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Multifamily Document Reform Implementation Frequently Asked Questions

Performance Bond Dual Obligee, Payment of Bond, Offsite Bond

(If you have additional questions about this document, please submit it to MultifamilyDocumentReview@hud.gov)

 


  1. Are there still Performance and Payment Bonds?
  1. In the past HUD has only allowed the Borrower, FHA Lender, and HUD to be named as obligees on the bonds; and GNMA if the GNMA securities are being issued. The new forms contain an additional obligee rider which states "additional obligee only allowed with prior HUD approval". However, neither the new MAP Guide nor Closing Guide provided any guidance as to which other parties may be named as additional obligees. Additionally, the new MAP Guide and Closing Guide also omit the language found in the old MAP Guide, Chapter 12.1.5.F.1.c which stated that GNMA may be added as an additional obligee if GNMA securities were being issued in connection with the loan. Is this still the case?
  1. When do we allow an "Additional Obligee" to appear on the "Additional Obligee Rider" that is part of these two forms? And who should be allowed to appear as an Additional Obligee. I have a deal with multiple layers of secondary financing, and the lender's counsel has forwarded draft documents that include several sources of the secondary financing (state, bridge lender, etc.) as additional obligees. I have never encountered this and cannot find any guidance
  1. The new Performance Bond form has an Additional Obligee Rider. Under the HUD original MAP Guide, only GNMA could be added as an Obligee. What entities are acceptable additional Obligees and what are the requirements for their acceptance?
  1. 5/1/2012
    Editorial correction to paragraph 6b of Payment Bond to change the reference to paragraph 5a to paragraph 6a.
  1. 5/1/2012
    Editorial correction to paragraph 2 of Payment Bond to correct the reference to Section 9; the reference should be to paragraph 3.
  1. 4/30/2013
    I am an attorney and represent the City of Mobile, Alabama, which receives HOME funds as an entitlement community. The City agreed to provide $850,000 towards a several million dollar project to construct affordable housing in the City. The project is also financed by tax credits and State of Alabama HOME funds. The Owner of the project is a single asset limited liability company. The Contractor is a separate corporation, but the principals in each entity are the same individuals. The Owner asked the City if the City will require a performance bond on the project. The Owner argues that because the Owner and Contractor have the same principals, a performance bond is not needed. The City of Mobile intends to make payments during construction. The City will pay for HOME eligible expenses after the work is completed and inspected and the invoice is approved. The City anticipates that the Owner will exhaust the City's contribution to the project before the project is completed. Under HUD regulations, policies and procedures, as a recipient of HOME funds is the City required to demand a performance bond from the Owner, even though the Owner may be the only obligee on the bond or should HUD, the City or some other party, also be an obligee? Is there a HUD regulation that provides guidance on this point?

 

  1. 1/15/2014
    I am currently working with a developer on a multifamily project where the financing is secured by HUD. They have asked that we provide 100% performance and payment bonds to secure the construction contract. I have seen this before, and I believe they also have the option to post a 15% irrevocable letter of credit (the building is three stories) in lieu of the bonds. Can you please confirm or provide me with what options the developer has to secure the project?

 

 

 

 


1.  Are there still Performance and Payment Bonds?

Yes, the new payment bond is HUD-92452A-M (Rev. 4/11) and the new performance bond/dual obligee is HUD-92452M (Rev. 4/11).

 

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2. In the past HUD has only allowed the Borrower, FHA Lender, and HUD to be named as obligees on the bonds; and GNMA if the GNMA securities are being issued. The new forms contain an additional obligee rider which states "additional obligee only allowed with prior HUD approval". However, neither the new MAP Guide nor Closing Guide provided any guidance as to which other parties may be named as additional obligees. Additionally, the new MAP Guide and Closing Guide also omit the language found in the old MAP Guide, Chapter 12.1.5.F.1.c which stated that GNMA may be added as an additional obligee if GNMA securities were being issued in connection with the loan. Is this still the case?

Housing staff must approve additional obligees on a case by case basis. Where GNMA securities are issued, GNMA would be allowed as an additional obligee. If additional construction financing is permitted, generally those lenders will be permitted to be additional obligees.

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3. When do we allow an "Additional Obligee" to appear on the "Additional Obligee Rider" that is part of these two forms? And who should be allowed to appear as an Additional Obligee. I have a deal with multiple layers of secondary financing, and the lender's counsel has forwarded draft documents that include several sources of the secondary financing (state, bridge lender, etc.) as additional obligees. I have never encountered this and cannot find any guidance

Housing staff must approve additional obligees on a case by case basis. If additional construction financing is permitted, generally those lenders will be permitted to be additional obligees.

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4.  The new Performance Bond form has an Additional Obligee Rider. Under the HUD original MAP Guide, only GNMA could be added as an Obligee. What entities are acceptable additional Obligees and what are the requirements for their acceptance?

Housing staff must approve additional obligees on a case by case basis. Where GNMA securities are issued, GNMA would be allowed as an additional obligee. If additional construction financing is permitted, generally those lenders will be permitted to be additional obligees.

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5.  5/1/2012
Editorial correction to paragraph 6b of Payment Bond to change the reference to paragraph 5a to paragraph 6a.

Paragraph 6b of the Payment Bond should read: “(i) Claimants gave the notice required by
paragraph 6a

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6.  5/1/2012
Editorial correction to paragraph 2 of Payment Bond to correct the reference to Section 9; the reference should be to paragraph 3.

Paragraph 2 of the Payment Bond should read: “Contractor and Surety, jointly and severally (“Obligors”) bind themselves, their heirs, executors, administrators, successors and assigns, to Obligees, for the use and benefit of Claimants as hereinafter defined in paragraph 3 in the sum of . . . . “

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7.  4/30/2013
I am an attorney and represent the City of Mobile, Alabama, which receives HOME funds as an entitlement community. The City agreed to provide $850,000 towards a several million dollar project to construct affordable housing in the City. The project is also financed by tax credits and State of Alabama HOME funds. The Owner of the project is a single asset limited liability company. The Contractor is a separate corporation, but the principals in each entity are the same individuals. The Owner asked the City if the City will require a performance bond on the project. The Owner argues that because the Owner and Contractor have the same principals, a performance bond is not needed. The City of Mobile intends to make payments during construction. The City will pay for HOME eligible expenses after the work is completed and inspected and the invoice is approved. The City anticipates that the Owner will exhaust the City's contribution to the project before the project is completed. Under HUD regulations, policies and procedures, as a recipient of HOME funds is the City required to demand a performance bond from the Owner, even though the Owner may be the only obligee on the bond or should HUD, the City or some other party, also be an obligee? Is there a HUD regulation that provides guidance on this point?.

A performance bond is required if a HUD-insured mortgage is used to help finance the project. The HOME regulations do not address performance bonding in connection with assistance to a HOME project owner, although a City can require whatever it thinks prudent to ensure the project will be completed.

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8.  1/15/2014
I am currently working with a developer on a multifamily project where the financing is secured by HUD. They have asked that we provide 100% performance and payment bonds to secure the construction contract. I have seen this before, and I believe they also have the option to post a 15% irrevocable letter of credit (the building is three stories) in lieu of the bonds. Can you please confirm or provide me with what options the developer has to secure the project?

We cannot speak to specific requirements as prescribed by the Office of Housing on specific transactions, however, for reference purposes, general guidance on the topic of assurance of completion is provided in Section 3.5 of the Multifamily Closing Guide and by Section 3.4(M) of the MAP Guide.

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