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Multifamily Document Reform Implementation Frequently Asked Questions

Building Loan Agreement (and Supplement)

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

 

 

  1. When do you use it? If GP is contractor do you need the supplement? 
  1. Paragraph 4.c references a disbursement agreement. When is one needed? Can language be stricken if one is not being used?
  1. In the Building Loan Agreement on page 4, there's a blank for "TOTAL MAXIMUM ADVANCE" and references Line 45 of form 2283. Our MF staff informed us that form is no longer being used. However, the information can be found in Line 72 of the HUD 2264.
  1. 3/14/2012
    What is the Retainage Reduction Rider referenced in both the Building and Loan Agreement and the Construction Contract?
  1. 10/24/2012
    Is HUD supposed to a party to the Disbursement Agreement contemplated in paragraph 4.c of the Building Loan Agreement/Exhibit C?
  1. 6/18/2014
    For projects where advances for building components stored offsite are not applicable, may paragraph (4)(A) of the Building Loan Agreement (Form HUD-92441M) be modified to strike the provisions relating to payment for the value of components stored offsite? The revised paragraph would read as follows: ". . . (ii) the value of materials and equipment not incorporated in the work, but delivered to and suitably stored at the site; less (iii) ten percent (10%) ("Holdback") [as this percentage may be reduced in accordance with the provisions of the Retainage Reduction Rider attached hereto, if applicable] and (iv) less prior advances. The values of (i), and (ii) shall be computed in accordance. . . . "

 

  

 
 
1.  The Building Loan Agreement references Exhibit C in section 4(c) and section 5, but they seem to contemplate two different exhibits.  Should section 5 refer to Exhibit B (the cost breakdown)?

The references in the document are correct. Exhibit B (Form HUD-2328, Contractor’s and Mortgagor’s Cost Breakdown) is required by paragraph (4)(a) (third sentence) of the Building Loan Agreement. Exhibit C (disbursement agreement) is required by paragraphs (4)(c) & (5) of the BLA. The disbursement agreement ties the Contractor’s Requisition (form HUD 92403) to the list of mortgageable line items listed in the HUD-92264. As a result, charges referenced in paragraph 5 of the BLA should be listed in that agreement, and the agreement also should describe how Project Completion Funds will be advanced as discussed in paragraph 4(c).

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2.  Is the completion date in Section 2 of the Building Loan Agreement still supposed to be the completion date from the construction contract plus two months?

 In addition to the two months given to the owner, additional time may be necessary since the completion date of the construction contract is now based on Project Substantial Completion, instead of final completion.  The Hub Director may approve a reasonable amount of time for the contractor to get from Project Substantial Completion to final completion, as resquested by the Owner. This time period is project-specific, but is not anticipated to exceed several weeks.  Therefore, the completion date in Section 2 of the Building Loan Agreement would be the Project Substantial Completion date, plus whatever additional weeks are required to reach final completion (for example, 4 weeks), plus 2 months.  Note that this structure does not anticipate a longer construction period than previously, as the base Project Substantial Completion date is several weeks sooner than the previously used final completion date.

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3.  When do you use it? If GP is contractor do you need the supplement? 

 The Building Loan Agreement is used in the same context as with the old documents – new construction and sub-rehab. The supplement should only be used when the borrower is the contractor.

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4.  Paragraph 4.c references a disbursement agreement. When is one needed? Can language be stricken if one is not being used?

 Exhibit C to the Building Loan Agreement (referred to in the text of Section 4(c) and Section 5 as a "disbursement agreement") is required in all new construction closings. First, it is contemplated that this document will set forth the disbursement of Project Completion Funds that may or may not be required by the firm commitment. If Project Completion Funds are required, Exhibit C must comply with 24 CFR §200.54. Second, pursuant to Section 5 of the BLA, it is contemplated that the list of charges or items to be funded from Project Completion funds or proceeds of the loan must be included in this Exhibit. This list is required even when Project Completion Funds are not, so Exhibit C will be required for each new construction closing, but the title of Exhibit C may be changed to more accurately describe the contents of the exhibit (such as a "disbursement charges rider" or a "disbursement agreement").

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5.  In the Building Loan Agreement on page 4, there's a blank for "TOTAL MAXIMUM ADVANCE" and references Line 45 of form 2283. Our MF staff informed us that form is no longer being used. However, the information can be found in Line 72 of the HUD 2264.

 HUD Form 2283 is still listed on HUDClips as a active form and the Office of Housing has advised that Form 2283 is still used in multifamily insured transactions.

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6.  3/14/2012
What is the Retainage Reduction Rider referenced in both the Building and Loan Agreement and the Construction Contract?

 The retainage reduction rider is not a HUD form. The owner and contractor create the rider to describe how the retainage will be reduced in accordance with Program Obligations. For additional guidance, see Section 12.15.D of the MAP guide.

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7.  10/24/2012
Is HUD supposed to a party to the Disbursement Agreement contemplated in paragraph 4.c of the Building Loan Agreement/Exhibit C?

 

 Section 4(c) of the Building Loan Agreement states that Project Completion
Funds escrowed at closing will be disbursed according to the terms of a
disbursement agreement approved by HUD and the Lender. 24 CFR §200.54
further requires that any agreement acceptable to the Commissioner must provide
that funds provided by the mortgagor for project completion must be disbursed, in
full, for project work, materials, and incidental charges and expenses before
disbursement of mortgage proceeds, except funds provided from various tax
credits, and grants and loans from governmental agencies or instrumentalities.

If grants or loans from a Federal, State, or local government agency or
instrumentality are supplied as Project Completion Funds, HUD is authorized,
pursuant to 24 CFR §200.54, to accept an “alternative” to full funding of an escrow
of Project Completion Funds. Section 8.10 of the MAP guide states that this
alternative takes the form of an agreement entered into by HUD, the governmental
agency or instrumentality, the MAP Lender and the borrower; this agreement shall
provide HUD certain rights involving review of construction draws, review of
construction progress schedules, and resolution of differences in the process of
inspection and disbursement of grant/loan funds. This agreement can serve the
role of the disbursement agreement referenced in Section 4(c) of the Building
Loan Agreement.

Given the various roles assumed by HUD in either scenario, a disbursement
agreement will be required, and HUD will be a party to that agreement.

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8.  6/18/2014
For projects where advances for building components stored offsite are not applicable, may paragraph (4)(A) of the Building Loan Agreement (Form HUD-92441M) be modified to strike the provisions relating to payment for the value of components stored offsite? The revised paragraph would read as follows: ". . . (ii) the value of materials and equipment not incorporated in the work, but delivered to and suitably stored at the site; less (iii) ten percent (10%) ("Holdback") [as this percentage may be reduced in accordance with the provisions of the Retainage Reduction Rider attached hereto, if applicable] and (iv) less prior advances. The values of (i), and (ii) shall be computed in accordance. . . . "

 In the case of the proposed building loan agreement changes, to the extent that there are no advances to be made for building components stored offsite, the calculated value of the deleted language would equal zero. Thus, there would be no substantive impact in revising the language as proposed and as such, no changes will be made to the language.

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