HUD Insured Loans – Source of Funds for Multi-Housing Projects

Michael Tiffany,  |  March 16, 2017

Since 1990, Tiffany & Bosco has represented owners of multi-housing projects in connection with loans that are insured by the U.S. Department of Housing and Urban Development (“HUD”). Recently, the loans have been primarily for upscale apartment projects and healthcare facilities.  However, they have also included other multi-housing projects such as hospitals and assisted and independent living facilities.  The HUD loans have been used to build new projects and refinance existing ones.

Tiffany & Bosco has closed over $1.8 billion in HUD insured loans.  The loan amounts have ranged from a low of $1,090,000 to a high of $46,418,400, with an average loan amount of over $12,500,000.  HUD insured loans have been attractive to developers and owners of new and existing projects for many reasons, including full amortization and non-recourse (even during construction).  When the owner sells the project, the buyer will assume the HUD insured loan and the owner will be discharged from it.  Additionally, the timetable for the processing of the loan applications through HUD is comparable to that of institutional loans.

The loan application is processed either by a HUD approved lender or mortgage broker. The processing time for the application is usually somewhere between four to six weeks.  Before and during the processing of the application, Tiffany & Bosco is often involved with the borrower in connection with (i) the purchase of the land for the project, (ii) the formation of the owner, (iii) tax issues, and (iv) other funding sources.

After HUD issues a firm commitment, Tiffany & Bosco will prepare, review and process the loan and related documents.  Any necessary preliminary work is completed before the issuance of the commitment, so that there are not any delays in the submittal of the closing document package.  A good working relationship with the HUD approved lenders and brokers and with the legal and non-legal personnel at HUD facilitates the efficient processing of the closing documents. The closing usually occurs within two to four weeks after HUD issues the firm commitment.

The key to a successful closing of a HUD insured loan is to keep the process simple.  Although forms that are required by HUD must be used, adequate knowledge and experience is essential to properly prepare and process the documents.  Also, there are numerous non-form documents that must be utilized and tailored to HUD’s requirements, such as the organizational documents of the borrower, a survey of the property and the title insurance policy.

As can be expected from such a large national lending program, HUD has experienced misconduct on the part of some of the individuals who are involved with HUD insured loans.  Because of this, HUD exercises a healthy level of caution in dealing with new borrowers and their representatives. This is another good reason to use the services of individuals and companies who are known and respected by the HUD personnel.