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ENSURING A SMOOTH HUD HEALTHCARE
§232 LEAN CLOSING
Prepared by John E. Vihstadt, Esq.
Krooth & Altman LLP1850 M Street, NWSuite 400Washington, DC 20036(202) [email protected]
Southeast Mortgagee Advisory Counsel (SMAC)
(LEAN—Underwriting Highlights, Closings, New Construction Panel)
May 15, 2014& pet peeves
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START the Closing process early.
The “sweet spot” for K&A engagement and issuance of tailored legal closing “warm-up” materials is 30-60 days ± before Commitment issuance, unless the deal has either Operator-Lessee or Accounts Receivable (AR) fi nancing components, in which case Lender Counsel engagement should occur 45-60 days prior to Lender submission of Commitment application. The “two-stage” legal review process remains for these deals only.
An all-hands kick-off conference call with Lender, Lender’s Counsel, Borrower, and Borrower’s Counsel to review “warm-up” instructions, followed by another to discuss the issued Commitment, is recommended.
Loop in AR Lender and Counsel and Operator/Lessee and Counsel as relevant.
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
10. START
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ASK if the project’s likely HUD counsel has either a specifi c supplemental Closing Checklist or special protocol or procedure for attaining Endorsement, or perhaps just a nuance or two.
Despite national standards, closing requirements may vary somewhat from closing offi ce to closing offi ce—and even lawyer to lawyer or deal to deal. A mail or skeleton closing may or may not be the best way to go.
The LEAN Blasts and LEAN Thinking issuances are a solid foundation, but subject to interpretation and varied implementation. Consult the ORCF Legal FAQs for specifi c closing documents questions.
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
9. ASK
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STUDY the Firm Commitment, including Special Conditions and Schedules, to glean such variables:
Escrows Universe
Documentation Requirements
Proper Forms, Numbers, Dates, and Times
Paragraph 38 Principals
Insurance (esp. professional liability and fidelity bond)
Special Submission or Clearance Requirements, etc. (e.g., deadlines)
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
8. STUDY
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TAILOR the submission to the part icular deal. Use the correctcheckl ist(s) and Punch-l ist(s) and annotate them.
Examples: Secure health care l icenses (check care level , # of beds/units, holder,
exp. date, etc.) , administrator & business l icenses/permits and approvals, equipment leasing/acquisit ion documentation, major/minor moveable equipment l ist ings, and the l ike.
On tax credit deals , ensure that scheduled equity infusions are set forth in the LP Agreement and that the investor has given clearance.
On construction deals , ensure that architect, contractor, and surety documents and issues are smoked out and sett led.
Are there subordinate fi nancing sources? Commercial Leases? Environmental issues? Reciprocal easements/shared uses? Air r ights? Indian lands? Payoff issues? Environmental? Anything kinky or bizarre?
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
7. TAILOR
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COORDINATE Closing documents submission to HUD in a unifi ed manner.
Lender’s Counsel will review and submit to Closing Coordinator & Counsel.
Avoid multiparty, piecemeal submission, except for program-side materials such as:
Critical Repairs evidence
Construction draw documents
Plans & Specs; Permits; Revised 2328; updated Davis-Bacon; Construction Schedule
Cost certification papers
Settlement Statement
Commitment amendment(s) and extension(s)
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
6. COORDINATE
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REVIEW and proof the comprehensive Closing submission before shipment to HUD.
Identify significant issues and deficiencies in the cover letter.
Make it easy for HUD! Include an Organizational Chart, other aids.
Don’t hide the ball.
Ask for a certain closing date(s) but don’t back HUD into corner.
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
5. REVIEW
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REMEMBER that Closing review is two-fold:
Legal staff Program staff
Both may have comments together or separately.
Press non-HUD parties for comments, as well.
Ensure that all parties are ready to respond to HUD comments immediately.
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
4. REMEMBER
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MAINTAIN communication with all parties, including HUD, during the submission review and pre-closing process.
Lack of comment may be good news—or bad.
Lay out a realistic timeline and follow up as necessary. Be mindful of personnel schedules, signatory availability, and overnight courier risks.
There is a fine line between status check and harassment, depending on personalities involved.
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
3. MAINTAIN
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ORCHESTRATE the closing process.
PLAN:
Documents execution
Pre-recording
Obligations of all parties before and at the table
Special considerations for by-mail or “skeleton” closings
HUD Contractor Counsel dynamics
ISSUE Closing Escrow Instructions Letter and mind warehouse bank and Ginnie Mae del ivery requirements.
Remember post-closing documents dispatch.Prepared by John E. Vihstadt, Esq.
[email protected] 15, 2014
2. ORCHESTRATE
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FEAST on a big breakfast before coming to HUD – you never know when you will escape! With mail closings, have food at your desk.
Bring pastries to HUD on closing day but avoid soiling closing documents.
Adhere to proper protocol and etiquette:
Minimize security provocations.
Avoid loitering or eavesdropping at HUD cubicles.
Do not lose the restroom key or security badge.
Tidy up! Prepared by John E. Vihstadt, [email protected]
May 15, 2014
1. FEAST
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1. Comments received late. Review or Redo?
2. HUD Program and HUD Legal not in sync.
3. Capricious recording & pre-signing protocols.
4. SNDA’s: When? What form?
5. Management Agents
6. DACA/DAISA Forms—or not?
7. Documents Data & Hygiene
8. Execution and Recording Logistics & ProceduresPrepared by John E. Vihstadt, Esq.
[email protected] 15, 2014
PET PEEVES
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What started as a brief collection of Frequently Asked Questions (FAQs) has evolved into a large knowledgebase of information on the HUD website. There are now over 348 topics regarding the 232 loan program separated into 19 categories.
Website: http://portal.hud.gov/hudportal/HUD?src=/federal_housing_administration/healthcare_facilities/residential_care/knowledgebase
SECTION 232 PROGRAM Q’S AND A’S
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
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ORCF FAQSOFFICE OF RESIDENTIAL CARE FACILITIES
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
• General and Miscellaneous• Eligibility• Application Processing• Appraisal and Market Study• Environmental• Closings• Cost Certification• Master Lease• Accounts Receivable• Asset Management
• Lender Approval• Loan Sizing• Architecture and Cost• Credit and Financial Review• Operator and Management
Agent• Construction• Tax Credits• Insurance• Portfolios
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In addition, HUD's Offi ce of General Counsel (OGC) has established a website to display legal- related questions and answers to the new Section 232 Healthcare Facility Documents. See the list below for all legal-related 232 Healthcare Facility categories for hyperlinks to the questions and answers in each category.
Website: http://portal.hud.gov/hudportal/HUD?src=/program_offi ces/general_counsel/healthcarefaqs
OGCOFFICE OF GENERAL COUNSEL
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
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LEGAL ORCF FAQSOFFICE OF RESIDENTIAL CARE FACILITIES
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
• Addendum to Operating Lease• Borrower’s Certification• General• Intercreditor Agreement• Management Agents/Agreements• Master Lease SNDA• Note• Opinions• Request for Endorsement• Security
Instrument/Mortgage/Deed of Trust
• Operating Lease SNDA
• Agreement and Certification• Cross-Default Guaranty of
Subtenants• Healthcare Regulatory
Agreement—Borrower• Healthcare Regulatory
Agreement—Operator• Healthcare Regulatory
Agreement—Master Tenant• Lender Certification• Master Lease Addendum• Master Tenant Security
Agreement• Operator Security Agreement• Punch-lists• Scrivener’s Errors
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May 7, 2014 Key Contents: Sample 241(a) Documents Revision to New Document Implementation Matrix From The Closing Corner:
New Construction/Sub-Rehab, & 241(a) HUD Attorney Closing Punch-list (4-11-14) & Closing Checklist (4-14-14)
Use for all Firm Commitments dated 5-1-14 or after New Document Implementation Matrix
April 25, 2014 Key Contents: Mortgagee Letter (14-06): Portfolio and Master Lease Guidance
RECENT LEAN EMAIL BLASTS
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
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February 27, 2014 Key Contents: Proposed Intercreditor Agreement (HUD—92322 ORCF) Revisions and
Electronic Document Submission Issues Change of Revision Dates in Footer of Some ORCF Documents (back to
Rev. 03/13) From The Closing Corner:
Closing Statements-Sources and Uses Page for 223(f) and 223(a)(7) Closings
Litigation/Docket Searches Closing Queues Trans-Access Information Needed to Service New Loans: Get your CD to DC!
January 28, 2014 Key Contents: Improved Section 232 Program Website Now Available From The Closing Corner:
Firm Commitment Extensions for Projects Without a Closer Already Assigned
RECENT LEAN EMAIL BLASTS
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
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December 19, 2013 Key Contents: Section 241(a): Land Purchases and Renovation Loans From The Closing Corner:
Revised HUD Attorney Closing Punchlists for 223(f)s and 223(a)(7)s Applicable to Commitments On or After January 13, 2014
Firm Commitment Amendments and Reserve Account Balances-232/223(f) & 223(a)(7)
November 12, 2013 Key Contents: Server Limitations at HUD: Limit All Document Sizes to 50 MB
and Email Size to 15MB
RECENT LEAN EMAIL BLASTS
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
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MAP Guide (11-11). Specifi cal ly excludes Section 232, but includes Section 231 62+ projects (Chapter 3.4,S. Elderly Developments)
Closing Guide (4-13) also excludes Section 232 (Part 1.1 Objective)
HUD’s LEAN 232 Program Offi ce of Residential Care Faci l i t ies (ORCF) periodic updates ([email protected])
Go to www.hud.gov/healthcare
FOR GINNIE MAE SECURITIZED DEALS:
See Ginnie Mae Guide 5500.3 Rev.1 Chapter 32 (Construction Loan Pools), Chapter 31 (Project Loan Pools—Special Requirements, esp. 31-11; Converting a Construction Loan Pool to a Project Loan Pool)
Go to www.ginniemae.gov
Prepared by John E. Vihstadt, [email protected]
May 15, 2014
MORE CLOSING RESOURCES
