HUD Releases 2014 Version of Multifamily Regulatory Agreement

HUD has posted to HUDClips a revised Regulatory Agreement (Form HUD-92466M).  The revised agreement updates the previous agreement released in late 2011.  This agreement is in the same format as the 2011 agreement and is indistinguishable in appearance with the exception of length.  The 2011 was 30 pages long, while the 2014 agreement is 35 pages long.

The 2014 agreement continues HUD’s practice of incorporating into the agreement many provisions of past handbooks and Housing Notices.  Although there are many changes in this agreement, one of the most significant is another revision in the calculation of surplus cash.  Under the 2014 agreement, the owner is now required to include all items paid in the first mortgage payment following the end of the year or, if a mid-year calculation is permitted, the payment in the 7th month.  The specific language is as follows:

13.  Surplus Cash.

a.    Borrower must calculate Surplus Cash as of the last day of its fiscal year.  Borrower may also, at its election, and if permitted pursuant to Program Obligations, calculate Surplus Cash as of the last day of the sixth month of its fiscal year. Borrower shall submit a report of its Surplus Cash calculations to HUD with its required annual financial reports, pursuant to Program Obligations.

b.    Surplus Cash shall equal the sum of:
(i)    Project cash and cash equivalents (excluding the Reserve for Replacement account and other HUD-required reserves);
(ii)   short-term investments;
(iii)  project-based Section 8 Housing Assistance Payments earned but not yet received by Borrower; and
(iv)  any amounts approved for withdrawal but not yet withdrawn from the Reserve for Replacements or any other reserves or escrow accounts;

after deducting:

(v)    all sums due or required to be paid within the calendar month following the date as of which Surplus Cash is calculated under the terms of the Note and Security
Instrument (including without limitation principal, interest, mortgage insurance premium  deposits, deposits to the Reserve for Replacements and other reserves a
may be required by HUD, and tax and insurance escrow deposits)
(vi)   all special funds required to be segregated by this Agreement, the Note, the Security Instrument, or Program Obligations, including tenant security deposits and any other amounts held in trust for tenants; and
(vii)  all other obligations of the Project payable within the next thirty days, unless the obligation is paid subject to available Surplus Cash or subject funds for payment of the obligation are set aside or HUD has approved deferment of payment.

As you will note, the above description of cash does not include security deposits.  In conversations with REAC they have confirmed that it is their intention to include security deposits in the determination of total cash available for distribution.

This agreement will be effective for all new commitments issued after June 2014.

With the issuance of this agreement, HUD has established 3 separate calculations of surplus cash as follows:

  1. The original calculation which included only interest from the next mortgage payments as liabilities (Issued before late 2011)
  2. The 2011 agreement which included principal, interet and reserves from the next month’s mortgage payment as liabilities
  3. 2014 agreement which includes ALL items in the first payment following the month of calculation as liabilities

Please ensure that you read each agreement to ensure that calculations of surplus cash are correct.

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