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§ ENSURING A SMOOTH HUD HEALTHCARE § 232 LEAN CLOSING Prepared by John E. Vihstadt, Esq. Krooth & Altman LLP 1850 M Street, NW Suite 400 Washington, DC.

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Presentation on theme: "§ ENSURING A SMOOTH HUD HEALTHCARE § 232 LEAN CLOSING Prepared by John E. Vihstadt, Esq. Krooth & Altman LLP 1850 M Street, NW Suite 400 Washington, DC."— Presentation transcript:

1 § ENSURING A SMOOTH HUD HEALTHCARE § 232 LEAN CLOSING Prepared by John E. Vihstadt, Esq. Krooth & Altman LLP 1850 M Street, NW Suite 400 Washington, DC (202) Southeast Mortgagee Advisory Counsel (SMAC) (LEAN—Underwriting Highlights, Closings, New Construction Panel) May 15, 2014 & pet peeves

2 START the Closing process early.  The “sweet spot” for K&A engagement and issuance of tailored legal closing “warm-up” materials is days ± before Commitment issuance, unless the deal has either Operator-Lessee or Accounts Receivable (AR) financing components, in which case Lender Counsel engagement should occur 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, Esq. May 15, START 2

3 ASK if the project’s likely HUD counsel has either a specific 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 office to closing office—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 specific closing documents questions. Prepared by John E. Vihstadt, Esq. May 15, ASK 3

4 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, Esq. May 15, STUDY 4

5 TAILOR the submission to the particular deal. Use the correct checklist(s) and Punch-list(s) and annotate them. Examples:  Secure health care licenses (check care level, # of beds/units, holder, exp. date, etc.), administrator & business licenses/permits and approvals, equipment leasing/acquisition documentation, major/minor moveable equipment listings, and the like.  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 settled.  Are there subordinate financing sources? Commercial Leases? Environmental issues? Reciprocal easements/shared uses? Air rights? Indian lands? Payoff issues? Environmental? Anything kinky or bizarre? Prepared by John E. Vihstadt, Esq. May 15, TAILOR 5

6 COORDINATE Closing documents submission to HUD in a unified 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, Esq. May 15, COORDINATE 6

7 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, Esq. May 15, REVIEW 7

8 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, Esq. May 15, REMEMBER 8

9 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, Esq. May 15, MAINTAIN 9

10 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 delivery requirements.  Remember post-closing documents dispatch. Prepared by John E. Vihstadt, Esq. May 15, ORCHESTRATE 10

11 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, Esq. May 15, FEAST 11

12  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 & Procedures Prepared by John E. Vihstadt, Esq. May 15, PET PEEVES

13  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: ministration/healthcare_facilities/residential_care/knowledgeb ase 13 SECTION 232 PROGRAM Q’S AND A’S Prepared by John E. Vihstadt, Esq. May 15, 2014

14 14 ORCF FAQS ORCF FAQS OFFICE OF RESIDENTIAL CARE FACILITIES Prepared by John E. Vihstadt, Esq. 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

15  In addition, HUD's Office 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.a website to display legal- related questions and answers  Website: neral_counsel/healthcarefaqs 15 OGC OGC OFFICE OF GENERAL COUNSEL Prepared by John E. Vihstadt, Esq. May 15, 2014

16 16 LEGAL ORCF FAQS LEGAL ORCF FAQS OFFICE OF RESIDENTIAL CARE FACILITIES Prepared by John E. Vihstadt, Esq. 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

17 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 ( ) & Closing Checklist ( )  Use for all Firm Commitments dated or after  New Document Implementation Matrix April 25, 2014 Key Contents:  Mortgagee Letter (14-06): Portfolio and Master Lease Guidance 17 RECENT LEAN BLASTS Prepared by John E. Vihstadt, Esq. May 15, 2014

18 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 18 RECENT LEAN BLASTS Prepared by John E. Vihstadt, Esq. May 15, 2014

19 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 Size to 15MB 19 RECENT LEAN BLASTS Prepared by John E. Vihstadt, Esq. May 15, 2014

20  MAP Guide (11-11). Specifically excludes Section 232, but includes Section projects (Chapter 3.4,S. Elderly Developments)  Closing Guide (4-13) also excludes Section 232 (Part 1.1 Objective)  HUD’s LEAN 232 Program Office of Residential Care Facilities (ORCF) periodic updates  Go to  FOR GINNIE MAE SECURITIZED DEALS:  See Ginnie Mae Guide Rev.1 Chapter 32 (Construction Loan Pools), Chapter 31 (Project Loan Pools—Special Requirements, esp ; Converting a Construction Loan Pool to a Project Loan Pool)  Go to Prepared by John E. Vihstadt, Esq. May 15, 2014 MORE CLOSING RESOURCES 20

21 THANK YOU! Prepared by John E. Vihstadt, Esq. May 15,


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