Office of Multifamily Housing Assistance Restructuring

Transcription

1 Office of Multifamily Housing Assistance Restructuring Stakeholder Communication Call OMHAR Update Monday, September 8, :00pm 3:00pm (Eastern) Call In Number: Chairperson: Hank Williams Co-Chairperson: Paige Warren AGENDA 1. OMHAR Strategic Plan (5 minutes) Hank Williams 2. Production Update (10 minutes) Closings to Date Savings to Date Deal Referrals to Date Current Pipeline Volume 3. Policy Update (30 minutes) John Prusch Debt Service Coverage ( , Cushion, IPF) TPAs Subsequent to M2M Rehab Escrow Administration Clearing Accounts Payable Neighborhood Networks in M2M/Significant Additions 4. Q&As (15 minutes)

2 OMHAR RESOURCE DESK BROADCAST ARCHIVE Sent: Monday, December 2, :09 PM Subject: TPAs Subsequent to Mark-to-Market Restructuring Attachment: Post-M2M Signed Final.doc The attached memorandum outlines the protocol under which the Department will process Transfer of Physical Assets (TPAs) with respect to properties whose mortgage debt was restructured under Mark-to-Market. OMHAR Resource Desk Work Product for Internal Use of OMHAR and PAEs Only

3 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C OFFICE OF MULTIFAMILY HOUSING ASSISTANCE RESTRUCTURING November 22, 2002 MEMORANDUM FOR: FROM: All Multifamily Hub Directors All Multifamily Program Center Directors All OMHAR Portfolio Directors All OMHAR Participating Administrative Entities Beverly J. Miller, Director, Office of Asset Management, HTG Charles H. Hank Williams, Director, Office of Multifamily Housing Assistance Restructuring, HY SUBJECTS: TPAs Subsequent to Mark-to-Market Restructuring Potential Eligibility of Nonprofit Purchasers for Modification or Forgiveness or Assignment of the M2M Second and Third Mortgages Summary: this memo outlines the protocol under which the Department will process Transfers of Physical Assets (TPAs) with respect to properties whose mortgage debt was restructured under Markto-Market (M2M). In general, Housing will process and approve these TPAs and OMHAR will provide support in several areas. This memo also discusses how the Department will determine whether nonprofit purchasers are eligible for modification or forgiveness or assignment of the M2M second and third mortgages Same Escrow M2M-TPA Transactions Not Included: Most transfers in M2M occur within the same closing escrow as the M2M closing, with the transfer taking place either very shortly before or very shortly after the M2M closing. These same escrow transactions will continue to be processed by PAEs and approved by OMHAR as provided in the existing Memorandum of Understanding. However, the TPA transaction may be processed and approved by the Hub or Program Center if it is jointly determined by the Hub or Program Center, the PAE and OMHAR to be the best approach for a specific property. Non-Profit Sale -- Three Year Window: For M2M debt restructures that take place with the existing owner, the standard M2M Restructuring Commitment provides that, if the owner sells to a qualified nonprofit purchaser (as defined in the M2M Operating Procedure Guide, Appendix C) within three years after the date of the Restructuring Commitment, the purchaser may qualify for modification or forgiveness or assignment of the M2M second and third mortgages. Some post-m2m TPAs will propose modification or forgiveness or assignment of these loans. The Restructuring Commitment

4 2 survives the M2M closing and thereby preserves this option for the three year window. The language in the restructuring agreement requires the TPA to be completed and closed prior to the end of the three year period If adequate time (generally 120 days should be sufficient to assure completion of review and closing of a TPA 1 ) is not available, after a request is received, to complete ALL TPA requirements prior to the three year expiration, the Hub or Program Center will so inform the requester within 10 business days after receipt of the request. If the three-year anniversary expires then the TPA to an NP will be sans debt modification, reduction or forgiveness. OMHAR Role: during the remaining term of OMHAR s existence, OMHAR will provide the following assistance for post-m2m TPAs: 1. Confirm the Qualified Status of Nonprofit Purchasers. OMHAR will determine whether the proposed purchaser is an independent, tenant endorsed, community-based nonprofit purchaser as defined in OPG Appendix C. 2. OMHAR will determine whether the proposed modification or forgiveness or assignment of the Secretary-Held M2M second and third mortgages is approvable under current M2M procedures. 3. OMHAR will authorize the modification, forgiveness or assignment of the debt. Hub / Program Center Roles: the Hub or Program Center with jurisdiction will process and approve the TPA under applicable guidance and will in all cases request assistance from the appropriate OMHAR Portfolio Director. 1 The 120 days is a guide but will be affected, by staff workload at the time of the request. For example, a request made 120 days in advance of a January or February closing may be considered insufficient time viewing staff availability and other end of year workload.

5 OMHAR RESOURCE DESK BROADCAST ARCHIVE Sent: Thursday, February 06, :01 PM Subject: Clearing of Payables at the M2M Closing Attachment: Payables Broadcast.doc The attached memorandum expands upon the requirements in OMHAR s May 15, 2002 broadcast guidance on underwriting and provides a more formal process for identifying, approving, and clearing payables prior to a M2M closing. This memo also provides a new policy for transactions that leave M2M with an Action Other Than Closing (AOTC) and subsequently return to M2M. OMHAR Resource Desk Work Product for Internal Use of OMHAR and PAEs Only

6 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C OFFICE OF MULTIFAMILY HOUSING ASSISTANCE RESTRUCTURING MEMORANDUM TO: FROM: PAEs OMHAR Staff April LeClair Chang, Senior Underwriter DATE: February 6, 2003 SUBJECT: Clearing of Payables At The M2M Closing The following procedures expand upon the requirements in our May 15, 2002 broadcast guidance on underwriting and provide a more formal process for identifying, approving, and clearing payables prior to a M2M closing. This memo also provides a new policy for transactions that leave M2M with an Action Other Than Closing (AOTC) and subsequently return to M2M. Purpose. A primary purpose of the M2M program is to produce financially sound transactions. After the M2M closing, transactions should have sufficient funds to pay reasonable, ongoing expenses as well as debt service, IPF, etc. However, M2M underwriting does not anticipate that closed transactions would also have to pay off other obligations that have been previously amassed by the property. Therefore, M2M policy requires that all Excess Obligations (as defined in the attached) be paid off in conjunction with the M2M closing, to assure that property finances are not destabilized as a result of attempting to pay them after closing. See the attached Instructions and Forms of Certification for the information to be provided by owners, how Excess Obligations will be determined, and how they will be addressed. Implementation. The certifications must be completed for all transactions that do not have Restructuring Commitments issued by the date of this memo. If this creates a hardship in any transaction, the Portfolio Director may waive the requirement at any time during the next two months. We would not expect waivers to be necessary thereafter. Owner Investment. As with other M2M transaction costs, the normal owner investment is 20%, and this investment is eligible for Capital Recovery Payments (CRPs). However: For any transactions that were completed PRIOR to the date of this memo with an AOTC at the owner s decision, but that return to M2M, the owner will pay 20% of acceptable Excess Obligations, and this will not be eligible for CRPs. For any transactions that are completed AFTER the date of this memo with an AOTC at the owner s decision, and that return to M2M, the owner will pay 40% of acceptable Excess Obligations, and this will not be eligible for CRPs. All arms-length TPAs will be excluded form the policies in the two preceding paragraphs. The purchaser will pay 20% of acceptable Excess Obligations, and that investment will be eligible for Capital Recovery Payments. Attachments: Instructions and Forms of Certification

7 INSTRUCTIONS FOR CERTIFICATIONS CONCERNING ACCOUNTS PAYABLE Initial Certification For Restructuring Commitment. The owner will complete one of the two attached certifications so that an estimate of the amounts to be cleared can be included in the Restructuring Commitment. The PAE will transmit the certification to the Multifamily Hub or Program Center for review and a determination whether the obligations are acceptable. Form A is for properties that have a history of positive Surplus Cash; Form B is for all other properties. Final Certification For Closing. The owner will certify again, just prior to the M2M closing. If needed, the PAE will consult with the Hub or Program Center concerning any material new payables added since the initial certification. As Of Date For Certifications. The PAE and owner will agree on an as of date for each certification, appropriate for the owner s accounting system and as recent as practicable. Supporting Information. Owners should provide supporting information (such as invoice copies and information supporting the reasonableness of the amount paid) for any obligations that might be questioned. Amount of Excess Obligations To Be Cleared. The PAE will require that all Excess Obligations be cleared. Excess Obligations means obligations (from Attachments A and B to the certification) in excess of available assets (from Attachments C and D to the certification). Typically, the most recent obligations will be offset against available assets. If the status of an obligation as excess is disputed, HUD s determination shall be final. Excess obligations acceptable to HUD will be cleared as transaction costs of the M2M closing. Obligations not acceptable to HUD must be paid by the owner, from non-project funds, and without regard to whether such obligations are excess. The PAE and OMHAR will not schedule the M2M closing until these unacceptable obligations have been paid off. Items Generally Not Acceptable As Transaction Costs. The Multifamily Hub or Program Center has full discretion to accept or not accept obligations. Owners should, however, expect that the following types of obligations generally will not be allowed as transaction costs: Entity expenses (including owner costs related to Mark-to-Market). Expenses that cannot be documented to the satisfaction of the Hub or Program Center. Amounts in excess of what is typical and customary for similar properties in the area in which the property is located. Items that were approved to be funded in other ways (for example, items for which a rent increase was previously approved). Mortgage delinquencies (unless approved by the PAE). Delinquent Reserve deposits (unless approved by the PAE). Deficient escrow accounts (these are normally brought current at the M2M closing). Under-funding of the Security Deposit account.

8 FORM A OF OWNER CERTIFICATION RE: ACCOUNTS PAYABLE [PAE name and address] [date] [OMHAR Portfolio Director name and address] Dear PAE and OMHAR: Re: [name of project, FHA number, city, state] (the Project ) Owner s Certification Regarding Accounts Payable This certification is given in connection with the planned Mark-to-Market ( M2M ) restructuring of the Project, [reflected in / to be reflected in] a Restructuring Commitment by and between [name of ownership entity] (the Owner ) and HUD s Office of Multifamily Housing Assistance Restructuring ( OMHAR ). The Owner hereby certifies that: 1. The information contained herein is true and correct. The person whose signature appears below is duly authorized to make this certification on behalf of the Owner and has reviewed all relevant books and records of the Project. The Owner understands that the PAE and OMHAR will rely upon the accuracy of this certification in developing and approving the M2M restructuring of the Project. In the event any statement in this certification is no longer correct or complete, the Owner agrees to immediately issue an amended certification. 2. The most recently issued audited financial statements of the Project reflected positive Surplus Cash. 3. The Owner believes that, if the Project were to issue audited financial statements as of the date of this certification, such statements would reflect positive Surplus Cash. Owner represents and warrants that this certification is correct and complete, and that no changes have been made to the wording of the standard form of certification promulgated by OMHAR. Owner agrees that failure to certify correctly and completely is a breach of the Restructuring Commitment. Owner agrees that, in addition to any other penalties and remedies available to HUD, failure to certify correctly and completely is a failure to materially comply with requirements of the Multifamily Assisted Housing Reform and Affordability Act of 1997 as those requirements apply to the Project and, as such, is grounds for acceleration of any Mortgage Restructuring Note and/or Contingent Repayment Note executed pursuant to the Restructuring Commitment. [name and title of authorized Owner representative] [date]

9 FORM B OF OWNER CERTIFICATION RE: ACCOUNTS PAYABLE [PAE name and address] [date] [OMHAR Portfolio Director name and address] Dear PAE and OMHAR: Re: [name of project, FHA number, city, state] (the Project ) Owner s Certification Regarding Accounts Payable This certification is given in connection with the planned Mark-to-Market ( M2M ) restructuring of the Project, [reflected in / to be reflected in] a Restructuring Commitment by and between [name of ownership entity] (the Owner ) and HUD s Office of Multifamily Housing Assistance Restructuring ( OMHAR ). The Owner hereby certifies that, as of [insert as of date for certification]: 1. The information contained herein is true and correct. The person whose signature appears below is duly authorized to make this certification on behalf of the Owner and has reviewed all relevant books and records of the Project. The Owner understands that the PAE and OMHAR will rely upon the accuracy of this certification in developing and approving the M2M restructuring of the Project. In the event any statement in this certification is no longer correct or complete, the Owner agrees to immediately issue an amended certification. 2. Attachment A hereto is a complete list of Accounts Payable of the Project, indicating date incurred, amount, vendor name, general nature of the goods or services purchased, and indicating whether the vendor has any Identity of Interest with any Principal of the ownership entity and/or any Principal of the property management agent. Accounts Payable means all items eligible to be reported on HUD/FASS Account 2110 Accounts Payable 30 Days. Identity of Interest is defined in HUD Handbook , Chapter 3, paragraph 3-4, item 17. Principal is defined in the Mark-to-Market Operating Procedures Guide, Appendix A. 3. Attachment B hereto is a list of all Other Project Liabilities of the Project. Other Project Liabilities means amounts eligible to be reported on HUD/FASS Surplus Cash accounts S Loans and Notes Payable [due within 30 days], S Accrued Expenses [not escrowed], 2210 Prepaid Revenue, or S Other Current Obligations. 4. Attachment C hereto is a complete list of the balances in all cash accounts (including any investment and petty cash accounts) eligible to be reported on HUD/FASS account 1120 Cash Operations. 5. Attachment D hereto is a complete disclosure of (a) all applications that have been made by or on behalf of the Project or the Owner for withdrawals from the Project s Reserve for Replacements or Residual Receipts accounts; (b) all Accounts Receivable of the Project (other than from Project tenants); (c) all insurance claims that have been filed on behalf of the Project or the Owner (for which proceeds have yet to be received); and (d) all events that have occurred with respect to the Project or the Owner and for which insurance claims may be filed. Accounts Receivable means amounts eligible to be reported on HUD/FASS

10 Surplus Cash account S Other Cash. Owner agrees that Accounts Payable and Other Project Liabilities of the Project, incurred prior to the M2M closing date but not referenced in this certification, are not eligible project expenses as defined by the Secretary of HUD, shall not be paid from Project funds, and shall be paid promptly by the Owner from Non-Project Funds, except as follows: Accounts Payable and Other Project Liabilities for normal monthly recurring costs incurred after the date of this certification, that are consistent with typical monthly amounts incurred previously by the Project and consistent with amounts underwritten by the PAE, may be paid before or after the closing as eligible project expenses. Other pre-closing Accounts Payable and Other Project Liabilities may be paid after the date of this certification as eligible project expenses only after HUD issues specific prior written approval. Non-Project Funds means funds of the Owner that are not assets of the Project (other than surplus cash distributable and distributed to the Owner), and that are not proceeds of any loan secured by the Project. Owner agrees that, if any Accounts Payable or Other Project Liabilities are paid as M2M transaction costs, and if the property has positive Surplus Cash as of its first fiscal year-end following the M2M closing, all such positive Surplus Cash will be treated as having been generated subsequent to the M2M closing, for purposes of the June 27, 2002 memorandum from Beverly Miller, entitled Surplus Cash Payments after Mark-to-Market Closing. Owner represents and warrants that this certification is correct and complete, and that no changes have been made to the wording of the standard form of certification promulgated by OMHAR. Owner agrees that failure to certify correctly and completely is a breach of the Restructuring Commitment. Owner agrees that, in addition to any other penalties and remedies available to HUD, failure to certify correctly and completely is a failure to materially comply with requirements of the Multifamily Assisted Housing Reform and Affordability Act of 1997 as those requirements apply to the Project and, as such, is grounds for acceleration of any Mortgage Restructuring Note and/or Contingent Repayment Note executed pursuant to the Restructuring Commitment. [name and title of authorized Owner representative] [date] [list attachments]

11 OMHAR RESOURCE DESK BROADCAST ARCHIVE Sent: Thursday, March 06, :55 PM Subject: Significant Additions Attachment: SignificantAdditionsmemo.pdf The attached memorandum provides updated guidance on significant additions. The current list of items which have been approved as significant additions is attached to the memorandum. OMHAR Resource Desk Work Product for Internal Use of OMHAR and PAEs Only

12 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D.C OFFICE OF MULTIFAMILY HOUSING ASSISTANCE RESTRUCTURING March 6, 2003 MEMORANDUM TO: PAEs, All OMHAR Staff FROM: April LeClair Chang SUBJECT: Significant Additions The 2002 amendments to the MAHRA legislation allowed for what we have designated significant additions certain types of improvements specifically designed to improve the living conditions of residents but not required by normal rehabilitation standards. In training on the new legislation, the examples given of significant additions were elevators, air conditioning, and community facilities. The intent of the legislative change was to assure that improvements that were highly desirable for tenant quality of life, but were optional and costly, would not be excluded because owners were ordinarily required to pay 20% of all rehab costs. In the case of significant additions, implementing guidance permits the owner to pay as little as 3% of the cost of the significant addition. Our original guidance on significant additions was, appropriately, very narrow. We focused especially on the concept of newness to assure that we were not permitting needed repairs (possibly neglected repairs) to be addressed with only a 3% owner contribution. To avoid abuse, we defined newness as narrowly as possible. For example, we indicated that replacement of current through-wall air conditioning with central air conditioning as NOT being a significant addition because some sort of air conditioning was already there. We have now had greater experience addressing significant additions and find it appropriate to consider a possibly broader scope of permitted items than was allowed in the first interpretation. It will remain the case that the significant addition must involve the installation or provision of a new item. (It cannot involve the repair of any existing system in situ and it cannot involve anything that is already required to achieve the non-luxury standard in MAHRA.) It also will remain a requirement that the significant addition must directly improve quality of life for the tenants. (The term directly refers to such items as air conditioners and community space that can improve the daily lives of tenants, not such items as the replacement of roofs that, at most, can return the living standards to the required minimum.) One change from our original guidance is that we will now allow replacement of through-wall air conditioners and baseboard heat with a central system where the current system is inadequate and no central system now exists. We were encouraged in this specific change by a transaction that currently has through-wall air conditioning and baseboard heat but the air conditioners and the wall spaces in which they are located are old and deteriorated, leaky, patched and taped, and do not service all rooms in the units. In addition, the baseboard heat is inefficient and costly to tenants who pay the cost of utilities. We have concluded in this example, that it is appropriate to add central heating and air conditioning as significant additions (including the cost of removing the deteriorated current equipment

13 and fixing interior spaces that need repair as a result). In the example, the central air conditioning and heating constitute a totally new system not the repair of a central system currently in place. The quality of tenant living will be significantly improved by providing the more efficient and reliable cooling and heating system which will service all living space and potentially reduce winter utility bills. As a side benefit, it will also improve desirability and marketability of the units in the future. PAEs may consider similar items for all transactions for which an RC has not been issued. However, for the first three months of implementation after the date of this memo, we request that PAEs discuss any items that fall under a broadened definition with the appropriate OMHAR office before discussing the items with the owner. To assure the best understanding of significant additions, we will post a descriptive list of approved significant additions on the Resource Desk and add to it if any new items are approved.

14 Significant Additions The following items have been approved as significant additions: New central air conditioning where no air conditioning existed New combined heating and air conditioning system where no air conditioning existed and an existing central heating system existed but needed replacement. The owner paid 3% of the cost of the difference between replacing the old system and installing the new combined system. New central air conditioning where current through-wall system exists but is old, deficient, and inefficient and does not serve all rooms in the units. In connection with this, the installation of central heating to replace a baseboard heat system that was also old and inefficient. The cost of removing the old system and repairing the walls and baseboards was also allowed. New elevator in low rise property for the elderly New elevator in an old but empty elevator shaft that remained after an earlier rehabilitation of a high-rise structure. The facility had one operating elevator but needed two, especially when the single elevator was broken or being serviced. New community building New bathroom facilities in a management building which contained no facilities at all. (Managers had to make use of a gas station across the street.) Showers where only tubs were provided. New security cameras and fences where none existed previously and need was clear.

15 OMHAR RESOURCE DESK BROADCAST ARCHIVE Sent: Thursday, August 14, :11 PM Subject: Rehabilitation Escrow Administration Tracking ( REAT ) Attachment: REAT POLICY AND PROCED doc The purpose of this memorandum is to advise you of a new initiative in which OMHAR will be performing additional oversight of the rehabilitation escrow progress. The Memorandum is addressed to and impacts the following individuals: All OMHAR Staff, All OMHAR Participating Administrative Entities, Rehab Escrow Administrators and All Multifamily Program Center Directors. (See attached file: REAT POLICY AND PROCED doc) Questions on this policy should be directed to Dao Vuong, REAT Manager (dao_vuong@hud.gov) or Richard Daugherty (Richard_P._Daugherty@hud.gov), Portfolio Director, New York Production Office. OMHAR Resource Desk Work Product for Internal Use of OMHAR and PAEs Only

16 U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT OFFICE OF MULTIFAMILY HOUSING ASSISTANCE RESTRUCTURING 1280 Maryland Avenue, SW Suite 4000 Washington, DC Date: August 14, 2003 TO: From: Subject OMHAR Staff All OMHAR Participating Administrative Entities Rehab Escrow Administrators All Multifamily Program Center Directors S. Paige Warren, Deputy Director for Production, OMHAR Rehabilitation Escrow Administration Tracking ( REAT ) The purpose of this memorandum is to advise you of a new initiative in which OMHAR will be performing additional oversight of the rehabilitation escrow progress. Background Physical preservation of our affordable housing stock is one of the three elementary goals of the Mark to Market program. The Rehabilitation Escrow ( Rehab Escrow or Escrow ) is a tool intended to ensure completion of the installation, repair or replacement of significant non-working physical elements of a restructured project, by causing the set-aside of funds and appointment of an Administrator to oversee the work and manage the allocated funds. The Rehab Escrow is governed by a Rehabilitation Escrow Deposit Agreement ( REDA ), which should specifically identify the work to be done, the extent of funding for the purpose, and the timeframe for completion. The REDA is executed by the owner, by OMHAR, The Participating Administrative Entity ( PAE ) and by the Escrow Administrator, and the REDA generally requires all work to be completed during the twelve (12) calendar month period following the closing of the restructured transaction. OMHAR had initially expected that the Rehab process had adequate built-in oversight and that work would proceed to completion without its further involvement. Recent experience has demonstrated that the Escrows are not always reaching completion. Rehab Escrows often include repairs and replacements deemed to have significant impact on the quality of tenants lives, thus the failure to complete these repairs in a timely manner causes a decline, or fails to improve, living standards at the affected properties. Furthermore, failure to complete the Rehab work may impact future valuation assumptions, operating expenses, and the overall physical and financial viability of a property, calling into question the reliability of OMHAR s repayment estimates for the restructuring mortgages and long-term savings calculations. Therefore, OMHAR will provide improved monitoring and oversight of the Rehab Escrows to achieve the following goals:

17 Rehabilitation Escrow Administration Tracking ( REAT ) August 14, 2003, Page 2? Timely completion of all required work under each REDA.? Early detection of, and devotion of priority attention to, slow or no-work situations.? Improvement of communication between Multifamily Offices, Property Owners, Escrow Administrators and OMHAR, to assist with early detection and correction of slow or no-work situations.? Enforcement of REDA; or pursuit of other available remedies in cases where the owner/manager fails or refuses to complete the specified repairs/replacements. REAT Manager Dao Vuong, of OMHAR s New York Production Office (NYPO), will manage the REAT program. A team of NYPO and Financial Advisor ( FA ) staff will be utilized for this effort under the supervision of the REAT Manager. Ms. Vuong s contact information is provided below. Monitoring Work Progress Effective August 18, 2003, OMHAR will track each closed transaction that employs a REDA, charting the progress of scheduled repairs and escrow disbursements through periodic contact with the Escrow Administrators. Particular scrutiny ( Priority status) will be given to Rehab Escrows that exceed either $100,000 total, or $5,000 per unit (and initially any Rehab Escrow that exceeds 365 days from closing date). Moreover, an OMHAR or Multifamily office may request Priority status on a smaller Rehab Escrow by contacting the REAT Manager, Dao Vuong. OMHAR may revise the Priority criteria as need and experience dictates. Process Overview Beginning August 18, 2003, whenever any transaction closes employing a REDA, the OMHAR Production Office will ensure that a paper copy of the REDA, Form 7.5, and Rehab Escrow detail page from the underwriting model is directed to: Dao Vuong OMHAR NYPO 26 Federal Plaza, Suite New York, NY (212) ext 3665 Fax (212) dao_vuong@hud.gov The REAT team will implement periodic contact with the Escrow Administrators and owners as necessary. The frequency of contact will vary with the size of the Escrow and whether problems surface. In summary, the REAT goals are:? creating dialog between Escrow Administrators and OMHAR? tracking progress of repairs? identifying hurdles and obstacles to completion

18 Rehabilitation Escrow Administration Tracking ( REAT ) August 14, 2003, Page 3? determining when problem situations (no work or late work) exist and cause of problems? timely resolution of problem situations The REAT team will coordinate with the appropriate Multifamily HUB office whenever remedial action or enforcement efforts are deemed necessary. Multifamily staff are responsible for bringing to the attention of the REAT Manager any specific instances of non-compliance, requests for extension of REDAs, tenant complaints or owner difficulties related to Rehab Escrow work they encounter. Likewise, OMHAR will coordinate with the appropriate Multifamily staff to ensure Asset Management personnel are aware of and involved in OMHAR s efforts to achieve compliance with the REDA. Multifamily recommendations in these cases will be actively solicited and given strong consideration, although final decisions concerning enforcement or extensions of REDAs will rest with the REAT Manager under the oversight of the NY Portfolio Director. Extensions and Modifications of Rehab Escrow Terms Experience has shown that Rehabilitations often encounter delays in work completion due to labor or material issues, weather conditions, or other unforeseen circumstances. Often the Escrow is nearly completed at its expiration; save for repair elements of nominal cost, and a minimal time extension would be sufficient to reach 100% completion. It is also reasonable to expect occasions where more substantial repairs cannot be completed prior to the Rehab Escrow expiration. Occasionally it may even be prudent to modify the repairs scheduled in a REDA. All requests for modification or extension of REDAs should be in writing and must be submitted to the REAT Manager. All signors of the original REDA must consent to any Amendment prior to seeking OMHAR approval. Effective immediately, OMHAR consent for modification or extension of REDA s will be given only by the NY Portfolio Director. The Director of OMHAR must also approve requests for extensions exceeding 6 months in duration or $ 500,000 in amount. Nominal extensions, defined as no more than 90 days and involving less than $ 10,000 in remaining repairs, may receive Administrative Extensions when the merits support approval, and when the Owner, Administrator and Multifamily Office all support the extension request. OMHAR s approval of the Administrative Extension will be issued via to all parties, and will not be followed by formal amendment of the REDA. For other extension requests and all other modifications to the REDA, the requesting party must prepare an Amendment to Rehab Escrow Deposit Agreement to accompany its request, and the request should provide sufficient information for OMHAR to reach a decision: explain why the modification or extension is necessary, include all pertinent details of the work remaining, the remaining escrow balance, and the time required for completion. A copy of the Amendment form will be available for download from OMHAR s website or OMHAR s Resource Desk The Owner, PAE and Administrator must each execute this document before forwarding the extension request to the REAT Manager for

19 Rehabilitation Escrow Administration Tracking ( REAT ) August 14, 2003, Page 4 consideration. The originating OMHAR office and the applicable Multifamily Office will receive copies of any extension or amendment. Enforcement Activities In the event that a Rehab Escrow is not completed pursuant to its terms, and extension of the completion time is not a suitable option, OMHAR and Multifamily will be required to take additional measures to assure completion of the repairs. The current REDA version (in use since February 2003) provides that a default may be addressed by any or all of the following remedies:? Declaration of default under the Regulatory Agreement? Declaration of default under the HAP Contract for failure to maintain the property? Acceleration of the Mortgage Restructuring Note ( MRN ) and if necessary, under the Contingent Repayment Note ( CRN ).? Transfer of remaining Rehab Escrow funds to HUD. Instances in which default remedies must be sought are expected to be isolated and extremely rare. In each case, an individual approach to resolution will be developed and pursued in concert with the respective Multifamily Office.