| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
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| #7491 | Closed | public | Multifamily | Les Sparks |
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We have an auditee that did a 223(f) cash-out refinance on an existing loan. The loan was closed at the end of calendar year 2014 with the new lender holding back approximately $500k in the available cash out until required improvements were complete. Those imps were completed in early 2015 and the cash was distributed to the owners, not the LLC. We understood this cash did not represent project costs and, therefore, did not treat it as such for surplus cash calculation purposes. HUD is reviewing and has indicated that while they understand our position, that the 2015 audit report reflects the cash-out as a distribution and they must include it in the surplus calc. This is causing a unauthorized distribution issue. Can you provide any insight or advice on advancing our position? I’d be glad to share the files supporting our view, if needed. |
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From Les Sparks: In these cases we would have recommended a different reporting requirements. Rather than a distribution in that line item, we would have but it in line S1200-450 – Other financing costs. Then give it a definition of, “Excess refinancing fees returned to owner at closing.” This keeps it out of the comparison to surplus cash and hence the finding. The easiest way to correct is to try to get a resubmission and reclassify the amount. |