From Les Sparks:
The document sent to me appears to be the promissory note for a HUD project – not the Regulatory Agreement. I will send you in email a separate copy of a typical Regulatory Agreement. There is no specific statement saying that you do not have to test. It, however, will state what tenant fie testing is required in the agreement. Here is the relevant paragraph you would be looking for.
V. ADMISSIONS AND OCCUPANCY
27. RESIDENTIAL UNITS AND SERVICES. If the Project is subject to regulation of rent by HUD, Borrower shall make residential units and services of the Project available to eligible tenants at charges not exceeding those established in accordance with a rental schedule approved in writing by HUD.
28.LEASE TERMS FOR RESIDENTIAL UNITS. Residential units shall not be rented for a period of less than thirty (30) days or for more than 3 years and shall not be used for transient or hotel purposes. Rental for transient or hotel purposes shall mean: (a) rental for a period of less than thirty (30) days or (b) any rental, if the occupants of the residential units are provided customary hotel services such as room service for food and beverages, maid service, furnishings or laundering of linens, and bellhop service. Residential units in projects with Security Instruments initially endorsed for insurance pursuant to Section 231 of the National Housing Act, as amended, may be rented for a period of more than 3 years.
31.TENANT SELECTION/OCCUPANCY.
a. If the Security Instrument is originally a HUD-held purchase money mortgage, or is originally endorsed for insurance under any Section of the National Housing Act, as amended, other than Section 231 units specially designed for use and occupancy of Elderly Persons exclusively, Borrower shall not, in selecting tenants, discriminate against any person or persons by reason of the fact that there are children in the family, unless in accordance with the Fair Housing Act and otherwise approved in writing by HUD.
b. If the Security Instrument is originally endorsed for insurance under Section 221, Borrower shall, in selecting tenants, give to displaced persons or families an absolute preference or priority of occupancy that shall be accomplished as follows: (1) For a period of sixty (60) days from the date of original offering, unless a shorter period of time is approved in writing by HUD, all units shall be held for such preferred applicants, after which time any remaining unrented units may be rented to non-preferred applicants; (2) thereafter, and on a continuing basis, such preferred applicants shall be given preference over non-preferred applicants in their placement on a waiting list to be maintained by Borrower; and (3) through such further provisions agreed to in writing by the parties to this Agreement.
c. At least 75% of the units in a Project insured under Section 231 shall be designed for the use and occupancy of Elderly Persons unless prior written approval is given by HUD for a lesser number of units.
d. All advertising or efforts to rent a project insured under Section 231 shall reflect a bona fide effort of Borrower to obtain occupancy by Elderly Persons.
This is all that there is in the regulatory agreement regarding tenant file testing. There is nothing in any of the handbooks either. So, the Guide does not ever tell you what to test for each program. You are left to determine what is, first applicable; second, direct and material.
From client:
IN short the 2011 Regulatory agreement states the following as requirements:
1. Pay the mortgage (par 9)
2. Fund the reserve account into a separate bank account. Make monthly payments, interest bearing, HUD approves withdrawals (par 10)
3. Deposit all rents into project account (par 12a)
4. Withdraw funds for reasonable business expenses or allowed distributions (par 12a)
5. Insure project (par 12f)
6. If security deposits are collected, maintain in a separate account and ensure that the balance equals ofr exceeds the liability. Pay interest if requried by state law. (par 13)
7. Maintain the project (par 19)
8. Management the project. (proper agreement, charge the correct fee) (par 21)
9. Do not transfer project ownership without HUD approval. (par 36)
If you were to correlate these requirements to the Guide, you will get the following requirements:
1. Mortgage payments
2. Reserves for replacement
3. Distributions/Surplus cash
4. Cash receipts
5. Cash disbursements
6. Security deposits (only some of this)
7. Project management
The other items may come up from time-to-time. Remember your agreement (2011) requires that you also set-aside as a liability in surplus cash the next month’s principle and R4R deposit as a reduction to surplus cash.