lis 217 stemming the tide - LISC

insured projects, this date is 20 years from thedate of final endorsement of the HUD mortgageinsurance.Prepayment Notice. If the project is eligible toprepay, has a prepayment notice (WellstoneNotice) been filed with tenants, HUD, and theCEO of the state or local government? If so, themortgage may be prepaid within 150 days, butno later than 270 days, from the notice date.Prepayment/ Preservation Status. Has the mortgagealready been prepaid, foreclosed, or otherwiseterminated? Has the property alreadybeen preserved under ELIHPA or LIHPRHA? 44 Ifso, there should be a preservation use agreementwith rent and income restrictions that willaffect the future use of the property during itsterm. For ELIHPA properties, this is the remainingterm of the original mortgage. For LIHPRHAprojects, use restrictions last for the remaininguseful life of the property, or at least 50 years.In most cases, the Section 8 contract must beretained for the term of the preservation useagreement.Residual ReceiptsIf there is a limited dividend restriction, whoowns the Residual Receipts—the annual cashflow generated in excess of the allowable dividend?In Section 8 NewConstruction/Substantial Rehab projects withcontracts executed by HUD before the cut-offdate, Residual Receipts belong to the ownerwhen the Section 8 contract is terminated. Thisgives owners substantial incentives to opt outor convert.Bond-Financed ProjectsState or local bond financing may impose anadditional set of dividend restrictions and rulesgoverning the disposition of Residual Receipts.There may also be use restrictions tied to themortgage financing and sometimes even runningwith land which could affect the future useof the property (see Market, below).Maturity Date. If the mortgage is subsidized,when does it mature? At maturity, all of therestrictions associated with the mortgage (orwith any ELIHPA use agreement, if applicable)will terminate. For early 221(d)(3) BMIR projectsbuilt in the mid-1960s, this date may be justaround the corner.Limited DividendIs the owner's cash flow distribution restricted?If so, there may be a greater conversion incentiveand risk. HUD restricts owner dividends inall 221(d)(3) BMIR and 236 projects, and inSection 8 New Construction/Substantial Rehabprojects with contracts executed by HUD afterthe applicable cut-off date (November 5, 1979for New Construction; February 20, 1980 forSubstantial Rehab; and February 29, 1980 forHFA-financed projects). However, if the ownerexecutes a Mark-Up-to-Market contract, the dividendrestriction will be eliminated or significantlyincreased.34chapter four: Researching the Property: Towards a Preservation Strategy