24 Cfr 241

Pt. 241

24 CFR Ch. II (4–1–10 Edition)

(iv) HUD determines that the person
was not displaced as a direct result of
acquisition, rehabilitation, or demolition for the project;
(3) The mortgagor may request, at
any time, HUD’s determination of
whether a displacement is or would be
covered by this section.
(h) Definition of initiation of negotiations. For purposes of determining the
formula for computing the replacement
housing assistance to be provided to a
residential tenant displaced as a direct
result of privately undertaken rehabilitation, demolition or acquisition of the
real property, the term initiation of negotiations means the mortgagor’s execution of the agreement covering the
rehabilitation, demolition or acquisition.
(Approved by Office of Management and
Budget under OMB Control Number 2506–
0121)
[59 FR 29331, June 6, 1994]

241.525 Refund of fees.
241.530 Maximum fees and charges by lender.
ELIGIBLE SECURITY INSTRUMENTS
241.530a Note and security form.
241.535 Loan multiples—minimum principal.
241.540 Method of loan payment and amortization period.
241.545 Covenant against liens.
241.550 Accumulation of next premium.
241.555 Security instrument and lien.
241.560 Agreed interest rate.
241.565 Maximum loan amount.
241.570 Insurance endorsement.
241.580 Application of payments.
241.585 Prepayment privilege and prepayment charge.
241.586 Minimum principal loan amount.
PROPERTY REQUIREMENTS
241.590

Eligibility of property.
TITLE

241.595 Eligibility of title.
241.600 Title evidence.
FORM OF CONTRACT

PART 241—SUPPLEMENTARY FINANCING
FOR
INSURED
PROJECT MORTGAGES

241.605
241.610
241.615

Contract requirements.
Assurance of completion.
Certification of cost requirements.
ELIGIBLE BORROWERS

Subpart A—Eligibility Requirements
Sec.
241.1

241.625 Eligible borrowers.
241.626 Disclosure and verification of Social
Security and Employer Identification
Numbers.

Eligibility requirements.

Subpart B—Contract Rights and
Obligations

SPECIAL REQUIREMENTS

241.251 Cross-reference.
241.260 Definitions.
241.261 Payment of insurance benefits.
241.265 Insurance of property against flood.
241.270 Refund upon termination of insurance.
241.275 No vested right in fund.

Subpart C—Eligibility Requirements—Supplemental Loans To Finance Purchase
and Installation of Energy Conserving
Improvements, Solar Energy Systems,
and Individual Utility Meters in Multifamily Projects Without a HUD-Insured
or HUD-Held Mortgage
241.500

Definitions.

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FEES AND CHARGES
241.505 Processing of applications and required fees.
241.510 Commitments.
241.515 Inspection fee.
241.520 Fees on increases.

241.630 Maximum insurance against loss.
241.635 Regulatory agreement.
241.640 Employment discrimination prohibited.
241.645 Labor standards and prevailing wage
requirements.

Subpart D—Contract Rights and Obligations—Multifamily Projects Without a
HUD-Insured or HUD-Held Mortgage
241.800

Definitions.
PREMIUMS

241.805 Insurance premiums.
241.805a Mortgagee’s late charge.
241.815 Termination of insurance.
241.825 Pro rata refund of insurance premium.
RIGHTS AND DUTIES OF LENDER UNDER THE
CONTRACT OF INSURANCE
241.830
241.840
241.850

Definition of default.
Date of default.
Notice of default.

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Office of Assistant Secretary for Housing, HUD
241.860 Commissioner’s right to require acceleration.
241.865 Election by the lender.
241.875 Maximum claim period.
241.880 Items to be delivered on submitting
claim.
241.885 Insurance benefits.
241.890 Characteristics of debentures.
241.893 Cash adjustment.
ASSIGNMENTS
241.895

241.1220
241.1230
241.1235
241.1245
241.1250

Termination of insurance benefits.
No vested right in fund.
Cross default.
Insurance endorsement.
Effect of endorsement.

AUTHORITY: 12 U.S.C. 1715b, 1715z–6; 42
U.S.C. 3535(d).
SOURCE: 36 FR 24653, Dec. 22, 1971, unless
otherwise noted.

Assignment of insured loans.

Subpart A—Eligibility
Requirements

EXTENSION OF TIME
241.897

Actions to be taken by lender.

241.900
241.905

No vested right in fund.
Effect of amendments.

§ 241.1

RIGHTS IN HOUSING FUND

Eligibility requirements.

The requirements set forth in 24 CFR
part 200, subpart A, apply to multifamily project mortgages insured under
section 241 of the National Housing Act
(12 U.S.C. 1715z–6), as amended.

Subpart E—Insurance for Equity Loans and
Acquisition Loans—Eligibility Requirements
241.1000 Purpose and scope.
241.1005 Definitions.
241.1010 Feasibility letter.
241.1015 Processing of applications and required fees.
241.1020 Commitments.
241.1025 Refund of fees.
241.1030 Mortgage insurance premiums.
241.1035 Charges by lender.
241.1040 Eligible lenders.
241.1045 Note and security form.
241.1046 Rental assistance.
241.1050 Method of loan payment.
241.1055 Date of first payment to principal.
241.1060 Maturity.
241.1065 Maximum loan amount—loans insured in connection with a plan of action
under subpart C of part 248 of this chapter.
241.1067 Maximum loan amount—loans insured in connection with a plan of action
under subpart B of part 248 of this chapter.
241.1068 Renegotiation of an equity loan.
241.1069 Escrow requirements.
241.1070 Agreed interest rate.
241.1080 Eligibility of title.
241.1085 Title evidence.
241.1090 Accumulation of next premium.
241.1095 Application of payments.
241.1100 Prepayment privilege and charges.
241.1105 Late charges.
241.1120 Mortgagee’s consent.

Subpart F—Insurance for Equity Loans and
Acquisition Loans—Contract Rights
and Obligations
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§ 241.251

241.1200 Cross-references.
241.1205 Payment of insurance benefits.
241.1210 Condition for payment of insurance
benefits.
241.1215 Calculation of insurance benefits.

[61 FR 14407, Apr. 1, 1996]

Subpart B—Contract Rights and
Obligations
§ 241.251

Cross-reference.

(a) Projects with a HUD-insured or
HUD-held mortgage. All of the provisions of subpart B, part 207 of this
chapter, covering mortgages insured
under section 207 of the National Housing Act, apply with full force and effect
to multifamily project and group practice facility mortgages insured under
section 241 of the National Housing
Act, except the following provisions:
Sec.
207.251
207.253a
207.259
207.260
207.262

Definitions.
Termination of insurance contract.
Insurance benefits.
Protection of mortgage security.
No vested right in fund.

(b) For the purposes of this subpart,
the terms mortgagor, mortgagee and
mortgage, as used in subpart B, part 207
of this chapter shall be construed to
mean borrower, lender and supplementary loan (including the security instrument), respectively.
(c) Projects without a HUD-insured or
HUD-held mortgage. The provisions of
subpart D of this part shall be applicable to a project without a HUD-insured
or HUD-held mortgage that is receiving
a loan insured under subpart A of this

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§ 241.260

24 CFR Ch. II (4–1–10 Edition)

part in connection with a plan of action approved by the Commissioner
under part 248 of this chapter.
[36 FR 24653, Dec. 22, 1971, as amended at 37
FR 8664, Apr. 29, 1972; 48 FR 57129, Dec. 28,
1983; 57 FR 12037, Apr. 8, 1992]

§ 241.260

Definitions.

All of the definitions contained in
§ 241.1 shall apply to this subpart. In addition, the term contract of insurance,
as used in this subpart, means the
agreement evidenced by endorsement
of the credit instrument by the Commissioner or his duly authorized representative, and includes the provisions of this subpart and of the National Housing Act.
§ 241.261
fits.

Payment of insurance bene-

All of the provisions of § 207.259 of
this chapter relating to insurance benefits shall apply to multifamily loans
insured under this subpart, except
that, with respect to loans initially or
initially and finally endorsed for insurance on or after July 15, 1978, insurance
benefits shall be paid in cash if insurance benefits under the insured project
mortgage are payable in cash, unless
the mortgagee files a written request
for payment in debentures. If such a request is made, payment will be made in
debentures with a cash payment to adjust for any difference between the
total amount of the insurance payment
and the amount of the debentures
issued.
[48 FR 57129, Dec. 28, 1983]

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§ 241.265 Insurance
against flood.

of

property

The mortgaged property shall be insured against flood as stipulated by the
Federal Housing Commissioner. The
mortgagee shall obtain such coverage
in the event the mortgagor fails to do
so. If the mortgagee fails to pay any
premiums necessary to keep the mortgaged premises so insured, the contract
of mortgage insurance may be terminated at the election of the Commissioner.
[39 FR 26023, July 16, 1974]

§ 241.270 Refund upon termination of
insurance.
Upon termination of the insurance
contract by payment in full or by voluntary termination, the Commissioner
shall refund to the lender for the account of the borrower an amount equal
to the pro rata portion of the current
annual loan insurance premium theretofore paid, which is applicable to the
portion of the year subsequent to (a)
the date of the prepayment or (b) the
effective date of the voluntary termination of the contract of insurance.
§ 241.275

No vested right in fund.

Neither the lender nor the borrower
shall have any vested or other right in
the insurance fund under which the
loan is insured.

Subpart
C—Eligibility
Requirements—Supplemental Loans
To Finance Purchase and Installation of Energy Conserving Improvements, Solar
Energy Systems, and Individual Utility Meters in Multifamily Projects Without a HUDInsured or HUD-Held Mortgage
SOURCE: 45 FR 57983, Aug. 29, 1980, unless
otherwise noted.

§ 241.500

Definitions.

In addition to the definitions contained in subpart A of this part, incorporated herein by reference, except
§ 241.1(f), (h) and (i), the following
terms, as used in § 241.500 et seq., shall
have the meaning indicated:
(a) Approved lender means a financial
institution or other mortgagee approved by the Commissioner as eligible
for insurance under section 2 of the National Housing Act, or a mortgagee approved under section 203(b)(1) of the
National Housing Act, or a state housing agency approved pursuant to 24
CFR 883.102.
(b) Borrower means the owner of a
project held in fee simple or of a leasehold interest which is not now covered
by a mortgage insured or held by the
Secretary.

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Office of Assistant Secretary for Housing, HUD
(c) Energy saving loan means any
form of secured obligation used in connection with the purchase and installation of energy conserving improvements.
(d) Multifamily project means a project
which consists of not less than five
dwelling units on one site, each such
unit providing complete living facilities including provisions for cooking,
eating, and sanitation within the unit
and which is not now covered by a
mortgage insured or held by the Secretary.
FEES AND CHARGES
§ 241.505 Processing of
and required fees.

applications

(a) Preapplication conference. The
local HUD Office will determine whether participation in a preapplication
conference is required as a condition to
submission of an initial application for
a firm commitment for insurance of an
energy savings improvement loan on a
project. An application for a firm commitment for insurance must be submitted by both the project sponsor and
an approved lender. Applications shall
be submitted to the local HUD Office
on HUD-approved forms. No application will be considered unless accompanied by all exhibits required by the
form and program handbooks.
(b) Application for firm commitment. An
application for a firm commitment
shall be accompanied by the payment
of an application fee of $5 per thousand
dollars of the requested loan amount to
be insured.
(c) Cross-reference. The provisions of
paragraphs (e) (Inspection fee), (f)(1)
(Fee on increases), (g) (Reopening of
expired commitments), (i) (Refund of
fees), and (j) (Fees not required) of
§ 200.40 of this chapter apply to applications submitted under subpart E of this
part.
[61 FR 14416, Apr. 1, 1996]

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§ 241.510

Commitments.

(a) Firm commitment. The issuance of
a firm commitment indicates the Commissioner’s approval of the application
for insurance and sets forth the terms
and conditions upon which the loan
will be insured.

§ 241.520

(b) Types of firm commitment. (1)
Where the amount of the loan is
$250,000 or more, the firm commitment
may provide for the insurance of advances of loan money made during construction or may provide for the insurance of the loan after completion of
the improvements.
(2) Where the amount of the loan is
less than $250,000, the firm commitment shall provide for insurance of the
loan after completion of the improvements.
(c) Term of commitment. (1) A firm
commitment to insure advances shall
be effective for a period of not more
than 60 days from the day of issuance.
(2) A firm commitment to insure
upon completion shall be effective for a
designated term within which the borrower is required to begin construction, and if construction is begun as required, the commitment shall be effective for such additional period, estimated by the Commissioner, as will
allow for completion of construction.
(3) The term of a firm commitment
may be extended in such a manner as
the Commissioner may prescribe.
[61 FR 14417, Apr. 1, 1996]

§ 241.515

Inspection fee.

The firm commitment may provide
for the payment of an inspection fee in
an amount not to exceed $5 per thousand dollars of the commitment. If an
inspection fee is required, it shall be
paid as follows:
(a) If the case involves the insurance
of advances, it shall be paid at the time
of initial endorsement.
(b) If the case involves insurance
upon completion, it shall be paid prior
to the date construction is begun.
§ 241.520

Fees on increases.

(a) Increase in firm commitment prior to
endorsement. An application filed prior
to initial endorsement (or prior to endorsement in a case involving insurance upon completion), for an increase
in the amount of an outstanding firm
commitment shall be accompanied by a
combined additional application and
commitment fee. This combined additional fee shall be in an amount which
will aggregate $3 per thousand dollars

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§ 241.525

24 CFR Ch. II (4–1–10 Edition)

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of the amount of the requested increase. if an inspection fee was required in the original commitment, an
additional inspection fee shall be paid
in an amount computed at the same
dollar rate per thousand dollars of the
amount of increase in commitment as
was used for the ispection fee required
in the original commitment. When insurance of advances is involved, the additional inspection fee shall be paid at
time of initial endorsement. When insurance upon completion is involved,
the additional inspection fee shall be
paid prior to the date construction is
begun or if construction has begun, it
shall be paid with the application for
increase.
(b) Increase in loan between initial and
final endorsement. Upon an application,
filed between initial and final endorsement, for an increase in the amount of
the loan, either by amendment or by
substitution of a new loan, a combined
additional application and commitment fee shall accompany the application. This combined additional fee
shall be in an amount which will aggregate $3 per thousand dollars of the
amount of the increase requested. If an
inspection fee was required in the
original commitment, an additional inspection fee shall accompany the application in an amount not to exceed $5
per thousand dollars of the amount of
the increase requested.
§ 241.525 Refund of fees.
If the amount of the commitment
issued or an increase in loan prior to
endorsement is less than the amount
applied for, the Commissioner shall refund the excess amount of the application and commitment fees submitted
by the applicant. If an application is
rejected before it is assigned for processing, or in such other instances as
the Commissioner may determine, the
entire application and commitment
fees or any portion thereof may be returned to the applicant. Commitment,
inspection, and reopening fees may be
refunded, in whole or in part if it is determined by the Commissioner that the
installation of energy conserving improvements for the project has been
prevented because of condemnation
proceedings or other legal action taken
by a governmental body or public agen-

cy, or in such other instances as the
Commissioner may determine.
§ 241.530 Maximum fees and charges
by lender.
The lender may collect from the borrower the amount of the fees provided
for in this subpart. The lender may
also collect from the borrower an initial service charge in an amount not to
exceed 2 percent of the original principal amount of the loan to reimburse
the lender for the cost of originating
and closing the transaction. Any additional charges shall be subject to the
prior approval of the Commissioner.
ELIGIBLE SECURITY INSTRUMENTS
§ 241.530a

Note and security form.

The lender shall present for insurance a note and security instrument,
on forms approved by the Commissioner for use in the jurisdiction in
which the property to be improved is
located.
[45 FR 57983, Aug. 29, 1980. Correctly designated at 45 FR 80276, Dec. 4, 1980]

§ 241.535 Loan
principal.

multiples—minimum

The loan shall involve a principal obligation in multiples of $100, and the
minimum principal obligation shall be
$10,000.
§ 241.540 Method of loan payment and
amortization period.
(a) Monthly payments. The loan shall
provide for monthly payments on the
first day of each month on account of
interest and principal and shall provide
for payment in accordance with the
amortization plan as agreed upon by
the borrower, the lender and the Commissioner.
(b) Amortization period. (1) The loan
shall have an amortization of either 5,
10, or 15 years by providing for either
60, 120, or 180 monthly amortization
payments. No energy saving loan shall
have an amortization period in excess
of 15 years unless the amount of the
loan exceeds $50,000.00, in which event
the amortization period may be increased to 20 years, with a provision for
240 monthly amortization payments.

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Office of Assistant Secretary for Housing, HUD
(2) In any event, the loan shall have
a maturity satisfactory to the Commissioner of not less than 2 or more than
20 years from the date of the beginning
of amortization, or the Commissioner’s
estimate of the remaining economic
life of the structure, whichever is the
lesser.
(3) The Commissioner shall establish
the date of the first payment to principal, which shall be no later than the
first day of the second month following
the date of final endorsement (for
projects involving insurance of advances) or endorsement (for projects
involving insurance upon completion)
of the loan for insurance.
§ 241.545 Covenant against liens.
The security instrument shall contain a covenant against the creation by
the borrower of additional liens against
the property superior or inferior to the
lien of such instrument, except with
the prior approval of the Commissioner.

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§ 241.550 Accumulation of next premium.
The security instrument shall provide for payments by the borrower to
the lender on each interest payment
date of an amount sufficient to accumulate in the hands of the lender one
payment period prior to its due date,
the next annual insurance premium
payable by the lender to the Commissioner.
§ 241.555 Security instrument and lien.
(a) The security instrument shall
cover the entire property included in
the project, shall be a lien on the real
property of the project under the laws
of the jurisdiction in which the project
is located, and may be junior to such
prior liens or mortgage indebtedness as
the Commissioner may approve. The
security instrument shall contain a
provision that a default under the first
mortgage is a default under the supplementary loan security instrument.
(b) For bond-financed projects where
the bond resolution contains a provision prohibiting the creation of additional liens, the Commissioner may accept at his/her option:
(1) A first lien on another property
whose fair market value as determined

§ 241.570

by the Commissioner equals or exceeds
the amount of the loan insured under
this part;
(2) A Collateral Account in an
amount not less than the amount of
the loan insured under this part funded
with cash or negotiable bonds or securities backed by the full faith and credit of the United States Government; or
(3) Other security acceptable to the
Commissioner.
§ 241.560

Agreed interest rate.

(a) The mortgage shall bear interest
at the rate agreed upon by the lender
and the borrower.
(b) Interest shall be payable in
monthly installments on the principal
amount of the loan outstanding on the
due date of each installment.
[45 FR 57983, Aug. 29, 1980, as amended at 49
FR 19459, May 8, 1984]

§ 241.565

Maximum loan amount.

The principal amount of the loan
shall in no event exceed the cost of the
energy conserving improvements including the purchase thereof, cost of
installation, architect’s fees, interest
during construction and such other
miscellaneous fees and charges incident to construction as determined by
the Commissioner. Nor shall the principal amount of the loan exceed the
lesser of the following:
(a) An amount which can be supported by residual income, which is the
amount of net income remaining after
payment of all existing debt service requirements and deduction of proprietary earnings, as determined by the
Commissioner. The computation of net
income shall take into account the
amount which will be saved in operating costs over the period of repayment of the loan as a result of the installation of the energy conserving improvements.
(b) An amount which, when added to
the existing outstanding indebtedness,
does not exceed the Commissioner’s estimate of the value of the project after
the energy conserving improvements
are installed.
§ 241.570

Insurance endorsement.

(a) Initial endorsement. The Commissioner shall indicate his/her insurance

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§ 241.580

24 CFR Ch. II (4–1–10 Edition)

of the mortgage by endorsing the original credit instrument and identifying
the section of the Act and the regulations under which the mortgage is insured and the date of insurance.
(b) Final endorsement. When all advances of mortgage proceeds have been
made and all the terms and conditions
of the commitment have been complied
with to the satisfaction of the Commissioner, he/she shall indicate on the
original credit instrument the total approved for insurance and again endorse
such instrument.
(c) Effect of endorsement. From the
date of initial endorsement, the Commissioner and the mortgagee or lender
shall be bound by the provisions of this
subpart to the same extent as if they
had executed a contract including the
provisions of this subpart and the applicable sections of the Act.
(d) Insurance upon completion. When
all advances of mortgage proceeds have
been made and all the terms and conditions of the commitment have been
complied with to the satisfaction of the
Commissioner, he/she shall indicate
the total approved for insurance and
endorse the credit instrument, identifying the date of insurance.

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§ 241.580 Application of payments.
(a) The security instrument shall
provide that all monthly payments to
be made by the borrower shall be added
together and this aggregate amount
shall be paid by the borrower upon
each monthly payment date in a single
payment. The lender shall apply the
payment to the following items in the
order set forth:
(1) Premium charges under the contract of insurance;
(2) Interest on the loan;
(3) Amortization of the principal of
the loan.
(b) Any deficiency in the amount of
any monthly payments required under
paragraph (a) of this section shall constitute an event of default and the loan
shall further provide for a grace period
of 30 days within which time the default must be cured.
§ 241.585 Prepayment privileges and
prepayment charge.
The security instrument shall contain a provision permitting prepay-

ment of the loan in whole or in part
upon any interest payment date after
giving to the lender 30 days advance
written notice and it may contain a
provision, with the approval of the
Commissioner, for a reasonable charge
in the event of prepayment. The borrower shall be permitted to prepay up
to 15 percent of the original principal
amount of the loan in any one calendar
year without an additional charge. A
provision for a charge in the event of
prepayment may not be included in a
loan of $200,000 or less.
§ 241.586 Minimum
amount.

principal

A mortgagee may not require, as a
condition of providing a loan insured
under this subpart, that the principal
amount of the mortgage exceed a minimum amount established by the mortgagee.
[53 FR 8886, Mar. 18, 1988]

PROPERTY REQUIREMENTS
§ 241.590

Eligibility of property.

(a) A loan to be eligible for insurance
shall be on real estate held:
(1) In fee simple; or
(2) On the interest of the lessee under
a lease for not less than seventy-five
years which is renewable; or
(3) Under a lease having a period of
not less than twenty-five years to run
from the date the loan is executed.
(b) The property constituting security for the loan transaction must be
held by an eligible borrower as herein
defined and must at the time the loan
is insured be free and clear of all liens
other than those specifically approved
by the Commissioner.
TITLE
§ 241.595

Eligibility of title.

In order for the property which is to
be the security for a loan to be insured
under this subpart to be eligible for insurance, the Commissioner shall determine that the title to the property is
vested in the borrower as of the date
the security instrument is filed for
record. The title evidence will be examined by the Commissioner and the endorsement of the credit instrument for

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insurance shall be evidence of its acceptability.
§ 241.600 Title evidence.
(a) Upon insurance of the loan, the
lender shall furnish to the Commissioner a survey, satisfactory to the
Commissioner, and a policy of title insurance as provided in paragraph (a)(1)
of this section. If the lender is unable
to furnish such policy for reasons satisfactory to the Commissioner, the lender shall furnish such evidence of title
as provided in paragraph (a) (2), (3), or
(4) of this section as the Commissioner
may require. Any survey, policy of
title insurance, or evidence of title required under this section shall be furnished without expense to the Commissioner. The acceptable types of title
evidence are:
(1) A policy of title insurance issued
by a company and in a form satisfactory to the Commissioner. The policy
shall name the lender and the Secretary of Housing and Urban Development, as their respective interests may
appear, as the insured. The policy shall
provide that upon acquisition of title
by the lender or the Secretary, it will
continue to provide the same coverage
as the original policy, and will run to
the lender upon its acquisition of the
property in extinguishment of the debt,
and to the Secretary upon acquisition
of the property pursuant to the loan insurance contract.
(2) An abstract of title satisfactory
to the Commissioner, prepared by an
abstract company or individual engaged in the business of preparing abstracts of title, accompanied by a legal
opinion satisfactory to the Commissioner, as to the quality of such title,
signed by an attorney at law experienced in the examination of titles.
(3) A Torrens or similar title certificate.
(4) Evidence of title conforming to
the standards of a supervising branch
of the Government of the United States
of America, or of any State or territory
thereof.
(b) The survey required by paragraph
(a) of this section need not be furnished
in connection with a project where the
loan does not exceed $200,000.
[45 FR 57983, Aug. 29, 1980, as amended at 58
FR 34217, June 24, 1993]

§ 241.605
FORM OF CONTRACT

§ 241.605 Contract requirements.
(a) When the principal amount of the
loan is $100,000 or less, the form of contract between the borrower and the
contractor shall be in accordance with
the following:
(1) The contract between the borrower and the general contractor may
be in the form of either a lump sum
contract or a cost plus contract. Either
form of contract shall include the cost
of the energy conserving improvements, their installation, and such
other work to be performed by the contractor as necessary to meet the requirements of the Secretary. A lump
sum contract shall provide for the payment of a specified amount. A cost plus
contract shall provide for the payment
of the contractor’s actual cost of compliance with the requirements of the
contract, plus such allowances for
overhead and profit as may be approved
by the Commissioner and shall provide
that the total cost under the contract
shall not exceed the upset price as approved by the Commissioner.
(2) If agreed to by the general contractor and borrower, a lump sum form
of contract between the borrower and
the general contractor may be used unless the Commissioner determines that
a cost plus contract with a maximum
upset price is necessary to protect the
interest of the borrower or the Commissioner.
(b) When the principal amount of the
loan is over $100,000, the form of contract between the borrower and the
contractor shall be in accordance with
the following:
(1) Lump sum contract. If the Commissioner determines that there is no identity of interest between the borrower
or any of the officers, directors or
stockholders of the borrower and the
contractor, there may be used a lump
sum contract providing for payment of
the specified amount.
(2) Cost plus fixed fee contract. (i) If
the Commissioner determines that
there is any identity of interest (financial or otherwise) between the borrower, its officers, directors or stockholders and the contractor, the form of
contract shall provide for payment of
the actual cost of construction not to

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§ 241.610

24 CFR Ch. II (4–1–10 Edition)

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exceed an upset price and may provide
for payment of a fixed fee not exceeding a reasonable allowance as established by the Commissioner in accordance with customary practices in the
area.
(ii) In any case where the borrower is
a nonprofit entity, a cost plus fixed fee
contract shall be used unless it is established to the Commissioner’s satisfaction that such form of contract is
not required to protect his/her interests and the interests of the borrower,
in which case, a lump sum form of contract may be used.
§ 241.610 Assurance of completion.
(a) The borrower shall furnish assurance of completion of the project in the
following
minimum
forms
and
amounts:
(1) Where the estimated cost of construction of the improvements is
$500,000 or less, the borrower shall furnish assurance of completion of the
project in the form of a personal indemnity agreement executed by the
principal officers, directors, stockholders, or partners of the entity acting as general contractor.
(2) Where the estimated cost of construction of the improvements is more
than $500,000 or where such cost is less
than $500,000 and a personal indemnity
agreement is not executed, the assurance shall be in the form of corporate
surety bonds for payment and performance, each in the minimum amount of
25 percent of the construction contract,
or a completion assurance agreement
secured by a cash deposit in the minimum amount of 15 percent of the
amount of the construction contract.
(3) All types of assurance of completion shall be on forms approved by the
Commissioner. Any surety company
executing a bond and any party executing a personal indemnity agreement
must be satisfactory to the Commissioner.
(4) A mortgagee may prescribe more
stringent requirements for assurance of
completion than the minimum requirements of this section.
(b) The lender may accept, in lieu of
a cash deposit required by paragraph
(a) of this section, an unconditional irrevocable letter of credit issued to the
lender by a banking institution. In the

event a demand under the letter of
credit is not immediately met, the
lender shall forthwith provide cash
equivalent to the undrawn balance
thereunder.
§ 241.615 Certification of cost requirements.
(a) Certification agreement. The lender
shall submit with the application an
agreement on a form prescribed by the
Commissioner and executed by the borrower and the lender.
(b) Certificate and adjustment. No loan
shall be insured unless:
(1) A certification of actual cost is
made by the contractor in cases in
which a cost plus form of contract is
used; and
(2) The amount of the loan is adjusted to reflect the actual cost to the
borrower of the improvements when either a cost plus or lump sum form or
contract is used.
(c) Cost computation. The term actual
cost of the improvements shall mean the
cost to the borrower of the improvements, after deducting the amount of
any kickbacks, rebates or trade discount received in connection with the
improvements,
and
including
the
amounts paid under any contract for
the improvements, labor, materials,
and for any other items of expenses approved by the Commissioner.
(d) Statement of facts. Any agreement,
undertaking, statement or certification required in connection with cost
certification shall specifically state
that it has been made, presented and
delivered for the purpose of influencing
an official action of the Commissioner
and may be relied upon as a true statement of the facts contained therein.
(e) Incontestability. Upon the Commissioner’s approval of the cost certification, such certification shall be final
and incontestable except for fraud or
material misrepresentation on the part
of the borrower.
(f) Records. The borrower shall keep
and maintain adequate records of all
costs of any construction improvements or other cost items not representing work under the general contract and shall require the contractor
to keep similar records and, upon request by the Commissioner, both shall
make available for examination such

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Office of Assistant Secretary for Housing, HUD
records, including any collateral agreements.
(g) Certificate of public accountant.
Where required by the Commissioner,
each certificate of actual cost shall be
supported by a certificate as to accuracy by an independent Certified Public Accountant or independent public
accountant licensed by a regulatory
authority of a State or other political
subdivision of the United States on or
prior to December 31, 1970, which shall
include a statement that the accounts,
records and supporting documents have
been examined in accordance with generally accepted auditing standards to
the extent deemed necessary to verify
the actual costs.
ELIGIBLE BORROWERS
§ 241.625

Eligible borrowers.

In order to be eligible as a borrower
under this subpart, the applicant shall
be a profit, limited distribution, nonprofit, or cooperative owner of a multifamily housing project which is not
covered by a mortgage insured or held
by the Secretary and which the Commissioner has determined to be an acceptable risk in that energy conservation or solar energy benefits to be derived outweigh the risks of possible
loss of the Federal Government.
§ 241.626 Disclosure and verification of
Social Security and Employer Identification Numbers.
To be eligible for loan insurance
under this subpart, the borrower must
meet the requirements for the disclosure and verification of Social Security
and Employer Identification Numbers,
as provided by part 200, subpart U, of
this chapter.
(Approved by the Office of Management and
Budget under control number 2502–0118)
[54 FR 39696, Sept. 27, 1989]

SPECIAL REQUIREMENTS

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§ 241.630
loss.

Maximum insurance against

A loan insured under this subpart
shall be insured for 90 percent of any
loss incurred by the person holding the
note for the loan.

§ 241.635

§ 241.645
Regulatory agreement.

Any borrower obligated on the note
for any loan insured under this subpart
shall be regulated or restricted in a
manner and on a form prescribed by
the Secretary as to rents or sales,
charges, capital structure, rate of return and methods of operation of the
multifamily project to such an extent
and in such manner as to provide reasonable rental to tenants and a reasonable return on the investment until the
termination of all obligations of the
Secretary under the contract of insurance.
§ 241.640 Employment
prohibited.

discrimination

Any contract or subcontract executed for the performance of constructing the improvements to the
project shall provide that there shall
be no discrimination against any employee or applicant for employment because of race, color, religion, sex, familial status, disability, age, or national origin.
[61 FR 14417, Apr. 1, 1996]

§ 241.645 Labor standards and
vailing wage requirements.

(a) Any contract, subcontract, or
building loan agreement executed for
the performance of construction of the
project shall comply with all applicable labor standards and provisions of
the regulations of the Secretary of
Labor set forth in §§ 5.1 through 5.12 of
title 29.
(b) No construction contract shall be
entered into with a general contractor
or any subcontractor if such contractor
or any such subcontractor or any firm,
corporation, partnership or association
in which such contractor or subcontractor has a substantial interest is included on the ineligible list of contractors or subcontractors established and
maintained by the Comptroller General, pursuant to § 5.6(b) of title 29.
(c) No advance under the mortgage
shall be eligible for insurance after notification from the Commissioner that
the general contractor or any subcontractor or any firm, corporation, partnership or association in which such
contractor or subcontractor has a substantial interest, was on the date the

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§ 241.800

24 CFR Ch. II (4–1–10 Edition)

contract or subcontract was executed,
on the ineligible list established by the
Comptroller General, pursuant to the
provision of the Secretary of Labor set
forth in §§ 5.1 through 5.12 of title 29.
(d) No advance under any mortgage
shall be eligible for insurance unless
there is filed with the application of
such advance a certificate or certificates in the form required by the Commissioner, supported by such other information as the Commissioner may
prescribe, certifying that the laborers
and mechanics employed in the construction of the dwelling or dwellings,
or housing project involved, have been
paid not less than the wage prevailing
in the locality in which the work was
performed for the corresponding classes
of laborers and mechanics employed on
construction of a similar character, as
determined by the Secretary of Labor
prior to beginning of construction and
after the date of filing of the application for insurance.
(e) Compliance with the provisions of
this subsection shall be evidenced at
such time and in such manner as the
Commissioner may prescribe.

Subpart D—Contract Rights and
Obligations—Multifamily
Projects Without a HUD-Insured or HUD-Held Mortgage
SOURCE: 45 FR 57987, Aug. 29, 1980, unless
otherwise noted.

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§ 241.800

Definitions.

All of the definitions contained in
§ 241.500 shall apply to this subpart. In
addition, as used in this subpart, the
following terms shall have the meaning
indicated:
(a) Contract of insurance means the
agreement evidenced by the endorsement of the Commissioner upon the
note given in connection with an insured loan and includes the provisions
of this subpart and the applicable provisions of the Act.
(b) Maturity means the date on which
the loan indebtedness would be extinguished if paid in accordance with periodic payments provided for in the loan.

PREMIUMS
§ 241.805 Insurance premiums.
(a) First premium. The lender, upon
the endorsement of the loan for insurance, shall pay to the Commissioner a
first loan insurance premium equal to
one percent of the original face amount
of the note.
(b) Second premium. The lender, on
the date of the first principal payment,
shall pay a second premium equal to
one percent of the average outstanding
principal obligation of the loan for the
year following such first principal payment date which shall be adjusted as of
that date so that the aggregate of the
first and second premiums shall equal
the sum of one percent per annum of
the average outstanding principal obligation of the loan for the period from
the date of the insurance endorsement
to one year following the date of the
first principal payment.
(c) Annual insurance premium. Until
the note is paid in full, or until the
loan is assigned to the Commissioner,
or until the contract of insurance is
otherwise terminated with the consent
of the Commissioner, the lender, on
each anniversary of the date of the
first principal payment shall pay an
annual loan insurance premium equal
to one percent of the average outstanding principal obligation of the
loan for the year following the date on
which such premium becomes payable.
(d) Method of premium payment. Premiums shall be payable in cash or in
debentures of the General Insurance
Fund at par plus accrued interest. All
premiums are payable in advance and
no refund can be made of any portion
thereof except as provided in this part.
(e) Calculation of premiums. The premiums payable on and after the date of
the first principal payment shall be
calculated in accordance with the amortization provisions without taking
into account delinquent payments or
prepayments.
§ 241.805a Mortgagee’s late charge.
Mortgage insurance premiums which
are paid to the Commissioner more
than 15 days after the billing date or
due date, whichever is later, shall include a late charge of 4 percent of the
amount of the payment due, except

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Office of Assistant Secretary for Housing, HUD
that no late charge shall be required
with respect to any case for which HUD
fails to render a proper billing to the
mortgagee.
§ 241.815 Termination of insurance.
(a) Prepayment in full. The contract of
insurance shall be terminated if the
loan is paid in full prior to its maturity. Notice of the prepayment shall be
given to the Commissioner, on a form
prescribed by the Commissioner, within 30 days from the date of the prepayment. The insurance termination shall
become effective as of the date of the
prepayment, or 30 days prior to the
Commissioner’s receipt of the prepayment notice, whichever is later.
(b) Voluntary termination. The contract of insurance shall be voluntarily
terminated upon receipt by the Commissioner of a written request, on a
form prescribed by the Commissioner,
by the borrower and the lender for such
termination, accompanied by a submission of the original credit instrument
for cancellation of the insurance endorsement and the remittance of all
sums to which the Commissioner is entitled. The termination shall become
effective as of the date these requirements are met.
§ 241.825 Pro rata refund of insurance
premium.
Upon termination of a loan insurance
contract by a payment in full or by a
voluntary termination, the Commissioner shall refund to the lender for the
account of the borrower an amount
equal to the pro rata portion of the
current annual loan insurance premium theretofore paid which is applicable to the portion of the year subsequent to the effective date of the termination.

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RIGHTS AND DUTIES OF LENDER UNDER
THE CONTRACT OF INSURANCE
§ 241.830 Definition of default.
(a) If the borrower fails to make any
payments due under or provided to be
paid by the terms of the note or security instrument, the note shall be considered in default for the purposes of
this subpart.
(b) The failure to perform any other
covenant under the note or security in-

§ 241.850

strument shall be considered a default:
Provided, The lender, because of such
default, has exercised its rights under
the note or security instrument and accelerated the debt.
(c) The failure to make any payment
or to perform any covenant under the
first conventional note and mortgage
by reason of which the holder thereof
declares a default as evidenced by formal written declaration of said default
to the Commissioner and the lender by
the holder of the first note and mortgage, shall be considered a default
under the insured loan.
(d) If such defaults as defined in paragraphs (a), (b), and (c) of this section
continue for a period of 30 days, the
lender shall be entitled to receive the
benefits of insurance hereinafter provided.
§ 241.840

Date of default.

In computing loan insurance benefits, the date of default shall be considered as:
(a) The date of the lender’s acceleration of the debt because of the borrower’s uncorrected failure to perform
a covenant or obligation under the
note or security instrument; or
(b) The date of the first failure to
make a monthly payment which subsequent payments by the borrower are
insufficient to cover when applied to
the overdue monthly payments in the
order in which they become due.
(c) The date of the lender’s acceleration of the debt because of the borrower’s default under the first conventional note and mortgage.
§ 241.850

Notice of default.

(a) If the default is not cured within
the 30 day grace period, as defined in
§ 241.530(d), the lender shall, within 30
days thereafter, notify the Commissioner in writing of such default.
(b) The lender shall give notice in
writing to the Commissioner of the
failure of the borrower to comply with
any covenant or obligation under the
security instrument or note regardless
of the fact that the lender may not
have elected to accelerate the debt.

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§ 241.860

24 CFR Ch. II (4–1–10 Edition)

§ 241.860 Commissioner’s right to require acceleration.
Upon receipt of notice of the failure
of the borrower to comply with any
covenant or obligation under the security instrument or note, or under the
conventional note and mortgage, the
Commissioner may require the lender
to accelerate payment of the outstanding principal balance due.
§ 241.865 Election by the lender.
Where a real estate mortgage, or
other security instrument has been
used to secure the payment of a loan
made under the provisions of this subpart and subpart C of this part, the
lender may either elect to assign the
loan to the Commissioner in exchange
for the payment of insurance benefits
or may exercise its rights under the
note and security instrument in lieu of
making a claim for insurance benefits.
If the lender elects the latter course,
the Commissioner shall be so notified
and the contract of insurance shall be
deemed terminated upon the date of receipt of such notification.

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§ 241.875 Maximum claim period.
Notice of intention to file claim on a
form prescribed by the Commissioner
shall be filed within 45 days after the
lender becomes eligible for the benefits
of the loan insurance, or within such
later time as may be agreed upon by
the Commissioner in writing.
§ 241.880 Items to be delivered on submitting claim.
Within 30 days after the filing of the
notice of intention to assign the loan
to the Commissioner, or within such
further period as may be agreed upon
by the Commissioner in writing, the
lender shall deliver to the Commissioner:
(a) The fiscal data pertaining to the
loan transactions;
(b) Receipts covering all disbursements as required by the fiscal data
form;
(c) The original note and any security instrument or instruments which
shall be assigned to the Commissioner
without recourse or warranty, except
that the lender must warrant that no
act or omission of the lender has impaired the validity and priority of such

security instrument or instruments
that the security instrument or instruments are prior to all mechanics’ and
materialmen’s liens filed of record subsequent to the recording of such security instrument or instruments regardless of whether such liens attached
prior to such recording date, and prior
to all liens and encumbrances which
may have attached or defects which
may have arisen subsequent to the recording of such security instrument or
instruments, except such liens or other
matters as may be approved by the
Commissioner, that the amount stated
in the instrument of assignment is actually due and owing under the security instrument or instruments, that
there are no offsets or counterclaims
thereto, and that the lender has a good
right to assign such note and security
instrument or instruments;
(d) The assignment to the Commissioner of all rights and interests arising under the note and security instrument or instruments so in default and
all claims of the lender against the borrower or others arising out of the loan
transaction;
(e) All policies of title or other insurance or surety bonds, or other guarantees and any and all claims thereunder;
including evidence satisfactory to the
Commissioner that the original title
coverage has been extended to include
the assignment of the note and security instrument or instruments to the
Commissioner;
(f) All records, ledger cards, documents, books, papers and accounts relating to the loan transaction;
(g) Any additional information or
data which the Commissioner may require;
(h) The following cash items, held in
connection with the loan insured under
this subpart, shall either be retained
by the lender or delivered to the Commissioner at the time the insurance
claim is filed.
(1) Any cash held by the lender or its
agents or to which it is entitled including deposits made for the account of
the borrower and which have not been
applied in reduction of the principal
the loan indebtedness.
(2) All funds held by the lender for
the account of the borrower received
pursuant to any other agreement.

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Office of Assistant Secretary for Housing, HUD
(i) On the date the assignment of the
note and security instrument or instruments are filed for record, the lender
shall notify the Commissioner and the
Office of Finance and Accounting by
telegram of such recordation.

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§ 241.885

Insurance benefits.

(a) Method of payment. Payment of
claims shall be made in the following
manner:
(1) Payment in cash. Unless a written
request for payment in debentures is
filed with the application, payment
shall be made in cash.
(2) Optional payment in debentures.
Payment shall be made in debentures
upon the filing of a written request for
same with the application.
(b) Amount of payment. Upon acceptable assignment of the note and security instrument to the Commissioner,
the insurance benefits shall be paid in
an amount equal to 90 percent of the
amount determined as follows:
(1) By adding to the unpaid principal
amount of the loan, computed as of the
date of default, the following items:
(i) Any accrued interest due as of the
date of execution of the assignment of
the loan to the Commissioner.
(ii) Any advances approved by the
Commissioner made previously by the
lender under the provisions of the note
or security instrument or instruments.
(iii) Reimbursements for such reasonable collection costs, court costs,
and attorney’s fees as may be approved
by the Commissioner.
(iv) Any loan insurance premiums
paid after default.
(v) If payment is made in cash, an
amount equivalent to the debenture interest which would have been earned
thereon, as of the date such cash payment is made, except when the lender
fails to meet any one of the applicable
requirements of §§ 241.850, 241.875, and
241.880, within the specified time and in
a manner satisfactory to the Commissioner (or within such further time as
the Commissioner may approve in writing), the interest allowance in such
cash payment shall be computed only
to the date on which the particular required action should have been taken
or to which it was extended.

§ 241.895

(2) By deducting from the total of the
items computed under paragraph (b)(1)
of this section the following items:
(i) Any amount received by the lender on account of the loan after the date
of default.
(ii) Any net income received by the
lender from the property covered by
the note or security instrument and
not applied to prior debts held by the
lender.
(iii) The sum of the cash items retained by the lender pursuant to
§ 241.880(h) (1) and (2).
§ 241.890 Characteristics
tures.

of

Debentures issued in settlement of
insurance claims under this subpart
shall have the same characteristics and
the same requirements for registration
and redemption as those issued pursuant to subpart B of this part except
that debentures shall bear interest at
the rate in effect as of the date the
commitment was issued, or as of the
date the loan was first endorsed for insurance, whichever rate is higher, and
shall mature 10 years from the date of
issue which date shall be the date of
execution of the assignment of the loan
to the Commissioner.
§ 241.893

Cash adjustment.

Any difference of less than $50 between the amount of debentures to be
issued to the lender and the total
amount of the lender’s claim, as approved by the Commissioner, may be
adjusted by the issuance of a check in
payment thereof.
[59 FR 49817, Sept. 30, 1994]

ASSIGNMENTS
§ 241.895

Assignment of insured loans.

(a) An insured loan may be transferred only to a transferee who is a
lender approved by the Commissioner.
Upon such transfer and the assumption
by the transferee of all obligations
under the contract of insurance the
transferor shall be released from its obligations under the contract of insurance.
(b) The contract of insurance shall
terminate with respect to loans described in paragraph (a) of this section

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§ 241.897

24 CFR Ch. II (4–1–10 Edition)

upon the happening of either of the following events:
(1) The transfer or pledge of the insured loan to any person, firm or corporation, public or private, other than
an approved lender.
(2) The disposal by a lender of any
partial interest in the insured loan to
other than an approved lender.
EXTENSION OF TIME
§ 241.897
er.

Actions to be taken by lend-

With respect to any action required
of the lender within a period of time
prescribed by this subpart, the Commissioner may extend such period.
RIGHTS IN HOUSING FUND
§ 241.900

No vested right in fund.

Neither the lender nor the borrower
shall have any vested or other right in
the General Insurance Fund.
§ 241.905

Effect of amendments.

The regulations in this subpart may
be amended by the Commissioner at
any time and from time to time in
whole or in part, but such amendment
shall not adversely affect the interests
of a lender under the contract of insurance on any loan already insured and
shall not adversely affect the interests
of a lender on any loan to be insured on
which the Commissioner has made a
commitment to insure.

Subpart E—Insurance for Equity
Loans
and
Acquisition
Loans—Eligibility
Requirements
SOURCE: 57 FR 12037, Apr. 8, 1992, unless
otherwise noted.

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§ 241.1000

Purpose and scope.

(a) Section 231 of the Emergency Low
Income Housing Preservation Act of
1989 (‘‘ELIHPA’’) amended the National
Housing Act by adding a new subsection (f) to section 241. This section
authorizes the Secretary to provide insurance for an equity loan as a vehicle
for the owner of an eligible multifamily project to capture a portion of
the project’s equity, in connection with

a plan of action approved by the Commissioner under ELIHPA.
(b) Section 602 of the Low-Income
Housing Preservation and Resident
Homeownership
Act
of
1990
(‘‘LIHPRHA’’) amended section 241 by
expanding its scope to include both equity loans for owners, and acquisition
loans for purchasers, under a plan of
action approved under the provisions of
the 1990 Act, and by making other
changes. The provisions of section
241(f) as amended by LIHPRHA are applicable to owners with plans of action
being processed under part 248, subpart
B of this chapter, which implements
LIHPRHA.
(c) The provisions of section 241(f) of
the Act as they were in effect prior to
LIHPRHA remain in effect for owners
with plans of action being processed
under part 248, subpart C of this chapter, which implements ELIHPA.
(d) The insurance of an equity loan or
acquisition loan under subpart E of
this part may be provided only as a
specific element of a plan of action approved by the Commissioner under part
248 of this chapter and is not available
under any other departmental program.
(e) Unless otherwise indicated, the
provisions of subparts E and F of this
part are applicable to loans insured in
connection with plans of action being
processed under either subpart B or C
of part 248 of this chapter.
(f) An owner or purchaser may obtain
both a rehabilitation loan under subpart A of this part and an equity loan
or acquisition loan under subpart E of
this part.
§ 241.1005

Definitions.

(a) All of the definitions of § 241.1
apply to equity and acquisition loans
insured under subpart E of this part except the following definitions:
§ 241.1(i)—Borrower;
§ 241.1(k)—Energy conserving improvements;
§ 241.1(1)—Solar energy system.

(b) As used in subpart E of this part,
the following terms have the meaning
indicated:
Acquisition loan means a loan or advance of credit made to a purchaser of
eligible low income housing which is
made for the purpose of implementing

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Office of Assistant Secretary for Housing, HUD
a plan of action approved in accordance
with part 248 of this chapter.
Borrower means the owner or qualified purchaser of an eligible low income housing project, which owner receives and becomes primarily obligated
for the repayment of an equity loan.
With respect to loans insured in connection with a plan of action under
part 248, subpart C of this chapter, the
term includes a public entity, a nonprofit organization or a limited equity
cooperative, which entity is purchasing
an eligible low income housing project
by means of an equity loan and is obligated for the payment of the equity
loan.
Eligible low income housing has the
same meaning as provided at § 248.101
or § 248.201 of this chapter, with respect
to loans insured in connection with
plans of action under subparts B or C of
part 248 of this chapter.
Equity means, for purpose of subparts
E and F of this part only, the difference between the fair market value
of the project as determined by the
Commissioner and the outstanding indebtedness relating to the property.
Equity Loan means a loan or advance
of credit to the owner of an eligible low
income housing project which is made
for the purpose of implementing a plan
of action approved in accordance with
part 248 of this chapter.
Extension preservation equity has the
same meaning as provided at § 248.101 of
this chapter.
Limited equity cooperative means a
tenant cooperative corporation which,
in a manner acceptable to the Commissioner, restricts the initial and resale
price of the shares of stock in the cooperative corporation so that the shares
remain affordable to low-income families and moderate income families.
Low-income families has the same
meaning as provided at § 248.101 of this
chapter.
Moderate income families has the same
meaning as provided at § 248.101 of this
chapter.
Plan of action has the same meaning
as provided at § 248.101 or § 248.201 of
this chapter.
Preservation equity has the same
meaning as provided at § 248.101 of this
chapter.

§ 241.1020

Priority purchaser has the same meaning as provided at § 248.101 of this chapter.
Qualified Purchaser has the same
meaning as provided at § 248.101 of this
chapter.
§ 241.1010 Feasibility letter.
(a) Request for study. The owner may
request the Commissioner to undertake
a feasibility analysis of an equity or
acquisition loan, and issue a feasibility
letter. At the discretion of the Commissioner the feasibility analysis may
be undertaken or denied.
(b) Findings. The issuance of a feasibility letter indicates completion of
the Commissioner’s preliminary analysis for the insurance of an equity or
acquisition loan. The feasibility letter
shall contain the Commissioner’s estimate of the supportable loan amount,
based upon the project’s equity in the
case of an equity loan and based on the
project’s purchase price in the case of
an acquisition loan, but such feasibility letter shall neither constitute a
commitment to insure nor bind the
Commissioner in any other manner.
(c) Fee. The Commissioner shall not
charge a fee for undertaking a feasibility analysis or for the issuance of a
feasibility letter.
§ 241.1015 Processing of applications
and required fees.
(a) Application. An application for the
issuance of a firm commitment for insurance of an equity or acquisition
loan on a project shall be submitted by
an approved lender and by the owner or
purchaser of the project to the Commissioner on a form prescribed by the
Commissioner. No application shall be
considered unless the exhibits called
for by such forms are furnished.
(b) Commitment fees. An application
for a firm commitment shall be accompanied by the payment of an application-commitment fee of $5.00 per thousand dollars of the requested loan
amount to be insured.
[61 FR 14417, Apr. 1, 1996]

§ 241.1020 Commitments.
(a) Firm commitment. The issuance of
a firm commitment indicates the Commissioner’s approval of the application
for insurance and sets forth the terms

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§ 241.1025

24 CFR Ch. II (4–1–10 Edition)

and conditions upon which the equity
or acquisition loan will be insured. The
firm commitment may provide for the
insurance of advances of the equity or
acquisition loan immediately upon endorsement of the note.
(b) Term of commitment. (1) A firm
commitment is effective for whatever
term is specified in the text of the
commitment.
(2) The term of a firm commitment
may be extended in such manner as the
Commissioner may prescribe.
(c) Reopening of expired commitments.
An expired firm commitment may be
reopened if a request for reopening is
received by the Commissioner within 90
days of the expiration of the commitment. The reopening request shall be
accompanied by a fee of 50 cents per
thousand dollars of the amount of the
expired commitment. If the reopening
request is not received by the Commissioner within the required 90-day period, a new application, accompanied
by the required application and commitment fee, must be submitted.
[61 FR 14417, Apr. 1, 1996]

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§ 241.1025 Refund of fees.
If the amount of the commitment
issued is less than the amount applied
for, the Commissioner shall refund the
excess amount of the application and
commitment fees submitted by the applicant. If an application is rejected before it is assigned for processing, or in
such other instances as the Commissioner may determine, the entire application and commitment fees or any
portion thereof may be returned to the
applicant. Commitment and reopening
fees may also be refunded to the applicant, in whole or in part, in such other
instances as the Commissioner may determine.
§ 241.1030 Mortgage insurance premiums.
The lender, upon endorsement of the
note, shall pay the Commissioner a
first mortgage insurance premium
equal to 0.5 percent of the original face
amount of the equity or acquisition
loan.
(a) If the date of the first principal
payment is more than one year following the date of endorsement, the
lender upon each anniversary of such

endorsement date, shall pay a premium
equal to 0.5 percent of the original face
amount of the loan. On the date of the
first principal payment, the lender
shall pay another premium equal to 0.5
percent of the average outstanding
principal obligation of the loan for the
following year which shall be adjusted
so as to accord with such date and so
that the aggregate of said premiums
shall equal the sum of:
(1) 0.5 percent of the average outstanding principal obligation of the
loan for the year following the date of
endorsement; and
(2) 0.5 percent per annum of the average outstanding principal obligation of
the loan for the period from the first
anniversary of the date of endorsement
to one year following the date of the
first principal payment.
(b) If the date of the first principal
payment is one year or less than one
year following the date of endorsement, the lender, upon such first principal payment date, shall pay a second
premium equal to 0.5 percent of the average outstanding principal obligation
of the loan for the following year which
shall be adjusted so as to accord with
such date and so that the aggregate of
the said two premiums shall equal the
sum of:
(1) 0.5 percent per annum of the average outstanding principal obligation of
the loan for the period from the date of
endorsement to the date of the first
principal payment; and
(2) 0.5 percent of the average outstanding principal obligation of the
loan for the year following the date of
the first payment following the date of
the first principal payment.
(c) Until the equity or acquisition
loan is paid in full or until receipt by
the Commissioner of an application for
insurance benefits, or until the contract of insurance is otherwise terminated with the consent of the Commissioner, the lender on each anniversary
date of the first principal payment,
shall pay an annual insurance premium
equal to 0.5 percent of the average outstanding principal obligation of the
loan for the year following the date on
which such premium becomes payable.
(d) The premiums payable on or after
the date of the first principal payment
shall be calculated in accordance with

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Office of Assistant Secretary for Housing, HUD
the amortizing provisions without taking into account delinquent payments
or prepayments.
(e) Premiums shall be payable in
cash or in debentures at par plus accrued interest. All premiums are payable in advance and no refund can be
made of any portion thereof except as
hereinafter provided in subpart E of
this part.
§ 241.1035

Charges by lender.

(a) The lender may collect from the
borrower the amount of the fees provided for by subpart E of this part.
(b) The lender may also collect from
the borrower an initial service charge,
as reimbursement for the cost of closing the transaction, in an amount not
to exceed 2 percent of the original principal amount of the loan.
(c) Any charges to be collected by the
lender in addition to those prescribed
in paragraphs (a) and (b) of this section, shall be subject to the prior approval of the Commissioner.
§ 241.1040

Eligible lenders.

Lenders approved as mortgagees
under §§ 202.6, 202.7 or 202.9 of this chapter are eligible for insurance of equity
loans under this subpart.
[62 FR 20088, Apr. 24, 1997]

§ 241.1045

Note and security form.

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The lender shall present for insurance a note and security instrument on
forms approved by the Commissioner
for use in the jurisdiction in which the
property is located, which shall not be
changed without the prior approval of
the Commissioner. The security instrument shall provide for accelerated repayment at the request of the Commissioner pursuant to § 241.1046(b).
§ 241.1046 Rental assistance.
(a) When underwriting an equity or
acquisition loan under subpart E of
this part, the Commissioner may assume that the rental assistance provided in accordance with a plan of action approved under subparts B or C of
part 248 of this chapter will be extended for the full term of the contract
entered into under the plan of action.
(b) In the event that rental assistance is not extended under part 248 of

§ 241.1065

this chapter, or the Commissioner is
unable to develop a revised package of
incentives to the owner comparable to
those received under the original approved plan of action, the Commissioner may require the mortgagee to
accelerate the debt of the equity or acquisition loan.
(c) If the Commissioner is unable to
extend the term of rental assistance for
the full term of the contract entered
into under part 248 of this chapter, the
Commissioner is authorized to take
such actions as the Commissioner
deems appropriate to avoid default,
avoid disruption of the sound ownership and management of the property
or otherwise minimize the cost to the
Federal Government.
§ 241.1050 Method of loan payment.
The loan shall provide for monthly
payments on the first day of each
month on account of interest and principal and shall provide for payments in
accordance with the amortization plan
as agreed upon by the borrower, the
lender, and the Commissioner.
§ 241.1055 Date of first payment to
principal.
The date for first payment to principal shall be established by the Commissioner.
§ 241.1060 Maturity.
(a) Equity loans shall have a term
not to exceed 40 years; and
(b) Acquisition loans shall have a
term of 40 years.
[58 FR 37814, July 13, 1993]

§ 241.1065 Maximum loan amount—
loans insured in connection with a
plan of action under subpart C of
part 248 of this chapter.
The amount of the equity loan shall
not exceed ninety percent of the owner’s equity in the project, as determined by the Commissioner. Notwithstanding the above, the equity loan
shall not exceed an amount which,
when added to the existing indebtedness on the property, can be supported
by 90 percent of the projected net operating income of the project, as determined by the Commissioner. The Commissioner, in making a determination
regarding the amount of an equity loan

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§ 241.1067

24 CFR Ch. II (4–1–10 Edition)

and sums available to service said loan,
shall take into account the fact that
the project’s income may increase
within the limits established by
§ 248.233(d) of this chapter.
§ 241.1067 Maximum loan amount—
loans insured in connection with a
plan of action under subpart B of
part 248 of this chapter.
(a) The amount of the equity loan
shall not exceed:
(1) The amount of rehabilitation
costs as determined under an approved
plan of action and related charges; plus
(2) The lesser of 70 percent of the extension preservation equity of the
project; or
(3) The amount the Commissioner determines can be supported by the
project on the basis of an 8 percent return on extension preservation equity,
assuming normal debt service coverage. To the extent practicable, equity loans shall have amortization provisions which will support the maximum loan amount authorized under
this section.
(b) The amount of the acquisition
loan shall not exceed:
(1) The amount of rehabilitation
costs as determined under an approved
plan of action and related charges; plus
(2) Ninety-five percent of the transfer
preservation equity of the project; and
(3) If the purchaser is a priority purchaser, the loan may include any expenses associated with the acquisition,
loan closing, and implementation of
the plan of action, subject to the approval of the Commissioner.

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[58 FR 37814, July 13, 1993]

§ 241.1068 Renegotiation of an equity
loan.
The Commissioner shall renegotiate
and modify the terms of an equity loan
insured under this subpart at the request of the owner of the project for
which a loan closing occurred if—
(a) The loan closing occurred between
September 28, 1992 and January 26, 1993;
(b) The loan was made pursuant to a
plan of action submitted under subpart
C of part 248 of this chapter; and
(c) The plan of action was accepted
by the Commissioner for processing in
December 1991.
[58 FR 37814, July 13, 1993]

§ 241.1069

Escrow requirements.

(a) An equity loan provided in connection with a plan of action under
subpart B of part 248 of this chapter
shall provide for the lender to deposit,
on behalf of the borrower, 10 percent of
the loan amount in an escrow account,
controlled by the Commissioner or a
State housing finance agency approved
by the Commissioner, which shall be
made available to the borrower upon
the expiration of the 5-year period beginning on the date the loan is made,
subject to compliance with § 248.147 of
this chapter.
(b) An equity loan provided in connection with a plan of action under either subpart B or subpart C of part 248
of this chapter shall provide for the
lender to phase in advances to reflect
project rent levels.
§ 241.1070

Agreed interest rate.

The equity or acquisition loan shall
bear interest at the rate agreed upon
by the borrower and the lender.
§ 241.1080

Eligibility of title.

In order for the project to be eligible
for insurance, the Commissioner shall
determine that the title to the property is vested in the borrower as of the
date the security instrument is filed
for record. The title evidence will be
examined by the Commissioner and the
endorsement of the credit instrument
for insurance shall be evidence of its
acceptability.
§ 241.1085

Title evidence.

(a) Upon insurance of the loan, the
lender shall furnish to the Commissioner a policy of title insurance as
provided in paragraph (a)(1) of this section. If the lender is unable to furnish
such policy for reasons satisfactory to
the Commissioner, the lender shall furnish such evidence of title as provided
in paragraphs (a)(2), (3) or (4) of this
section as the Commissioner may require. Any policy of title insurance, or
evidence of title required under this
section shall be furnished without expense to the Commissioner. The acceptable types of title evidence are:
(1) A policy of title insurance issued
by a company and in a form satisfactory to the Commissioner. The policy

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Office of Assistant Secretary for Housing, HUD
shall name the lender and the Secretary of Housing and Urban Development, as their respective interests may
appear, as the insured. The policy shall
provide that upon acquisition of title
by the lender or the Secretary, it will
continue to provide the same coverage
as the original policy, and will run to
the lender upon its acquisition of the
property in extinguishment of the debt,
and to the Secretary upon acquisition
of the property pursuant to the loan insurance contract.
(2) An abstract of title satisfactory
to the Commissioner, prepared by an
abstract company or individual engaged in the business of preparing abstracts of title, accompanied by a legal
opinion satisfactory to the Commissioner, as to the quality of such title,
signed by an attorney at law experienced in the examination of titles;
(3) A Torrens or similar title certification; or
(4) Evidence of title conforming to
the standards of a supervising branch
of the Government of the United States
of America, or of any State or territory
thereof.
[57 FR 12037, Apr. 8, 1992, as amended at 58
FR 34217, June 24, 1993]

§ 241.1090 Accumulation of next premium.
The security instrument shall provide for payments by the borrower to
the lender on each interest payment
date of an amount sufficient to accumulate in the hands of the lender one
payment period prior to its due date
the next annual insurance premium
payable by the lender to the Commissioner. These payments shall continue
only as long as the contract of insurance remains in effect.

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§ 241.1095

Application of payments.

(a) The security instrument shall
provide that all monthly payments to
be made by the borrower shall be added
together and the aggregate amount
shall be paid by the borrower upon
each monthly payment date in a single
payment. The lender shall apply the
payment in the following order:
(1) Premium charges under the contact of insurance;
(2) Interest on the loan; and

§ 241.1105

(3) Amortization of the principal of
the loan.
(b) Any deficiency in the amount of
any monthly payments required under
paragraph (a) of this section shall constitute a default. The security instrument shall provide for a grace period of
30 days within which time the default
must be cured.
§ 241.1100 Prepayment
charges.

privilege

(a) Prepayment privilege. (1) Except as
otherwise provided in paragraph (b) of
this section, the security instrument
shall contain a provision permitting
the borrower to prepay the loan, in
whole or in part, upon any interest
payment date after giving to the lender
30 days advance notice of its intention
to prepay.
(2) If the loan exceeds $200,000, the security instrument may contain a provision for an additional charge in the
event of prepayment of principal as
may be agreed upon between the borrower and lender. These charges shall
not be imposed if the loan is accelerated at the request of the Commissioner, pursuant to § 241.1046(b). The
borrower shall be permitted to prepay
up to 15 percent of the original principal amount of the loan in any one
calendar year without any additional
charge. A provision for an additional
charge in the event of prepayment may
not be included in a loan of $200,000 or
less.
(b) Prepayment of bond-financed loan.
Where the lender has obtained the
funds for the loan by the issuance and
sale of bonds or bond anticipation
notes, or both, the loan may contain a
prepayment restriction and prepayment penalty charges acceptable to the
Commissioner as to term, amount, and
conditions.
§ 241.1105

Late charges.

The note and security instrument
may provide for the lender’s collection
of a late charge, not to exceed 2 cents
for each dollar of each payment to interest or principal more than 15 days in
arrears, to cover the expense involved
in handling delinquent payments. Late
charges shall be separately charged to
and collected from the borrower and

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§ 241.1120

24 CFR Ch. II (4–1–10 Edition)

shall not be deducted from any aggregate monthly payment.
§ 241.1120

Mortgagee’s consent.

The holder of an insured mortgage
which is recorded prior to the equity or
acquisition loan shall not withhold its
consent to the equity or acquisition
loan (whether or not such equity or acquisition loan is insured by the Commissioner) or the security instrument
executed in connection therewith, and
may not charge a fee as a condition to
its consent to such loan or security instrument.

Subpart F—Insurance for Equity
Loans
and
Acquisition
Loans—Contract Rights and
Obligations
SOURCE: 57 FR 12040, Apr. 8, 1992, unless
otherwise noted.

§ 241.1200

Cross-references.

(a) Projects with a HUD-insured or
HUD-held mortgage. (1) All the provisions of part 207, subpart B of this
chapter, covering mortgages insured
under section 207 of the Act, apply to
equity loans or acquisition loans on a
project insured under section 241(f) of
the Act, except the following provisions:

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Sec.
207.251 Definitions.
207.252 First, second and third premium.
207.252a Premiums—operating loss loans.
207.252b Premiums—mortgages insured pursuant to section 223(f) of the Act.
207.252c Premiums—mortgages insured pursuant to section 238(c) of the Act.
207.254 Insurance endorsement.

(2) For the purposes of subpart F of
this part, all references in part 207 of
this chapter to section 207 of the Act
and to the term ‘‘mortgage’’ shall be
construed to refer to section 241(f) of
the Act and ‘‘equity or acquisition
loan,’’ respectively.
(b) Projects without a HUD-insured or
HUD-held mortgage. The provisions of
subpart D of this part shall be applicable to a project without a HUD-insured
or HUD-held mortgage that is receiving
an equity loan or acquisition loan
under subpart E of this part in connection with a plan of action approved by

the Commissioner under part 248 of
this chapter.
(c) All of the definitions in § 241.1005
apply to subpart F of this part. In addition, as used in subpart F of this part,
the term ‘‘contract of insurance’’
means the agreement evidenced by the
Commissioner’s insurance endorsement
and includes the provisions of subpart
F of this part and of the Act.
§ 241.1205
fits.

Payment of insurance bene-

All the provisions of § 207.259 of this
chapter relating to insurance benefits
shall apply to an equity or acquisition
loan insured under subpart F of this
part, except that insurance benefits
shall be payable in cash if the insurance benefits under the senior insured
mortgage are payable in cash, unless
the lender files a written request for
payment in debentures. If such a request is made, payment shall be made
in debentures with a cash payment to
adjust for any difference between the
total amount of the insurance payment
and the amount of the debentures
issued.
§ 241.1210 Condition for payment of insurance benefits.
(a) All of the provisions of § 207.258 of
this chapter apply to subpart F of this
part, except that, if the holder of the
senior insured mortgage institutes a
foreclosure action, the lender shall notify the Commissioner in a timely
manner of such action. The Commissioner, at its option, may then direct
the lender to assign the equity or acquisition loan to the Commissioner, or
bid an amount necessary to acquire the
project and convey the project to the
Commissioner.
(b) If the equity loan or acquisition
loan is assigned in accordance with
this section, the Commissioner at a
foreclosure sale may bid, in addition to
amounts otherwise authorized, any
sum not in excess of the aggregate unpaid indebtedness secured by the senior
insured mortgage and equity or acquisition loan, plus taxes, insurance, foreclosure costs, fees and other expenses.

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Office of Assistant Secretary for Housing, HUD
§ 241.1215 Calculation
benefits.

of

insurance

All of the provisions of § 207.259 of
this chapter apply to subpart F of this
part, except that if the lender, at the
direction of the Commissioner, acquires title to the project at a foreclosure sale instituted by the holder of
the senior insured mortgage, the
amount of the claim determined under
§ 207.259(c) of this chapter shall also include an amount bid by the lender to
satisfy the senior insured mortgage at
the foreclosure sale.
§ 241.1220 Termination
benefits.

of

insurance

All of the provisions of § 207.253a of
this chapter apply to subpart F of this
part, except that the following shall
also constitute grounds for terminating the contract of insurance:
(a) The failure of the lender to notify
the Commissioner in a timely manner
of a foreclosure action initiated by the
holder of the senior insured mortgage;
and
(b) The failure of the lender when directed by the Commissioner to assign
the equity or acquisition loan or bid an
amount necessary to acquire title to
the project and convey the project to
the Commissioner, in accordance with
§ 241.1210.
§ 241.1230

No vested right in fund.

Neither the lender nor the borrower
shall have any vested or other right in
the insurance fund under which the
loan is insured.
§ 241.1235

Cross default.

In the event the borrower commits a
default under a prior recorded insured
mortgage and the holder thereof initiates a foreclosure proceeding, said default under the prior recorded insured
mortgage shall constitute a default
under the equity or acquisition loan.

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§ 241.1245

Insurance endorsement.

(a) Endorsement. The Commissioner
shall indicate his insurance of the equity loan or acquisition loan by endorsing the original credit instrument and
identifying the section of the Act and
the regulations under which the loan is
insured and the date of insurance.

Pt. 242

(b) Endorsement of phased loan. In the
event the loan is phased, the Commissioner shall indicate his insurance of
each amount by endorsing the original
credit instrument and identifying the
section of the Act and the regulations
under which such amount is insured
and the date of the insurance.
(c) Final advance of phased loan. When
all advances of a phased loan have been
made and the terms and conditions of
the commitment have been complied
with to the satisfaction of the Commissioner, the Commissioner shall indicate on the original credit instrument
the total of all advances the Commissioner has approved for insurance and
again endorse such instrument.
§ 241.1250 Effect of endorsement.
From the date that the equity or acquisition loan is endorsed, the Commissioner and the lender shall be bound by
the provisions of subpart F of this part
to the same extent as if they had executed a contract including the provisions of subpart F of this part and the
applicable sections of the Act.

PART 242—MORTGAGE
INSURANCE FOR HOSPITALS
Subpart A—General Eligibility
Requirements
Sec.
242.1 Definitions.
242.2 Program financial self-sufficiency.
242.3 Encouragement of certain programs.
242.4 Eligibility for insurance and transition provision.
242.5 Eligible mortgagees/lenders.
242.6 Property requirements.
242.7 Maximum mortgage amounts.
242.8 Standards for licensure and methods
of operation.
242.9 Physician ownership.
242.10 Eligible mortgagors.
242.11 Regulatory compliance required.
242.13 Parents and affiliates.
242.14 Mortgage reserve fund.
242.15 Limitation on refinancing existing
indebtedness.

Subpart B—Application Procedures and
Commitments
242.16 Applications.
242.17 Commitments.
242.18 Inspection fee.
242.19 Fees on increases.
242.20 Reopening of expired commitments.

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