material on the physical improvements, and for any other charges and expenses which are payable.

(2) An amount representing all fees and charges to be paid by the mortgagor in connection with financing which are in excess of the initial service charge and which have been approved by the Commissioner.

(b) Deposit and use of funds. Unless other arrangements acceptable to the Commissioner are made, the funds referred to in paragraph (a) of this section shall be subject to the provisions of § 1100.85 (a).

(c) Letter of credit. The mortgagee may accept, in lieu of a cash deposit required by paragraph (a) (2) of this section, a letter of credit as provided in § 1100.85 (b).

§ 1100.92 Funds and finances-insured advances-working capital.

(a) The amount of working capital, if any, required by the Commissioner to be deposited by the mortgagor with the mortgagee or in a depository satisfactory to the mortgagee and under its control, shall not exceed 2 percent of the original amount of the mortgage. Disbursement from such deposit shall be made only in a manner prescribed by the Commissioner.

(b) The mortgagee may accept, in lieu of a cash deposit required by paragraph (a) of this section, an unconditional irrevocable letter of credit issued to the mortgagee by a banking institution. In the event a demand under the letter of credit is not immediately met, the mortgagee shall forthwith provide cash equivalent to the undrawn balance thereunder.

§ 1100.95 Funds and finances-insured advances-assurance of completion. (a) In general. In order to assure completion of the project, the mortgagor shall furnish a bond to the mortgagee, establish an escrow deposit, or furnish the mortgagee with a letter of credit. The bond, escrow deposit or letter of credit shall be in an amount of at least 10 percent of the Commissioner's estimated cost of constructing the project.

(b) Bond requirements. The bond shall be on a standard form prescribed by the Commissioner and be that of a surety company satisfactory to him.

(c) Escrow deposit requirements. The escrow deposit shall consist of cash,

securities of the United States, or securities which are fully guaranteed by the United States as to principal. The deposit shall meet the requirements of § 1100.85 (a).

(d) Letter of credit requirements. The letter of credit shall meet the requirements of § 1100.85(b).

SUPERVISION OF MORTGAGOR

§ 1100.100 Supervision of mortgagorform of regulation.

The Commissioner may regulate and restrict the mortgagor as long as the Commissioner is the insurer or reinsurer of the mortgage or while the Secretary is the holder of the mortgage. Such regulation or restriction may be in the form of a regulatory agreement, corporate charter or such other means as the Commissioner approves.

§ 1100.102 Supervision of mortgagor— maintenance of project.

The mortgagor shall maintain the project's grounds and buildings and the equipment financed with mortgage proceeds in good repair. It shall promptly complete such repairs and maintenance as the Commissioner considers necessary and required.

§ 1100.105

Supervision of mortgagor— books and accounts.

The books and accounts of the mortgagor relating to the operation of the physical facilities of the project (exclusive of the books and records relating to the group practice of medicine, dentistry, or optometry) shall be established and maintained in a manner satisfactory to the Commissioner. They shall be kept in accordance with the requirements of the Commissioner so long as the mortgage is insured by the Commissioner or the mortgage is held by the Secretary. The mortgagor shall file with the Commissioner such financial reports as the Commissioner may require.

§ 1100.107 Supervision of mortgagorinspection of facilities by Commissioner.

The mortgagor's property, equipment, buildings, plans, offices, apparatus, devices, books, contracts, records, documents, and papers relating to the operation of the physical facilities of the project (exclusive of the books and records relating to the group practice of medicine, dentistry or optometry) shall be subject to inspection and examination by

the Commissioner or his duly authorized representative at all reasonable times.

§ 1100.110 Supervision of mortgagorcontrol over surplus cash.

Surplus cash acquired by the mortgagor from the operation of the project may be used only for such specific purposes as may be approved by the Commissioner. The term "surplus cash" as used in this section shall mean the cash legally available and remaining after the payment and allocation of funds as follows:

(a) The payment of each of the following:

(1) Sums currently due under the terms of the mortgage or note insured by the Commissioner or held by the Secretary.

(2) Amounts required to be deposited in the Reserve Fund for Replacements.

(3) Outstanding obligations of the mortgagor arising out of the operation of the project other than those arising out of the mortgage indebtedness, unless funds for payment have been set aside or deferment of payment has been approved by the Commissioner.

(b) The allocation and placement in a separate account of an amount equal to the aggregate of all special funds required to be maintained by the project. § 1100.112 Supervision of mortgagorfund for replacements.

The mortgagor shall deposit and maintain with the mortgagee a reserve fund for replacements. The amount and type of such fund and the conditions under which it shall be accumulated, replenished, and used, shall be specified in the regulatory agreement, corporate charter, or in such other document as the Commissioner may require. § 1100.115 Rental of facilities.

Where the mortgagor rents the group practice facilities to a medical or dental group, the terms of the lease and the amount of rental charge shall be subject to the approval of the Commissioner. Provision shall be included in the lease for an annual review of the rental charge and for adjustments to increase or decrease such rental charge with the approval of the Commissioner. The mortgagor shall make an annual report to the Commissioner as to its financial status and adjustments in the annual rental shall be made only with the approval of the Commissioner.

PROPERTY REQUIREMENTS

§ 1100.120 Eligibility of property.

A mortgage to be eligible for insurance shall cover real estate in which the mortgagor has one of the following interests: (a) A fee simple title.

(b) A lease for not less than 99 years which is renewable.

(c) A lease having a term of not less than 75 years to run from the date the mortgage is executed.

(d) A lease executed by a governmental agency or an Indian or an Indian tribe for the maximum term consistent with the legal authority for the execution of such lease, provided that the term of any such lease shall run for a period of not less than 50 years from the date the mortgage is executed. § 1100.122

ments.

Special property require

The project shall be designed for use as a group practice facility which the Commissioner finds:

(a) Will be constructed in an economical manner.

(b) Will not be of elaborate or extravagant design or materials.

(c) Will provide adequate and suitable facilities for the group practice of medicine, optometry, or dentistry.

§ 1100.125 Zoning, deed or building restrictions.

The project when completed shall not violate any material zoning or deed restrictions applicable to the project site, and shall comply with all applicable building and other governmental regulations and requirements.

§ 1100.127 Discrimination prohibited.

Any contract or subcontract executed for the construction or rehabilitation of the project shall contain a provision that there shall be no discrimination against any employee, or applicant for employment because of race, color, creed, or national origin. Where the mortgagor is the general contractor, the building loan agreement shall contain the same provision against discrimination. COST CERTIFICATION

purpose of limiting the outstanding principal balance of the mortgage, at the time of final endorsement, to the statutory limitations based on the actual cost of the project. The agreement shall require the mortgagor to do each of the following:

(1) Disclose its relationship including any collateral agreements with the general contractor, the subcontractor, and the suppliers.

(2) Enter into a construction contract with the general contractor in a form meeting the requirements of § 1100.145.

(3) Execute a certificate of actual costs upon completion of the construction.

(4) Reduce the outstanding principal balance of the mortgage by applying thereto any excess of mortgage proceeds over statutory limitations based on actual costs.

§ 1100.142 Certificate as to subcontracts.

If the Commissioner determines that the mortgagor or any of its officers, directors, stockholders, partners, or beneficiaries have an interest (financial or otherwise) in a subcontractor or material supplier, the mortgagor shall certify (at such times and in such form as may be prescribed by the Commissioner prior to final endorsement of the mortgage for insurance) that the amounts paid to such subcontractor or material supplier were not more than the rate being paid in the locality for similar type labor and materials.

§ 1100.145 Form of contract.

A cost-plus form of contract between the mortgagor and the general contractor shall be used unless it is established to the Commissioner's satisfaction that such form is not required to protect his interests and the interests of the mortgagor, in which case a lump sum contract may be used.

§ 1100.147 Certificate of actual costs.

Upon completion of the project to the satisfaction of the Commissioner and prior to final endorsement, the mortgagor shall submit a certificate showing the actual costs of the project to the mortgagor. The certificate shall be in a form prescribed by the Commissioner. § 1100.150 Certificate of actual costsgeneral contractor's costs.

Upon completion of the project to the satisfaction of the Commissioner and prior to final endorsement, the general

contractor shall submit a certificate of actual costs in a form prescribed by the Commissioner.

§ 1100.152 Certificate of actual costssubcontractor's costs.

Where the subcontractor, material supplier, or equivalent lessor have an identity of interest either with the mortgagor or the general contractor, the Commissioner may require the mortgagor to submit a certificate showing the actual cost of the labor, supplies, or equipment furnished to the project by any one or all of such entities. The certificate shall be in a form prescribed by the Commissioner.

§ 1100.155 Records.

The mortgagor shall keep and maintain adequate records of all construction costs, or other cost items not representing work under the general contract and shall require the general contractor to keep similar records. Upon request by the Commissioner, such records, together with any collateral agreements, shall be made available for examination. § 1100.157 Adjustment of cost-new

construction.

In the case of new construction, in order to give effect to land value, the aggregate amount shown in the certificate of actual costs shall be adjusted, prior to final endorsement, as follows:

(a) Land held in fee. Where the land included in the mortgage security is owned in fee by the mortgagor, the Commissioner's estimate of the fair market value of such land prior to the beginning of construction shall be added to the total cost shown in the certificate.

(b) Land held under leasehold. Where the land included in the mortgage security is held by the mortgagor under a leasehold, the expense of acquiring the leasehold may be added to the aggregate amount shown in the certificate of actual costs. The amount added shall be limited to the Commissioner's estimate, prior to the beginning of construction, of the fair market value of the leasehold or other interest. § 1100.160

Adjustment of cost-reha

bilitation.

In the case of repair or rehabilitation, in order to give effect to land value, the aggregate amount shown in the certificate of actual costs shall be adjusted, prior to final endorsement, as follows:

(a) Property already owned. Where no part of the proceeds of the mortgage

is to be used to finance the purchase of the land or the existing improvements, the mortgage shall be reduced to an amount which does not exceed 100 vercent of the actual costs (as approved by the Commissioner) of the repair or

rehabilitation.

(b) Property subject to existing mortgage. Where the proceeds of the mortgage are to be used to refinance an existing mortgage, there shall be added to the actual costs of the repair or rehabilitation the lesser of the following: (1) The amount of the existing mortgage.

(2) 90 percent of the Commissioner's estimate (prior to repair or rehabilitation) of the fair market value of the land and existing improvements.

(c) Property to be acquired. Where the proceeds are to be used to finance the purchase of the land and existing improvements in addition to financing the repair or rehabilitation, there shall be added to the actual costs of the repair or rehabilitation the lesser of the following: (1) The purchase price of the land and existing improvements.

estimate

(2) The Commissioner's (prior to repair or rehabilitation) of the fair market value of the land and existing improvements.

§ 1100.162 Reduction in mortgage

amount.

If the principal amount of the mortgage exceeds the total shown by the certificate of actual costs, after adjustment as provided in §§ 1100.157 and 1100.160, the mortgage shall be reduced by the amount of such excess prior to final insurance endorsement.

§ 1100.165 Effect of agreement.

Any agreement, undertaking, statement, or certification required by the Commissioner in connection with the certificate of actual costs shall specifically state that it has been made, presented, and delivered for the purpose of influencing an official action of the Commissioner and that it may be relied upon as a true statement of the facts contained therein. § 1100.167

able.

Cost certification incontest

Upon the Commissioner's approval of the mortgagor's certification of actual costs, such certification shall be final and incontestable, except for fraud or material misrepresentation on the part of the mortgagor.

In order for the mortgaged property to be eligible for insurance, the Commissioner shall determine that marketable title thereto is vested in the mortgagor as of the date the mortgage is filed for record. The title evidence shall be examined by the Commissioner and the original endorsement of the credit instrument for insurance shall be evidence of its acceptability.

§ 1100.182 Title evidence.

Upon insurance of the mortgage, the mortgagee shall furnish a survey to the Commissioner which is satisfactory to him, and a policy of title insurance, as provided in paragraph (a) of this section. If, for reasons the Commissioner deems satisfactory, title insurance cannot be furnished under paragraph (a) of this section, the mortgagee shall furnish evidence of title in accordance with paragraphs (b) or (c) of this section, as the Commissioner may require. survey, policy of title insurance, or evidence of title required under this section shall be furnished without expense to the Commissioner. The types of title evidence are:

Any

(a) A title insurance policy, issued by a company and in a form satisfactory to the Commissioner. The policy shall name as the insureds the mortgagee and the Secretary as their respective interests may appear. The title policy shall provide that, upon acquisition of title by the mortgagee or the Secretary, it shall become an owner's policy protecting the mortgagee or the Secretary, as the case may be.

(b) An abstract of title satisfactory to the Commissioner, prepared by an abstract company or individual engaged in the business of preparing abstracts of title, accompanied by a legal opinion satisfactory to the Commission as to the quality of such title, signed by an attorney at law experienced in the examination of titles.

(c) A Torrens or similar title certificate.

AMENDMENTS

§ 1100.185 Amendment of regulations. The regulations in this subpart may be amended by the Commissioner at any time and from time to time, in whole or in part, but such amendment shall not adversely affect the interests of a