A HUD HANDBOOK

1 REV-1 HEALTHCARE MORTGAGE INSURANCE PROGRAMSECTION 232 OF THE NATIONAL HOUSING ACTA HUD HANDBOOK For Program Participants and HUD Staff Issued January 12, 2017 Effective January 19, 2017 Federal Housing Administration U. S. Department of Housing and Urban Development Washington, DC 20410 The information collection requirements contained in this document have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 3501-3520) and assigned OMB control number 2502-0605. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number. Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 1 Table of ContentsSection 232 HandbookSection I HANDBOOK Introduction Chapter 1 Introduction Page Purpose of the Section 232 HANDBOOK 1 Legal 2 Relation of Section 232 HANDBOOK to Other 3 Waivers of the Section 232 3 Identity of Interest (IOI).

2 4 Chapter 2 Lender Relations, Approvals and Monitoring Requirements 1 Lender Approval 2 Approval Requirements for Section 232 Healthcare 2 Electronic Capability and Internet 4 Identity of Limitation on 5 Agreement to Accept 6 Monitoring by Quality Control Plans and 7 Other Monitoring 9 Section 232 Program Authority to Issue 10 Basis for Issuance of Warning Letter from the ORFC 11 Basis for Suspending a Lender s 232 Program Administrative 14 15 Results and 16 Administrative Sanctions and Mortgagee Review Board (MRB) 16 Enforcement 17 Appendix A-1 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 2 Section II Production Chapter 1 Introduction and Application Processing Section 232 Approved Application 1 Application 2 Loan 3 Closing 3 Chapter 2 Eligible Section 232 Mortgage Insurance Programs Eligible 1 Ineligible 4 Loan 4 General Section 232 Section 232 New Construction & Substantial 21 Section 232/241(a) Supplemental 21 Section 232/223(f) 23 Section 232/223(a)(7) 26 Section 232/223(d) Operating Loss 31 Section 232(i)

3 Fire Safety Equipment Loan 35 Appendix Calculating the Initial Operating Deficit A-1 Appendix A-5 Chapter 3 Loan Sizing underwriting Benchmarks for Section 232 New Construction, 232 Substantial Rehabilitation and 232/223(f) 1 HUD Eligible 2 Section 232 New 6 Section 232 Substantial 8 9 Section 232/241(a) Supplemental Loan for an Existing FHA-Insured 9 Section 232/223(f) Purchase or Refinancing of a Residential Healthcare 10 Section 232/223(a)(7) or Refinance of an Existing FHA-Insured 12 Section 232/223(d) Operating Loss 13 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 3 Section 232(i) Fire Safety Equipment 13 Tax Existing 14 Bond 22 Secondary Appendix Resources .. A-1 Chapter 4 Architectural Analysis and Cost Processing 1 Section 232 New Construction, Substantial Rehabilitation and 241(a) Supplemental 3 Section 232 Substantial 4 Section 232/223(f) 5 Section 232/223(a)(7) 6 Appendix HUD Labor Standards and Enforcement Protocol Section 232 and 241(a).

4 A-1 Appendix A-5 Chapter 5 Appraisal Reports and Market Studies 1 Selection of 2 Appraisal Reports Requirements (Statement of Work).. 2 Ground 25 Tax Abatement 28 Restricted 29 Non-Profit 30 Chapter 6 Participant Credit and Financial Review Determining Acceptability of the Borrower, Operator, Parent of the Operator, and the General 1 Participant Financial 8 Evaluating Non-profit Borrowers and 13 Appendix Chapter 7 Environmental Review Contamination Analysis: Phase I and Phase II Environmental Site Assessments and 6 HUD Responsibilities in Reviewing Cases Requiring 20 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 4 Environmental Information for the Lender Lead Based 37 37 39 Appendix Chapter 8 Operator and Management Agent Analysis 1 1 Management 3 Operator and Management Agent 4 Expectations for Consultant and Contractor 4 Operating Lease 5 Management Agreement Lender ORCF Underwriter 10 Appendix A-1 Chapter 9 Closings The ORCF 1 The 4 General Closing Fees Due and 8 Closing Section 232/223(a)(7) and Section 232/223(f) 8 Closing New Construction, Substantial Rehabilitation and Section 241(a) 9 Initial Closings.

5 Required Forms and 10 Preconstruction 15 Tax Final Closings: Required Forms and 16 Insurance Upon Completion New Construction, Substantial Rehabilitation and Section 241(a) ..22 Closing Section 223(d) Operating Loss Loans and Section 232(i) Fire Safety Equipment Loan Insurance 22 Appendix A-1 Chapter 10 Construction Period Start of 1 Early Start of 1 Lender Duties Related to the Pre-Construction 2 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 5 HUD Construction 4 Architect s Duties in Administering Construction Architect s 7 Permission to Occupy, Final Trip Report, and Warranty 8 Insurance of Advances and Related Construction Change Orders 15 Change Orders HUD Contract Inspector 21 Change Orders Lender s Architectural Reviewer and Cost Analyst s 22 Change Orders Lender s Appraisal and Mortgage Credit Labor and Fair Housing and Equal Opportunity (FHEO).

6 26 Escrowed Funds, Letters of Credit, Deposits, Retainage and Related 27 Completion of Repairs Pursuant to Section 223(f) and 223(a)(7).. 32 Major Movable Equipment Requisitions, Inspections, and Changes to Equipment Schedule During 33 Appendix Procedures for Requesting Approval for Start of Construction Prior to Initial A-1 Appendix Instructions for Approval of Initial/Interim A-4 Appendix General Contractor s Monthly Requisition A-13 Appendix Specimen Letter Request for Early Partial Release of Contractor s A-17 Appendix Suggested Signature Page Format for the Electronic HUD Master Set of Plans and A-19 Appendix A-21 Chapter 11 Cost Certification Projects That Must Purpose for Certifiable 1 Types of Cost 2 Entities That Must Cost 2 Final Completion Date and Cut-Off 3 Administrative Completion 4 Submission 4 Required Forms and 4 Required Cost Section 232 HANDBOOK , Section I, HANDBOOK Introduction.

7 Table of Contents Page 6 ORCF Closing Coordinator Review of Borrower s and Contractor s Cost 11 Allowable Costs in Borrower s Certificate of Actual 11 Cost Review of the General Contractor s Cost 23 Section 232/223(f) and 232/223(a)(7) Modified Form of Cost 26 Mortgage Reduction After Cost 27 Increase in Mortgage 28 Inspector General 28 Cost Certification 28 Appendix Windfall Calculation Appendix Windfall Calculation A-2 Appendix A-3 Chapter 12 LIHTC and other Tax Credit Program Guidance 1 Program 1 Firm Commitment and Initial 8 Appendix A-1 Chapter 13 Master Lease Terms and Policies and Guidance ..2 Master Lease 6 Term of Master Lease and 7 Master Lease 8 Appendix Pledge of cash flow Appendix Landlord A-2 Appendix to Multiple Lender Master A-3 Chapter 14 Insurance Requirements Blanket 4 Property/Casualty Insurance 4 Insurance Data 4 Property Insurance 5 Liability 7 Additional 8 Appendix Professional Liability A-1 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 7 Chapter 15 Accounts Receivable Financing Applicable Accounts Receivable Financing Application Document Requirements and 9 Important Safeguards and Appendix A-1 Chapter 16 cash flow Structures, Deposit Account Control Agreements (DACAs), and Deposit Account Instruction Service Agreements (DAISAs)

8 Submission and 2 cash flow 4 cash flow 6 Lease Cost/Debt Service Payment 9 Deposit Account Control Agreements (DACAs) .. 11 Deposit Account Instructions and Service Agreements (DAISAs).. 15 Key Elements for Both DACAs and 17 Appendix Sample cash flow A-1 Appendix Sample cash flow A-2 Appendix Sample cash flow A-3 Appendix Sample cash flow A-4 Appendix A-5 Chapter 17 Portfolios Background and 1 Terms and Criteria for Portfolio Corporate Credit 2 Portfolio Size 3 Certification of Multiple 4 Portfolio Corporate Credit Review 5 Portfolio Corporate Credit Review 6 HUD Documentation to be Submitted for a Portfolio Corporate Credit Review .. 10 Chapter 18 Insurance Upon Completion Firm 1 Firm Pre-construction Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 8 Construction Cost 6 6 Appendix A-1 Section III Asset Management Chapter 1 Asset Management Overview Introduction - Overview and Introduction - Account Executive and Lender Introduction - Team Introduction - Asset Management Branch and Risk Mitigation 2 Chapter 2 Controlling Documents Regulatory 1 Mortgage and Mortgage 2 Uniform Commercial Code (UCC) 2 Operating 2 Master 3 Accounts Receivable Financing, Deposit Account Control Agreements (DACAs), Operator Bank Accounts and Deposit Account Instruction Service Agreements (DAISAs).

9 3 Management 4 Appendix A-1 Chapter 3 General Loan Oversight Section and Monitoring of Construction Loan Committee Presentation and Initial 2 Asset Management Functions after Initial Section Escrow Reserve for Replacement 9 Residual Receipts 16 Non-Critical Repair 18 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 9 Sinking 21 Debt Service Escrow and Long-Term Debt Service Reserve 22 Initial Operating Deficit 23 Section Provisions and Prepayment Prepayment Lock Outs and 26 Section to Release or Modify Original Loan Reduction, Addition, or Sale of 27 Easement, Eminent Domain, or Sale of Land or Other 28 Remodeling, Adding to, Subtracting From, Reconstructing, or Demolishing Portions of the Mortgaged Project.

10 30 Surplus Cash Note Section Home Surveys and State Licensing and Surveys 32 State Inspection State Inspection Process (Life Safety) .. 33 Quality of Care Provided to the Star 34 Special Focus 35 Section to Participate in HUD Programs - APPS and 37 Section Physical Condition Monitoring Resources for Addressing Physical Repairs and 41 Physical Condition and Regulatory 41 Project Capital Needs Section 43 43 Section 232 HANDBOOK , Section I, HANDBOOK Introduction, Table of Contents Page 10 Section 46 Types of Commercial Space for Assisted Living, Intermediate Care, and Skilled Nursing 46 Space and Income Submission Requirements and HUD Review of Commercial 48 Section Circumstances Requiring the Notification of the Servicer and/or Failure to Make Lease Default of Master Special Focus 50 State Inspections.