Southeast Mortgagee Advisory Council
12th Annual Meeting and Conference
Closing Process and Closing Documents
Thursday, May 30, 2013
Mark Eidson
Jan Weiss Haber
Kathleen Burtschi
Harrison Smith
Kate Murray
1
TIPS AND TRICKS:
TITLE & SURVEY
ORCF TITLE & SURVEY CHECKLIST
 Legal description verbatim, if not verbatim but
describes same property should be Ok.
 Note difference between record and survey calls.
 Slip Sheets identifying Exception Documents/Use
Sharpie to number each one.
 Non-Benign items on ORCF checklist must be
covered, others are recommendations for HUD to
consider. (No added risk to HUD, not life safety issue)
 Send scanned copies of title and survey to OHP
closing coordinator.
2
TIPS AND TRICKS
HUD REVIEW
• HUD Form Document - Changes to forms redlined.
• Management Agreement - Add HUD Provisions
• If License to New Operator Pending – Need letter
from State Agency that New Operator under review
OR
•
A leaseback to Old Operator, with a temporary
management agreement to transition to New
Operator.
• Organizational Documents: Place sticky note on
HUD provisions.
3
TIPS AND TRICKS: HUD REVIEW
• AR Financing - Send UCC searches on
Operator with AR financing documents submitted
with Application.
• Mortgagor Term – Must be perpetual or as long
as term of the loan.
• Operator Term – Must be at least as long as
term of the lease.
• Sprinklers required by 8/13/2013 per CMS Any Application for a 223(f) on a skilled-nursing
facility must be fully sprinklered and listed as
such on CMS website.
4
TIPS AND TRICKS: HUD REVIEW
Legal Opinion
 Use HUD form with few if any changes, or find
another Counsel that is comfortable with form;
 Don’t erase text from form;
 Use redline/strikethrough so HUD counsel can tell
what changed, and give rationale for change if
change is not just names/addresses of parties
Zoning Letter
 Want local municipality to give letter; not due
diligence firm
 If can’t get from locality, obtain zoning
endorsement to title policy
5
TIPS AND TRICKS: HUD REVIEW
Commercial Leases
• If large commercial tenant, advise them early of
HUD requirements (HUD Form SNDA)
Section 223(A)(7)s
• Vet any big issues through HUD (Ex. flood plain)
because HUD most likely will issue Firm.
• HUD general rule to is bring facilities in
compliance with current HUD requirements (AR
financing, DACA/DAISA)
6
TIPS AND TRICKS: ISSUANCE
OF FIRM
Loan Committee
 Biggest Issues Causing Delay
 Poor Quality Control of Packages
 Responsiveness of Lender (not legal)
Title/Survey Review
 Done on (f) and some (a)(7s) if OGC asks
 Gives Checklist on what needs revising or
explaining
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TIPS AND TRICKS: ISSUANCE
OF FIRM
After Firm – Must Submit Draft Closing
Package
 (a)(7): 7 business days or risk going back
to closing queue
 (f): 15 business days or back in queue
Submit draft package, then ask for closing
date, inform HUD of special closing
requirements (prepayment step down)
8
TIPS AND TRICKS: ISSUANCE
OF FIRM
Uniform and Complete
 Checklist on top and tab all documents in
checklist order
 Use Bold and Strikethrough unless
document offers alternative provisions
 Ask HUD counsel what documents they
want redlines of
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TIPS AND TRICKS: ISSUANCE
OF FIRM
Evidence of Special Conditions
• Special Conditions Matrix
 Place in each draft package.
 Note evidence to satisfy condition or what is
proposed to satisfy.
Critical Repairs
• Color photos, label the pictures with depicted
repair and attach invoice.
Closing Statement/Cost Certification
• Rough preliminary numbers are better than none
and acknowledgement of what’s coming (don’t just
ignore the item).
10
TIPS AND TRICKS: ISSUANCE
OF FIRM
Non-Critical Repairs
 If some are done, give photo/invoice and
revise list of what’s remaining.
 Have Firm amended to reflect items to be
repaired post-closing.
Rate Lock
Some OGC offices won’t review draft package until
after rate lock.
11
TIPS AND TRICKS: CLOSING
Common Special Conditions
 Fidelity (Crime/Dishonesty)/Prop/PLI –
Provide insurance accords
 Sprinkler System – all SNF’s must be
sprinklered per CMS by 8/13/2103
 Legal Punchlist comments
 Title and Survey Review
 Minimum Lease Payments – must
have 1.05 coverage
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TIPS AND TRICKS: CLOSING
Critical Repairs
• Many and high dollar value – often Lender will
already have discussed this with Borrower and
Borrower has completed repairs before Firm.
Repair Escrow for Non-Critical Repairs
 Take escrow of 120% 223(f) and 110%
223(a)(7) of amount of repairs
 Have 12 months to get them done
13
TIPS AND TRICKS: CLOSING
Number of Beds Noted on License and Regulatory
Agreement
•
License 140 beds, underwritten for the 105 beds
in use, put both numbers in Operator Regulatory
Agreement.
If License or Insurance Policies are set to expire
in less than a month before closing – need
updated license as evidence that renewal is in
process and will be granted.
•
223(f) Cost Certification - Need Payoff and Invoices
•
Doesn’t need to be duplicated in Closing
Statement attachment
14
KEY HUD LOAN DOCUMENTS
• Regulatory Agreements-Borrower and
Operator
• Mortgage/Deed of Trust/Security
Instrument
• Note
• Security Agreement- Operator
• Control Agreements- DACA and DAISA
• HUD Lease Addendum
15
HUD’S NEW 232 DOCUMENTS
•Became Final on 3/14/13 for
Transactions with Firm Commitments
Issued on or after April 9, 2013.
•Transition Rules:
• HUD delayed the implementation
date to July 12, 2013
• (a)(7) HUD will work with the Lender
to allow use of existing documents
previously approved so long as
terms and conditions remain the
same.
16
LOAN DOCUMENTS
TOP 10 SUBSTANTIVE
CHANGES
1. Distributions – For profit borrowers are no longer
limited to twice yearly distributions. Operator
distributions are not allowed if it has negative
working capital.
2. Bad Boy Act – Key Principal Liability - The new
Regulatory Agreement requires the listing of
certain key principals who will be liable for
certain “bad-boy” acts.
17
LOAN DOCUMENTS
TOP 10 SUBSTANTIVE
CHANGES
3. Nonprofit Borrower Reserve - Nonprofit
Borrowers have to post long-term debt service
reserve to have access to residual receipts
(profit). This is true even if Nonprofit elects to
follow more stringent underwriting requirements
of for-profit borrowers.
4. No Change to Permits - No project permits or
approvals, no matter how insignificant, can be
changed or altered without HUD approval. Any
violations thereof must be reported to HUD
within 2 days. HUD sole discretion at making
decisions regarding Operator’s facility if it
believes permits are at “substantial and
imminent risk of being terminated.”
18
LOAN DOCUMENTS
TOP 10 SUBSTANTIVE
CHANGES
5.
Litigation/Claims - Any litigation or claims
against the
borrower/operator/principals/facility/project
must be disclosed to HUD and no claim in
excess of $100,000 can be settled without
HUD consent.
6.
HUD Consent Amendments - HUD approval
is required for any amendment to a contract
that materially increases the obligations of
the borrower. All contractual obligations
must be disclosed to HUD.
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LOAN DOCUMENTS
TOP 10 SUBSTANTIVE
CHANGES
7. Consultants - HUD may require the borrower to hire a
consultant if there is a Project Operating Deficiency.
8. Recourse - Section 8(b) of the note provides that it
becomes recourse to the borrower under certain
conditions.
9. Security Interests - Tenant/Operators cannot grant security
interests to landlord/borrowers to secure rent payments in
third party tenant situations. Third Party Operators must
pledge their assets to their Landlord/Borrower’s loan.
10. AR Limits - Limitation to what AR lenders can recover as
collateral and time period their collateral retains priority in
the new Intercreditor Agreement.
20
BONUS – MORE CHANGES IN
HUD LOAN DOCUMENTS
Required Financial Statements of Operators:
Required of all operators (those in HUD inventory and new
deals):
• Must be submitted quarterly and annually.
• “Operator-certified”, not audited.
21
BONUS – MORE CHANGES IN
HUD LOAN DOCUMENTS
Operator Must Notify HUD if it “Places Value of Security at
Risk”
G Tag or higher
G Tag unresolved for 2 or more surveys
Repeat violation
Notify Lender/HUD of conduct, scope, remedies and timelines.
22
BONUS – MORE CHANGES IN
HUD LOAN DOCUMENTS
Healthcare Regulatory Agreement – Borrower
Paragraph 38
1. Borrower entity already signing Regulatory
Agreement, do not add Borrower to
Paragraph 38.
2. Firm Commitment will state who signs this
paragraph.
• Usually principals of Mortgagor entity,
parent of Nonprofit Mortgagor.
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