As most are aware, chapter 7 of the HUD Audit Guide modified the net worth calculation requirements by classifying all real property other than the main office as unacceptable assets. This has raised a question on how this requirement is to be calculated. Are lenders required to classify the asset as unacceptable while leaving any associated debt on the balance sheet, or can the liability be “netted” from the asset to determine the total impact?
We have reached out to LEAP with this question. As of this date, we have not received a formal answer. However, informally LEAP has indicated that their position was to allow the lender to reduce the asset by the associated debt for enforcement purposes. This should reduce the impact of adopting this change.
We caution users that this guidance has not been issued as a formal policy and is therefore, subject to potential change as implementation proceeds.