From Les Sparks:

The rules surrounding this issue are found in HUD Notice 2013-10. I will email this separately as the attachments do not always work in our support software. Here are a couple excerpts from that document.

Page 9
Assuming the project performs as underwritten, DSC will result in surplus cash that may be drawn upon by the Owner at year’s end to pay allowable annual distributions, Developer Fee, or deferred Developer Fee (from surplus cash, using the required form of Residual Receipts Note (form HUD-91710M, Residual Receipts Note for Nonprofit Borrowers) or Promissory Note). All remaining surplus cash must be deposited in the Residual Receipts account.

So, it appears that the Notice requires that the amounts due to the owner, whether due to surplus cash, or deferred developer fees be evidenced by a note.

Another place where this is mentioned is page 17, which indicates the following:

B. Approved use of proceeds from the refinance.
Pursuant to AHEO, the Owner must describe how proceeds from the new loan “will be used in a manner advantageous to tenants of the Section 202 Direct Loan project being refinanced, or used in the provision of affordable rental housing and related social services for elderly persons that are tenants of the project or are tenants of other HUD-assisted senior housing [owned] by the private nonprofit organization project owner, private nonprofit organization project sponsor, or private nonprofit organization project developer.”
“Proceeds” are defined as the loan proceeds that come into the project (i.e. the new loan, or other sources such as LIHTC equity or soft debt) as a result of the prepayment transaction. The Owner must provide a narrative description of the proposed use of loan proceeds, including specific dollar amounts to be used for specific purposes, and the timing of the proposed use of proceeds. The proposal must meet the requirements of this Section of the Notice.
Loan proceeds in excess of those required to pay off the Section 202 Direct Loan or other HUD approved subordinate debt (including Residual Receipts notes paid at closing) must be placed in a segregated account at the closing of the refinance transaction.8 All segregated proceeds from the refinance intended for rehabilitation, retrofits, or construction at the Section 202 project or approved HUD-assisted senior housing (as described in paragraph 6, below) must be expended within five (5) years of the closing of the refinance. If the funds are not expended during this time frame, the Owner must submit a written justification of good cause to HUD, and may reprogram the funds for other approved uses. HUD must approve all proposed uses of proceeds in advance. Approval of a prepayment application will constitute approval of the proposed use of proceeds. HUD will monitor the expenditures of the loan proceeds through review of required audited Annual Financial Statements detailing the amount and use of funds in the segregated account, as described below. HUD field office Asset Management staff will review Annual Financial Statements to see that any funds not expended at closing are in a segregated account. Asset Management will also check that, at the five year mark after closing, the funds have been expended. Any material change in proposed use of proceeds after the loan closing will require HUD approval, as described in the required Section 202 Prepayment Use Agreement. Funds must be used in accordance with AHEO and the guidance below.

One last place is page 22, which indicates the following:
C. Monitoring of proceeds from the refinance.
1. HUD must approve use of the proceeds from the refinance. The prepayment approval will constitute approval of the proposed use of proceeds.
2. Any proceeds to be used for construction, rehabilitation, retrofits, additions or unit conversions must be expended within five years of the prepayment of the Section 202 Direct Loan. If these funds are not expended within five years for these proposed activities, the Owner must submit to the Hub/PC Director, 30 calendar days prior to the end of the five year period, good cause justification for the delay and a specific timeline for utilization of the funds. Failure to expend those funds designated for construction, rehabilitation, retrofits or unit conversion within five years with good cause will result in administrative action against the project owner by HUD.
3. As required in the Section 202 Prepayment Use Agreement, proceeds from the refinance that exceed costs to be paid at closing, including paying off the Section 202 Direct loan and other HUD-approved subordinate debt such as Residual Receipts notes, must be deposited into a segregated account and included in the Annual Financial Statements for the project.
4. The required Section 202 Prepayment Use Agreement will include requirements with respect to utilization and reporting on proceeds from the refinance. Until the proceeds from the refinance are fully expended, they will be documented in the project’s Annual Financial Statements for HUD review and approval.
5. If the Owner is not in compliance with AHEO, HUD reserves the right to take necessary steps to ensure compliance with the law, which may include referral to the Departmental Enforcement Center or other actions.

So, it appears to me that you are required to establish a note of some sort, rather than just calling it Developer Fee payable. Either way, the owner is allowed to pay the amount from surplus cash and it appears they should evidence this in a note.

Les