Summary of HUD’s LEAN 232 Program E-Mail Blast: Office of Residential Care Facilities (ORCF), June 26, 2014

by Pepper Hamilton LLP

In an effort to summarize the highlights of the U.S. Department of Housing and Urban Development (HUD) LEAN E-mail Blasts that we receive, and rarely have time to review in a timely fashion, we at Pepper are providing this quick synopsis of the latest LEAN update. Our aim is to provide pertinent information succinctly as a roadmap to the LEAN E-mail Blasts, not to replace the LEAN E-mail Blasts. We hope you find these summaries helpful. A link to the complete June 26, 2014 LEAN Blast can be found here.

New Section 232 Handbook

After a long wait, on May 28, 2014, the eagerly anticipated 232 LEAN Handbook was released. Handbook 4232.1 sets forth various Section 232 policies and protocols. The handbook provisions will apply to all new loan applications, as well as other transactional requests for existing Section 232 projects (e.g., change of participants, Reserve for Replacement requests, etc.), received on or after September 1, 2014, with the following exception:

  • Insurance (including property and general liability insurance, but excluding professional liability insurance): New applications received on or after November 1, 2014 will be required to comply with the new insurance requirements set forth in the Handbook, Section II, Production, Chapter 14; applications submitted prior to that date have the option to comply with these requirements. Existing Section 232 projects will not be required to implement the new insurance requirements, but may do so, as long as they comply with the requirements in their entirety.

Revised Firm Commitments

Firm Commitments have been revised and posted on the ORCF Web site (on their respective loan document Web pages) for the loan types listed below.

ORCF has revised all its Firm Commitments to reflect policy changes that were not previously captured, as well as to update the names of the documents referenced. For a complete list of the revisions, see the June 26, 2014 LEAN E-mail Blast.

241(a) HUD Attorney Closing Checklist

The May 7, 2014 E-mail Blast referenced the use of the HUD Attorney Closing Checklist for 241(a) projects. That article has been updated online to clarify that there is a specific 241(a) Attorney Closing Checklist that should be used for 241(a) transactions. The 241(a) HUD Attorney Closing Checklist is available here.

232/223(f) Lender’s Environmental Checklist

A Lender’s environmental review checklist for 232/223(f) loans has been posted on the Section 232 program Web site. The checklist is designed to aid Lenders in reviewing key environmental issues prior to submitting the Firm Commitment application.

Categorizing Construction Costs

All construction contract items must be correctly categorized and must include all non-movable building components (defined here in the Architecture and Cost Statement of Work) to ensure: (a) compliance with Davis Bacon (when applicable); (b) correct calculation of the annual reserve for replacement and remaining useful life for future PCNAs; and (c) that the items are covered by the general contractor’s bond and contract latent defect provisions. The non-movable building components should not be included in any of the other Replacement Cost line items in the Replacement Cost tab of the HUD-92264A-ORCF.

Call systems may be either fixed building components (construction item) or major movable items, depending on the system used. The lender narrative should identify where this cost can be found and the basis for that determination.

The lender narrative should clarify and explain the cost categories of other facility amenities (such as large artwork, fountains, etc.) that could be either fixed or movable items, depending on the configuration of the facility.

As a reminder, no construction contract or major movable items should be listed in the “Borrower Other Fees” category.

Increase in Maximum Amount of Flood Insurance

Most existing Section 232 projects that require flood insurance coverage mandate coverage at the maximum amount available under the National Flood Insurance Program (NFIP). Effective June 1, 2014, the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) raised the maximum coverage under NFIP to $500,000. Lenders should review their borrower’s flood insurance policies during renewal to ensure the flood insurance policy is in accordance with BW-12. For more specific guidance on BW-12, see the Federal Emergency Management Agency memorandum here. Please note, the maximum amount available under NFIP on “Non-Residential Buildings” (i.e., nursing homes) is not impacted – it was already at $500,000.

REAC Inspections Not Required for Supplemental Loan Projects When the 232 Loan Is Paid Off

ORCF has determined that when HUD supplemental loans are surviving (active) after the primary Section 232 loan has been paid off for Skilled Nursing Facilities (SNF), the project is still a SNF under 24 CFR 200.855 guidelines. However, the Lender does not have to schedule a REAC Inspection as long as the facility’s last REAC inspection scored a 60 or higher.


Closing Statements – Sources and Uses Page for 223(f) and 223(a)7 Closings

The February 27, 2014 E-mail Blast discussed the use of the Sources and Uses page from the form HUD-92264a-ORCF (Rev 03/13) as the loan closing statement required for 223(f) and 223 (a)7 closings. This was implemented to provide greater consistency in Lenders’ submissions for the LEAN closing process and to expedite the ORCF Closers’ review of closing statements and finalization of closing documents. The amounts used for the Sources and Uses must be exact, and final amounts carried out to two decimal places. Checks for MIP and inspection fee delivered at closing must be for the exact amounts due HUD.

In the near future, the posted form HUD-92264a-ORCF will be re-formatted to the $0.00 format, except for the loan criteria conclusions, which must round down to the nearest $100.


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