From Les Sparks:

How are you doing? I hope all is well.

Any money contributed by any owner must be repaid from surplus cash unless previously approved by HUD. The current version of the Regulatory Agreement directly addresses this under the topic of “Advances”. For older agreements the issue is covered under HUD Handbook 4370.2 under the topic of Owner Advances.

I have included the reference from the Handbook. This language is basically what ended up in the New Regulatory Agreement.

2-11. REPAYMENT OF OWNER ADVANCES
A. Advances made for reasonable and necessary operating expenses may be paid from surplus cash at the end of the annual or semi-annual period. Such repayment is not considered an owner distribution. It is considered a repayment of advances. Repayment of owner advances when the project is in a nonsurplus cash position will subject the owner to criminal and civil monetary penalties. (See Appendix 1, Criminal Statutes.)
B. To encourage owners to make advances to projects in critical situations, the Department may approve on a case-by-case basis requests to make advances and for repayment of such advances on a monthly basis. Repayments under this paragraph are not considered owner distributions.
1. Approval for scheduled repayment can be made for shortterm operating advances made on behalf of the welfare of the tenants (e.g., necessary emergency repairs, security measures), or to avoid a claim by the lender for insurance benefits, or default by the mortgagor under the mortgage, or in the payment of a project operating expense (e.g., taxes, utility bills).
2. Prior HUD approval is required for an owner to receive repayment on a monthly basis.
3. The scheduled repayment may not be made if it would cause a default or, if the project is already in default, the repayment may not be made if it would have an adverse effect on an existing workout agreement.
C. Periodically, project owners are required by HUD to make additional equity contributions to sustain the project. Such contributions are not repaid unless the agreement stipulates otherwise.

NOTE: While owner advances appear on the Statement of Financial Position in the Liabilities Section, (could be long term or short term), additional infusions of capital are reflected as Owner’s Equity (i.e., 3000 series in the Chart of Accounts).