This is in response to your letter of November 12, 1986 to me concerning your proposed workout for Colonial House Apartments. This response expands upon and supersedes my letter to you dated October 29, 1986 and sets forth the conditions under which HUD will approve a modification of the coinsured mortgage secured by Colonial House. Citations in this letter to the "current rule" refer to the Part 255 Final Rule published April 17, 1986 at 51 FR 13140. Citations to the "interim rule" refer to the Part 255 Interim Rule published May 25, 1983 at 48 FR 23399. As used in this letter, "DRG" refers to DRG Funding Corporation. HUD's approval of, and consent to, this workout is conditioned upon its implementation through a settlement (the "Settlement"), which shall occur prior to January 1, 1987. 1. 2. Mortgage Status. The mortgage must be brought current at the time of Settlement. Delinquent interest may be capitalized and added to the principal balance of the coinsured loan only to the extent that the resulting principal balance does not exceed the original mortgage amount, as provided in Section 255.811(a)(4) of the current rule. Any remaining delinquent interest may be secured by an uninsured second mortgage or otherwise financed through means other than the coinsured mortgage. HUD's coinsurance obligation with regard to that portion of delinquent interest in excess of the amount the owner commits to repay DRG pursuant to paragraph 3 below is described in paragraph 1lb. New Bond Offer. The principal amount of the new bond offer will not 3. 3. provision, the term "loss or expense" includes reasonable expenses, including payroll expenses of in-house counsel, damages awarded by court of law, amounts paid in settlement of litigation, and court costs or other costs. Owner Capital Contribution. The owner will contribute $3 million in cash and recourse notes. The notes must not be secured by the assets of the mortgagor. The contributions shall first be applied to the payment of reasonable settlement costs, up to a maximum of $1 million, and then to the repayment of Pre-Settlement Advances (as defined in paragraph 11b). HUD will have no coinsurance obligation with regard to the entire amounts in cash and recourse notes the owner commits to repay DRG, pursuant to this paragraph. DRG Capital Contribution. DRG's commitment to provide additional capital to make future advances, as necessary, is increased from $3 million to $5 million. Revised Amortization. The amortization of the modified mortgage loan 6. Pay Rate. The bond refunding will drop the "Pay Rate" to about 5 percent per annum, today, with that rate comprised of the following: 7. At this rate (which will vary over time) the monthly debt service payments in the first year after Settlement would be: $ 14,602 Amortization during First Year (Average/Month) Monthly Constant at 10.5% Rate, Including MIP $446,579 Section 8 Assistance. HUD will not provide the project any assistance under the Section 8 Loan Management Set-Aside program. 38-928 - 91 - 15 Workout and Modification Agreements. DRG is responsible for preparing and executing with the owner the written agreements needed to assure compliance with the workout arrangement described in this letter. HUD aust review and approve these agreements prior to their execution, as required by paragraph 9-9.d of HUD Handbook 4566.2. HUD Oversight. DRG will have full responsibility for administering the workout arrangement in compliance with all applicable regulations and program requirements. HUD oversight, as authorized by Sections 255.102(d) and 255.223(d)(3) of the interim rule (Sections 255.102(b)(6) and 255.706(f) of the current rule), will include the right to examine and/or require audit of the books and records of: c. any companies with which the owner has an identity-of-interest, as defined in the regulatory agreement. 10. Reporting Requirements Within three days following Settlement, DRG must provide HUD detailed accounting reports in a form acceptable to HUD of the following: (1) all advances DRG made to or on behalf of Colonial House from the date of default to the date of Settlement; and (2) all settlement costs paid by the owner pursuant to Pursuant to our authority under Section 255.223(d)(3) of the interim rule (Section 255.706(h) of the current rule) we will require DRG to submit the following reports. (1) the project's monthly accounting reports and reconciled bank statements in the form prescribed by HUD; (2) (3) monthly occupancy reports and certified rent rolls in a form acceptable to HUD; and monthly reports of all transactions made on behalf of the project by DRG, the mortgagor or other parties involved in the workout, including all transactions of the Debt |