Cash out proceeds

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ID Status Date Public/Private Industry AHACPA Contact
#15041 Closed public Multifamily Les Sparks
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Hi Les!
I am auditing 3 NFP HUD projects that refinanced their mortgages toward the end of 2020. They are all December year ends. In the refinancing, they appear to have taken out a total of $7 million in cash which they have contributed to another NFP (which they happen to be related to). All of my Spidey senses tell me this seems weird, but I can’t find anything to support taking the cash out OR not taking the cash out. Can you help with some guidance as to why this is or is not ok… from a HUD compliance point of view?
Thanks in advance.
Kathy Christensen

In short, your spidey sense is a little off for this instance (and only this one). Owners who refinance are allowed to take cash out and use it for their own purposes. This is not called a distribution, per se as distributions come from surplus cash. We usually disclose this in the equity statements as an other change inequity, with a description of the “Excess proceeds to owner at refinance.” This same description goes on the cash flow in the Other Financing account (S1200-450) with the same description.

HUD has approved of the cash-out and the extra money never belongs to the project.

Les Sparks
AHACPA

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