On September 7, 2022, HUD announced that it would allow distributions from Surplus Cash as frequently as monthly for eligible Borrowers. This policy will be limited to FHA-insured properties that are NOT subject to a Section 8 project-based rental assistance payments contract or a HUD-held mortgage note. Furthermore, this policy is only available to eligible projects with loans endorsed after the effective date of the Mortgagee Letter.
Surplus Cash distributions from insured multifamily projects are governed by the HUD Regulatory Agreement. Surplus Cash Distributions are allowed at the end of each fiscal year, and at the end of the 6-month period after the fiscal year end. With this new guidance, the following projects may be eligible to take distributions on a monthly basis:
1. Borrower must be in compliance with all applicable Program Obligations and HUD business agreements with no outstanding violations relating to Borrower’s financial management and annual financial reporting obligations, and must have no more than one instance of non-compliance during the prior three fiscal years.
2. The Project meets the minimum Debt Service Coverage Ratio required by HUD Program Obligations.
3. The Project’s most recent REAC scores must be 80 or above, with no REAC scores below 60 during the prior 3 fiscal years.
4. “seasoning” requirements for newly endorsed projects, rehabs, and TPAs as provided in the Mortgagee Letter.
The guidance is provided in Mortgagee Letter 2022-16, a copy of which can be obtained by the link below. As stated above, this policy is only available to eligible projects with loans endorsed after the effective date of the Mortgagee Letter. Projects with loans that closed before September 7, 2022 are not eligible and HUD will not consider amendments to executed Regulatory Agreements on existing insured projects.
For more information, please contact David Lang.