Summary Of HUD’s LEAN 232 Program E-Mail Blast: Office Of Residential Care Facilities (ORCF), September 26, 2013

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 September 26, 2013 LEAN E-mail Blast can be found here.

Backlog Due to Commitment Authority Shortfall and Closing

As everyone is aware, HUD ran out of commitment authority on September 16, 2013. When the federal government reopens and additional commitment authority is allocated, ORCF expects to issue approximately 40 Firm Commitments. There will be no closing priorities, and closing assignments will be made in the order in which full and complete packages are received.

Updated Section 232 Documents – Scrivener’s Errors

ORCF has been revising the new LEAN documents to correct scrivener’s errors and publishing them on both the LEAN Web site and HUD’s Client Information Policy Systems (HUDCLIPS). The edits correct typographical errors, make minor corrections and/or make clarifications; they do not represent changes to policy. See the LEAN Update for a complete list of the documents that have been changed, the page number of the revision and a short description of the correction.

Identifying Personally Liable Principals for the Healthcare Regulatory Agreement – Borrower Provision #38

One of the biggest changes in the new documents is Section 38 of the Healthcare Regulatory Agreement – Borrower (HUD-92466-ORCF), which requires an individual or an entity to be held personally liable for certain enumerated matters. ORCF felt it would be beneficial to clarify those individuals and entities that are acceptable to serve as key principals (this guidance is the same as that provided for Multifamily Housing).

For privately held entities: Section 38 generally requires two signatures for project sponsors. In most cases, HUD, upon the lender’s recommendation, shall select one individual signatory to sign in his or her individual capacity and the project parent/sponsor entity to sign in a corporate capacity. In any specific deal, underwriting may point to a different entity with the requisite control and involvement or interest in the project, positive credit history, and adequate financial strength relative to the size of the loan to serve in the capacity required by Section 38.

For publicly traded corporations or REITs, or non-profit organizations: The parent/sponsor entity itself is acceptable as the sole signatory. For such entities, any individual signing on behalf of the corporate entity does not sign in an individual capacity, but to bind the parent/sponsor, and no personal liability will be claimed against the individuals signing in such a capacity.

For any corporate entities: Every corporate officer is not required to sign. Whomever the corporation has authorized to bind the company in connection with the proposed transaction may sign, provided that the Participant Credit and Financial review has discretion to require additional signatories if warranted in a specific (exception) situation.

Please note the following prohibitions related to Section 38: Insertions of “or successors” language to the identification of signatories is NOT allowed. The Regulatory Agreement can and should be amended when there is a new individual who is responsible for the provisions of Section 38.

Riders to the Regulatory Agreement that attempt to limit a signatory’s liability are NOT allowed.

Section 38 may not be omitted because a project has been processed as a Section 223(a)(7) refinance.

If the Firm Commitment fails to specify signatories to Section 38: The lender should request an amendment to the Firm Commitment to name a key principal. It is the lender’s responsibility to perform the Participant Credit and Financial review of the parent/sponsor entity and to identify and justify the proposed Section 38 signatory.

Section 232 Loan Modifications - Revised Sample Format for Lender Analysis and Recommendations on

ORCF has revised the “Note Modification Costs” section in the document “Sample Format for Lender Analysis and Recommendations.” The revised document can be found here on ORCF’s program Web site on

Upcoming Improvements to the ORCF Web page

ORCF is currently making major improvements to its ORCF Web pages. The improvements will be unveiled in November 2013 and will make the site more user-friendly.


  1. HUD Closer Assigned after Submission of Legal Package
    HUD closers are only assigned when closing packages are complete and have been submitted to the HUD attorney. When the legal closing package is sent to the assigned HUD attorney, lenders should e-mail and a HUD closer will be assigned.
  2. Withdrawing Firm Commitments:
    If faced with a Firm Commitment that needs to be withdrawn after being issued, please submit a written request to withdraw the Firm Commitment to
  3. Replacement Reserve Amendments (Section 232/223f Transaction):
    As noted in the August 19, 2010 e-mail update, the HUD closer will allow increases of less than $10,000 to the reserve for replacement account to avoid mortgage reductions as a result of cost certification. Any proposed increase to the replacement reserve account of more than $10,000 must include an explanation of the proposed uses (line item and timing) for the additional deposit and requires HUD underwriter approval.

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Pepper Hamilton LLP

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