[Federal Register Volume 78, Number 50 (Thursday, March 14, 2013)]
[Notices]
[Pages 16279-16286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-05826]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5623-N-03]


HUD Healthcare Facility Documents: Notice Announcing Final 
Approved Documents and Assignment of OMB Control Number

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

ACTION: Notice.

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SUMMARY: This notice announces that the healthcare facility documents 
have completed the notice and comment processes and review by the 
Office of Management and Budget (OMB) as required by the Paperwork 
Reduction Act, and that OMB has assigned a control number to the 
documents. The final versions of the documents can be found on HUD's 
Web site at www.hud.gov/232forms. Additionally, this notice highlights 
some of the changes made by HUD to the documents based upon its review 
of the comments submitted in response to a November 21, 2012 notice.

FOR FURTHER INFORMATION CONTACT: Roger Miller, Deputy Assistant 
Secretary, Office of Healthcare Programs, Office of Housing, Department 
of Housing and Urban Development, 451 7th Street SW., Room 6264, 
Washington, DC 20410-0500; telephone number 202-708-0599 (this is not a 
toll-free number). Persons with speech or hearing impairments may 
access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    On May 3, 2012 (77 FR 26304) and consistent with the Paperwork 
Reduction Act of 1995 (PRA), HUD published for public comment, for a 
period of 60 days, a notice (60-day 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 followed adoption of 
updates and revisions to documents used for FHA's multifamily programs, 
and initiated the public review process for obtaining approval of 
changes to these specific healthcare facility documents under the PRA. 
In conjunction with publication of the 60-day Notice, the proposed 
revised healthcare facility documents were made available at: 
www.hud.gov/232forms.
    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 program 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 received on the proposed rule, was 
published on September 7, 2012, at 77 FR 55120 (2012 Final 232 Rule).
    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 Web 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 the revised documents which were 
published on November 21, 2012 (77 FR 69870), and for which, consistent 
with the PRA, comment was solicited for an additional 30 days.
    In the 30-day PRA notice published on November 21, 2012 (77 FR 
69870) (30-day Notice) HUD identified substantive changes that were 
made to the healthcare facility documents in response to public 
comments submitted on the 60-day Notice, responded to significant 
issues raised by the commenters, and identified proposed additional 
changes based on further consideration of certain issues. All the 
public comments submitted on the proposed updated documents were 
available for review on www.regulations.gov, and a HUD web page 
included proposed mark-ups of the documents. The documents can be found 
on HUD's Web site at: www.hud.gov/232forms.
    This notice published today announces that HUD has completed the 
notice and comment processes required by the PRA, and that OMB has 
completed its review and has assigned an OMB control number 2502-0605 
to the documents. HUD made additional changes to the documents in 
response to comments submitted on the 30-day Notice. Therefore, in 
addition to announcing the completion of the process required by the 
PRA and the assignment of the OMB control number, HUD highlights some 
of the additional changes made to the healthcare facility documents 
(documents) in response to public comment as provided below.

II. Status of Changes to Documents

    In response to comments that were received on the 60-day Notice and 
the 30-day Notice, HUD made a number of revisions to the documents. The 
changes to these documents include both technical editorial changes and 
some more substantive changes.
    This notice does not provide a detailed summary of all of the 
changes made or responses to all of the issues raised in the final set 
of public comments on the 30-day Notice. Rather, the discussion in the 
following sections

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of this notice highlights certain changes which are representative of 
the types of changes made in response to some of the more significant 
issues raised by the commenters in response to the 30-day Notice and 
the accompanying documents posted on HUD's Web site. In this notice, 
HUD is not repeating responses to all the proposed changes or issues 
that were addressed in the prior notices. The final versions of the 
documents and the redlined versions which detail specific changes to 
the documents posted in connection with the 30-day Notice are available 
on HUD's Web site: www.hud.gov/232forms.
    Please also note that commenters have varied their references to 
specific provisions in the documents; sometimes the commenters referred 
to the provision in the healthcare facility document as sections, 
subsections, and paragraphs. Efforts have been made to track and 
maintain those references in this notice.

III. Selected Policy Determinations

    Some of the changes suggested to the documents by the commenters on 
the 30-day Notice were similar to changes suggested by commenters on 
the 60-day Notice, and were already addressed by HUD in the 30-day 
Notice. Further, the redlined and final documents posted on HUD's Web 
site in conjunction with this final notice detail all of the changes 
HUD made in response to the points made by the commenters. Therefore 
the changes discussed below highlight, in a comment and response 
format, a summary of areas where HUD has made significant policy or 
other substantive determinations.

IV. The Public Comments

A. The Commenters

    The public comment period for the 30-day Notice closed on December 
21, 2012, and public comments were received from 5 sets of commenters 
(some individuals, some a group of individuals, each set referred to in 
this notice as a ``commenter''). Comments were submitted by 
associations representing surety bond insurance companies, mortgage 
bankers, accounts receivable (AR) lenders, lenders specializing in HUD 
programs, and private practice attorneys.
    All comments were carefully considered by HUD prior to presentation 
to OMB for final approval and assignment of a control number under the 
Paperwork Reduction Act.

B. General Recommendations

    This section of the summary includes summaries of ``cross-cutting'' 
issues that were emphasized in commenters' summaries.
    Comment: Treatment of Non-Profit Borrowers. One comment stated that 
HUD is deviating from long-standing HUD policy with respect to non-
profit borrowers, and recommended that HUD reconsider revising 
provisions in the Healthcare Regulatory Agreement--Borrower 
(``Borrower's Regulatory Agreement'') regarding non-profit borrowers. 
The commenter stated that under the proposed Borrower's Regulatory 
Agreement, all non-profit borrowers will be required to maintain a 
residual receipts account that essentially amounts to a long-term debt 
service escrow merely because they are non-profit entities. The 
commenter stated that such a requirement should be waived if in all 
other respects, the non-profit is being treated the same as a for-
profit borrower, not benefiting at all from its non-profit status. The 
commenter stated that it is counter to HUD's mission for HUD to treat 
non-profit borrowers disadvantageously solely because they are non-
profit entities.
    HUD Response: The commenter is not correct that the proposed 
Borrower's Regulatory Agreement deviates from long-standing HUD policy. 
It is well-established, long-standing HUD policy in both the healthcare 
and multifamily programs to require non-profit borrowers to maintain 
residual receipts accounts rather than allowing non-profit borrowers to 
make distributions of surplus cash. Although the policy for healthcare 
program transactions is different than the policy for multifamily 
program transactions, it is also long-standing HUD policy for both 
programs to provide some limits, waivers and exceptions to this general 
policy. The commenter's concerns relate to these limits, waivers and 
exceptions. In the healthcare program, the extent of and the conditions 
required for these limits, waivers, and exceptions has been evolving 
for many years. The healthcare program policy regarding non-profits 
documented in the proposed Borrower's Regulatory Agreement had been 
widely used prior to the publication of the 30-day Notice, but had also 
been frequently waived or modified, as may have been negotiated on a 
deal-specific basis. The proposed provisions in the Borrower's 
Regulatory Agreement attempted to document and standardize this policy 
nationwide and program-wide. Upon consideration of the commenter's 
comments, HUD has further clarified these provisions. For example, HUD 
has provided instruction in the document that where a non-profit 
borrower is seeking to re-finance HUD-insured debt under Section 
223(a)(7), and the non-profit borrower's current regulatory agreement 
identifies the borrower as a for-profit borrower, HUD will continue to 
identify the borrower as a for-profit borrower for purposes of the 
borrower's regulatory agreement.
    Comment: HUD should differentiate between Affiliated and 
Unaffiliated Operators. A commenter stated that HUD must differentiate 
between operators who have an ``identity of interest'' with the HUD 
borrower (an ``affiliated operator'') and operators who have no 
identity of interest with the HUD borrower (an ``unaffiliated 
operator''). The commenter stated that a non-affiliated operator will 
be extraordinarily reluctant to follow HUD's requirements as set forth 
in the documents, as typically, an unaffiliated operator would have 
little, if any, incentive to subject itself and its assets to its 
landlord's loan liabilities. The commenter stated that these issues 
would be most pronounced for the unaffiliated operators in the security 
agreements required of the master tenant and of the operator, the 
master tenant's and operator's regulatory agreements, and the 
Subordination, Non-Disturbance and Attornment Agreement (SNDA). The 
commenter recommended that FHA create a separate set of these and other 
form documents for unaffiliated operators.
    HUD Response: HUD has considered these comments carefully, but as a 
policy matter at this time has decided generally to not differentiate 
between affiliated and unaffiliated operators. HUD has determined that 
the policies regarding operators in the documents reflect reasonable 
and sound business practices, and reasonable and necessary oversight, 
regardless of the affiliation, if any, between the operator and the 
borrower. HUD believes that most operators (whether or not affiliated 
with the borrower), upon careful consideration, will find the 
provisions reasonable, but HUD also recognizes that some unaffiliated 
operators may not agree with this policy choice and may choose not to 
participate in HUD programs as a result. However, HUD has determined 
that, at this time, the need to establish clearer and more direct 
oversight over operators outweighs this potential effect. HUD also 
notes that, to limit decreases in unaffiliated operator participation, 
unaffiliated operators have been given greater rights than affiliated 
operators through the SNDA, as demonstrated in the SNDA published in 
connection with the 30-day Notice.
    Comment: Security of Obligations. Multiple commenters stated that, 
in various documents, the obligations

[[Page 16281]]

secured by pledges of the operator and/or the master tenant should be 
limited to direct obligations of the operator and/or master tenant 
under documents to which each is a party, respectively, rather than the 
borrower's obligations under the Loan Documents.
    HUD Response: HUD disagrees. HUD's approach to the healthcare 
programs is and has always been holistic, to oversee and assess the 
entire project, not merely to provide mortgage insurance for a real 
estate transaction. HUD has a strong interest in the viable operation 
of the healthcare facility and regards all funds derived from the 
operation of the healthcare facility as project funds, pursuant to 24 
CFR 232.1005.
    Comment: Project Operating Deficiencies must be revised and must 
not be deemed ``Events of Default''. A commenter stated that HUD should 
revise its definition of ``project operating deficiencies'' in various 
documents, including regulatory agreements and the SNDA, and that HUD 
should clarify that project operating deficiencies shall not be deemed 
an ``event of default'' under those documents. The commenter also 
stated that operators have already objected to the ``project operating 
deficiencies'' provisions included in the SNDA form currently in use, 
and that well-established operators will be unwilling to subject 
themselves to these provisions only to cooperate with their landlords 
in obtaining HUD-insured financing. The commenter stated that this is 
the case for both affiliated and unaffiliated operators. The commenter 
stated that there should be no subjective determinants of what 
constitutes a project operating deficiency and that the occurrence of a 
project operating deficiency should not constitute an event of default 
entitling HUD or the lender to terminate an operator's lease or replace 
the operator. The commenter recommended that HUD allow an operator that 
is otherwise paying rent under the lease, for so long as there is no 
material risk of termination of the operator's necessary permits and 
approvals, to continue to operate and address its problems.
    HUD Response: HUD agrees with the commenter in part and disagrees 
in part. HUD agrees that the criteria for what constitutes a project 
operating deficiency should not be subjective, and has determined that 
the criteria are objective, fair, and reasonable. HUD also agrees that 
the purpose of recognizing a project operating deficiency is to 
identify a struggling project before the project fails and an event of 
default is declared, and to consider the use of a consultant as one 
potential tool to avert an event of default. Therefore, HUD agrees that 
the occurrence of a project operating deficiency, in and of itself, 
does not constitute an event of default and believes nothing in the 
documents indicates otherwise. Moreover, HUD notes that, as a mortgage 
insurer, HUD's incentives are not aligned with calling a default on 
either the operator or the borrower when doing so could prompt an 
otherwise avoidable claim.
    Comment: Revise Timeframes for Cure Rights and Cure Periods. A 
commenter recommended that HUD allow reasonable timeframes for curing 
events of default under the documents. The commenter stated that where 
a borrower or operator is granted a 30-day cure period, as a matter of 
course, that 30-day cure period should be extended so long as the 
defaulting party commences to cure within 30 days and diligently 
pursues the cure to completion. The commenter stated that a limitation 
on that extended cure period during material risks of termination of 
necessary permits and approvals or payment defaults, however, is 
reasonable.
    HUD Response: HUD has carefully considered this comment and has 
determined that, although most cure period provisions set forth in the 
documents are appropriate and include extensions where appropriate, the 
cure period in the operator's security agreement should include an 
extension similar to the cure period in the operator's regulatory 
agreement, and has revised the document to include such extension.
    Comment: Make the Lender a Third-Party Beneficiary to the 
Regulatory Agreements. A commenter stated that the FHA lender should be 
a third-party beneficiary of borrowers', master tenants', and 
operators' obligations under their respective regulatory agreements. 
The commenter stated that the lender's ability to exercise HUD's rights 
in those documents benefits HUD because it gives the lender an 
alternative recovery source other than assigning the loan to HUD.
    HUD Response: HUD has determined that it is not appropriate for the 
lender to be a third-party beneficiary to the regulatory agreements. 
The lender's rights with respect to the borrower are set forth in the 
other loan documents and the lender has adequate ability pursuant to 
the loan documents to pursue the borrower for violations of its 
covenants and of program obligations.
    Comment: Regulatory Agreement Defaults should be Defaults under the 
Security Agreements. A commenter stated that any default of either the 
regulatory agreements should result in a default of the respective 
security agreement or security instrument, without the separate need 
for HUD consent to such treatment. The commenter stated that this 
revision would provide lenders with increased ability to remedy 
defaults without assigning loans to HUD.
    HUD Response: Consistent with the determinations HUD made with 
regard to the multifamily program, HUD has determined that defaults of 
the regulatory agreements should not constitute defaults under the 
other loan documents without HUD's consent. While the other loan 
documents set forth the lenders' rights with respect to the borrower, 
the regulatory agreement is a HUD-driven document. Contrary to the 
commenter's assertions, HUD has determined that allowing the lender to 
call an event of default under the other loan documents for regulatory 
agreement defaults without HUD consent increases and facilitates the 
lenders' ability to assign the defaulting loan to HUD, increasing HUD's 
risk and exposure.

C. Document Specific Comments

    This section of the summary contains the comments related to 
specific documents.
Lender Narratives
    A commenter made several comments to the Lender Narratives to 
clarify requirements and refine the questions. Changes made in response 
to these comments can be seen in the published redlined versions of the 
documents.
Production Certifications--Consolidated Certifications
    Comment: Allow Electronic Filing of Form 2530. A commenter 
suggested that the consolidated certification forms be revised to allow 
for electronic filing of HUD Form 2530 Previous Participation 
Certificates, instead of requiring paper submissions.
    HUD Response: HUD agrees and has revised the language in the 
consolidated certifications to better clarify that where electronic 
submissions have been made, paper filings are not required.
Performance Bond--Dual Obligee (HUD 92452-ORCF)
Payment Bond (HUD 92452-ORCF)
Offsite Bond: Dual Obligee (HUD 92479-ORCF)
    Comment: Cap automatic increases of the penal sum. A commenter 
stated that Paragraph 3 of the Performance Bond states that the 
obligation of the obligors is increased by any approved increase in

[[Page 16282]]

the contract price, but that this provision is problematic if it refers 
to increases of the penal sum, or penalty amount, of the bond. Namely, 
the commenter stated concern that Federal regulations limit the risk a 
surety insurer can accept on a single bond written to the federal 
government, after crediting reinsurance and collateral, to 10% of its 
policy holder surplus (31 CFR 223.10 Limitation of risk). The commenter 
stated that if HUD desires that the penal sum be increased commensurate 
with change orders, automatic increases should be capped. The commenter 
stated that the form could include, for example, a provision that 
permits an increase of the penal sum, without consent of the surety, to 
account for an aggregate increase of 15% of the original contract 
price. The commenter stated that increases above this threshold would 
require surety consent.
    HUD Response: HUD has reviewed these provisions and has found them 
to be in compliance with all applicable regulations. HUD notes that 
these provisions are the same as those currently in effect in the 
multifamily program and that their inclusion has not proven problematic 
in the multifamily program context.
Addendum to Operating Lease (HUD-91116-ORCF)
    Comment: Make Operating Lease Addendum Consistent with Master Lease 
Addendum. The commenter suggested adding several provisions similar to 
provisions in the addendum to the master lease, as also being 
appropriate for this lease addendum.
    HUD Response: HUD agrees in part and has revised the document 
accordingly.
Healthcare Facility Note (HUD 94001-ORCF)
    Comment: Revise the Late Charge Requirements. The commenter stated 
that although 24 CFR 200.88 was revised in 2011 to change the time for 
assessing late charges from 15 days to 10 days for multifamily housing, 
the change does not apply to mortgages insured under section 232. Since 
the 2012 Final 232 Rule did not address late charges, pursuant to 24 
CFR 200.88(a)(2), late charges may be assessed on section 232 mortgages 
only if a payment is more than 15 days in arrears.
    HUD Response: HUD agrees. It is HUD's intention to maintain the 15 
day time frame for section 232 transactions and the note has been 
revised accordingly.
Healthcare Regulatory Agreement--Borrower (HUD 92466-ORCF)
    Comment: Distributions Provisions Should Limit Obligation to 
Restore Negative Surplus Cash. With respect to section 16(d), a 
commenter recommended that the obligation to restore a negative surplus 
cash situation be limited to the amount required to eliminate the 
deficiency (e.g., if $100.00 is distributed and a $1.00 negative 
surplus cash position results, then a $1.00 payment should rectify the 
situation).
    HUD Response: HUD agrees with the comment, but has determined that 
the language in the document already limits such required restoration 
to the extent that surplus cash is negative and no revision to the 
document is necessary.
    Comment: Eliminate HUD's ability to Mandate a Different Operator. A 
commenter recommended that section 26(d) be revised by deleting the 
sub-clause that entitles HUD to mandate a different operator if HUD 
determines ``the financial viability of the Healthcare Facility is in 
substantial and imminent risk.'' The commenter stated that this is a 
subjective determination and should be deleted. The commenter stated 
that if the borrower is paying its loan obligations, and the permits 
and approvals are not at material risk, then the borrower's rights to 
continue to operate the project should continue.
    HUD Response: HUD disagrees with the commenter and has determined 
that appropriate oversight requires the ability to take action if the 
project is in substantial and imminent financial risk, even if the 
borrower or its affiliates are able to continue making loan payments at 
such time.
    Comment: Permit Operator to Purchase a Facility. A commenter 
objected to section 26(e) of the operator's regulatory agreement and 
suggested that there may be circumstances where HUD may consent to the 
operator's purchase of a facility. The commenter stated that this could 
be an important inducement for an operator to take over a struggling 
facility.
    HUD Response: HUD agrees that there may be circumstances where it 
is appropriate to allow the operator to purchase the facility. Nothing 
in the regulatory agreement prohibits this kind of transfer, with HUD's 
consent. HUD notes, however, that according to the Financial Accounting 
Standards Board (FASB) certain provisions in a lease may cause the 
lease to be classified as a ``capital lease'' which has undesirable 
accounting consequences. HUD has revised section 26(e) to address the 
commenter's concerns.
Healthcare Regulatory Agreement--Operator (HUD 92466A)
    Comment: Termination of Minor Permits Should Not Trigger a Project 
Operating Deficiency. The commenter stated that the termination of a 
permit not needed to operate a project (e.g., loss of a curb cut permit 
where there are other acceptable access points) should not be treated 
as a Project Operating Deficiency pursuant to section 6(a) of the 
operator's regulatory agreement.
    HUD Response: HUD agrees with the commenter's concern and notes the 
document uses a defined term when referring to ``permits and 
approvals.'' The defined term ``permits and approvals'' is used in the 
project operating deficiencies provisions and other provisions 
referring to ``permits and approvals.'' The defined term is already 
limited to include only those permits and approvals reasonably 
necessary to operate or fund operation of the healthcare facility, so 
further limitation is not necessary.
    HUD also notes that in reviewing the commenter's concerns regarding 
permits and approvals, HUD determined that the provisions requiring 
operators to provide notice to HUD and lender if the Project is or may 
be in violation of any of the permits and approvals or any governmental 
requirements applicable to the operation of the Healthcare Facility 
were too broad and required clarification. HUD has revised these 
provisions in the operator's regulatory agreement, the borrower's 
regulatory agreement, and the management certification. The revisions 
are shown in the redlined drafts of these documents posted on HUD's Web 
site.
    Comment: Audited Financials Should be Required Only in an Event of 
Default. A commenter stated that section 20 should be revised to limit 
HUD's ability to require audited financials at the operator's expense 
only in an event of default.
    HUD Response: HUD disagrees and has determined that, given the 
other oversight provisions in the documents, proper oversight of 
operators does not require audited financials in the normal course, but 
that, as the document reflects, if HUD has reason to believe that an 
operator's self-certified financial statements are unreliable or 
otherwise not compliant with program obligations, proper oversight does 
require HUD to request audited financial statements.
    Comment: Revise the Definition of Healthcare Facility Working 
Capital. The commenter suggested revising the definition of healthcare 
facility working

[[Page 16283]]

capital. The commenter stated that under Generally Accepted Accounting 
Principles (GAAP), the portion of the principal of any loan that is due 
within one year is treated as a current liability. The commenter stated 
that, therefore, twelve total yearly principal payments on the HUD-
insured loan and, in many cases, all or a substantial portion of any 
accounts receivable financing, would be treated as a current liability, 
creating an unintended result. The commenter proposed to exclude 
principal from the calculation unless the principal is past due.
    HUD Response: HUD is not persuaded that (a) current liabilities 
related to accounts receivable financing are not appropriately offset 
by current assets (e.g., cash from the accounts receivable lender as 
well as accounts receivable themselves) and therefore properly included 
in calculating working capital, or that (b) it is inappropriate to 
include the principal portion of other current debt payment obligations 
(e.g., the insured mortgage payments) in calculating working capital 
(as GAAP would prescribe). However, HUD notes that the operator's 
regulatory agreement, consistent with the 2012 Final 232 Rule, states 
that program obligations will provide further clarification and details 
on the required financial calculations, as the need arises.
Healthcare Security Instrument (HUD-94000-ORCF)
    Comment: Require the FHA Lender to sign the agreements. A commenter 
stated that in order to enforce affirmative obligations against a party 
(such as the FHA lender or HUD), such party must execute the loan 
document in question. The commenter mentioned the security instrument 
as an example, stating that the lender should be required to execute 
the security instrument.
    HUD Response: HUD agrees, in part. With regard to the security 
instrument, HUD neither requires nor prohibits lender execution of this 
document. HUD notes that, while legal conventions and requirements vary 
from state to state, in most instances it is not necessary for the 
lender to execute a mortgage in order to enforce it. To the extent the 
document limits a lender's right to enforce certain provisions by 
establishing certain process requirements or other limitations, such as 
notice provisions, such provisions do not require the lender to execute 
the document in order to be in force. The borrower simply limits the 
rights it is granting to the lender to the extent set forth in the 
document. Nonetheless, HUD recognizes that state-specific conventions 
or party-specific negotiations may favor lender execution of this 
document.
Operator Security Agreement (HUD-92323-ORCF)
    Comment: Revise Account Control Agreement Requirements. Commenters 
stated that provisions in paragraph 2(h) relating to required control 
agreements on deposit accounts are overly broad. The commenter 
suggested clarifications and limits on these provisions.
    HUD Response: HUD has reviewed these comments and has accepted some 
comments, but has determined that other changes are too broad. The 
published redlined version of the document reflects the revised 
language.
    Comment: Do Not Record Account Information. A commenter stated that 
the operator's cash management structure attached as an exhibit to the 
operator's security agreement contains sensitive information and should 
not be recorded.
    HUD Response: HUD agrees. The Operator Security Agreement is not 
set up for recording. Only the assignment of rents, included as an 
attachment to this form document, should be recorded. The cash flow 
exhibit should not be recorded.
    Comment: Require the Lender to sign the Security Agreement: The 
commenter stated that the penultimate sentence of paragraph (h) 
includes an affirmative covenant of the lender that ``unless a default 
exists under this Agreement or the Loan Documents, lender will not 
provide notice under a DACA to the depositary bank * * * that lender is 
exercising rights of control in the deposit accounts.'' The commenter 
stated that for that covenant to be effective, the lender must be a 
signatory to the Security Agreement.
    HUD Response: HUD agrees. The document is already set up for the 
lender to sign.
    Comment: Delete Syndication Provisions. A commenter stated that 
provisions in section 20(b)(vi) of the operator's security agreement, 
relating to the syndication of an accounts receivable loan, should be 
deleted as an operator has no control over when or whether its AR loan 
is syndicated.
    HUD Response: HUD has revised this provision to clarify that HUD is 
not imposing syndication requirements, but recognizing that syndicated 
accounts receivable loans could run afoul of HUD's other requirements 
unless an exception is provided in this section.
Intercreditor Agreement (for AR Financed Projects) (HUD-92322-ORCF)
    Comment: Publish the Intercreditor Agreement as a ``Guide'' 
Document Only. A commenter stated that given the unique requirements of 
each transaction, the Intercreditor Agreement (ICA) should be published 
in final form as a ``guide'' only, not a required form.
    HUD Response: Although HUD recognizes the need for flexibility to 
respond to deal-specific requirements, HUD also recognizes the need for 
increased standardization in the healthcare program. HUD has determined 
that the form ICA allows for sufficient flexibility to address deal-
specific concerns while also providing standardized and reasonable 
requirements.
    Comment: Define the ICA as an ``AR Loan Document.'' A commenter 
stated that they do not understand why the ICA is not considered an AR 
Loan Document for purposes of the ICA. The commenter stated that most 
AR lenders' loan documents will provide that the ICA is actually a 
crucial loan document, borrowers' adherence to which is key for the AR 
lender's continued funding of the AR loan. The commenter recommended 
that the ICA be considered a ``HUD Loan Document'' for those same 
reasons.
    HUD Response: HUD disagrees with the commenter. Nothing in the ICA 
prohibits an accounts receivable lender from receiving appropriate 
covenants and representations from its borrowers in its loan documents 
or enforcing those covenants and representations. HUD is concerned with 
the circular enforceability of making the ICA a ``loan document'' for 
purposes of its own provisions. The ICA is meant to clarify the rights 
and responsibilities between the accounts receivable lender and the FHA 
lender.
    Comment: Allow Additional AR Loan Obligations. A commenter stated 
that they do not understand why an AR lender may not have a lien, even 
if subordinate, on collateral other than the collateral as defined in 
the AR Lender Priority Collateral. The commenter stated that many AR 
lenders lend on the strength of a package of collateral that is much 
more inclusive than that set forth in the AR ``Lender Priority 
Collateral'' definition, even if they must take subordinate positions 
on such collateral. The commenter stated that if an accounts receivable 
lender is willing to accept the terms of the intercreditor agreement 
and take a subordinate position on such collateral, it is unclear why 
HUD would not permit the same. The commenter stated that allowing an

[[Page 16284]]

AR lender to take a subordinate position on such collateral does not 
harm HUD or the HUD lender's position with regard to the project or its 
operations.
    HUD Response: HUD recognizes the commenter's concern but has 
determined that negative experiences in past practice require a 
limitation on what obligations the project collateral may secure. To 
address the commenter's concerns, HUD has provided bracketed 
alternative language to this definition that may allow additional 
obligations to be secured by project collateral with HUD consent.
    Comment: Terms of AR Loan Advances and Applications of Payment Need 
Revision. A commenter suggested that the terms and provisions of 
section 3.4 relating to the terms of AR loan advances and how funds 
received are applied should be revised to more accurately reflect 
contemporary arrangements and HUD requirements and provide flexibility 
for deal-specifics.
    HUD Response: HUD agrees and the Intercreditor Agreement has been 
revised to clarify the provisions, provide alternate language and make 
this section revisable on a deal-specific basis.
Master Lease Addendum (HUD 92221-ORCF)
    Comment: Specify the Healthcare Facility Ownership of FF&E, and 
Transfer of Personal Payments. A commenter suggested that revisions are 
necessary to the provisions regarding fixtures, furnishings, and 
equipment in section 9 of the addendum to the master lease in order to 
make this document consistent with the addendum to the operating lease.
    HUD Response: HUD agrees and has revised this document accordingly.
Master Lease Subordination, Non-Disturbance and Attornment Agreement. 
(HUD-92333-ORCF)
    Comment: Restore Recitals and Execute Separate Subordination 
Documents. A commenter stated that there is a conceptual problem with 
this document as drafted. The commenter stated that accepted practice 
to date, and a practice that the commenter suggested continue, is that 
a separate Master Lease Subordination, Non-Disturbance and Attornment 
Agreement (``SNDA'') be executed by the lender, the Master Tenant, the 
applicable borrower who owns the facility which is securing the subject 
HUD Loan, and by the Subtenant/Operator who operates that facility, on 
a loan by loan basis. The draft document contemplates all Borrowers/
Landlords and all Subtenants/Operators execute the same SNDA. That 
rarely, if ever, happens in practice because most HUD portfolio loans 
close over an extended period of time, with borrowers added to a Master 
Lease as the loan to each such borrower closes, with each borrower, 
operator and the Master Tenant then signing a separate SNDA, as stated 
above. The commenter stated that this proposed form will not work in 
practice so the commenter strongly urged the restoration of the prior 
recitals referencing ``Other HUD Borrowers'', ``Other Subleases,'' 
``Other Operators,'' and ``Other Mortgage Loans.''
    HUD Response: HUD recognizes the commenter's concerns but has 
determined that the document works as drafted. Since this addendum is 
an addendum to the one master lease, there should only be one addendum 
containing the required provisions, and additional parties can be added 
as necessary.
Guide for Opinion of Borrower's Counsel (HUD-91725-ORCF)
Guide for Opinion of Operator's Counsel--Certification (HUD-92325-ORCF)
Guide for Opinion of Master Tenants Counsel Certification (HUD-92225-
ORCF)
    Comment: Technical Revisions. A commenter suggested several 
technical revisions to these documents.
    HUD Response: HUD agrees in part and appropriate revisions are 
reflected in the published redlined versions of the documents.
    As noted previously, these and all other changes made in response 
to comment are displayed in redline format on HUD's Web page, http://www.hud.gov/232forms.

V. Transition

    Use of the final approved documents shall be implemented to 
correspond with the applicability of the 2012 Final 232 Rule published 
in the Federal Register on September 7, 2012 (FR 55120). As such, the 
following documents (typically executed at the closing stage of a 
transaction) shall be submitted for any transaction that receives a 
firm commitment on or after April 9, 2013:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                       Additional ORCF Documents
------------------------------------------------------------------------
HUD-91112-ORCF....................  Request of Overpayment of Firm
                                     Application Exam Fee.
HUD-92466-ORCF....................  Healthcare Regulatory Agreement--
                                     Borrower.
HUD-92466A-ORCF...................  Healthcare Regulatory Agreement--
                                     Operator.
HUD-94000-ORCF....................  Security Instrument/Mortgage/Deed of
                                     Trust.
HUD-94001-ORCF....................  Healthcare Facility Note.
HUD-91710-ORCF....................  Residual Receipts Note--Non Profit
                                     Mortgagor.
HUD-92223-ORCF....................  Surplus Cash Note.
HUD-91110-ORCF....................  Subordination, Non-Disturbance and
                                     Attornment Agreement of Operating
                                     Lease (SNDA).
HUD-92420-ORCF....................  Subordination Agreement--Financing.
HUD-2205A-ORCF....................  Borrower's Certificate of Actual
                                     Cost.
HUD-92323-ORCF....................  Operator Security Agreement.
HUD-91116-ORCF....................  Addendum to Operating Lease.
HUD-9839-ORCF.....................  Management Certification--
                                     Residential Care Facility.
------------------------------------------------------------------------
                       Production Certifications
------------------------------------------------------------------------
HUD-91118-ORCF....................  Borrower's Certification--Completion
                                     of Critical Repairs.
HUD-92434-ORCF....................  Lender Certification.
------------------------------------------------------------------------
                       Additional Legal Documents
------------------------------------------------------------------------
HUD-91117-ORCF....................  Operator Estoppel Certificate.
HUD-91725-INST-ORCF...............  Instructions to Guide for Opinion of
                                     Borrower's and Operator's Counsel.
HUD-91725-CERT-ORCF...............  Exhibit A to Opinion of Borrower's
                                     Counsel--Certification.
HUD-91725-ORCF....................  Guide for Opinion of Borrower's
                                     Counsel.

[[Page 16285]]

 
HUD-92325-ORCF....................  Guide for Opinion of Operator's
                                     Counsel and Certification.
------------------------------------------------------------------------
                            Escrow Documents
------------------------------------------------------------------------
HUD-91128-ORCF....................  Initial Operating Deficit Escrow
                                     Calculation Template.
HUD-92414-ORCF....................  Latent Defects Escrow.
HUD-9443-ORCF.....................  Minor Moveable Escrow.
HUD-92476-ORCF....................  Escrow Agreement Noncritical
                                     Deferred Repairs.
HUD-92476B-ORCF...................  Escrow Agreement for Operating
                                     Deficits.
------------------------------------------------------------------------
                         Construction Documents
------------------------------------------------------------------------
HUD-91123-ORCF....................  Design Professional's Certification
                                     of Liability Insurance.
HUD-93305-ORCF....................  Agreement and Certification.
HUD-92441-ORCF....................  Building Loan Agreement.
HUD-92441a-ORCF...................  Building Loan Agreement
                                     Supplemental.
HUD-92450-ORCF....................  Completion Assurance.
HUD-92442-ORCF....................  Construction Contract.
HUD-92554-ORCF....................  Supplementary Conditions of the
                                     Contract for Construction.
HUD-92479-ORCF....................  Offsite Bond--Dual Obligee.
HUD-92452-ORCF....................  Performance Bond--Dual Obligee.
HUD-92452A-ORCF...................  Payment Bond.
HUD-92455-ORCF....................  Request for Endorsement.
HUD-92412-ORCF....................  Working Capital Escrow.
HUD-9442-ORCF.....................  Memo for Post-Commitment Early Start
                                     of Construction Request.
HUD-92415-ORCF....................  Request for Permission to Commence
                                     Construction Prior to Initial
                                     Endorsement for Mortgage Insurance
                                     (Post-Commitment Early Start of
                                     Construction).
------------------------------------------------------------------------
                     Accounts Receivable Documents
------------------------------------------------------------------------
HUD-90020-ORCF....................  A/R Financing Certification.
HUD-92322-ORCF....................  Intercreditor Agreement (for AR
                                     Financed Projects).
------------------------------------------------------------------------
                         Master Lease Documents
------------------------------------------------------------------------
HUD-92211-ORCF....................  Master Lease Addendum.
HUD-92331-ORCF....................  Cross-Default Guaranty of
                                     Subtenants.
HUD-92333-ORCF....................  Master Lease SNDA.
HUD-92335-ORCF....................  Guide for Opinion of Master Tenant's
                                     Counsel.
HUD-92337-ORCF....................  Healthcare Regulatory Agreement--
                                     Master Tenant.
HUD-92339-ORCF....................  Master Lease Estoppel Agreement.
HUD-92340-ORCF....................  Master Tenant Security Agreement.
------------------------------------------------------------------------

    The other final approved documents, as and when required, shall be 
used beginning July 12, 2013. These documents include the following:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
                            Lender Narratives
------------------------------------------------------------------------
HUD-9001-ORCF.....................  Lender Narrative 223a7--Main.
HUD-9001a-ORCF....................  Lender Narrative 223a7--Addenda--
                                     PCNA.
HUD-9001b-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--ALTA/ACSM Land Title
                                     Survey.
HUD-9001c-ORCF....................  Lender Narrative 223a7--Addendum--
                                     Environmental.
HUD-9001d-ORCF....................  Lender Narrative 223a7--Addendum--
                                     Other Existing Eligible
                                     Indebtedness.
HUD-9001e-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--Principal of Borrower.
HUD-9001f-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--Operator.
HUD-9001g-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--Management Agent.
HUD-9001h-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--Transfer of Physical
                                     Assets.
HUD-9001i-ORCF....................  Lender Narrative 223a7.223d.232i--
                                     Addendum--AR Financing.
HUD-9002-ORCF.....................  Lender Narrative 223f.
HUD-9003-ORCF.....................  Lender Narrative 241a.
HUD-9004-ORCF.....................  Lender Narrative--New Construction--
                                     Single Stage.
HUD-9005-ORCF.....................  Lender Narrative--New Construction--
                                     2 Stage Initial Submittal.
HUD-9005a-ORCF....................  Lender Narrative--New Construction--
                                     2 Stage Final Submittal.
HUD-9006-ORCF.....................  Lender Narrative--Substantial
                                     Rehabilitation--Single Stage.
HUD-9007-ORCF.....................  Lender Narrative--Substantial
                                     Rehabilitation--2 Stage Initial
                                     Submittal.
HUD-9007a-ORCF....................  Lender Narrative--Substantial
                                     Rehabilitation--2 Stage Final
                                     Submittal.
HUD-9008-ORCF.....................  Lender Narrative--Blended Rate--
                                     Single Stage.
HUD-90025-ORCF....................  Lender Narrative--Blended Rate--2
                                     Stage--Initial Submittal.
HUD-90025a-ORCF...................  Lender Narrative--Blended Rate--2
                                     Stage--Final Submittal.
HUD-9009-ORCF.....................  Lender Narrative 232(i)--Fire Safety
                                     Equipment Installation, without
                                     Existing HUD Insured Mortgage.
HUD-90010-ORCF....................  Lender Narrative 232(i)--Fire Safety
                                     Equipment Installation, with
                                     Existing HUD Insured Mortgage.
HUD-90011-ORCF....................  Lender Narrative 223(d)--Operating
                                     Loss Loan.

[[Page 16286]]

 
HUD-9444-ORCF.....................  Lender Narrative Cost Certification
                                     Supplement.
------------------------------------------------------------------------
                        Production Certifications
------------------------------------------------------------------------
HUD-90012-ORCF....................  Consolidated Certification--Lender.
HUD-90013-ORCF....................  Consolidated Certification--
                                     Borrower.
HUD-90014-ORCF....................  Consolidated Certification--
                                     Principal of the Borrower.
HUD-90015-ORCF....................  Consolidated Certification--
                                     Operator.
HUD-90016-ORCF....................  Consolidated Certification--Parent
                                     of Operator.
HUD-90017-ORCF....................  Consolidated Certification--
                                     Management Agent.
HUD-90018-ORCF....................  Consolidated Certification--
                                     Contractors.
HUD-90019-ORCF....................  Auditor Certification.
HUD-90022-ORCF....................  Certification for Electronic
                                     Submittal.
HUD-91130-ORCF....................  Building Code Certification.
HUD-9445-ORCF.....................  Certification of Outstanding
                                     Obligations.
------------------------------------------------------------------------
                        Additional ORCF Documents
------------------------------------------------------------------------
HUD-91708-ORCF....................  Agreement for Payment of Real
                                     Property Taxes.
HUD-92576A-ORCF...................  Certificate of Need for Health
                                     Facility.
HUD-90024-ORCF....................  Contact Sheet.
HUD-91126-ORCF....................  Financial Statement Certification.
HUD-941-ORCF......................  Lenders FHA Number Request Form.
HUD-92264a-ORCF...................  Maximum Insurable Loan Calculation.
HUD-2-ORCF........................  Request for Waiver of Housing
                                     Directive.
HUD-91119-ORCF....................  Schedule of Facilities Owned
                                     Operated or Managed.
HUD-91111-ORCF....................  Survey Instructions and Borrower's
                                     Certification.
HUD-92070-ORCF....................  Lease Addendum.
------------------------------------------------------------------------
                            Escrow Documents
------------------------------------------------------------------------
HUD-92464-ORCF....................  Request Approval Advance of Escrow
                                     Funds.
------------------------------------------------------------------------
                         Construction Documents
------------------------------------------------------------------------
HUD-91124-ORCF....................  Design Architect Certification.
HUD-91127-ORCF....................  Financial Statement Certification--
                                     General Contractor.
HUD-92408-ORCF....................  HUD Amendment to B108.
HUD-91125-ORCF....................  Staffing Schedule.
HUD-95379-ORCF....................  HUD Representative's Trip Report.
HUD-91129-ORCF....................  Lender Certification for New
                                     Construction Cost Certifications.
HUD-92456-ORCF....................  Escrow Agreement for Incomplete
                                     Construction.
HUD-92023-ORCF....................  Request for Final Endorsement.
------------------------------------------------------------------------
                       Asset Management Documents
------------------------------------------------------------------------
HUD-92266-ORCF....................  Application for Transfer of Physical
                                     Assets (TPA).
HUD-93332-ORCF....................  Certification of Exigent Health &
                                     Safety (EH&S) Issues.
HUD-93333-ORCF....................  Certification Physical Condition in
                                     Compliance.
HUD-93486-ORCF....................  Computation of Surplus Cash.
HUD-9250-ORCF.....................  Funds Authorizations.
HUD-9250A-ORCF....................  Borrower Certification and Request
                                     Detail.
HUD-92228-ORCF....................  Model Form Bill of Sale and
                                     Assignment.
HUD-92117-ORCF....................  Borrower's Certification--Completion
                                     of Non-Critical Repairs.
HUD-92417-ORCF....................  Personal Financial and Credit
                                     Statement.
HUD-93479-ORCF....................  Monthly Report for Establishing Net
                                     Income.
HUD-93480-ORCF....................  Schedule of Disbursements.
HUD-93481-ORCF....................  Schedule of Accounts Payable.
------------------------------------------------------------------------


    Dated: March 8, 2013.
Carol J. Galante,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 2013-05826 Filed 3-13-13; 8:45 am]
BILLING CODE 4210-67-P