Loans made through Surplus Cash

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ID Status Date Public/Private Industry AHACPA Contact
#12600 Closed public Multifamily Les Sparks
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Good morning Les,

We audit a for-profit project. The owners have loaned $600,000 to the partnership for repairs to the project through an unsecured promissory note. The owners claim since the loans are through Surplus Cash (meaning interest and principal is paid out of surplus cash before distributions are made) they do not need HUD approval. Is this correct?

I am question this because of this statement in the Operating Agreement HUD 92466M-11 on page 21 it states:

  1. ACTIONS REQUIRING THE PRIOR WRITTEN APPROVAL OF HUD

 

“b.  Enter into any contract, agreement or arrangement to borrow funds or finance any purchase or incur any liability, direct or contingent other than for Reasonable Operating Expenses”.

 

Thanks,

Christina

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