This makes me really unhappy because I believe the answer is yes. The issue here is that approval was not given. However, that approval should have been the lender. As you can see from the following Q&A question, HUD was eager to allow them to use the RR money. Just required approval. It could just be a finding of their inability to get lender approval for using the funds. There is also the issue of not making the deposit. Although they may really be the same thing, there is no exemption for making the required deposit.
LES
Q10: Will HUD be flexible as to the use of Reserve for Replacement or Other Escrow Account funds during the COVID-19 response?
A: Yes. In light of the Presidentially Declared National Emergency and except as otherwise noted below, effective immediately and through September 30, 2020, Lenders are authorized to approve the following types of transactions for Section 232 insured facilities impacted by COVID-19, without the need for HUD review or approval:
- Provided that the Replacement Reserve equals or exceeds $1,000 per unit, suspend monthly deposits to the Replacement Reserve through September 30, 2020, at which time the deposits will resume unless HUD grants a further extension of the authority. Such suspension shall specify that, at the conclusion of the suspension period, the sum of such suspended payments shall be paid into the Reserves for Replacement in equal monthly increments over the next 12 consecutive months.
- Use Operating Deficit funds to meet debt service payments (including required escrow and MIP payments), subject to repayment provisions, if any, contained in the subject escrow agreement.
- Use Debt Service Reserves to meet debt service payments (including required escrow and MIP payments); subject to repayment provisions, if any, contained in the subject escrow agreement. 4. Use Replacement Reserve accounts to meet debt service payment requirements so long as the account balance does not fall below $1,000 per unit.
HUD approval is still required if the subject project is bound by either a Master Lease or any type of guarantee agreement, or HUD has notified the Lender that the subject property is assigned to ORCF’s Risk Mitigation Team for enhanced servicing.
In order to exercise this authority, Borrowers/Operators must demonstrate, to the Lender’s satisfaction, that their request is for a bona fide need resulting from the impacts of COVID- 19. While HUD approval will not be required, the Lender is expected to report new risks at the facility that have emerged to their assigned Account Executive. See Q2 above that includes discussion of Servicer’s Notification to HUD of Risks to Healthcare Project and Action Plan for Remedy, Section 232.
A bona fide need is demonstrated when a Borrower/Operator is unable to meet its mortgage payment (including required mortgage insurance premium and escrow payments) due to financial shortfall and after exhausting other sources of revenue including, but not limited to, Borrower fund infusions, and funds from grants or other COVID-19 related relief. Lenders must determine there is a bona fide need (through financial documentation from the Borrowers/Operators such as current or monthly financial statements, etc.,) document the basis for the determination, and provide a brief summary of it via the HUD Healthcare Portal whenever these flexibilities are utilized. On a case-by-case basis, working with the assigned Account Executive, HUD will consider requests from Borrowers for other non-conventional uses of escrow funds.
Lenders should evaluate and prioritize available sources of funding, generally in this order:
- Residual Receipts funds (non-profit Borrowers)
- Suspension of replacement reserve deposits. At the conclusion of the suspension period, the sum of suspended payments is to be returned to the Reserve for Replacement account in equal monthly increments over the next 12 consecutive months.
- Initial Operating Deficit (IOD) funds to meet debt service payments (including required escrow and MIP payments), subject to repayment provisions, if any, contained in the subject escrow agreement.
- Debt Service Reserve Escrows to meet debt service payments (including required escrow and MIP payments) subject to repayment provisions, if any, contained in the subject escrow agreement.
- Reserve for Replacement accounts to meet debt service payment requirements provided the account balance does not fall below $1,000 per unit.
(Updated on 8/12/20)