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Multifamily Document Reform Implementation Frequently Asked Questions

Ground Lease Addendum

If you have a question related to this document, please submit it to MultifamilyDocumentReview@hud.gov.

 

  1. Is the Lease Addendum required for a 223(a)(7)? The lease was negotiated and the FHA terms were inserted at the time of the original loan.
  1. 8/22/2012
    We have a 223a7 refinance application with a Ground Lease; however, there was no purchase price negotiated with the original loan in the event that HUD acquires title to the Premises. In this case, how is the purchase price determined as required by page 2 b) of the Lease Addendum? Since this is an a 7, there is no 2264
    .
  1. 6/06/2014
    Are the two paragraphs above the words "LEASE ADDENDUM" on the second page considered part of the Addendum? In other words, if I am having someone adopt the Lease Addendum into the ground lease, do they also need to adopt the first two paragraphs? In what manner, if any, is this form supposed to change if the landlord owns the ground, the building and the improvements and rents them to the Mortgagor?

     

 

1.  Who determines the purchase price on the lease addendum?

The purchase price listed in the lease addendum is equal to the land value (listed in HUD Form-92264) at initial endorsement.  See Section 7.15(K) of the new MAP Guide.

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2.  Is the Lease Addendum required for a 223(a)(7)? The lease was negotiated and the FHA terms were inserted at the time of the original loan.

To the extent that the original lease already has the old FHA terms, then the new lease addendum is not required. However, the new provisions of the lease addendum should be required upon the lease's renewal.

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3.  We have a 223a7 refinance application with a Ground Lease; however, there was no purchase price negotiated with the original loan in the event that HUD acquires title to the Premises. In this case, how is the purchase price determined as required by page 2 b) of the Lease Addendum? Since this is an a 7, there is no 2264.

The purchase price will be based on an amount concluded by a 3rd party analyst/Appraiser via the completion of a formal Appraisal and as agreed to by HUD. In this case, since the value was not determined at the time that the original loan was insured, the Appraiser would be responsible for determining ‘value in retrospect’- or going back and determining what the value was at time the loan was originally endorsed. This can be accomplished by looking at sales at that time, etc. That portion of the Lease Addendum can be waived on a case by case basis.

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4.  6/06/2014
Are the two paragraphs above the words "LEASE ADDENDUM" on the second page considered part of the Addendum? In other words, if I am having someone adopt the Lease Addendum into the ground lease, do they also need to adopt the first two paragraphs? In what manner, if any, is this form supposed to change if the landlord owns the ground, the building and the improvements and rents them to the Mortgagor?

In situations where HUD’s security interest is a lease of not just land, but the building and improvements as well, the second paragraph of the document (immediately above "LEASE ADDENDUM") may be stricken from the document, provided the lease is otherwise eligible for use in the FHA multifamily mortgage insurance programs under the National Housing Act, i.e., it is a mortgageable real property interest under state law and conforms to the statutory requirements for duration. The first paragraph of the document, under "INSTRUCTIONS FOR LEASEHOLD PROJECTS", is still applicable in this context and may not be deleted.

 Please note, however, that certain definitions in the form must be revised to accurately describe the entirety of the property making up the leasehold estate. Namely, the definition of "Improvements" should be stricken, along with any additional use of this word when referencing this formerly defined term. Further, a definition of "Property" must be included, as well as amended from the current definition to include the land buildings and improvements (and fixtures), so that "Property" is defined "as the legally described land, in addition to all buildings, fixtures, structures, alterations or other improvements and fixtures now constructed or at any time in the future constructed or placed upon the land, including any future replacements and additions hereafter located thereon." This revised definition of "Property" should be included as a footnote to the first use of the word in the first paragraph under "LEASE ADDENDUM". Lastly, any reference to "ground" (when immediately preceding "lease") throughout the document may be stricken, so that the document refers to a "lease" and not a "ground lease."

 Please note that in cases where the buildings/improvements and not just the ground are subject to the lease, the Lender and Housing staff need to consider the impact on the value of the leasehold estate in the underwriting, as well as (in consultation with OGC) the acceptability of the mortgage security. HUD will be publishing additional guidance on this topic in a future MAP Guide revision, including the circumstances when Housing will permit these types of ground lease structures. Until this guidance is issued, these structures must continue to be approved by HQ Housing.

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