[Federal Register Volume 77, Number 225 (Wednesday, November 21, 2012)]
[Notices]
[Pages 69870-69890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28308]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5623-N-02]


Federal Housing Administration (FHA) Healthcare Facility 
Documents: Revisions and Updates and Notice of Information Collection; 
30-Day Notice

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, HUD.

ACTION: Notice.

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SUMMARY: On May 3, 2012, and consistent with the Paperwork Reduction 
Act of 1995 (PRA), HUD published for public comment, for a period of 60 
days, a notice advising that HUD was updating and revising a set of 
production, underwriting, asset management, closing, and other 
documents used in connection with transactions involving healthcare 
facilities, excluding hospitals, that are insured pursuant to section 
232 of the National Housing Act (Section 232). These documents are 
referred to collectively as the healthcare facility documents. The 60-
day notice published on May 3, 2012, together with a companion proposed 
rule published on that same date, started the process of updating the 
healthcare facility documents and the Section 232 program regulations.
    This 30-day notice published today continues the process required 
by the PRA. With the issuance of this notice, HUD will submit the 
information collection for the closing documents to the Office of 
Management and Budget (OMB) for review and approval, and assignment of 
OMB control numbers. In accordance with the PRA, the closing documents 
will undergo the public comment process every three years to retain OMB 
approval.

DATES: Comment Due Date: December 21, 2012.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street SW., Room 
10276, Washington, DC 20410-0500. Communications must refer to the 
above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov Web site can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
notice.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-

[[Page 69871]]

3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Kelly Haines, Director, Office of 
Residential Care Facilities, Office of Healthcare Programs, Office of 
Housing, Department of Housing and Urban Development, 451 7th Street 
SW., Room 10276, Washington, DC 20410-0500; telephone number 202-708-
0599 (this is not a toll-free number). Persons with hearing or speech 
disabilities may access this number through TTY by calling the toll-
free Federal Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On May 3, 2012, at 77 FR 26304, HUD published, in accordance with 
PRA requirements, a notice (60-day notice) seeking comments for 60 days 
on proposed changes to the healthcare facility documents. In 
conjunction with publication of the 60-day notice, the proposed revised 
healthcare facility documents were made available at: www.hud.gov/232forms. HUD presented the proposed revised healthcare facility 
documents in two formats: (1) A clean unmarked format for all 
documents; and (2) where available and appropriate, a redline/strikeout 
format showing changes made to either the final updated multifamily 
rental project closing documents or sample documents that have been in 
wide use.\1\ Along with the 60-day notice, HUD also published on May 3, 
2012, at 77 FR 26218, a proposed rule that proposed to strengthen 
regulations for HUD's Section 232 programs to reflect current policy 
and practices, and to improve accountability and strengthen risk 
management. A final rule following the May 3, 2012, proposed rule, and 
taking into consideration public comment, was published on September 7, 
2012, at 77 FR 55120 (referred to in this Notice as the ``2012 Final 
232 Rule'').
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    \1\ The final multifamily rental project closing documents can 
be found at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/mfhclosingdocuments. See also the announcement 
of the final documents published in the Federal Register on May 2, 
2011 (76 FR 24507).
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    This 30-day notice published today continues the process required 
by the PRA for the healthcare facility documents. As was the case with 
the 60-day notice, HUD will post on its Web site the healthcare 
facility documents. Again, HUD will show the documents (1) in a clean 
format, and (2) in redline/strikeout format, to show the changes made 
from the versions posted with issuance of the 60-day notice.
    While complying with the PRA, this 30-day notice, as was the case 
with the 60-day notice, provides information beyond that normally 
provided in such notices. The 60-day notice published on May 3, 2012, 
provided descriptions of the major documents that are used in FHA's 
healthcare transactions and identified differences, as applicable, from 
the final multifamily rental project closing documents and existing 
healthcare facility documents. This notice issued today identifies 
substantive changes that HUD has made to the healthcare facility 
documents in response to public comment submitted on the 60-day notice, 
responds to significant issues raised by commenters, and identifies 
changes that HUD is proposing for comment in this 30-day notice 
following further consideration of certain issues.
    The healthcare documents that HUD is submitting to OMB are posted 
on HUD's Web site at http://www.hud.gov/232forms. The Office of 
Residential Care Facilities (ORCF) is the office within HUD that 
manages the Section 232 program, which provides mortgage insurance for 
residential care facilities such as assisted living facilities, nursing 
homes, intermediate care facilities, and board and care homes.

II. Document Changes Following 60-Day Notice

    This section identifies key changes made by HUD in response to 
public comment on the 60-day notice, and further consideration of 
certain issues by HUD as highlighted below.

A. Numbers of Documents

    In the May 3, 2012, 60-day notice, HUD presented for public comment 
154 healthcare facility documents. In response to public comment and 
upon further examination and consideration of the documents during the 
60-day comment period, HUD now advises in this 30-day notice, that it 
has eliminated certain documents from the PRA process for various 
reasons, and separated concepts in certain existing documents into new 
documents. As a result of these changes, the number of healthcare 
facility documents presented for PRA purposes now numbers 115. Of the 
eliminated documents:
     14 documents were removed for various reasons: the 
information in the forms is captured elsewhere; the information is no 
longer necessary; or the particular form would better serve HUD and the 
industry as a sample document rather than a prescribed form. For 
example, the Healthcare Facility Summary Appraisal Report was 
eliminated, and any necessary portions were incorporated into HUD-
92264a-ORCF Maximum Insurable Loan Calculation; the Certification 
titled FHA Retyped Forms was deleted as obsolete; and the Deposit 
Account Control Agreement (DACA) and Deposit Account Instructions and 
Service Agreement (DAISA) were deleted from the PRA process and are 
being made into samples.
     20 checklists (including all 16 Production Checklists and 
4 Asset Management Checklists) were removed. The Checklists summarize 
and list other exhibits in the application but do not collect 
information. The Checklists simply serve as a reminder of the documents 
that may be needed for a particular transaction.
     The 8 Firm Commitments have been removed. The Firm 
Commitments are letters from HUD to the lender setting forth the terms 
of the transaction and do not collect information or imposing 
recordkeeping requirements.
     The Subordination Agreement and Subordination, Non-
Disturbance, and Attornment Agreement relating to the Operating Lease, 
were combined into one document.
    In addition, 4 new documents were added:
     The HUD-2205A-ORCF, Borrower's Certificate of Actual Cost, 
was added, because the existing HUD multifamily form no longer applies 
to Section 232 projects.
     An additional addendum was added to the existing Section 
223a7 Lender Narrative to address Transfers of Physical Assets (TPA), 
which now allows for more seamless processing of a refinance and TPA 
simultaneously.
     In addition to the existing Lender Narrative for a Blended 
Rate--Single Stage, two additional documents were added to allow a 
project to submit for a blended rate in a two stage process: Blended 
Rate--Initial Submission and Blended Rate--Final Submission.

B. Key General Changes

    Long-term debt service reserve. A key provision proposed for the 
Section 232 program regulations and the healthcare facility documents 
was the establishment of a long-term debt service reserve. The proposed 
long-term debt service reserve was meant to provide a borrower facing 
operating difficulties at any time throughout the life of the mortgage 
the time to arrange a workout plan by providing a source of funds from 
which the borrower could

[[Page 69872]]

make debt service payments and thus delay or avoid an insurance claim 
by the lender. In the 2012 Final 232 Rule, HUD revised its policy so 
that this reserve will not be established for every project, but is 
likely to be implemented when there is an atypical long-term project 
risk. Atypical long-term risks could occur, for example, in 
circumstances in which there is an unusually high mortgage amount, or 
when some other risk mitigant, such as a master lease structure 
typically used in a portfolio transaction, is unavailable in a 
particular transaction.
    Consistent with the change made in the 2012 Final 232 Rule, 
applicable healthcare facility documents have been revised to reflect 
the policy that the long-term debt reserve is not a requirement for 
every project.
    Segregation of operators' accounts. HUD originally proposed a 
requirement to segregate accounts by facility. In the 2012 Final 232 
Rule, HUD stated that public commenters advised, and HUD agreed, that 
accounting software was available today to maintain accounts in a 
manner that separates funds for HUD's reporting purposes. Consistent 
with the 2012 Final 232 Rule, the applicable healthcare facility 
documents provide that the operator must maintain accounts in a manner 
that will allow HUD and the lender to reliably and readily discern the 
funds attributable to the facility. To the extent an operator's 
accounting software maintains account information so that funds 
attributable to the facility can be readily and reliably tracked, 
segregating accounts by facility is not specifically required.
    Reasonable costs for goods and services. HUD's 2012 Final 232 Rule 
at 24 CFR 232.1007 requires that the costs of goods and services 
purchased or acquired in connection with the project be reasonable and 
reflect market prices, which provides HUD with adequate protection in 
regard to the level of principals' salaries or other compensation. 
Applicable healthcare facility documents have been revised to reflect 
this change made at the final rule stage.
    HUD approval of a material revision to management agreements. In 
the 2012 Final 232 Rule, HUD decided to retain the proposed requirement 
for HUD initial approval of management agent agreements. However, the 
2012 Final 232 Rule dropped the requirement that HUD approve every 
change to the management agent agreement and instead requires approval 
of only those revisions that are material. This requirement has been 
revised in the applicable documents, such as HUD-90017-ORCF the 
Consolidated Certification--Management Agent.
    Requirements applicable to third parties. Several commenters 
expressed concern that forms establishing privity with unrelated third 
parties would not be acceptable to such third parties who are not 
benefiting from the FHA-insured transaction. Commenters suggested that 
such documents be adopted as guides with variations permitted to suit 
the specifics of each respective transaction. HUD agrees with this 
proposal and the provisions of the proposed Deposit Account Control 
Agreement (DACA), the proposed Deposit Account Instructions and 
Services Agreement (DAISA), and the proposed Blocked Account Agreements 
will be incorporated into sample documents outside of the PRA process.
    Requirements for Financial Reports. Consistent with the 2012 Final 
232 Rule, the documents require that financial reports be submitted 
within 30 days of the end of a quarter to allow HUD to effectively 
monitor a property's financial operations and the trend of those 
operations. As the rule recognized the intricacies involved in 
developing year-end financial statements, HUD has extended the 
submission of the final quarter and year-to-date operator-certified 
statements submitted for the 4th fiscal year quarter to 60 calendar 
days following the end of the fiscal year. In addition, the documents 
still reflect the policy established in the 2012 Final 232 Rule that 
separate reports are still required when the borrower is also the 
operator, as operator reports are to be submitted in separate systems 
that allow for more prompt submission than audited reports.
    Surplus Cash. Consistent with the 2012 Final 232 Rule, which 
removed a proposed regulatory definition of surplus cash and stated 
that the term would be defined in the documents, surplus cash is 
defined in the borrower's regulatory agreement. Commenters had stated 
that HUD was proposing inappropriate and unnecessary alterations of the 
definition of surplus cash as it has been used in practice, in 
accordance with guidance set forth in the Industry User Guide for the 
Financial Assessment Subsystem--Multifamily Housing (FASS-SUB) \2\, and 
other handbooks and guidance, for many years. Upon consideration of the 
issues raised by the commenters, HUD concluded there was no need to 
alter the definition of surplus cash, and returned to that definition 
of surplus cash currently in use.
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    \2\ Available on the HUD web page at http://portal.hud.gov/hudportal/HUD?src=/program_offices/public_indian_housing/reac/products/fass/fassmf_guide.
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    Working Capital. The proposed rule included a requirement to 
maintain positive working capital. In response to commenters' concerns 
about such matters as the need to look at operators' aggregate 
portfolios, and limitations on the operators' ability to efficiently 
manage cash at the multi-provider level, the 2012 Final 232 Rule 
dropped the requirement to maintain positive working capital at all 
times. Pursuant to comment, HUD has revised the definition of 
``Healthcare Facility Working Capital'' in the operator's regulatory 
agreement and will provide additional details on its calculation as 
necessary.
    HUD also revised the operator's regulatory agreement, consistent 
with the 2012 Final 232 Rule, to remove the requirement to maintain 
positive working capital. In lieu of such requirement, consistent with 
the 2012 Final 232 Rule, if a quarterly financial statement is not 
filed or demonstrates negative working capital, the operator's 
regulatory agreement now prohibits funds generated by the operation of 
the healthcare facility to be taken as distribution or used for other 
purposes, except as specified.
    Across-the-board changes. Several of the certifications were 
revised to include language from HUD's regulations namely 24 CFR 
200.62, which provides that any agreement, undertaking, statement or 
certification required by the Commissioner shall specifically state 
that it has been made, presented, and delivered for the purpose of 
influencing an official action of the FHA, and of the Commissioner, and 
may be relied upon by the Commissioner as a true statement of the facts 
contained therein.
    Other nomenclature and wording changes were made. For example, in 
HUD-92415-ORCF, the Request for Permission to Commence Construction 
Prior to Initial Endorsement for Mortgage Insurance, the term 
``mortgagor'' was changed to ``applicant'' throughout the document. 
Further, adjustments were made to make the forms more generic, and 
eliminate needless duplication. In addition, several of the documents 
were revised, in accordance with the 2012 Final 232 Rule, to revise the 
time frame for providing notices relating to certain operational 
deficiencies to two (2) business days.
    All changes made to the healthcare facility documents, whether 
substantive changes or wordsmithing changes, are presented in the 
redline/strikeout

[[Page 69873]]

versions of the documents on HUD's Web site.

C. Key Changes by Category of Document

Production--Lender Narratives
    These documents include information and certifications that must be 
made by the lender to ensure that a project is consistent with the 
Section 232 program requirements and therefore meets FHA eligibility 
requirements. These ``Lender Narratives'' are the summary document for 
each application submission. Based on commenters' concerns, the Lender 
Narratives have been simplified and revised to make the documents as 
consistent as possible across each loan type.
    While members of the public did not submit extensive public 
comments on these documents, many of the changes adopted reflect 
changes made in other healthcare facility documents. For example, the 
other documents include updated environmental requirements, and updated 
procedures such as those regarding the amount of commercial space 
allowed in a facility or the flood insurance requirements. Also, minor 
technical changes were made, such as cross references to new or changed 
documents. Changes to these documents are reflected in the redlined/
strikeout documents posted on HUD's Web site at the address set forth 
in the introduction to this notice.
HUD-9001h-ORCF: Addendum to Underwriting Narrative--Transfer of 
Physical Assets (TPA), Section 232/223(a)(7)
    HUD has added an additional addendum to the lender's narrative for 
the Section 223(a)(7) refinance program. This new addendum addresses 
the requirements for conducting a TPA concurrently with a refinance. 
This addendum takes the place of the previous addendum ``h,'' which 
related to the operating lease and is being incorporated into the main 
lender's narrative document, Lender Narrative, Section 232/223(a)(7), 
HUD-9001-ORCF.
HUD-9003a-ORCF: Addendum to Underwriting Narrative--Phase I 
Environmental Site Assessment, Section 232/241(a)
    This form has been eliminated, and relevant information has been 
incorporated into a checklist.
HUD-90025-ORCF: Lender Narrative--Existing Buildings with New 
Construction, Section 232--Blended Rate 2 Stage, Initial Firm 
Submission; and HUD-90025a-ORCF: Lender Narrative--Blended Rate, 
Section 232--2 Stage, Final Firm Submission
    These forms were added as lenders have requested the option to 
submit blended rate projects via the two stage process.
Production--Certifications
    This group of documents consists primarily of consolidated 
certifications, which allow each participant in the application 
submission process--the lender, borrower, principal of borrower, 
operator and/or management agent--to submit one document containing all 
required certifications. The required certifications mirror the 
certifications required for the multifamily program, and include 
certifications relating to: identifying parties to the transaction, 
whether there are identities of interest, granting credit 
authorizations, compliance with the Byrd Amendment, compliance with 
Title VI of the Civil Rights Act of 1964, and HUD mortgage insurance 
program requirements. These certifications also include language 
regarding previous participation disclosures. These certifications did 
not receive any public comments, and few substantive changes were made 
to them since the initial publication. Changes to the documents are 
reflected in the redlined documents posted on HUD's Web site at the 
address set forth in the introduction to this notice.
Construction Documents
    There were few public comments on these documents, and those 
comments submitted predominately related to loans for the Section 232 
program for new construction. The majority of changes to the documents 
were for minor editing changes or clarifications of policy. Changes to 
the documents are reflected in the redlined documents posted on HUD's 
Web site at the address set forth in the introduction to this notice.
Escrow Documents
    These documents were generally updated to clarify escrow 
calculations. Some signature lines were added to specify certification 
of the calculations included on the forms.
Asset Management Documents
    Few comments were submitted on these documents which are used by 
HUD for routine reviews and approval of facility operations.
Accounts Receivable Documents
HUD-92322-ORCF: Intercreditor Agreement
    A provision related to the timeframe and scope of the lien was 
adjusted to provide at least 30 days notice before the ``Cut-Off Time'' 
when HUD assumes a priority lien position. This would allow additional 
time for a turnaround, rather than having the cut-off enforced at the 
time notice is served.
    Several definitions were revised to accommodate concerns from the 
accounts receivable industry, including ``Protective Advances,'' ``AR 
Lender Priority Collateral'' and ``AR Loan Obligations.''
HUD-90020-ORCF: Account Receivable Financing Certification
    As a result of public comment to the Intercreditor Agreement, a new 
section clarifies HUD's requirements that property securing FHA-insured 
loans may not cross-collateralize obligations of properties without FHA 
insured loans.
HUD-92321-ORCF: Blocked Account Agreement
    This document was removed as a result of public comments. It will 
be a sample document, not a required form.
HUD-92324-ORCF: Rider to the Intercreditor Agreement
    This document was removed as a result of public comments. It has 
been incorporated directly into the Intercreditor Agreement.
Master Lease Documents
    The collection of Master Lease documents was established to address 
the increase in the number of multi-facility portfolio transactions 
submitted to the Section 232 program. The May 3, 2012 60-day notice 
proposed a master tenant security agreement, a master tenant regulatory 
agreement, a subordination/subordination non-disturbance and attornment 
agreement, a cross-default guaranty of subtenants, and an addendum to 
the master lease which includes provisions protecting the lender and 
HUD's interests. The master lease structure allows for any rental 
deficiencies at one facility to be supported by income from another 
facility under the master lease. A master lease does not, however, pool 
the assets of all facilities for underwriting a single mortgage; each 
individual loan must meet HUD's underwriting standards on its own 
merit.

[[Page 69874]]

HUD-92211-ORCF: Master Lease Addendum
    In reviewing this document in response to public comment, HUD 
attempted to eliminate unnecessary duplication and retain only those 
provisions most appropriate for the Master Lease Addendum. Provisions 
requiring direct enforcement rights were moved to the master tenant 
regulatory agreement. In addition, HUD clarified provisions regarding 
``bed authority,'' acknowledging that in most instances, the operator 
holds the licenses required to operate the healthcare facility. HUD 
clarified the term ``Approved Use'' consistent with current policy.
HUD-92331-ORCF: Cross-Default Guaranty of Subtenants
    The title of this document was changed from ``Subtenants Cross 
Guaranty'' to ``Cross-Default Guaranty of Subtenants.'' HUD also made 
additional clarifications pursuant to public comment.
HUD-92333-ORCF: Master Lease Subordination, Non-Disturbance and 
Attornment Agreement (SNDA)
    Minor rewording and clarifications were made to make this document 
consistent with other documents and terminology used throughout all of 
the healthcare facility documents.
    To be consistent with 24 CFR 232.1015 of HUD's 2012 Final 232 Rule, 
the time frame for providing notices relating to certain operational 
deficiencies has been clarified as two (2) business days.
    In response to comments, this document was revised to give 
additional rights to and clarify the rights of the lender. For example, 
clarifications were adopted to provide the lender authority to allow 
the operator to select and engage the services of a management 
consultant in the event of a project operating deficiency.
HUD-92335-ORCF: Guide for Opinion of Master Tenant's Counsel
    The title of this document was changed from Master Tenant's 
Attorney's Opinion to Guide for Opinion of Master Tenant's Counsel. New 
sections were added in the document to describe the exercise of rights 
or enforcement of remedies, security interest and rights to the 
collateral, which are consistent with the Guide for Opinion of 
Borrower's Counsel. A new section was added to clarify that the Guide 
for Opinion of Master Tenant's Counsel is governed by the laws of the 
state where the project is located.
HUD-92337-ORCF: Healthcare Regulatory Agreement--Master Tenant
    Changes were made to make this document consistent with the 
borrower's and operator's regulatory agreements. Provisions that had 
required segregated accounts were revised in accordance with the 2012 
Final 232 Rule. The provision requiring the healthcare facility to 
maintain positive working capital at all times has been removed.
HUD-92340-ORCF: Master Tenant Security Agreement
    In response to public comments regarding Uniform Commercial Code 
(UCC) requirements, among other changes, the UCC definition of 
``Debtor's location'' reflects UCC requirements rather than, as in the 
proposed document, the location of the chief executive's office. A new 
clarification was added for ``Permitted Liens,'' encompassing both the 
security interest in favor of the secured party and any liens approved 
in writing by the secured party and HUD, which are allowable liens 
against the collateral. Additional recitals and optional language were 
added to this document to address different scenarios within a project 
(e.g. to account for a situation where the borrower is not the same as 
the operator or when a master lease is involved).
Additional Legal Documents
    This category is mainly comprised of the documents relating to the 
borrower's and operator's attorneys' opinions. A summary of the 
substantive updates is presented below.
HUD-91725-ORCF: Guide for Opinion of Borrower's Counsel
    The document was modified to provide that the enforceability 
opinion does not include the ground lease and certain other documents.
HUD-92325-ORCF: Guide for Opinion of Operator's Counsel and 
Certification
    The documents include several revisions in response to public 
comments. One modification was to change all references to ``Property'' 
to refer to the ``Project'' when referring collectively to all of the 
types of property interest that are to serve as collateral for the 
loan.
Additional ORCF Documents
    Changes to the documents are reflected in the redlined/strikeout 
documents posted on HUD's Web site at the address set forth in the 
introduction to this notice.
HUD-91121-ORCF: Deposit Account Control Agreement (DACA); HUD-91122-
ORCF: Deposit Account Instructions and Services Agreement (DAISA); and 
HUD-92321-ORCF: Blocked Account Agreement
    Several commenters recommended that these documents be eliminated 
as HUD mandated forms because they are used with third parties who do 
not normally do business with HUD. The commenters noted that many 
depository banks, which are large institutions, have their own forms 
and will not accept the HUD form. The commenters suggested, and HUD 
agrees, that these documents are more appropriate as samples rather 
than as forms. As a result, these documents have been removed from the 
PRA process. Several commenters also provided technical comments which 
will be addressed when the sample documents are generated.
HUD-92264-ORCF: Healthcare Facility Summary Appraisal Report
    As this form was only used by Section 232 new construction program 
applicants, a few sections of this form (e.g., Land and Replacement 
Cost) were incorporated into the related Maximum Insurable Loan 
Calculation form. The Healthcare Facility Summary Appraisal Report has 
been eliminated.
HUD-92264a-ORCF: Maximum Insurable Loan Calculation
    The document name was changed to Maximum Insurable Loan Calculation 
to avoid confusion with an existing FHA multifamily program form with a 
similar name. The document was also changed to an Excel spreadsheet 
with tabs for instructions, sources and uses, land, replacement cost, 
loan determination criteria and criteria by loan type. Additional 
features of the form include context sensitive comments for individual 
cells and calculations for many cells.
HUD-92323-ORCF: Operator Security Agreement
    In response to public comment, a new attachment was added to 
provide an operator Assignment of Leases and Rents subpart of this 
form. This new document is the only portion of the operator Security 
Agreement that is recorded. This change removes the recordation 
requirement for the main document. Other changes were made in response 
to public comment, including adding a concept of ``permitted liens,'' 
and clarifying government receivables account requirements.

[[Page 69875]]

HUD-92466-ORCF: Healthcare Regulatory Agreement--Borrower
    This agreement reflects changes made in the 2012 Final 232 Rule. 
For example, the time frame for providing notices relating to certain 
operational deficiencies has been clarified as two (2) business days; 
the long-term debt service reserve requirement is no longer a standard 
provision for every transaction; provisions relating to reasonable 
operating expenses and ensuring goods and services are acquired at 
favorable prices were clarified, and in reliance of these 
clarifications, subsequently unnecessary provisions, such as provisions 
limiting payments to affiliates, have been relaxed.
    HUD also made several changes to this document pursuant to public 
comment. Triggers for causing the termination of a management agreement 
were clarified. The surplus cash calculation provisions reflective of 
current policy were reinstated. Requirements for non-profit borrowers 
to take distributions were clarified to reflect current policy.
HUD-92466a-ORCF: Healthcare Regulatory Agreement--Operator
    This agreement also reflects changes made in the 2012 Final 232 
Rule. For example, since the 2012 Final 232 Rule allows aggregated 
accounts so long as accounting can readily and reliably identify and 
analyze each facility's financial transactions, provisions requiring 
segregated accounts have been revised accordingly. As with the 
borrower's regulatory agreement, the time frame for providing notices 
relating to certain operational deficiencies has been clarified as two 
(2) business days and the provisions relating to reasonable operating 
expenses and procedures for ensuring favorable pricing for goods and 
services have been clarified.
    Several changes were made based on public comments received. The 
requirement to maintain positive working capital at all times was 
removed. Clearer standards triggering HUD's right to require the 
operator to hire a consultant were set forth. HUD limited its ability 
to declare an immediate event of default to situations where a 
termination, suspension or restriction on a necessary permit or 
approval would have a materially adverse effect on the operation of the 
healthcare facility.
HUD-94000-ORCF: Security Instrument/Mortgage/Deed of Trust
    In addition to the revisions made in response to the comments 
discussed below, language was added to this document in response to 
comment to obligate the borrower to assure that the operator, master 
tenant and management agent comply with UCC related provisions and to 
allow liens in favor of HUD-approved accounts receivable lenders.
HUD-9839-ORCF: Management Certification
    This form has been revised to be consistent with HUD's 2012 Final 
232 Rule, at 24 CFR 232.1011, captioned Management Agents, and to 
clarify the requirements for a management agent and the management 
agreement.
Production--Firm Commitments
    As stated previously, HUD determined that these documents are 
inappropriate for the PRA process, and these documents have been 
removed. HUD will provide additional details about these documents as 
necessary.
Production--Checklists
    As stated previously, HUD determined that these documents are 
inappropriate for the PRA process, and these documents have been 
removed. HUD will provide additional details about these documents as 
necessary.

III. Discussion of Specific Public Comments

    Thirteen sets of public comments were submitted in response to the 
60-day notice through www.regulations.gov, the government-wide portal 
for the receipt of public comments on federal agency documents.\3\ 
Comments were submitted by a wide variety of parties including: 
commercial mortgage bankers and other lenders, a management oversight 
and consulting services company for skilled nursing facilities and 
related healthcare providers, companies that own, manage, and operate 
skilled nursing facilities and assisted living facilities; and national 
and state healthcare associations. Comments were also submitted by a 
coalition of national investment and mortgage bankers that participate 
in HUD's healthcare programs, as well as a trade association of 
lenders. The ``HUD Practice Committee'' submitted comments on behalf of 
the Forum on Affordable Housing and Community Development Law of the 
American Bar Association. Private individuals also submitted comments.
---------------------------------------------------------------------------

    \3\ Public comments submitted in response to the May 3, 2012, 
60-day notice can be found at http://www.regulations.gov/#!searchResults;rpp=25;po=0;s=FR-5623-N-01.
---------------------------------------------------------------------------

    As a special outreach to the public on proposed changes to the 
Section 232 program regulations, HUD hosted a forum, the ``Section 232 
Document and Proposed Rule Forum'' on May 31, 2012, in Washington, DC. 
A video of this forum is available on the HUD Internet site at http://portal.hud.gov/hudportal/HUD?src=/press/multimedia/videos. While 
comments were raised and discussed at the forum, as reflected in the 
video, HUD encouraged forum participants to file written comments 
through the www.regulations.gov Web site so that all comments would be 
more easily accessible to interested parties. All comments, whether 
submitted through www.regulations.gov or raised at the forum, were 
considered in the development of these revised documents.
    In addition to comments submitted in response to the 60-day notice, 
27 public comments were submitted in response to the companion May 3, 
2012, Section 232 proposed rule. To the extent that comments submitted 
on the proposed rule related to the healthcare facility documents, 
those comments were taken into consideration in the further development 
of the healthcare facility documents presented for additional public 
comment in this 30-day notice.
    This section of the notice highlights the key issues raised by 
public comments on the documents and HUD responses to these comments. 
Some documents received no comments and therefore are not included in 
the discussion section below. For other documents, many of the changes 
suggested and those adopted by HUD have been discussed in Section II of 
this notice.
    Many commenters recommended different terminology or different 
organizational structure to several of the documents. All these types 
of comments are not necessarily addressed in this section of the 
notice. To address each editorial/organizational structure recommended 
change would result in a very lengthy notice. The redline/strikeout 
versions of the documents, however, reflect all changes that HUD agreed 
with and adopted, and have taken into account any such recommended 
editorial/organizational changes that HUD did not agree or adopt. 
Finally, certain issues raised by the commenters on the documents were 
also raised in connection with the companion proposed rule. To the 
extent that comments were similar and have been addressed in the 
preamble to the 2012 Final 232 Rule, HUD does not repeat the issue and 
response in this notice.

[[Page 69876]]

    Generally, in the discussion of public comments that follows, the 
terms ``section'' and ``paragraph'' are interchangeable. Some of the 
documents specifically use the term section, while others simply number 
paragraphs.

HUD-93305-ORCF: Agreement and Certification

    Comment: A commenter raised questions about whether the language in 
the document regarding reduced costs (section 3) was determined by HUD 
to be a ``loan reduction'' and must either go to pay down the mortgage 
or be deposited into the reserve for replacement account to avoid 
modification of the loan and an accompanying prepayment penalty. 
Essentially, the commenter asked whether this constituted prepayment of 
the loan amount if it was less than estimated prior to final 
endorsement.
    HUD Response: HUD revised the language in the document to clarify 
the treatment of these funds and re-characterize the calculation as 
excess mortgage proceeds. These amounts would thus not constitute a 
prepayment and accordingly would not trigger the need to look to the 
prepayment lockout and accompanying penalties.

HUD-92441-ORCF: Building Loan Agreement

    Comment: A commenter recommended changing paragraph 4(c), which 
requires a disbursement agreement be attached to the document, to allow 
either separate disbursement agreement or an attached table of 
mortgageable cost items rather than requiring a separate disbursement 
agreement.
    HUD Response: HUD declined to adopt this revision. HUD recently 
addressed this question in connection with the update of the 
multifamily rental project closing documents, and determined that a 
disbursement agreement is always required in new construction. HUD 
determined that it would be much harder to enforce a table of 
mortgageable costs versus a disbursement agreement that is signed by 
the parties.

HUD-92441a-ORCF: Building Loan Agreement Supplemental

    Comment: A commenter suggested eliminating this supplemental form 
given that the provisions in this form are addressed in the Building 
Loan Agreement.
    HUD Response: It is HUD's view that it would be very rare that a 
borrower acts as its own general contractor, a supplement is more 
appropriate rather than adding this language to the standard Building 
Loan Agreement.

HUD-92554-ORCF: Supplementary Conditions of the Contract for 
Construction

    Comment: A commenter questioned why there was a supplement to the 
Construction Contract, stating that this structure made sense when HUD 
was using old documents, but that it seemed more efficient to 
incorporate these provisions into the contract now.
    HUD Response: The approach to retain a set of supplemental 
conditions to the construction contract maintains a long-standing 
approach used in the multifamily documents and matches an approach used 
by the AIA construction forms.

HUD-92412-ORCF: Working Capital Escrow

    Comment: A commenter suggested additional language at page 3, 
paragraph 4, specifying that for purposes of calculating the debt 
service coverage ratio, any operating lease will be disregarded and 
that the debt service coverage ratio will be calculated based upon the 
operating results of the project rather than of the borrower, master 
tenant or operator. A similar comment, to carve out the operating lease 
from debt service coverage calculation, is made to the Escrow for 
Operating Deficit.
    HUD Response: Public commenter's recommendation to exempt an 
operating lease in the debt service calculation has been adopted in 
both documents.

HUD-91116-ORCF: Addendum to Operating Lease

    Comment: A commenter stated that in order to avoid possible 
confusion or conflicting requirements among the HUD documents, the 
operator Lease Addendum should be removed and its provisions should be 
addressed in the Regulatory Agreement.
    HUD Response: HUD declined to adopt the commenter's recommendation. 
HUD has decided to retain the Addendum.
    Comment: Commenters submitted revisions to address what they stated 
were inconsistencies between the Master Lease Addendum and Operating 
Lease Addendum. Commenters suggested that HUD needed to develop a form 
of Operating Lease Addendum for use in Master Lease structures or 
should incorporate options in the Addendum to Operating Lease for use 
in a Master Lease structure. The commenters further suggested that HUD 
revise the documents to address inconsistencies between the Master 
Lease Addendum and the Operating Lease Addendum. A commenter stated 
that the ability to tailor an agreement to the facts and circumstances 
of the loan and the parties needs to be retained, especially when 
dealing with agreements to be signed by third parties such as accounts 
receivable lenders and unaffiliated operators and/or managers. Several 
commenters stated that HUD should revise terminology and add 
definitions.
    HUD Response: HUD accepted many of these recommendations, and added 
several definitions. The redline/strikeout version of this document 
reflects the recommendations adopted.
    Comment: A commenter stated that if the tenant is not affiliated 
with the borrower, section 2 should be revised to require only that the 
tenant comply with the mortgage loan documents to which it is a party. 
If the tenant is not affiliated with the landlord, it may not even have 
a copy of the landlord's mortgage loan documents and should not be 
required to comply with agreements to which it is not a party.
    HUD Response: HUD disagrees. Operation of the healthcare facility 
in accordance with ``Program Obligations'' is vital to ensuring the 
success of the project.
    Comment: Commenters stated that the provisions in section 3 allowed 
HUD to eliminate the need for a separate subordination agreement. Also, 
commenters stated that non-disturbance and attornment provisions could 
be built into this section and used when appropriate in lieu of a 
separate Subordination, Non-disturbance and Attornment Agreement 
(SNDA).
    HUD Response: HUD determined to keep the paragraph on subordination 
and to also retain a separate subordination agreement in order to 
establish privity of contract between the lender and the tenant.
    Comment: A commenter stated that if the tenant is not affiliated 
with the borrower, section 3(a) should be revised to preserve the 
tenant's rights set forth in the SNDA which contains the HUD approved 
non-disturbance language that protects the tenant so long as the tenant 
is not in default under the operating lease.
    HUD Response: HUD agrees with the commenter and accordingly adopts 
the change.
    Comment: A commenter suggested that section 3(b) relating to 
easements and licenses, be revised to allow the tenant to enter into 
short term telecommunications services that are not recorded against 
the property and that are terminable upon 30 days' notice without HUD's 
consent. The commenter

[[Page 69877]]

stated that this change will allow the tenant to run its business 
without having to obtain HUD's approval for short-term 
telecommunications contracts.
    HUD Response: HUD has determined that proper oversight requires 
notice of these and similar contracts and will provide additional 
details regarding the process for approval as necessary.
    Comment: Multiple commenters suggested revisions to section 4, 
relating to furnishings, fixtures, and equipment (FF&E). A commenter 
stated that some operating leases provide that certain non-essential 
FF&E, such as the tenant's computers, will remain the property of the 
tenant. To prevent such FF&E from becoming the landlord's property 
under section 4 of the addendum, the commenter suggested inserting an 
exception for a lease between unaffiliated parties. Another commenter 
stated that HUD's requirements do not reflect how the industry actually 
works and that who owns the personalty should be irrelevant to HUD 
because HUD will obtain security agreements from both the borrower and 
the operator.
    HUD Response: HUD largely agrees with the commenters and has 
revised section 4 accordingly. The revised section now contemplates 
that Lessee could own the FF&E but the borrower would have the right to 
purchase the FF&E at the termination of the Lease. HUD has also revised 
section 4 to permit removal of FF&E in the ``ordinary course of 
business.''
    Comment: A commenter suggested that in cases where the tenant is 
not affiliated with the landlord, the tenant may not know if the rent 
payments are sufficient for the landlord to pay its bills. The 
commenter stated that the landlord, not the tenant, should make the 
representation in the first sentence of section 5. Similarly, because 
the landlord is the borrower under, and benefits from, the HUD insured 
loan, the landlord should be responsible to HUD for the various 
premiums that may be required under the landlord's mortgage. The 
commenter stated that while an existing lease may require the tenant to 
pay such premiums, to the extent the tenant did not agree to pay for 
these premiums and it is not affiliated with the landlord, it should 
not be required to incur additional fees as a result of the landlord's 
HUD financing.
    HUD Response: Under the revised document both the borrower/lessor 
and the lessee make the representation.
    Comment: A commenter stated that language should be added under 
section 6, ``Operator's Regulatory Agreement and Security Agreement,'' 
that addresses the termination of the operating lease if there is a 
programmatic default of the operator regulatory agreement.
    HUD Response: HUD has revised this section to clarify the 
requirements and to make it consistent with section 13, HUD's right to 
require termination of the operating lease. Defaults of the operator's 
regulatory agreement will not terminate the operating lease unless 
requested or approved by HUD.
    Comment: Commenters stated that sections 10 and 11 (Financial 
Statements, Reporting Requirements and Inspections) should be removed 
as these functions are already addressed in the operator Regulatory 
Agreement. The commenters stated that HUD should omit any provision 
addressed in the Regulatory Agreement from the Lease Addendum.
    HUD Response: HUD adopted the commenter's recommendations and 
removed these sections from this document.
    Comment: Commenters suggested adding language to make it clear that 
the tenant will maintain insurance. A commenter specifically suggested 
adding a sentence requiring proof of insurance compliance annually, 
since this requirement also appears in the Master Lease Addendum.
    HUD Response: HUD adopted the commenter's recommendation into 
current section 10.
    Comment: A commenter recommended that HUD add provisions in section 
13 (now section 11, Assignment) that require a transferee to obtain a 
Form HUD-2530: Previous Participation Certificate in the case of a 
transfer to a subsidiary. The commenter stated that HUD would therefore 
be required to give prior written consent when a change of control 
occurs involving a master tenant which is controlled or owned by a 
publicly traded entity. Another commenter recommended clarifications 
for transfers to affiliated or subsidiary parties be added as a new 
section.
    HUD Response: HUD determined that the language in proposed section 
13 (now section 11), as revised, is broad enough to provide adequate 
protection of HUD's interests and adequate notice of HUD's requirements 
to interested parties, whether such transfers involve affiliates or 
non-affiliates, and that additional language is not necessary.
    Comment: Multiple commenters stated that section 14 (now section 
12, relating to accounts receivable (AR) financing) is more appropriate 
in the operator Security Agreement.
    HUD Response: HUD declines the commenter's recommendation and has 
determined that this provision is appropriate to memorialize the 
understanding of the parties and clarify the expectations regarding 
accounts receivable financing.
    Comment: A commenter suggested that in situations where the tenant 
is not affiliated with the landlord, section 15 (now section 13, 
relating to termination of the operating lease) be revised to clarify 
that HUD can terminate the lease only for violations by the tenant. The 
commenter stated that this is consistent with the tenant's rights under 
the Subordination Non-Disturbance and Attornment Agreement (SNDA) to be 
signed at closing.
    HUD Response: HUD has determined that it must reserve the right to 
cause termination of the operator lease for any violations of the 
operator's regulatory agreement and for other violations of program 
obligations.
    Comment: A commenter stated that the defined term of ``Material 
Term'' is used in section 14 of the Addendum to restrict the tenant's 
ability to make material changes to its accounts receivable documents. 
HUD, the mortgage lender, the AR Lender, the landlord and the tenant 
may negotiate the parameters of future amendments in the Intercreditor 
Agreement. Additionally, AR borrowers need some flexibility in managing 
the AR loans such as extending the maturity of the loans, adding 
additional guarantors, increasing or decreasing the principal balance 
by less than ten percent (10%), increasing the interest rate by no more 
than five percent (5%) or adding collateral.
    HUD Response: Although these changes were not adopted for the 
Addendum to Operating Lease, consistent with current practice, 
provisions were added to the Intercreditor Agreement to provide this 
flexibility.
    Comment: A commenter suggested that HUD add several new sections 
relating to operator responsibilities, defaults, and remedies upon 
default (to be sections 20-28). The commenter stated that, in 
particular, section 23 the ``Special Purpose Entity Provisions'' must 
be considered carefully as a number of the major long-term care 
companies that have existing operators are not special purpose 
entities. The commenter suggested that the ``Special Purpose Entity 
Provisions'' be waived as part of the underwriting process.
    HUD Response: HUD adopted some of the commenter's suggested 
additions, but has declined to adopt others. HUD determined that where 
the provisions duplicated rights found in other provisions or other 
documents, they

[[Page 69878]]

were not necessary to repeat here. In addition, HUD determined that 
such provisions would be preferable in the operator's regulatory 
agreement, which HUD has the right to enforce directly.

HUD-91111-ORCF: Survey Instructions and Borrower's Certification

    Comment: A commenter suggested that the Table A requirements be 
adjusted, reviewed and made more practical for use on a refinance (as 
opposed to new development or acquisition).
    The commenter recommended that Table A, Item 1 be deleted, subject 
to being required by the title company in order to issue the title 
insurance required by HUD. The commenter further suggested that Item 6b 
should be dropped as current building setback and related items only 
impact new construction and not a previously existing structure. The 
commenter also suggested that Item 10(a) should be deleted, subject to 
being required by the title company in order to issue the title 
insurance required by HUD; Item 10(b) should be deleted; Item 11(b) 
should be deleted and replaced by 11a plotting or disclosure of 
utilities by observable evidence is sufficient. Going beyond observable 
evidence is extremely burdensome and oppressive; Item 19 should be 
deleted as a required item.
    The commenter further recommended that section I--2nd paragraph 
modify the sections that the survey will comply with. The commenter 
recommended that section I E be revised to add ``HUD Project Name'' to 
basic information to be provided.
    The commenter recommended that section II A be modified to say: 
``The title company will delete the title policy survey exception and 
accept the prior survey in issuing the policy of title insurance 
otherwise required at endorsement by HUD;''
    HUD Response: HUD declined to adopt the commenter's recommendations 
at this time, but will consider these recommendations further in 
connection with future changes to the documents.

HUD-9839-ORCF: Management Certification

    Comment: A commenter suggested that HUD revise proposed section 
1(b)2(b), relating to compensation, to reflect variations in 
compensation. The commenter stated that managers typically receive a 
``Base Management Fee'' comprised of a percentage of a project's gross 
revenue after adjustments and contractual allowances, and sometimes net 
of ancillary expenses. Third party managers frequently also receive an 
``Incentive Management Fee'' based on net cash flow from operations, 
Earnings Before Interest, Taxes, Depreciation, Amortization, (EBITDA) 
or net profits.
    HUD Response: HUD agrees with the commenter, and made the section 
(now section B(2)(b)), generic to allow for various forms of 
compensation to be stated and to allow for industry practice changes 
for compensation. The form has been adjusted to consider any types of 
compensation that has been agreed upon between the owner and the 
management agent. The compensation is expected to be typical of 
industry practices and not excessive or grossly out of line from a 
norm. Industry abuse or excessive fees will not be approved based upon 
HUD's review and determination.
    Comment: A commenter stated that the requirement to abide by any 
decisions HUD makes as a result of appeal of excessive fees is too 
vague, and recommended new language, further stating that if HUD can 
change the agreement and economics, the management agent should have 
the ability to terminate the contract.
    HUD Response: The appeal process was removed from the form. As long 
as the compensation is typical of industry practices the compensation 
will be allowed.
    Comment: A commenter suggested removing language about the 
management agent complying with payment requirements and reasonableness 
of the fees (proposed section 2(c), now section D(2)), stating it is 
too vague, that the management agent will need more definition of the 
requirements, and that reasonableness is already discussed in a 
previous section.
    HUD Response: HUD declines to adopt the commenter's recommendation. 
The provision alerts the management agent that the fees charged are to 
be reasonable within industry standards and allocation of those costs 
between the management fee and the Healthcare Facility's account.
    Comment: The commenter stated that section 3(f) should be deleted 
as it is too burdensome to maintain copies of verbal and written 
estimates.
    HUD Response: HUD determined that an audit trail of transactions is 
necessary for compliance and for analysis and standard operating 
purposes. HUD determined that a record of the operations of the 
facility is typical of a project and is in the normal course of 
business and not burdensome. Therefore, the provision to keep records 
in accordance with program obligations was maintained (now section 
D(6)).
    Comment: A commenter suggested that HUD reduce the number of 
documents with which the Agent must comply, since many of the loan 
documents are beyond the scope of the Agent's relationship.
    HUD Response: HUD has determined that, in managing the healthcare 
facility, the management agent must comply with program obligations, 
including any regulatory agreements and the operating leases. In 
revising these provisions, HUD attempted to balance any burden to the 
management agent with the important role the management agent plays in 
the operation of the healthcare facility.
    Comment: A commenter suggested that HUD delete proposed section 
3(g) saying that it should be the borrower's obligation (not the 
management agent's) to invest project funds.
    HUD Response: Although deal structures may vary, the management 
agent typically is collecting and depositing funds, including into 
accounts in the operator's or borrower's name. In revising this section 
(now section D(7)), HUD attempted to provide flexibility for deal-
specific variations in a management agent's responsibilities.
    Comment: A commenter stated that section (4) changes insurance 
notification to the lender (not HUD), and suggested that the correct 
``loss payee'' designation is ``the Lender, its successors and 
assigns.'' Until HUD is assigned the Note, it is the lender who is the 
Loss Payee.
    HUD Response: HUD agrees with the commenter. As this certification 
is meant only to confirm the management agent's compliance with HUD's 
insurance requirements set forth in other legal documents, this 
provision (now section D(8)) and other references to insurance have 
been revised accordingly.
    Comment: A commenter suggested that proposed section 5(b)(2) be 
modified to allow accounting principles other than Generally Accepted 
Accounting Principles (GAAP) \4\.
---------------------------------------------------------------------------

    \4\ GAAP refers to the standard framework of guidelines for 
financial accounting used in any given jurisdiction; generally known 
as accounting standards.
---------------------------------------------------------------------------

    HUD Response: HUD has revised this section (now section E) to 
clarify the bookkeeping requirements. HUD will provide more details as 
necessary.
    Comment: A commenter stated that it may be in the project's best 
interests to allow the management agent to advance funds to the 
project, and as such, suggested deleting section 6(g) that disallows 
such advances.
    HUD Response: HUD declines to adopt the commenter's recommendation

[[Page 69879]]

and has maintained this provision (now section F(7)). A management 
agent should not advance funds to a project without discussing with the 
operator and owner the current and future hardships necessitating such 
advances. Simply forwarding funds to the project can jeopardize the 
project if the owner or operator is not aware of the situation.
    Comment: A commenter suggested deleting the entire ``hold 
harmless'' of section 7, stating the provision is too vague.
    HUD Response: HUD disagrees with the commenter and declined to 
adopt the commenter's recommendation. This section (now section F(9)) 
allows such agreements if approved by HUD. It is HUD's position that, 
given the potential for harm, any hold harmless and similar 
arrangements should be rare and HUD requires HUD review of any such 
provisions.
    Comment: A commenter suggested that HUD revise the form and update 
the termination provisions to provide a 30-day notice period.
    HUD Response: HUD agrees in part with this comment and has revised 
the relevant sections (now sections H(1) and (2), and corresponding 
language in section C) accordingly. Although these sections now provide 
for a 30-day notice period for terminations based upon violations of 
the regulatory agreements, the provisions reserve HUD's right to act 
immediately if the permits or approvals are in substantial and imminent 
risk of being terminated, suspended, or otherwise restricted in a way 
that would have a materially adverse effect on the project.
    Comment: A commenter stated that a new provision be added to 
section 9 to require the management agent's certification if the owner 
or operators plan to permit collection of a new fee which not set forth 
in a management agent's certification.
    HUD Response: HUD has clarified in this section (now section (I)) 
the triggers for requiring a new certification. The commenter's 
suggestion is not necessary to add because similar protections are set 
forth elsewhere in the document.
    Comment: A commenter stated that many projects have existing 
identity-of-interest management agents, and, that under the documents 
as proposed, these parties will now have the additional burden of 
``clearly establishing'' that the fees charged are consistent with 
those charged by independent management agents.
    HUD Response: Consistent with the 2012 Final 232 Rule, HUD is 
maintaining the requirement for HUD approval of a management agent and 
management agreement prior to a management agent being retained. In 
light of new provisions in HUD's Section 232 program regulations at 24 
CFR 232.1007, which provide that operating expenses shall be reasonable 
and necessary for the operation or maintenance of the project, HUD 
determined that it was unnecessary to delineate further management 
agent restrictions in regulatory language. Accordingly, the documents 
are revised to be consistent with the policy established in the final 
regulation.

HUD-92466-ORCF: Healthcare Regulatory Agreement--Borrower

    Comment: A commenter suggested adding the phrase ``as evidenced by 
the discharge or satisfaction of the Security Instrument'' to the third 
paragraph on page 2, to clarify when the regulatory agreement remains 
in effect.
    HUD Response: HUD has revised this paragraph to include the phrase 
``as evidenced by the discharge or release of the Security 
Instrument,'' as a release of the lien of the security instrument would 
be a recorded instrument that can provide adequate evidence of 
satisfaction of the note.
    Comment: A commenter stated that the definition of ``Approved Use'' 
should be changed to conform to the Firm Commitment forms.
    HUD Response: HUD agrees with the commenter and adopted the 
commenter's recommendation.
    Comment: A commenter stated that the definition of ``distribution'' 
should omit the phrase ``any asset of borrower.''
    HUD Response: HUD declines to adopt the commenter's recommendation. 
As set forth in the 2012 Final 232 Rule, the borrower is, unless 
otherwise approved by HUD, a single asset entity, so any assets of the 
borrower's will be project funds subject to distribution requirements.
    Comment: A commenter recommended that the definition of 
``healthcare facility'' be expanded to include ``independent living 
facility'' and that the word ``or'' be changed to ``and/or.''
    HUD Response: HUD broadened the definition to include anything that 
might be insured under section 232 of the National Housing Act.
    Comment: A commenter requested that, in the definition of 
``Identity of Interest,'' HUD replace the term ``party'' with the term 
``entity'' and that HUD provide an exclusion for ownership interests of 
less than five percent in public companies. The commenter also 
requested that the definition of ``family member'' be modified to 
exclude ``aunts, uncles, mother-in-law, father-in-law, brothers-in-law 
and sisters-in-law.''
    HUD Response: In consideration of other comments and otherwise in 
the course of HUD's review of this and other documents, HUD determined 
that the defined term ``Identity of Interest'' is not necessary in the 
regulatory agreement and deleted the definition. HUD will follow the 
multifamily program's model and rely on the definition in program 
obligations.
    Comment: A commenter stated that, under the definition of 
``nonprofit borrower,'' a statement that the nonprofit entity may not 
make distributions is unnecessarily overboard. The commenter 
recommended that an exception be added for distributions approved by 
HUD or permitted under program obligations.
    HUD Response: The language specified in this comment has been 
deleted from the definition of ``nonprofit borrower.'' HUD has also 
revised the document to be consistent with HUD policy and has added 
section 16(e) to clarify if and when a non-profit borrower may take 
distributions.
    Comment: A commenter proposed a change to the definition of 
principal to clarify the parties that are considered principals. The 
commenter stated that the original draft was confusing and seemed to 
indicate that members of a principal are to be considered a principal 
of the borrower.
    HUD Response: HUD has clarified the definition of principal. HUD 
notes that it is not HUD's intention in these documents to alter the 
policy currently in practice regarding previous participation clearance 
and other requirements relating to principals.
    Comment: Several commenters commented on the provisions defining 
and relating to ``Reasonable Operating Expenses.'' One commenter stated 
that the definition of ``Reasonable Operating Expenses'' should be 
expanded to include ``any other disbursement, conveyance or transfer 
provided for in the Agreement.'' Another commenter stated that in the 
definition of ``Reasonable Operating Expenses,'' the general exclusion 
of compensation paid to affiliates or identity-of-interest entities is 
overly broad and the exclusion should be modified to allow such 
compensation to the extent it is not in excess of that payable in arms-
length transactions. Another commenter stated that it is quite common 
and accepted in the health care market for related parties to engage in 
arms-length, market rate transactions. The commenter stated that in 
today's market, HUD would be moving away from the nation's healthcare 
delivery system to prohibit such affiliate transactions. To the extent

[[Page 69880]]

that an affiliate of the borrower is providing a service at a cost 
consistent with a market rate, arms-length transaction, then having HUD 
review and approve each one of those transactions across its portfolio 
will become extremely burdensome and will utilize valuable resources 
both within HUD and for its borrowers. Another commenter stated that 
since section 23 of this agreement provides that the costs must not 
exceed reasonable costs for the area, HUD should have the requisite 
protection to ensure that affiliate transactions are not detrimental to 
the project.
    HUD Response: HUD recognizes the commenters' concerns and has 
revised the cited provisions accordingly. HUD has made the definition 
of Reasonable Operating Expenses consistent with Sec.  232.1007 of the 
2012 Final 232 Rule.
    Comment: A commenter suggested changing the definition of ``Rents'' 
by changing ``income from Healthcare Facility'' to ``income from 
Mortgaged Property.''
    HUD Response: HUD agrees with the commenter's concern but changed 
the wording to ``income arising from the operation of the Healthcare 
Facility.'' Unlike the multifamily program, the terms ``Mortgaged 
Property,'' ``Healthcare Facility,'' and ``Project'' are all slightly 
different in the 232 program. Since the ``Mortgaged Property'' is 
granted by the borrower, it is limited to the borrower's interests. The 
term ``Project'' is meant to encompass all interests involved in the 
FHA-insured transaction.
    Comment: A comment recommended changes to include an instructional 
note in bold and caps to clarify that sections 2, 3, 5, 6, 8, and 9 do 
not apply to loans under sections 223(a)(7) or 223(f) of the National 
Housing Act.
    HUD Response: HUD does not believe such instructional notes are 
necessary and has not adopted the commenter's recommendation. Where the 
provisions may be confusing, HUD has added the phrase ``if any'' to 
indicate potential inapplicability.
    Comment: A commenter recommended that HUD add a clause to the final 
sentence of section 7, stating that residency and operation of the 
facility do not require prior written HUD consent if the project is 
occupied and in operation as of loan closing (for sub-rehabilitation 
loans and loans insured under section 241(a) which provides insurance 
for mortgage loans to finance repairs, additions, and improvements).
    HUD Response: HUD declines to adopt the commenter's recommendation. 
HUD believes the provision for HUD approval provides sufficient 
flexibility where necessary.
    Comment: A commenter stated that while section 8 states the 
borrower should have to disclose all obligations as of date of this 
agreement, HUD's interest should only require disclosure of delinquent 
obligations or those outside the ordinary course of business. Another 
commenter stated that such disclosure requirements would create 
substantial administrative burdens for HUD and distract staff from more 
important project reviews. Another commenter also suggested deleting 
the final sentence as unnecessary, stated that the section is 
overbroad, and questioned if HUD might be exposing itself to third-
party claims asserting HUD liability for damages resulting from project 
operations.
    HUD Response: HUD disagrees with these comments and has retained 
the proposed language. These requirements conform to the requirements 
in the multifamily program and are long-standing HUD requirements. It 
is important for the borrower to disclose all obligations so that HUD 
can accurately analyze the transaction and oversee the use of the loan 
proceeds.
    Comment: A commenter stated that section 9 should include a ``cost 
cut-off date'' to describe the period for pre-completion accounting.
    HUD Response: HUD clarifies that the cost cut-off date is any date 
chosen by the borrower after completion of the project, in accordance 
with program obligations.
    Comment: A commenter stated the provisions in section 11(h) 
requiring all litigation against principals to be disclosed to HUD 
creates an unnecessary administrative burden. The commenter stated as 
an example that divorce proceedings or professional liability claims on 
any facility that an operator handles would need to be disclosed.
    HUD Response: HUD determined to retain this provision. Appropriate 
oversight requires knowledge of the litigation risks and patterns 
confronting a project. To limit the administrative burden of this 
provision, HUD has added the phrase ``pursuant to Program Obligations'' 
and will provide additional details as and if necessary.
    Comment: A commenter recommended that section 13(e), relating to 
transfer of ``Replacement Reserve Accounts'' upon refinancing be 
deleted.
    HUD Response: HUD has adopted this recommendation because section 
13(b) adequately addresses the interests involved and makes section 
13(e) unnecessary.
    Comment: A commenter recommended section 13(g) (now 13(f)), be 
revised to refer to ``withdrawals'' from the reserve for replacement, 
rather than ``loans.''
    HUD Response: HUD declines to accept this recommendation. This 
section provides for the possibility that a borrower may take funds in 
the form of a loan to be repaid, rather than as a withdrawal, from the 
reserve, and that such funds would not be limited to the purposes for 
which withdrawals from this reserve must be limited.
    Comment: Several comments suggested elimination or substantial 
revision to the long-term debt service reserve requirements in proposed 
section 14.
    HUD Response: As stated in the preamble, HUD has revised the 
borrower's regulatory agreement to eliminate the long term debt service 
reserve provisions in accordance with the 2012 Final 232 Rule, 24 CFR 
232.11. The document reserves a section for provisions to be inserted 
in those rare instances where HUD will require a long-term debt service 
reserve.
    Comment: Several commenters objected to language used in section 15 
revising the definition and calculation of surplus cash.
    HUD Response: As stated in the preamble, HUD recognizes the 
concerns raised by the commenters and has returned to the definition of 
surplus cash currently in use in the program.
    Comment: Several commenters submitted comments on section 16 
(``Distributions''). A commenter stated that, in section 16(a), 
reconciliation requirements are not defined, and recommended this 
provision be revised to include a reference to the requirements listed 
in section 16(d). The commenter further recommended a modification to 
the prohibition on distributions to non-profit borrowers in conformance 
with the revised definition of non-profit borrower. The commenter 
further recommended revising section 16(b) to include an exception to 
the prohibition on distributions from borrower funds in the instance 
where the borrower is the operator and the distribution is permitted 
under the operator's regulatory agreement. With respect to section 17, 
a commenter made a similar comment, recommending that in section 17(a) 
a statement that distributions to non-profit borrowers are prohibited 
be modified to reflect a revised definition of non-profit borrowers. 
With respect to section 17(b), the commenter stated that HUD's proposed 
agreement should be revised to include a method of calculating a 
standard for periodic determination of

[[Page 69881]]

the amount that constitutes residual receipts.
    HUD Response: HUD has revised section 16 in accordance with these 
comments. HUD removed the capitalization from the words 
``Reconciliation Requirements'' to indicate that the plain meaning of 
the words, as clarified in the context of the provision, should 
prevail. HUD also added section 16(e) to set the terms under which non-
profit borrowers may make distributions, in accordance with HUD's 
recent practice.
    Comment: Multiple commenters commented on section 18. Multiple 
commenters stated that this section was confusing. Multiple commenters 
stated that section 18(c) requiring HUD approval of interest on 
advances was unnecessary since repayment of interest by affiliates must 
be in accordance with loan documents and program obligations, or 
approved by HUD.
    HUD Response: HUD has revised this section to clarify the 
provisions. HUD has determined that proper oversight requires that 
repayment of advances be made on terms approved by HUD. HUD will 
provide further details as and if necessary.
    Comment: A commenter recommended that section 19(c) be revised to 
stipulate that annual financial statements must comply with both HUD 
and GAAP requirements, and quarterly financial statements must meet HUD 
requirements but not GAAP requirements.
    HUD Response: HUD agrees with the commenter and adopted the 
commenter's recommendations. HUD will provide additional details for 
the requirements of operator's financial statements as necessary.
    Comment: Multiple commenters expressed concern that HUD's 
requirements for expenses to be reasonable and necessary and specifying 
procedures for acquiring goods and services above certain thresholds 
(in section 23) are overly broad and may not be enforceable by HUD.
    HUD Response: Similar comments were received in connection with the 
2012 Final 232 Rule, and HUD has revised this document to be consistent 
with that final rule. In making such revisions, HUD has attempted to 
balance its interests in meaningful oversight without imposing 
unreasonable burdens on the project or creating unenforceable 
requirements. HUD determined that the level of specificity of this 
provision in the proposed document is unnecessary and may interfere 
with appropriately desired flexibility to address what is considered 
reasonable and necessary in any specific geographic area. To provide 
some direction HUD establishes a high threshold as a benchmark. HUD set 
a threshold of 5 percent of the effective gross revenue of the 
facility, requiring that written cost estimates must be obtained by the 
purchaser (though not routinely provided to HUD) when goods and 
services having a cost about that threshold are being acquired.
    Comment: Several commenters commented on section 25 (``Permits and 
Approvals'') and section 36 (``Declaration of Default''). One commenter 
objected to the rights that sections 36(b) and 25(c) provide to HUD if 
HUD determines there is a substantial risk of termination, suspension, 
or restriction with respect to any permits or approvals. The commenters 
stated that these provisions present concerns for the following 
reasons: (i) HUD obtains unilateral right to require replacement of the 
operator based upon a subjective determination; (ii) the extensive 
obligations set forth in the various regulatory agreements, security 
instrument and other program obligations provide HUD with more than 
adequate protections; (iii) HUD's ability to declare a default due to a 
``material adverse diminution'' in value could result in unreasonable 
outcomes; and (iv) HUD's ability to declare a default due to a 
``restriction'' on a permit or approval could result in unreasonable 
outcomes. The commenter stated that these provisions permit HUD to act 
in those situations when the risk would prevent the project from being 
operated for its approved use and would have a material adverse effect 
on the value of the mortgaged property. Another commenter recommended 
limiting HUD's remedies to instances where risks jeopardized operation 
of the project for the approved use. The commenter recommended the 
deletion of the provision entitling HUD to declare a default.
    HUD Response: HUD understands the commenters' concerns and in 
response has limited the definition of ``Permits and Approvals'' to 
those ``reasonably necessary'' to operate the facility. In addition, 
HUD has modified the declaration of default provisions so that they 
apply only where such restrictions of the permits or approvals would 
have a materially adverse impact on the project.
    Comment: A commenter suggested language be added to section 26(a) 
(``Operator; Cooperation in Change of Operator'') to require the 
borrower to execute an operator security agreement if the borrower is 
or becomes the operator.
    HUD Response: HUD agrees and has revised this section accordingly.
    Comment: A commenter stated that section 28 would require borrowers 
and operators to conform to post-closing changes in HUD's professional 
liability insurance (PLI) requirements, and that, given the expense of 
such insurance, a unilateral right to HUD to modify is unreasonable.
    HUD Response: HUD disagrees with this comment. These provisions 
conform to multifamily program requirements and protect HUD's interest 
in maintaining up-to-date requirements for insurance.
    Comment: Multiple commenters stated that section 31, which requires 
all third-party vendor contracts to include a provision entitling HUD 
to terminate the contract without cause or penalty, is intrusive and 
unnecessary. One commenter stated that it is unreasonable that section 
31 allows HUD to require replacement of a Management Agent even if the 
borrower, operator and Managing Agent are in complete compliance with 
loan documents. Another commenter recommended limiting requirements to 
instances of violations of the borrower's regulatory agreement, which 
would be parallel to the structure of section 12 (now section 13) of 
the operator's regulatory agreement. Another commenter recommended that 
section 31 be deleted in its entirety. The commenter asked why HUD 
should require termination when such vendors are subordinate to the 
mortgage lien and may be terminated upon foreclosure. Another commenter 
suggested that the provision in section 30 entitling HUD to require 
actions by the borrower to cause conformance to program obligations 
should be tied to failure to cure a violation with 30 days of notice.
    HUD Response: HUD modified the provision to limit HUD's termination 
rights for management agreements to only those instances when there is 
an event of default under a loan document or when any of the necessary 
permits or approvals is in substantial and imminent risk of 
termination, so as to have a material adverse effect on the property. 
HUD limited the required termination provision for vendors to those 
having an identity of interest with the borrower and/or operator.
    Comment: A commenter recommended revisions to section 33 to exclude 
leases for beauty parlors and other leases for support or ancillary 
services from the requirement of HUD written approval (provided any 
such lease is subordinate to Security Instrument), for a term not more 
than a year and represents less than two percent of projected gross 
revenues.

[[Page 69882]]

    HUD Response: HUD agrees and has adopted the commenter's 
recommendation.
    Comment: A commenter suggested revisions to section 34(d) to allow 
payment of fair and reasonable compensation to employees who are 
officers, directors, etc. The commenter also recommended that section 
34(i) be deleted because HUD's purposes are not served by restricting a 
borrower's ability to accept receipt of endowments. The commenter also 
recommended revisions to section 34(j) to state more clearly the 
applicable limitations on amendment of borrower's organizational 
documents.
    HUD Response: HUD has generally accepted these comments. HUD has 
made section 34(d) consistent with 24 CFR 232.1013 of the 2012 Final 
232 Rule and has revised the other sections referenced to address the 
commenter's concerns.
    Comment: A commenter stated that section 34(k) (now 34(j)) requires 
that a borrower must obtain HUD approval in order to institute 
litigation. The commenter stated that this was an inappropriate 
intrusion by HUD and commenters are unaware of any loan documents of 
any lender which would impose such lender approval rights.
    HUD Response: HUD determined that this provision already included 
adequate limits to address the commenter's concerns. Litigation seeking 
a recovery below the $100,000 threshold and litigation covered by 
professional liability are explicitly excluded from this section.
    Comment: A commenter stated that section 34(m) (now 34(l)), that 
calls for HUD to approve any payments from a provider of goods and 
services did not seem to serve reasonable interests. The commenter 
stated that this provision would require approval for refunds of 
overpayments, refunds for unnecessary and unused goods, discounts, 
rebates, and returns of stolen funds or property, all of which would 
benefit the project.
    HUD Response: HUD agrees and has limited this provision to 
instances where the fee is exchanged for a right to provide the goods 
and/or services.
    Comment: A commenter stated that section 34(o) (now section 34 
(n)), that requires HUD approval for all contract amendments, will 
involve HUD in mundane, day-to-day business decisions that do not 
warrant HUD's attention.
    HUD Response: Pursuant to the changes in the 2012 Final 232 Rule, 
HUD modified this provision to exclude those instances where program 
obligations dictate that HUD approval is not required and to insert a 
materiality threshold to the enumerated types of amendments that 
require approval.
    Comment: A commenter suggested revisions to section 38 
(``Nonrecourse Debt''), to reference an attached non-recourse rider for 
execution and drafted a proposed rider.
    HUD Response: HUD declines to adopt the suggestion, but has 
provided that this section may be executed in counterpart.
    Comment: A commenter object to section 43 of the borrower's 
regulatory agreement that provides ``any reference in this regulatory 
agreement to program obligations shall be construed as referring to 
those program obligations which are amended from time to time.'' The 
commenter asked whether this was intended to change the previously 
established definition of program obligations arrived at when HUD 
revised its multifamily documents.
    HUD Response: HUD has modified the document to delete this 
sentence. HUD believes the document as revised is consistent with the 
corresponding multifamily rental project closing document provisions.

HUD-92466A-ORCF: Healthcare Regulatory Agreement--Operator

    Comment: A commenter stated that section 1 requires that rent due 
under a borrower-operator agreement be sufficient to pay all of the 
borrower's required mortgage loan payment including, replacement 
reserves, debt service reserves, and any maintenance and/or repairs for 
which the borrower has responsibility. The section further requires 
that if the operator and the borrower are not affiliated and have 
already executed a lease agreement or other borrower-operator 
agreement, the effect of the requirement is to either create an 
administrative obligation that is not reflected in the parties' 
contracts, or to force the parties to re-negotiate their business 
relationship. The commenter stated that in either case, the requirement 
shifts more cost to the operator, and while the borrower has the right 
to pursue a HUD loan, a non-affiliated operator should not be required 
to pay more than the rent it originally agreed to in the contract 
between the parties. The commenter stated that this provision clearly 
should apply only if the borrower and the operator are affiliates.
    HUD Response: HUD declines to accept this recommendation. HUD has 
determined that its oversight responsibilities require it to ensure 
that the borrower will have sufficient funds available to meet its debt 
service and related responsibilities.
    Comment: A commenter stated that the provisions of section 3 could 
result in HUD being overwhelmed with notices for every minor violation, 
and that HUD should therefore establish a materiality threshold.
    HUD Response: A materiality threshold for receipt of notices of 
violation is established at the end of section 3(c).
    Comment: Multiple commenters objected to section 4(e) (now section 
5(e)) that requires resident consent in the event the operator proposes 
to add an additional resident to an existing unit. One commenter stated 
that such requirement could prevent the operator from adding the 
additional resident, even if HUD approves it and such change has 
complied with any requirements of state or local law. As there may be 
financial implications that support a proposal to add an additional 
resident, the commenter stated that such situation should at least be 
considered, but that the language as proposed by HUD would not allow 
such consideration. The commenter therefore proposed deleting the 
requirement for resident consent in all cases.
    HUD Response: These provisions are required by 12 U.S.C. 
1715w(d)(4)(C)(ii).
    Comment: Several commenters commented that the provisions in 
section 5 (now section 6), requiring the operator to hire a consultant 
if HUD determines that an operator's performance may be placing the 
operational and/or financial viability of a healthcare facility at 
risk, were overly broad and vague. One commenter stated that HUD should 
not have the power to cause consultants to dictate how the operator 
should run its business or require the operator to pay for the 
consultant, especially for an operator not affiliated with the 
borrower. Another commenter stated that such requirement can be very 
expensive and third-party operators will not want to be forced to hire 
a consultant without a ``bright-line'' trigger for this requirement. 
Several commenters suggested revisions to limit the applicability of 
this provision. One commenter stated that even after a monetary 
default, to avoid wasting funds, a consultant should only be brought in 
upon certain significant threshold events such as: (a) the facility has 
multiple surveys within a significant time period with actual ``harm 
tags'' not corrected within the time periods required by the Centers 
for Medicare and Medicaid Services (CMS); (b) the facility's survey 
puts the facility on fast track decertification and such issue has not 
be resolved within the time periods required by CMS; and (c) the 
operating income plus management fees Earnings Before Interest, Taxes, 
Depreciation, Amortization, Rent and

[[Page 69883]]

Management Fees (EBITDARM) becomes negative on a trailing twelve-month 
basis.
    HUD Response: HUD acknowledges the commenters' concerns and has 
significantly revised this provision. HUD has set forth the concept of 
``project operating deficiency'' as a bright-line trigger for 
requirements to hire a consultant, and has detailed the circumstances 
that constitute such a project operating deficiency, as set forth in 
revised section 5. HUD has also clarified that HUD will consult with 
operator, lender, and borrower before approving the consultant's 
recommendations.
    Comment: A commenter stated that the requirement in section 6 (now 
section 7) that the operator must create a risk management program can 
be a very expensive endeavor for small single facilities with little 
benefit to HUD that is not covered by Housing Notice 04-15: 
Professional Liability Insurance.
    HUD Response: HUD acknowledges the commenter's concern but has 
determined that a risk management program is vital to managing the 
risks inherent in operating healthcare facilities. HUD has determined 
that the requirements for the risk management program are flexible and 
are not overly burdensome, and HUD will provide additional details as 
necessary.
    Comment: Many commenters commented on the provisions in section 
7(c) making it a violation of the agreement if the operator fails to 
maintain positive healthcare facility working capital. Multiple 
commenters stated that operators routinely move cash around their 
operations so that, on a short term basis, a project may have negative 
working capital. Another commenter stated that the violation should be 
tied to occurrences of negative working capital in the aggregate on a 
quarterly basis. Another commenter stated that merely having a poor 
performing property should not be an event of default, but that HUD 
should restrict specific actions, such as cash distributions, if the 
working capital goes negative.
    HUD Response: HUD acknowledges the commenters' concerns and has 
deleted the provisions making it a violation of the operator's 
regulatory agreement to have negative working capital. Instead, HUD 
tied a project operating deficiency, which triggers HUD's rights to 
require the operator to hire a consultant, to three quarters of 
negative working capital. In addition, HUD has restricted the 
operator's ability to take distributions if the operator's most recent 
quarterly financial statement indicates negative working capital.
    Comment: A commenter stated that section 20 (now section 21, 
``Uniform Commercial Code/Liens'') provides that if the project 
includes a skilled nursing home, the operator is permitted to pledge 
the facility's accounts receivables to an accounts receivable lender. 
But in typical accounts receivable financing, the operator is generally 
required to pledge more than its accounts receivables. The commenter 
stated that the operator should be allowed to pledge all of its 
personal property in such form as approved by the lender and HUD.
    HUD Response: HUD has revised this section to accommodate the 
commenter's concern. In addition, HUD notes that granting liens on 
collateral, including but not limited to the accounts receivable, may 
be allowed by the language of this provision if such liens are approved 
by HUD. The HUD-required intercreditor agreement may evidence certain 
HUD approvals.
    Comment: A commenter stated that several provisions of this 
agreement effectively penalize a performing operator for the borrower's 
failure to satisfy borrower obligations, and that such regulatory 
structure is inappropriate, particularly in a non-identity-of-interest 
case.
    HUD Response: HUD acknowledges the commenter's concerns but has 
determined that HUD's interests, including those of protecting the 
insurance fund, require HUD to approach oversight of the project in a 
holistic manner. HUD notes that in a non-identity-of-interest scenario, 
the operator can secure a right to cure borrower's defaults, with an 
extendable cure period, through the Subordination, Non-Disturbance, and 
Attornment Agreement (SNDA) relating to its operating lease.

HUD 94000-ORCF: Security Instrument/Mortgage Deed of Trust

    Comment: A commenter stated that the ``Mortgaged Property'' as 
defined includes licenses and accounts receivable held by the operator. 
The commenter stated that this is problematic because HUD cannot 
require the operator (especially third party operators) to offer the 
license in the operator's name as collateral for the borrower's 
mortgage. The commenter stated that, in addition, if a facility's 
operator has accounts receivable financing, HUD will not have the first 
priority on that collateral.
    HUD Response: The definition of ``Mortgaged Property'' is limited 
to the ``borrower's present and future right, title, and interest in'' 
the items listed. HUD is attempting, through the documents in their 
totality, to protect its interests comprehensively, given the variety 
of possible deal structures. With regard to accounts receivable 
financing, any discrepancies in the respective loan documents will be 
governed by the Intercreditor Agreement.
    Comment: A commenter stated that section 48, Environmental Hazards, 
should account for state-specific requirements, such as states with a 
``One Act Rule.''
    HUD Response: HUD has revised this section, giving instruction to 
add state-specific requirements as necessary. Such provisions may 
provide, for example, that a separate environmental indemnity may need 
to be recorded to comply with the practice and requirements of that 
jurisdiction.
    Comment: A commenter stated that HUD should consider requiring a 
separate Security Agreement for borrowers, rather than relying upon the 
security agreement language contained in the Security Instrument.
    HUD Response: HUD declines to adopt the commenter's recommendation. 
The security agreements contained within the Security Instrument follow 
the model set by the multifamily program and conform to industry 
practice.

HUD-92070-ORCF: Lease Addendum (ground lease)

    Comment: A commenter requested that HUD revise the instructions to 
allow for buildings, improvements, and fixtures to be either owned in 
fee simple by the ground lease tenant or leased to the tenant under the 
ground lease; exclude the instructions from inclusion with the Addendum 
in the Lease; and remove all signature blocks on the form because the 
lease addendum must be incorporated by reference in the ground lease 
and the lender is not party to the ground lease.
    HUD Response: HUD agrees with the recommended changes, but not with 
removal of the signature blocks.

HUD-94001-ORCF: Healthcare Facility Note.

    Comment: A commenter recommended that paragraph 9(h), which relates 
to loans insured under the section 207 program, pursuant to sections 
207 and section 223 of the National Housing Act, be removed. The 
commenter stated that this provision is not applicable to healthcare 
loans and it is an optional provision for mortgages insured under 
section 223(f) of the National Housing Act concerning use agreements 
for rental housing projects.

[[Page 69884]]

    HUD Response: HUD agrees with the commenter and the recommended 
change was accepted.
    Comment: A commenter stated that section 13 of the Note converts an 
interest payment into a partial prepayment in the event that the 
interest rate exceeds the maximum legal rate in the property 
jurisdiction. The commenter stated that such a partial prepayment could 
trigger a prepayment penalty under section 9. As such, the commenter 
recommended that section 9(c) be modified so that any prepayment which 
results from section 13 will not trigger any prepayment penalty.
    HUD Response: HUD has determined that no change to the documents is 
necessary. Section 13 dictates that, under the specified conditions, in 
order to preserve payments the lender has previously received, that 
portions of such payments would be deemed payments toward the reduction 
of the indebtedness owed the lender. In order to charge a prepayment 
premium in such circumstance, a lender would have to argue that as a 
result of the structure it imposed on the loan and of the conventions 
dictated in section 13, it is entitled to additional funds in excess of 
the limits that triggered the provisions of section 13 in the first 
place. A lender would be estopped from making such an argument.

HUD-92414-ORCF: Latent Defects Escrow

    Comment: A commenter suggested that the escrow should not be 
applied to the indebtedness in the event of the borrower's default as 
these are the funds for the contractor, and should not be applied to 
indebtedness.
    HUD Response: HUD agrees with the commenter and has adopted the 
commenter's recommendation.

HUD-9443-ORCF: Minor Moveable Escrow

    Comment: A commenter stated that the Movable Equipment Escrow 
Agreement published for review and comment does not contain the 
boilerplate language and terminology used across the other proposed 
escrow agreements. The commenter suggested a revised form, using the 
proposed Escrow Agreement for Working Capital as the starting point and 
modifying it by inserting the substantive provisions from the proposed 
form of Minor Movable Equipment Escrow Agreement.
    HUD Response: HUD agrees and accepted the commenter's 
recommendation.

HUD-92266-ORCF: Application for Transfer of Physical Assets (TPA)

    Comment: A commenter stated that the preliminary approval 
instructions should be consistent with the other forms, such as the TPA 
submission check.
    HUD Response: HUD agrees with the commenter and has adopted the 
recommendations.

HUD-93486-ORCF: Computation of Surplus Cash

    Comment: A commenter requested that HUD conform the form to the 
borrower's regulatory agreement definition of surplus cash.
    HUD Response: HUD adopted the commenter's recommendation and 
changes were made to conform to the revised definition of ``Surplus 
Cash'' in section 15 of the borrower's regulatory agreement.

HUD-92322-ORCF: Intercreditor Agreement

    Several commenters suggested that HUD should reach out directly to 
accounts receivable lenders to determine mutually agreeable provisions 
for this document, since this is an agreement with a third-party 
lender, as opposed to a loan document to a party directly benefiting 
from the FHA-insured loan. HUD agreed with the commenters' suggestion 
and has reached out to members of the accounts receivable industry 
directly. Through both submitted written comment and direct discussions 
with members of the accounts receivable industry, the comments 
discussed below emerged as the most important to the industry.
    Comment: Several comments were received regarding the concept of 
``Cut-Off Time.'' Several commenters stated that the proposed Cut-Off 
Time provisions did not give accounts receivable lenders (``AR 
Lenders'') sufficient notice of the loss of their priority position, 
since the Cut-Off Time would be effective immediately upon delivery of 
notice of default. Many commenters stated that having the Cut-Off Time 
effective immediately would eliminate any incentive for AR Lenders to 
participate in workouts and would instead encourage AR Lenders to halt 
further advances. Many commenters stated that no AR Lender would accept 
this provision resulting in difficulty to secure accounts receivable 
financing for FHA-insured transactions.
    HUD Response: HUD has substantially revised the concept of Cut-Off 
Time. Although HUD determined that the previously used concept of 
``Possession Date'' provided too long a period before the AR Lender 
lost priority, HUD agreed that additional notice would be beneficial. 
HUD revised the document to differentiate between triggering events 
caused by defaults of the accounts receivable financing (``AR Loan 
Triggering Event''), for which the AR Lender should be immediately 
aware if conducting appropriate oversight, and triggering events caused 
by defaults of the FHA-insured loan (``FHA Triggering Event''), for 
which the AR Lender may not be aware without notice. HUD has specified 
that the Cut-Off Time may be no earlier than 30 days after notice of an 
FHA Triggering Event and 30 days after an AR Loan Triggering Event. The 
Cut-Off Time Notice has also been revised to account for this 
distinction, and to explicitly contemplate extension of the Cut-Off 
Time if, for example, the parties are negotiating in hopes of a 
workout. In addition, the definition of ``Protective Advances'' has 
been revised to clarify that it includes any advances made after the 
Cut-Off Time which the AR Lender, in its discretion, deems reasonably 
necessary to preserve and protect its priority collateral.
    Comment: Several commenters suggested expanding the definition of 
the ``AR Lender Priority Collateral'' to include all collateral except 
certain collateral carved out as priority collateral securing the FHA-
insured loan. Multiple commenters stated that AR Lenders need to 
preserve access to the books and records and that HUD should preserve 
the ability of these items to serve as collateral for the accounts 
receivable loan.
    HUD Response: HUD largely declined to make the suggested changes, 
as HUD determined that the reduced exposure resulting from changes to 
Cut-Off Time provided adequate additional protection to AR Lenders. 
Regarding books and records, HUD notes that the fact that books and 
records are not given the extra beneficial treatment of ``AR Lender 
Priority Collateral'' does not exclude such items from the AR Lender's 
collateral. AR Lenders may still take a security interest in the books 
and records and reserve a right to inspect those books and records as 
necessary. HUD did determine that adding deposit accounts to the 
definition of AR Loan Priority Collateral was appropriate.
    Comment: Several commenters suggested expanding the definitions of 
``AR Loan Obligations'' and ``Priority Obligations'' to incorporate 
interest and letters of credit.
    HUD Response: HUD largely adopted the commenters' suggestions, 
provided that the ``Maximum Commitment Amount'' and program obligations

[[Page 69885]]

provide some limit to potential obligations.
    Comment: Several commenters questioned how this form would work in 
a portfolio transaction with many healthcare facilities.
    HUD Response: HUD contemplates that a distinct Intercreditor 
Agreement will be executed for each FHA-insured loan. To clarify 
requirements, HUD revised the agreement to include a definition of 
``Other Facilities,'' and added section 2.2(c) to disclaim 
prioritization among FHA-insured lenders. HUD also revised the 
definition of Cut-Off Time to provide that AR Loan Triggering Events 
that relate to one accounts receivable line of credit would be 
considered triggering events for the other facilities financed by that 
line of credit. In contrast, since each Intercreditor Agreement sets 
forth the relationship of its respective FHA-insured lender vis-
[agrave]-vis the AR Lender, a similar provision for an FHA Triggering 
Event would not be appropriate.
    Comment: A commenter suggested consolidating the various options 
for section 3.4 (relating to lock-box and other account agreements).
    HUD Response: HUD declines to make the suggested changes. HUD 
determined that retaining the three possible versions is necessary to 
allow several appropriate options.
    Comment: A commenter stated that the Intercreditor Agreement no 
longer permits cross-defaults between FHA and non-FHA lines of credit, 
and that this will discourage large portfolio owners from utilizing 
FHA-Insured financing. The commenter stated that it frequently finds AR 
Lenders are willing to allow FHA and non-FHA facilities to be 
segregated as collateral but are requiring them to be cross-defaulted 
as permitted under the current Notice H 08-09: Accounts Receivable 
(``AR'') Financing.
    HUD Response: Each facility will have its own Intercreditor 
Agreement and the document includes a definition of ``Other 
Facilities'' that means any other healthcare facility financed by a 
mortgage loan made by a HUD-approved lender or held by HUD. Section 3.6 
was revised to require the AR Lender and operator to certify and agree 
that any and all cross-default provisions have been disclosed to and 
approved in writing by HUD. HUD determined that these provisions were 
necessary to meet its oversight obligations.

HUD-92323-ORCF: Operator Security Agreement

    Comment: A commenter stated that a separate form of security 
agreement should be developed for use when the operator does not share 
an identify of interest (``IOI'') with the borrower because a non-IOI 
operator will generally not be willing to grant a security interest in 
its assets as security for a loan being obtained by an unrelated 
borrower.
    HUD Response: HUD declines to differentiate between IOI and non-IOI 
operators at this stage. HUD has determined that proper oversight of 
the projects requires a direct security interest in the operator's 
interests in the healthcare facility.
    Comment: Multiple commenters expressed concern with recording this 
document, as Exhibit C sets forth sensitive deposit account information 
that the operator would not want included in a recorded document.
    HUD Response: HUD determined that the inclusion of the deposit 
account information is necessary. However, HUD acknowledged the concern 
with recording sensitive information. Because only the assignment of 
leases portion of the document would need to be recorded to perfect the 
security interest it purports to grant, the assignment of leases 
portions of this document have been separated into an attachment. In 
this way, the assignment of leases provisions may be separated and 
recorded without recording the rest of the document.
    Comment: With respect to sections 2(a) and 2(b), Representations 
and General Covenants, a commenter proposed the addition of a concept 
of permitted liens encompassing both the security interest in favor of 
the secured party and any liens approved in writing by the secured 
party and HUD, which are allowable liens against the collateral.
    HUD Response: HUD accepts the concept of permitted liens, and the 
document has been revised accordingly.
    Comment: A commenter proposed language in section 2(b) that 
obligates the operator to ensure necessary UCC terminations are filed 
and to provide the secured party with search results evidencing the 
same. A commenter also proposed use of the operator's location (rather 
than the chief executive's office), as this term is used in the UCC, 
under which secured parties must file a UCC-1.
    HUD Response: HUD partially accepts the commenter's recommendation. 
HUD has included language in the ``Further Assurances'' section 
obligating the operator to provide UCC searches showing HUD filings and 
no other filings on request or in any event within 45 days. 
Additionally, HUD has added the operator's location as used in the UCC.
    Comment: A commenter requested that HUD revise section 8(a), 
relating to an Event of Default, to clarify that if the obligations are 
not paid when due (regardless of which entity pays them) it constitutes 
an Event of Default.
    HUD Response: HUD agrees with the commenter's recommendation.
    Comment: Several commenters found provisions relating to government 
receivables accounts, deposit account control agreements, deposit 
account instructions and service agreements, and related concepts, 
lacking and provided suggestions for clarifying requirements.
    HUD Response: HUD largely agreed with the suggested revisions. Such 
changes are reflected in the redlined/strikeout version of this 
document posted on HUD's Web site at the address set forth in the 
introduction to this notice.

HUD-92211-ORCF: Master Lease Addendum

    Comment: A commenter stated that subordination, non-disturbance 
and/or attornment language should be incorporated into the Master Lease 
Addendum, negating the need for separate subordination agreements.
    HUD Response: HUD disagrees with this recommendation. The lender 
needs privity of contract with the lessee and this addendum to the 
master lease does not establish that.
    Comment: A commenter stated that as drafted, section 9, relating to 
ownership of bed authority, conflicts with licensing requirements and 
similar sections of the Operating Lease Addendum. A commenter stated 
that if the landlord owns the bed authority the operator would not be 
able to obtain and maintain the provider agreements. The commenter 
suggested removing that requirement from the Master Lease Addendum.
    HUD Response: HUD agreed with the commenter and accepted the 
recommendation.
    Comment: A commenter suggested adding to section 13 (now section 
11, Subletting and Assignment) a clause clarifying that in the case of 
a transfer to an affiliate, the transferee must submit a form HUD-2530 
for previous participation clearance, and receive prior HUD approval.
    HUD Response: HUD determined that this provision is not necessary 
given the existing language in this section that requires HUD approval 
of any transfer.
    Comment: A commenter suggested several additional provisions to 
expand the scope of the Master Lease Addendum.

[[Page 69886]]

    HUD Response: Most of these provisions were duplicative of 
provisions in other documents, such as the master tenant's regulatory 
agreement. Since HUD is not a party to the Master Lease Addendum, HUD 
determined it would set forth its oversight requirements for the master 
tenant in the master tenant regulatory agreement.

HUD-92331-ORCF: Cross-Default Guaranty of Subtenants

    Comment: A commenter recommended adding new provisions for a 
``waiver of subrogation'' in section 6, or as a new section 26.
    HUD Response: A waiver of subrogation is already in the first 
sentence of section 10 of this document.

HUD-92333-ORCF: Master Lease Subordination Non-Disturbance and 
Attornment Agreement (SNDA)

    Comment: A commenter stated that the Agreement should be limited to 
a subordination agreement, and that HUD should move all regulatory and 
oversight provisions to the operator or master tenant regulatory 
agreement and retain necessary SNDA provisions, if applicable. Another 
commenter recommended moving the necessary SNDA provisions to the 
Master Lease Addendum to avoid introducing conflicting agreements. The 
commenter expressed concern that tremendous efforts will be needed at 
each closing to make the subordination agreements consistent with the 
regulatory agreements and the Master Lease Addendum. The commenter 
further stated that the Master Lease Addendum could be structured so 
that the lender acknowledges the subordination provisions and a 
separate agreement can be eliminated.
    HUD Response: HUD agrees with the commenter's approach of limiting 
the provisions in the SNDA to subordination and related provisions and 
placing regulatory and oversight provisions in the master tenant 
regulatory agreement, and has revised the document accordingly. 
However, HUD disagrees with the comments regarding incorporating the 
SNDA provisions into the Master Lease Addendum and has determined that 
the SNDA is appropriate as a separate and recordable document.
    Comment: A commenter stated that the provisions in this document 
and the operator regulatory agreement document requiring the master 
tenant and/or operator to hire a consultant if a deficiency occurs 
should be made consistent. The commenter stated that unlike the 
operator regulatory agreement, this document's ``bright line'' 
provisions for when a consultant must be hired is a better method than 
the ambiguity created in the operator's regulatory agreement, but that 
the current trigger for such requirement, a project operating 
deficiency, is unacceptable to the industry.
    HUD Response: HUD has revised the cited provisions in this document 
and in the operator's regulatory agreement to be consistent and has 
revised the concept of a project operating deficiency in response to 
comments from the industry.
    Comment: Multiple commenters stated the provisions in section 6, 
regarding a master tenant's and operator's right to cure defaults, 
should be revised and clarified. One commenter suggested that the 
rights to cure and the extensions of cure periods should not be limited 
to instances where no project operating deficiency exists. Another 
commenter also recommended further extending the cure period 
extensions.
    HUD Response: HUD acknowledges the commenters' concerns but has 
determined that the revised definition of project operating deficiency 
adequately addresses the concerns regarding the limitation on the cure 
rights. HUD has also determined that the extension periods provided are 
sufficient. These provisions attempt to balance the rights of the 
lender with the borrower and operator's rights.

HUD-92337-ORCF: Healthcare Regulatory Agreement--Master Tenant

    Comment: A commenter objected to provisions giving HUD rights, if 
HUD determines there is a substantial risk of termination, suspension, 
or restriction with respect to any permit or approval, to declare an 
Event of Default without further notice. The commenter stated that: (i) 
HUD's unilateral right to require replacement of the operator is based 
upon a subjective determination, (ii) the extensive obligations set 
forth in the various regulatory agreements, security instrument and 
other program obligations provide HUD with more than adequate 
protections, (iii) HUD's ability to declare a default due to a 
``restriction'' on a permit or approval could result in unreasonable 
outcomes. The commenter recommended that these provisions be revised to 
permit HUD to act in those situations when the risk would prevent the 
project from being operated for its ``Approved Use'' and would have a 
material adverse effect on the value of the Mortgaged Property.
    HUD Response: HUD acknowledges the commenter's concerns and has 
revised the document accordingly. The definition of ``Permits and 
Approvals'' has been limited to those reasonably necessary to operate 
and/or fund the project for its approved use, and the restrictions on 
permits and/or approvals triggering HUD's rights have been limited to 
such restrictions that would have a materially adverse effect on the 
project.
    Comment: The commenter recommended that the document be revised so 
the operator is not required to have a risk management program that 
meets the requirements of the section unless HUD requires the operator 
to do so.
    HUD Response: HUD acknowledges the commenter's concern but has 
determined that a risk management program is vital to managing the 
risks inherent in operating healthcare facilities. HUD has determined 
that the requirements for the risk management program are flexible and 
are not overly burdensome, and HUD will provide additional details as 
necessary.
    Comment: A commenter objected to the provisions in section 14 
regarding the segregation of project accounts. The commenter stated 
that the master tenant will not be operating the facility and will 
likely have an account into which rents paid under all of the subleases 
of projects covered by the master lease are deposited.
    HUD Response: HUD revised the language to be consistent with the 
2012 Final 232 Rule to allow for the use of a general collection 
account, provided deposits can be readily and reliably traced to each 
applicable facility.
    Comment: Multiple commenters commented on the financial reporting 
and covenants provisions in section 14. One commenter stated that HUD 
does not have an interest in the financial reports of the master 
tenant. Another commenter stated that section 14, paragraph (e), 
requiring the master tenant to cause the healthcare facility to 
maintain positive working capital is unworkable for master lease 
transactions.
    HUD Response: HUD maintains its interests in the financial reports 
of all parties involved in the transaction, but has clarified the 
reporting provisions to indicate that consolidated reports may be 
appropriate. Consistent with the 2012 Final 232 Rule, HUD has removed 
the requirement to maintain positive healthcare facility working 
capital.

HUD-92340-ORCF: Master Tenant Security Agreement

    Comment: A commenter stated that as published, the master tenant 
security agreement appears to contemplate that it will be a recorded 
instrument. The

[[Page 69887]]

commenter further stated that if the security interests in the master 
tenant security agreement are adequately perfected through filing of 
the UCC financing statements, there would be no need to also record the 
master tenant security agreement.
    HUD Response: HUD declined to adopt the commenter's recommendation 
because this document includes assignments of rents and leases which 
are typically required to be recorded. The master tenant's assignment 
of its subleases is the primary collateral it is pledging as security 
for the obligations set forth in the loan documents. HUD notes, 
however, the reluctance to record sensitive information and has 
indicated that Exhibit C, which includes sensitive information, should 
not be recorded.
    Comment: A commenter recommended that separate forms of the 
security agreement should be developed for use when the operator and/or 
master tenant does not share an identity of interest with the borrower. 
The commenter recommended that a non-identity of interest operator and/
or master tenant should not be required to grant a security interest in 
favor of both the lender and the borrower in its assets as security for 
payment and performance of its obligations under the lease and the 
obligations of the operator or master tenant under those loan documents 
to which the operator or master tenant is a party.
    HUD Response: HUD has determined at this time to maintain a uniform 
set of requirements for both identity of interest and non identity of 
interest transactions.

HUD-91725-INST-ORCF: Instructions for Guide to Opinion of Borrower's 
and Operator's Counsel

    Comment: A commenter stated that separate forms and instructions 
should be promulgated with respect to both a guide for opinion of 
operator's counsel and a guide for opinion of master tenant's counsel.
    HUD Response: HUD determined that the instructions to the 
borrower's counsel's opinion were sufficiently encompassing to apply to 
both the guide to the borrower's counsel's opinion and the guide to the 
operator's counsel's opinion. HUD determined that a separate set of 
instructions for the master tenant's counsel's opinion was not 
necessary at this time.

HUD-91725-ORCF: Guide for Opinion of Borrower's Counsel

    Comment: A commenter suggested having a description of the docket 
searches attached to the opinion as an exhibit.
    HUD Response: HUD has determined that because the searches are 
submitted at a prior stage in processing, a description of the searches 
need not be attached to the opinion.
    Comment: A commenter suggested that HUD add an assumption that 
formerly was included in the multifamily program's opinion of 
borrower's counsel, as follows: ``The Mortgagor has title or other 
interest in each item of (i) real and (ii) tangible and intangible 
personal property (``Personalty'') comprising the Property in which a 
security interest is purported to be granted under the Loan 
Documents.''
    HUD Response: HUD declines to adopt this change. As noted by the 
commenter, it is no longer a provision in the multifamily rental 
project documents and is not appropriate for inclusion in the 
healthcare facility documents.
    Comment: Several commenters suggested revisions to the list of 
documents so that documents are listed appropriately for the opinions 
to which they relate and so that inappropriate documents are not 
listed.
    HUD Response: HUD generally agreed with these comments and 
appropriate changes are reflected in the redlined documents posted on 
HUD's Web site at the address set forth in the introduction to this 
notice. However, HUD also determined that where certain changes were 
not accepted, consistency with the opinion required for multifamily 
program was an overriding consideration.

IV. Findings and Certifications

Paperwork Reduction Act

    The proposed new information collection requirements contained in 
this notice have been submitted to OMB for review under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520). In accordance with the 
Paperwork Reduction Act, an agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
    The public reporting burden for this new collection of information 
is estimated to include:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 Avg.                  Avg.
                                                                            Number of    Freq. of  Resp. per    burden     Annual     hourly     Annual
              New form number                          Form name           respondents    resp.      annum     per hour    burden    cost per     cost
                                                                                                              per resp.    hours      resp.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Lender Narratives
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-9001-ORCF..............................  Lender Narrative 223a7--Main          30         2.5         75      22.00       1650        $75   $123,750
HUD-9001a-ORCF.............................  Lender Narrative 223a7--              30         2.5         75       1.50        113         75      8,438
                                              Addenda--PCNA.
HUD-9001b-ORCF.............................  Lender Narrative                      30         2.5         75       0.25         19         75      1,406
                                              223a7.223d.232i--Addendum--
                                              ALTA/ACSM Land Title Survey.
HUD-9001c-ORCF.............................  Lender Narrative 223a7--              30         2.5         75       0.25         19         75      1,406
                                              Addendum--Environmental.
HUD-9001d-ORCF.............................  Lender Narrative 223a7--              30         2.5         75       0.25         19         75      1,406
                                              Addendum--Other Existing
                                              Eligible Indebtedness.
HUD-9001e-ORCF.............................  Lender Narrative                      30         2.5         75       0.50         38         75      2,813
                                              223a7.223d.232i--Addendum--
                                              Principal of Borrower.
HUD-9001f-ORCF.............................  Lender Narrative                      20         2.5         50       0.50         25         75      1,875
                                              223a7.223d.232i--Addendum--
                                              Operator.
HUD-9001g-ORCF.............................  Lender Narrative                      12         2.5         30       0.50         15         75      1,125
                                              223a7.223d.232i--Addendum--
                                              Management Agent.
HUD-9001h-ORCF.............................  Lender Narrative                      30         2.5         75       0.50         38         75      2,813
                                              223a7.223d.232i--Addendum--
                                              Transfer of Physical Assets.
HUD-9001i-ORCF.............................  Lender Narrative                      30         2.5         75       0.25         19         75      1,406
                                              223a7.223d.232i--Addendum--
                                              AR Financing.
HUD-9002-ORCF..............................  Lender Narrative 223f.......          30         7.5        225      70.00      15750         75  1,181,250
HUD-9003-ORCF..............................  Lender Narrative 241a.......           4           1          4      73.33        293         75     22,000
HUD-9004-ORCF..............................  Lender Narrative--New                 10           2         20      86.67       1733         75    130,000
                                              Construction--Single Stage.
HUD-9005-ORCF..............................  Lender Narrative--New                 10           2         20      63.33       1267         75     95,000
                                              Construction--2 Stage
                                              Initial Submittal.

[[Page 69888]]

 
HUD-9005a-ORCF.............................  Lender Narrative--New                 10           2         20      53.33       1067         75     80,000
                                              Construction--2 Stage Final
                                              Submittal.
HUD-9006-ORCF..............................  Lender Narrative--                     4           1          4      93.33        373         75     28,000
                                              Substantial Rehabilitation--
                                              Single Stage.
HUD-9007-ORCF..............................  Lender Narrative--                     4           1          4      70.00        280         75     21,000
                                              Substantial Rehabilitation--
                                              2 Stage Initial Submittal.
HUD-9007a-ORCF.............................  Lender Narrative--                     4           1          4      70.00        280         75     21,000
                                              Substantial Rehabilitation--
                                              2 Stage Final Submittal.
HUD-9008-ORCF..............................  Lender Narrative--Blended              4           1          4      70.00        280         62     17,267
                                              Rate--Single Stage.
HUD-90025-ORCF.............................  Lender Narrative--Blended              4           1          4      70.00        280         75     21,000
                                              Rate--2 Stage Initial
                                              Submittal.
HUD-90025a-ORCF............................  Lender Narrative--Blended              4           1          4      70.00        280         75     21,000
                                              Rate--2 Stage Final
                                              Submittal.
HUD-9009-ORCF..............................  Lender Narrative 232(i)--              5           2         10       0.67          7         62        411
                                              Fire Safety Equipment
                                              Installation, without
                                              Existing HUD Insured
                                              Mortgage.
HUD-90010-ORCF.............................  Lender Narrative 232(i)--              5           2         10       0.67          7         62        411
                                              Fire Safety Equipment
                                              Installation, with Existing
                                              HUD Insured Mortgage.
HUD-90011-ORCF.............................  Lender Narrative 223(d)--              1           2          2       0.67          1         62         82
                                              Operating Loss Loan.
HUD-9444-ORCF..............................  Lender Narrative Cost                  2           2          4       6.67         27         75      2,000
                                              Certification Supplement.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Production Certifications
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-90012-ORCF.............................  Consolidated Certification--          30         2.5         75       0.58         44        $67     $2,917
                                              Lender.
HUD-90013-ORCF.............................  Consolidated Certification--          77           1         77       1.33        103         75      7,700
                                              Borrower.
HUD-90014-ORCF.............................  Consolidated Certification--          38           2         76       1.33        101         75      7,600
                                              Principal of the Borrower.
HUD-90015-ORCF.............................  Consolidated Certification--          35           2         70       1.33         93         75      7,000
                                              Operator.
HUD-90016-ORCF.............................  Consolidated Certification--          35           2         70       1.33         93         75      7,000
                                              Parent of Operator.
HUD-90017-ORCF.............................  Consolidated Certification--          35           2         70       1.33         93         75      7,000
                                              Management Agent.
HUD-90018-ORCF.............................  Consolidated Certification--           4           1          4       1.33          5         75        400
                                              Contractors.
HUD-90019-ORCF.............................  Auditor Certification.......           3           1          3       0.58          2         67        117
HUD-90022-ORCF.............................  Certification for Electronic          35          10        350       0.28         99         67      6,611
                                              Submittal.
HUD-9445-ORCF..............................  Certification of Outstanding          35          10        350       1.25        438         83     36,458
                                              Obligations.
HUD-91118-ORCF.............................  Borrower's Certification--           240           1        240       0.58        140         75     10,500
                                              Completion of Critical
                                              Repairs.
HUD-92434-ORCF.............................  Lender Certification........          35          10        350       0.75        263         75     19,688
HUD-91130-ORCF.............................  Building Code Certification.          26           2         52       0.33         17         83      1,444
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Construction Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-91123-ORCF.............................  Design Professional's                 26           2         52       0.33         17        $83     $1,444
                                              Certification of Liability
                                              Insurance.
HUD-91124-ORCF.............................  Design Architect                      26           2         52       0.33         17         83      1,444
                                              Certification.
HUD-91127-ORCF.............................  Financial Statement                   26           2         52       0.37         19         67      1,271
                                              Certification GC.
HUD-92408-ORCF.............................  HUD Amendment to B108.......          26           2         52       0.28         15         75      1,105
HUD-95379-ORCF.............................  HUD Representative's Trip             26          28        728       0.83        607         75     45,500
                                              Report.
HUD-91129-ORCF.............................  Lender Certification for New          10         5.2         52       3.33        173         75     13,000
                                              Construction Cost
                                              Certifications.
HUD-9442-ORCF..............................  Memo for Post-Commitment               3           2          6       0.70          4         75        315
                                              Early Start of Construction
                                              Request.
HUD-92415-ORCF.............................  Request for Permission to              3           2          6       0.30          2         83        150
                                              Commence Construction Prior
                                              to Initial Endorsement for
                                              Mortgage Insurance (Post-
                                              Commitment Early Start of
                                              Construction).
HUD-93305-ORCF.............................  Agreement and Certification.          10         5.2         52       0.50         26         75      1,950
HUD-92441-ORCF.............................  Building Loan Agreement.....          10         5.2         52       1.00         52         75      3,900
HUD-92441a-ORCF............................  Building Loan Agreement               10         5.2         52       1.00         52         75      3,900
                                              Supplemental.
HUD-92450-ORCF.............................  Completion Assurance........          10         5.2         52       0.50         26         75      1,950
HUD-92442-ORCF.............................  Construction Contract.......          10         5.2         52       1.00         52         75      3,900
HUD-92554-ORCF.............................  Supplementary Conditions of           10         5.2         52       0.20         10        217      2,253
                                              the Contract for
                                              Construction.
HUD-92456-ORCF.............................  Escrow Agreement for                   3           2          6       0.50          3         75        225
                                              Incomplete Construction.
HUD-92479-ORCF.............................  Offsite Bond--Dual Obligee..           5           3         15       0.50          8         75        563
HUD-92452A-ORCF............................  Payment Bond................           5         5.2         26       0.50         13         75        975
HUD-92452-ORCF.............................  Performance Bond--Dual                 5         5.2         26       0.50         13        217      2,817
                                              Obligee.
HUD-92455-ORCF.............................  Request for Endorsement.....          10         5.2         52       0.75         39         75      2,925
HUD-92023-ORCF.............................  Request for Final                     10         5.2         52       1.00         52         75      3,900
                                              Endorsement.
HUD-92412-ORCF.............................  Working Capital Escrow......          10         5.2         52       0.50         26         75      1,950
HUD-91125-ORCF.............................  Staffing Schedule...........          30        5.83        175       1.00        175         62     10,792
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Additional ORCF Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-91708-ORCF.............................  Agreement for Payment of               1           1          1       0.67          1        $83        $56
                                              Real Property Taxes.
HUD-92576A-ORCF............................  Certificate of Need for                3           2          6       0.30          2         83        150
                                              Health Facility.
HUD-90024-ORCF.............................  Contact Sheet...............          35          10        350       0.67        233         67     15,556
HUD-91126-ORCF.............................  Financial Statement                  150           7       1050       0.37        385         67     25,667
                                              Certification.
HUD-91116-ORCF.............................  Addendum to Operating Lease.          30         6.5        195       0.50         98        217     21,125
HUD-941-ORCF...............................  Lenders FHA Number Request            30        11.7        351       0.37        129         62      7,937
                                              Form.
HUD-92264a-ORCF............................  Maximum Insurable Loan                30        11.7        351       1.25        439         83   36,562.5
                                              Calculation.

[[Page 69889]]

 
HUD-2-ORCF.................................  Request for Waiver of                 20           8        160       1.00        160         75     12,000
                                              Housing Directive.
HUD-91119-ORCF.............................  Schedule of Facilities Owned          35          10        350       1.33        467         75     35,000
                                              Operated or Managed.
HUD-91110-ORCF.............................  Subordination, Non-                   30        11.7        351       2.33        819        233    191,100
                                              Disturbance and Attornment
                                              Agreement of Operating
                                              Lease (SNDA).
HUD-91111-ORCF.............................  Survey Instructions and              180         1.5        270       0.53        144         83     12,000
                                              Borrower's Certification.
HUD-91112-ORCF.............................  Request of Overpayment of             15        5.13      76.95       0.50         38         67      2,565
                                              Firm Application Exam Fee.
HUD-9839-ORCF..............................  Management Certification--             5           1          5       0.50          3         75        188
                                              Residential Care Facility.
HUD-92466-ORCF.............................  Healthcare Regulatory                 35          10        350       0.83        292        217     63,194
                                              Agreement--Borrower.
HUD-92466A-ORCF............................  Healthcare Regulatory                 10           2         20       0.83         17        217      3,611
                                              Agreement--Operator.
HUD-94000-ORCF.............................  Security Instrument/Mortgage/         35          10        350       1.00        350        217     75,833
                                              Deed of Trust.
HUD-92070-ORCF.............................  Lease Addendum..............           2           1          2       0.50          1        217        217
HUD-94001-ORCF.............................  Healthcare Facility Note....          35          10        350       1.00        350         75     26,250
HUD-91710-ORCF.............................  Residual Receipts Note--Non            5           2         10       0.50          5         75        375
                                              Profit Mortgagor.
HUD-92420-ORCF.............................  Subordination Agreement--              7           2         14       0.50          7        217      1,517
                                              Financing.
HUD-92223-ORCF.............................  Surplus Cash Note...........           7           2         14       0.50          7         75        525
HUD-2205A-ORCF.............................  Borrower's Certificate of             30         7.5        225        3.5        788         75     59,100
                                              Actual Cost.
HUD-92323-ORCF.............................  Operator Security Agreement.          30         6.5        195       2.00        390        200     78,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                    Escrow Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-91128-ORCF.............................  Initial Operating Deficit             11           5         55       1.25         69        $83     $5,729
                                              Escrow Calculation Template.
HUD-92414-ORCF.............................  Latent Defects Escrow.......          20          12        240       0.50        120         75      9,000
HUD-9443-ORCF..............................  Minor Moveable Escrow.......          26           2         52       0.92         48         83      3,972
HUD-92476-ORCF.............................  Escrow Agreement Noncritical          20          12        240       0.50        120         75      9,000
                                              Deferred Repairs.
HUD-92476B-ORCF............................  Escrow Agreement for                  12         4.8       57.6       0.50         29         75      2,160
                                              Operating Deficits.
HUD-92464-ORCF.............................  Request Approval Advance of           35          15        525       1.00        525         75     39,375
                                              Escrow Funds.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Asset Management Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-92266-ORCF.............................  Application for Transfer of           25           2         50       1.17         58        $83     $4,861
                                              Physical Assets (TPA).
HUD-93332-ORCF.............................  Certification of Exigent             456           1        456       0.75        342         75     25,650
                                              Health & Safety (EH&S)
                                              Issues.
HUD-93333-ORCF.............................  Certification Physical               208           1        208       0.50        104         83      8,667
                                              Condition in Compliance.
HUD-93486-ORCF.............................  Computation of Surplus Cash.          70           1         10       0.25         18         62      1,085
HUD-9250-ORCF..............................  Funds Authorizations........         500         5.6       2800       1.00       2800         75    210,000
HUD-9250A-ORCF.............................  Mortgagor Certification and           15           2         30       1.00         30         75      2,250
                                              Request Detail.
HUD-92228-ORCF.............................  Model Form Bill of Sale and           20           2         40       0.67         27         83      2,222
                                              Assignment.
HUD-92117-ORCF.............................  Borrower's Certification--           250           2        500       0.58        292         75     21,875
                                              Completion of Non-Critical
                                              Repairs.
HUD-92417-ORCF.............................  Personal Financial and               175           6       1050       3.50       3675         83    306,250
                                              Credit Statement.
HUD-93479-ORCF.............................  Monthly Report for                    60           2        120       1.17        140         75     10,500
                                              Establishing Net Income.
HUD-93479A-ORCF............................  Schedule of Disbursements...          60          12        720       1.00        720         75     54,000
HUD-93479B-ORCF............................  Schedule of Accounts Payable          60          12        720       1.00        720         75     54,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Accounts Receivable Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-90020-ORCF.............................  A/R Financing Certification.          50           3        150       0.67        100       $217    $21,667
HUD-92322-ORCF.............................  Intercreditor Agreement (for          30           5        150       2.00        300        200     60,000
                                              AR Financed Projects).
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Master Lease Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-92211-ORCF.............................  Master Lease Addendum.......           5           5         25       1.00         25       $217     $5,417
HUD-92331-ORCF.............................  Cross-Default Guaranty of             30        5.83        175       1.00        175        217     37,895
                                              Subtenants.
HUD-92333-ORCF.............................  Master Lease SNDA...........          30        5.83        175       1.00        175        217     37,895
HUD-92335-ORCF.............................  Guide for Opinion of Master           30        5.83        175       1.00        175        217     37,895
                                              Tenant's Counsel.
HUD-92337-ORCF.............................  Healthcare Regulatory                 30        5.83        175       2.00        350        217     75,790
                                              Agreement--master tenant.
HUD-92339-ORCF.............................  Master Lease Estoppel                 30        5.83        175       0.50         87        217     18,948
                                              Agreement.
HUD-92340-ORCF.............................  Master Tenant Security                30        5.83        175       1.00        175        217     37,895
                                              Agreement.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Additional Legal Documents
--------------------------------------------------------------------------------------------------------------------------------------------------------
HUD-91117-ORCF.............................  Operator Estoppel                    100           2        200       0.75        150       $275    $41,250
                                              Certificate.
HUD-91725-INST-ORCF........................  Instructions to Guide for             35          10        350       2.00        700        217    151,667
                                              Opinion of Borrower's and
                                              Operator's Counsel.
HUD-91725-CERT-ORCF........................  Exhibit A to Opinion of               35          10        350       2.00        700        217    151,667
                                              Borrower's Counsel--
                                              Certification.
HUD-91725-ORCF.............................  Guide for Opinion of                  35          10        350       2.00        700        217    151,667
                                              Borrower's Counsel.
HUD-92325-ORCF.............................  Guide for Opinion of                  30         6.5        195       3.00        585        200    117,000
                                              Operator's Counsel and
                                              Certification.
                                                                          ------------------------------------------------------------------------------
    Totals.................................  ............................       4,568         539     20,263          8     46,131        105  4,393,301
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 69890]]

    The hourly rate is an estimate based on average annual salaries for 
lenders and attorneys.
    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning the 
proposed collection of information to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated 
collection techniques or other forms of information technology, e.g., 
permitting electronic submission of responses.
    Interested persons are invited to submit comments regarding the 
information collection requirements in this proposal. Comments must be 
received by December 21, 2012. Comments must refer to the proposal by 
name and docket number (FR-5354-N-02) and must be sent to:
    HUD Desk Officer, Office of Management and Budget, New Executive 
Office Building, Washington, DC 20503, Fax number: (202) 395-6947, and
    Paperwork Reduction Act Program Manager, Office of the Chief 
Information Officer, Department of Housing and Urban Development, 451 
Seventh Street SW., Room 4178, Washington, DC 20410.

    Dated: November 15, 2012.
Carol J. Galante,
Acting Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2012-28308 Filed 11-20-12; 8:45 am]
BILLING CODE 4210-67-P