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HUD to Allow Monthly Distributions of Surplus Cash on New FHA Multifamily Loans

HUD has expanded the benefits of its loan programs to multifamily borrowers by removing longstanding restrictions on the frequency of surplus cash distributions for non-assisted multifamily properties. Eligible borrowers of new loans will now be able to make monthly distributions; previously, distributions were limited to an annual or semi-annual basis.

This update increases the competitiveness of HUD/FHA multifamily programs and aligns HUD's multifamily insurance for non-assisted properties with industry standards.

Eligibility Requirements

The loan must be endorsed after September 7, 2022. HUD will not allow monthly distributions on previously closed properties. Properties with HUD-held mortgage notes are ineligible.

Property must not be subject to a project-based Section 8 HAP contract.

Borrowers must be in compliance with all applicable Program Obligations and HUD business agreements with no outstanding violations.

The property must meet the minimum programmatic Debt Service Coverage Ratio (DSCR) as of its last annual audit.

The most recent REAC inspection score must be 80 or above, with no REAC score below 60 during the three prior fiscal years.

Newly endorsed construction loans, substantial rehabilitation loans or properties with transfers of ownership require two full fiscal years of seasoning prior to permitting monthly distributions.

Newly endorsed Section 223(f) properties require one full fiscal year of seasoning prior to monthly distributions unless the borrower or active principal(s) have owned at least two FHA insured projects for the prior five fiscal years with no flags or regulatory violations. Contracting with an experienced management agent and independent auditor can reduce the ownership requirement from five to three years.

You can find more information on the surplus cash calculation and reporting requirements in HUD Mortgagee Letter 2022-16. Please reach out to your multifamily originator with any questions.