DEMO notes, mortgages, Regulatory Agreements and Use Agreements               documents places unacceptable conditions on the title and violates the terms of the M2M/DEMO Notes and Regulatory Agreements.If HUD approval
in lieu of mod/assumption documents? Who needs copies of the transfer
is granted, copies of the following documents must be forwarded to HUD MF Notes Servicing Branch, (attention Debbie Courtright), 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
all TPAs involving assumption, subordination, assignment or forgiveness of the M2M/DEMO debt, that the Seller pay their prorata share of the annual
payment amount (as determined by HUD) at the time of the sale. The Seller must provide interim financial statements, including a computation of
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 templates.
Non-Profit and was approved for “debt relief”. The insured first mortgage            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 Riders remain
remains in place, what FASS accounting templates should the new owner use in         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
of Regulatory Agreement, they no longer use the M2M templates. With M2M debt forgiveness, the M2M Regulatory Agreements, and the Riders to
those Reg Agmts were released, so the M2M templates are no longer used.
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Category, Key Words    released        Number     Question                                                                           Answer
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 assistance
#s                                                closing date has been entered, the seller can‟t access the standard FASS            accessing the standard FASS template for the seller‟s partial year submission.
templates for filing. The Real Estate Assessment Center (REAC) FASS system
presents both the seller and buyer the M2M Surplus Cash template. How can
the seller access the correct templates for the period prior to restructuring? (The
2006 accounting letter addressed a related question for the buyer).
TPA, partial year           2007            5      Question 5 in the 2006 M2M accounting letter addressed problems a purchaser   First 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/sale   your 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:
answer to Question 5 is amended below to incorporate HUD&#39;s requirement for
http://www.hud.gov/offices/reac/products/fass/fassmf_guideChanges.cfm. Then confirm that the owner of record in the Notes and other legal
confirmation that executed mod/assumption documents for the M2M or demo
documents matches the owner data in FASS. If they do not match, provide copies of the required modificatio/assumption documentation (see #1
loans are on file.
above) prior to requesting filing assistance.
DEMO, net cash,             2007            6     We are an owner of a DEMO property that filed AFS using the note terms (Net Certain DEMO notes defined “Net Cash” so as to allow owners to deduct the greater of the annual deposit to those escrows or the actual expenses
escrows                                           Cash) for years prior to 12/31/05. Our HUD Project Manager and the PCPM incurred in the year. Your approach, deducting both these amounts, overstates your expenses, understates Net Cash and is not acceptable. HUD‟s
contractor contacted us recently with questions about our calculations of DEMO PCPM contractor will make the appropriate adjustments in the final Surplus Cash Analysis and report the required revisions to you directly.
loan payment amounts for those prior years. They are questioning our
deduction from Net Cash of actual hazard insurance and property tax expenses
AND deposits to HUD required escrows for property insurance and taxes. My
DEMO Note lists those escrow deposits as eligible operating expense. What is
Payoff, maturity            2007            7     Is it true that upon maturity, any outstanding balance on the M2M/DEMO notes No. The remaining principal balance, accrued interest and fees, are due upon maturity of the M2M/DEMO notes. Occasionally we see inaccurate
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.
Owners and accountants should carefully review the terms of the Note and rely only on the terms and conditions of the loan documents.
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
payments? (We understand that no additional interest may be charged for these
underwriting. Each monthly payment is treated as having principal and interest portions.
accrued payments, and that since they still have not met the pre-conditions, the
 CRP payments made during a fiscal year are reported on the Statement of Cash Flows in FASS accounts S1200-417 (principal portion) and S1200-
liability to make the payments will not be included on the Surplus Cash
schedule.) (Part 1 of 2)                                                         195 (interest portion).
On the Balance Sheet, at the end of a fiscal year, the loan will have a remaining principal balance (some of which is to be paid within twelve months
and is reflected as a current liability in FASS account 2179, with the balance being a long term liability in FASS account 2329). If any payments have
become due (eligible) but have not been paid as of fiscal year end, there will also be accrued interest payable, which should be shown in FASS account
2139 – Accrued Interest Payable – Capital Recovery Payment (M2M).
(Answer is continued in 8b of 2007.)
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.
schedule.) (Part 2 of 2)
CRP, accrual                2007            9     CRP payments were not made for 2 years because a property did not meet the         Yes, they may make all accrued back payments, subject to the availability of cash.
preconditions. The property has now satisfied the preconditions. May the
project now pay all unpaid CRP payments? Or should they just resume making
the monthly CRPs starting from the point at which they have met the pre-
IPF, unpaid                 2007           10      An owner earns an IPF of $5,000 for 2006 (and there is surplus cash to pay it). 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
If the owner chooses not to take the fee in 2007 does he permanently forfeit the 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.
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?
Delinquent, payments        2007           11     Are owners with delinquent M2M and DEMO loan payments being reported to            Yes, HUD requires that delinquencies on all HUD-held debt be reported to the credit reporting agencies quarterly (annual payments are due within 10
the credit reporting agencies?                                                     days of filing AFS).
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Category, Key Words   released        Number     Question                                                                       Answer
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
requirements get reconciled?
payments, overpayment of the IPF, and excessive owner distributions. Further, a summary report of prior year SCA conditions is being provided to
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 Notes.)
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 a
lockbox, address                                 address recently changed.                                                        transmittal letter/memo identifying the property name and FHA loan number, and provide a contact person‟s name and phone number.
 For regular mail deliveries send payments with a transmittal identifying project name, FHA number, and how funds are to be applied, to the
following address: HUD - Multifamily Mortgage Notes, P O Box 530256, Atlanta, GA 30353-0256.
 For overnight deliveries send payments with a transmittal which includes the entire address below, in addition to project name, FHA number, and
how funds are to be applied, to the following address: Bank of America (530256), C/O HUD Multifamily Mortgage Note Collections, GA5-005-02-
10, 1075 Loop Road, Atlanta, GA 30337. The telephone number to enter for the recipient on the overnight label is (404) 209-6187.
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
Supplemental               and M2M Notes payments.                                                          Management (PCPM) contractor, RER Solutions, Inc. The backlog is expected to be completely cleared by the end of December. OAHP has begun
assigning the SCAs for the most recent fiscal year filings (e.g., December 31, 2006) on those assets with completed prior year SCAs, to our new
PCPM contractor, MacArthur and Baker, Intl. dba MBI Consulting, for processing. We hope to provide feedback to you on those reports prior to the
end of the current filing period. However, because of the lateness of the final contract award, all FY2006 reviews will not be completed until early
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
Supplemental               M2M closing? Specifically, why is there such an in-depth review of               partial payment of claim against the FHA Insurance Fund on behalf of the owner in order to facilitate the restructure, and the M2M Notes document
operating expenses, surplus cash, R4R withdrawals, etc? (This scrutiny the owner‟s commitment to repay that claim. Since the M2M Notes are repayable from surplus cash from operations of the property, and since that
creates an additional burden on owners and accountants.)                         expected surplus cash payment stream after restructuring is dependent upon future operation of the property as anticipated in the plan, HUD has a
fiduciary responsibility to monitor operations and scrutinize material variances from those anticipated expenses. When unjustified variances increase
expenses, reduce surplus cash, and minimize cash flow payments to the M2M Notes, HUD holds property owners accountable. Thus, the PCPM
review process continues to implement the terms of the M2M restructuring, agreed to by HUD and the owner, and in so doing, protects the value of
the M2M Notes portfolio.
acronyms                   2007           2a     These Accounting Q&amp;A letters are helpful but are full of acronyms that I (Part 1 of 2)
Supplemental               don‟t understand, please help! Why are the same terms capitalized in             Some frequently used terms have defined meanings under the M2M/DEMO legal documents beyond their general usage. When „Surplus Cash‟ and
some answers but not in others (e.g., surplus cash)? (Part 1 of 2)               „Restricted Surplus Cash‟ are capitalized they refer to the defined terms in the M2M legal documents signed at closing rather than the broader HUD
accounting usage. A list of many acronyms commonly referred to in this letter follows:
AFS – owner‟s Annual Financial Statement filed in FASS
CSC –owner‟s Computation of Surplus Cash Schedule in the AFS
CRN – Contingent Repayment Note (usually the M2M “third mortgage”)
CRP – Capital Recovery Payment, plural refers to monthly payments of CRP
DEMO – Portfolio Reengineering Demonstration program (precursor to M2M)
FASS – HUD‟s Financial Assessment Subsystem-Multifamily, the system used to file AFS
electronically with HUD
FYE – Fiscal Year End
IPF – Incentive Performance Fee
M2M – Mark-to-Market program
M2M/DEMO –loans restructured under the Mark-to-Market or DEMO program
MF – HUD‟s Office of Multifamily Housing
.          (Answer is continued in 2b of Supplemental 2007.)
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Category, Key Words   released        Number       Question                                                                      Answer
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
PCA – Physical Condition Assessment, part of the restructuring plan addressing immediate rehab needs and 20 year needs
PCPM – OAHP‟s Post Closing Portfolio Management contractor
PM - HUD project manager
R4R – Reserve for Replacement Escrow Account
REAC – Real Estate Assessment Center
REMS – HUD‟s Real Estate Management System
SCA – Surplus Cash Analysis prepared by the PCPM contractor, often referred to as a PSCA (preliminary) or an FSCA (final)
negative Surplus           2007            3       Can a property have negative surplus cash at the end of its fiscal year and 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                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
4370.1. (See also 2005 #1a and 1b)
negative Surplus           2007            4       An owner took monthly payments of CRP during part of the year but had 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                negative surplus cash at year-end. Does CRP paid monthly have to be         However, if the owner took monthly CRP payments during part of the year based on a reasonable expectation that the property would have positive
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
after the unexpected change. To meet this standard, the property must have had positive surplus cash in the prior year and available surplus cash
documented at the time of each monthly disbursement. In the “notes” to the financial statement (AFS), the owner‟s accountant must fully document
the basis for asserting that the owner is entitled to retain any monthly CRP that was disbursed. That documentation will be reviewed as part of HUD‟s
SCA review.
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
preconditions          Supplemental                from taking monthly CRP this year?                                          prohibited thereafter from disbursing monthly CRP until after “…the next annual review by HUD of the Owner‟s audited AFS confirms, as determined
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
preconditions          Supplemental                to closing the M2M Restructuring and shortly before starting rehab          most recent REAC physical inspection score prior to the FYE to determine if the third precondition for payment of CRP and IPF (most recent REAC
work. The owner completed the work, but was unable to get the re-           physical inspection of 60 or above) is met. However, effective for FYE December 31, 2006 filings and after, OAHP will apply a presumption that the
inspection scheduled and completed by December 31, 2006. In February M2M restructuring will address or has addressed all repairs necessary to obtain a passing score in the M2M rehabilitation plan. OAHP monitors rehab
2007, the project received a passing score. Can the ownership pay itself escrow progress and can issue management findings if progress is not satisfactory.
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
preconditions          Supplemental                years after the M2M Restructuring but shortly before starting additional satisfied, no monthly payments of CRP are permitted after issuance of the failing score by REAC. In this example, any CRP disbursed after May 2006
repair/rehab work covered by the Reserve for Replacement account            must be repaid to the project account. The HUD Regulatory Agreement signed by owners requires properties to be maintained in good repair at all
(R4R). The owner completed the work in November 2006, but was               times and owners should not wait for, or rely on, the REAC inspection to find out what repairs are needed.
unable to get the re-inspection scheduled and completed by December
31, 2006. In February 2007, the project received a passing score. Can
the owner distribute the IPF for FY2006 and retain all monthly CRP
disbursed prior to issuance of the failing inspection report?
Delinquent, payments,    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
preconditions         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 and
31, 2006 FYE, and the payment was due April 10, 2007 and paid May             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
loss of IPF; and
2. A late note payment for FY2006 would not affect IPF for FY2007.
explanatory comment,    2007       NOTE re NOTE : The fact patterns presented in questions 9 through 12 below are
violations,          Supplemental question 9 very similar, but the slight variations in each result in significant differences
preconditions,                      thru 12 in the answers. To assist the reader, the distinctive differences are bolded
in each of these questions.
HUD                                                                                                                                            Page 8                                                                                                                                        4/15/2011
Category, Key Words     released        Number     Question                                                                  Answer
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
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 # 10, 11 and 12 are highlighted in
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 had    account, increasing surplus cash and the required FY2006 payment due to HUD. The HUD Regulatory Agreement prohibits any distributions when
been made, that a violation had occurred, and that the Fair Housing       there is a default under the Regulatory Agreement, Note or mortgage.
violation constituted a default under the Regulatory Agreement. As of
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 had     The May 2006 through December 2006 CRPs may not be paid unless and until HUD notifies the owner that the Regulatory Agreement default has
been made, that a violation had occurred, and that the Fair Housing       been cured.
violation constituted a default under the Regulatory Agreement. As of      • The FY2006 “owner‟s split” may not be distributed, does not accrue, and may not be distributed (as a FY2006 distribution) in subsequent periods.
December 31, 2006, the remaining CRP and IPF preconditions were           The funds must remain in the project account, increasing surplus cash and the required FY2006 payment due HUD.
satisfied. Can the owner earn and pay the FY2006 IPF? Pay CRPs that       ►With respect to FY2007: unless, prior to 12/31/2007, HUD notifies the owner that the Regulatory Agreement default has been cured.
have become due through December 1, 2006? Distribute the owner‟s          • The FY2007 IPF may neither be earned nor paid.
share of FY2006 surplus cash (Surplus Cash minus IPF minus Restricted     • The January 2007 through December 2007 CRPs may not be paid (but remain for potential future payment if the preconditions are satisfied at some
Surplus Cash) also sometimes called the “owner‟s split”? Is there any     future point).
effect on the 2007 IPF, CRPs and “owner‟s split”? Variations from the     •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
questions presented in #9, 10 and 12 are highlighted in bold.             funds must remain in the project account,
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, 2006,     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 agree
the remaining CRP and IPF preconditions were satisfied. Can the owner     on how to document the post-submission change to reinstate the IPF and re-calculate the MRN payment and “owner‟s split”.
earn and pay the 2006 IPF? Pay CRPs that have become due through          ►With respect to FY2007: there is no effect on the FY2007 IPF, CRPs or “owner‟s split”.
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
the Director of the Office of MF Asset Management in HUD headquarters for consideration. The request must be accompanied by specific
documentation supporting the Hub Director‟s request. No owner distributions or incentive payments may be distributed while such a request is
HUD                                                                                                                                         Page 9                                                                                                                                    4/15/2011
Category, Key Words   released        Number     Question                                                                      Answer
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)
even if the preconditions for payment are not met, it cannot be distributed until a period in which all of the preconditions are met. (Previous
instructions to include CRP as obligations only if the preconditions for payment had been satisfied were incorrect.)
(See also 2005 #7 and 2007 # 8)
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 the ►Reflect the HAP receivable as follows:
preconditions for CRP and IPF payments? What are the implications on 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
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.
(Answer is continued in 15b and 15c of Supplemental 2007.)
HAP receivable,            2007          15b     Section 8 HAP payments have been delayed for many months for some            (Part 2 of 3)
preconditions                                    projects this year, for reasons that are outside of the owners‟ control.
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 are
What are the implications on surplus cash if those HAP payments have         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 the     If owners were approved to borrow funds from the R4R account the borrowed amount should be reflected as an obligation (using account S1300-
preconditions for CRP and IPF payments? What are the implications on         110) on the CSC.
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
suspended/deferred deposits must be shown as an obligation on the CSC even though the repayment obligation would not normally be an accounting
obligation. Accountants should provide explanatory comments in the Notes to the AFS.
If owners advanced funds to cover project expenses, the amount should be reflected as a payable to the owner on the CSC.
If owners were unable to access other funds and incurred sizeable short-term payables, those payables must be included in the CSC.
(Answer is continued in 15c of Supplemental 2007.)
HAP receivable,            2007          15c     Section 8 HAP payments have been delayed for many months for some            (Part 3 of 3)
preconditions         Supplemental               projects this year, for reasons that are outside of the owners‟ control.     ►Monthly disbursement of CRP to the owner must be temporarily suspended during any period when either deposits to the R4R are suspended, or
What are the implications on surplus cash if those HAP payments have         funds are borrowed from the R4R (and amounts in either scenario have not been repaid). In such a situation, the owner would be unable to accurately
not been received as of FYE, and as a result the owner does not meet the     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 may
preconditions for CRP and IPF payments? What are the implications on         be disbursed then for all eligible months in the year.
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
Notes to the AFS for clarification.
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
suspended R4R         Supplemental               during the year because the project was at risk of default (unrelated to     exception to this scenario is addressed in question 15 above. Section 8 regulations at 24 CFR 880.205(b), prohibit an owner from taking distributions
late Section 8 HAP payments), can the owner take CRP and IPF to the          unless all project expenses have been paid and all reserve requirements have been met. No monthly disbursements of CRP are permitted in this
extent there is positive surplus cash at the FYE2007?                        instance, and no other distributions may be paid either until the owner has paid all suspended/deferred deposits to the R4R. If the owner repaid the
suspended/deferred deposits during the year, the accountant must include an explanatory Note in the AFS. If the suspended/deferred deposits
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
R4R, reimbursement    Supplemental               request reimbursement from the R4R escrow account. Is it okay to             which the owner agreed, include a clear intent that the R4R be utilized to meet ongoing major repair and replacement needs. M2M restructurings
absorb such expenses from operations even though the items are eligible      examine the adequacy of the R4R, typically fund a significant additional deposit at closing, and typically provide for a significantly increased deposit
for reimbursement from the R4R?                                              after closing, so that 100% of anticipated 20-year needs can be funded from the R4R. Failure to promptly request R4R reimbursement understates
surplus cash, which in turn understates the required payments due to HUD. This practice may lead to disallowed expenses resulting in adjustments to
the CSC, increasing the payment due to HUD. In such instances HUD‟s Office of MF Asset Management may direct PMs to issue management
findings which, until corrected, will block further IPF and CRP payments and further increase the payment due to HUD. (See also 2005 #3a and 3b)
operating expenses,        2007           18     What type of expenses should be reimbursed from the R4R after being          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,
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
R4R balance below the “floor” established in the M2M underwriting.
HUD                                                                                                                                         Page 10                                                                                                                                      4/15/2011
Category, Key Words     released        Number     Question                                                                      Answer
operating expenses,          2007           19     How should an owner reflect R4R-eligible expenses in the AFS that were        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               paid for from operating accounts when they are either: 1) approved for        “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 been
reimbursement from the R4R by the HUD PM but the funds have not               received).
been received at FYE, or 2) the request for reimbursement from the R4R        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
has not been acted upon by the HUD PM?                                        described in the notes to the AFS.
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
documentation and justification of these expense line items. If the expenses cannot be satisfactorily justified, HUD may determine that certain
expenditures were not reasonable and necessary to the project, and those expenses may be disallowed from the computation of surplus cash. This may
result in greater surplus cash, and additional amounts due on the M2M/DEMO notes.
Answer is continued in 20b of Supplemental 2007.)
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.
consider “reasonable and necessary” operating expenses for a project
post-restructuring? (Part 2 of 2)
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.
Entity expenses are not allowable project expenses.
Entity expenses may not be paid from the operating account.
Entity expenses are distributions that may only be paid from distributed surplus cash.
Entity expenses should not appear as obligations in the CSC in the AFS.
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.
The PCPM attempts to collect information from owners for a period of about thirty days and thereafter issues a 15-day warning letter to the owner (with a copy
provided to the HUD PM). When the 15-day grace period expires, OAHP notifies the owner that since they have not responded (at all, fully or timely, as
appropriate), HUD will finalize the SCA without the owner‟s input.
SCAs finalized without the owner‟s input may result in adjustments to expenses and supplemental payments due to HUD.
HUD‟s Office of MF Asset Management may direct PMs to issue management findings for failure to respond (at all, fully or timely). Such findings will:
i.) block IPF and CRP payments until corrected,
ii.) further increase the payment due to HUD, and
iii.) lead to other enforcement action, if unresolved.
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 requirements         may be paid for a full year.
for the full year, but the IPF had to be prorated. Owners have asked          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-
OAHP to reconsider this position. Currently, if the owner elects to treat     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
the property as if it were under M2M for the full year, then for the period   through the end of the fiscal year.
prior to the closing they lose access to any distributions available under    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.
the previous Regulatory Agreement and yet gain only a portion of the
M2M owner distributions covering the same period (no IPF for that
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
All accrued interest on the M2M/DEMO notes should be shown in FASS account 2132 – Accrued Interest Payable – Other mortgages.
The actual M2M payments to principal and interest are reflected on the Statement of Cash Flows in the following year&#39;s AFS using account S1200-
181 for interest and account S1200-361 for principal.
HUD                                                                                                                                             Page 11                                                                                                                                                 4/15/2011
Category, Key Words   released        Number     Question                                                                   Answer
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
Supplemental               answered before the AFS filing deadline. Should the owner wait for an     has been approved by HUD. Failure to do so jeopardizes owner incentives, may place the property at risk of default under the HUD Regulatory
answer before filing?                                                     Agreement and at risk of other sanctions. Similarly, unresolved questions from prior year SCAs must not be used as a basis for late filing of an AFS
with HUD. If HUD‟s PCPM Contractor ultimately determines that the AFS had errors affecting the payment due to HUD, they will notify the owner
of required adjustments.
HUD                                                                                                                                      Page 12                                                                                                                                  4/15/2011
TPA, due on
TPA, post
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TPA, at
prior Q&amp;A,
TPA, after
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IPF, FASS
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