Sec. 05.04.05.07. Loan Terms and Requirements — General

A. Maximum Loan Amount.

(1) The maximum loan amount, when added to any prior indebtedness secured by the building, may not exceed 95 percent of the after-rehabilitation value of the building.

(2) If 100 percent of the units are subject to a federal rent subsidy which is allocated to the project for the entire term of the loan, then the 95 percent loan-to-value ratio required by §A(1) of this regulation may be raised to 100 percent.

(3) If, in the determination of the Program Director, a loan increase is necessary to assure completion of the building and protect the Department's interest, an increase in the mortgage may be made to cover extraordinary and unforeseen construction problems if the increase can be made within the limits on maximum loan amounts set forth in §A(1)-(3) of this regulation.

(4) Closing costs as defined in Regulation .03B(5) of this chapter may be included in loans on owner-occupied dwellings, if the loan does not exceed the limits on the maximum loan amount set forth in §A(1)-(3) of this regulation.

B. Interest Rate.

(1) The Department may establish different interest rates for loans serving occupants who are families of:

(a) Limited income;

(b) Lower income families; and

(c) Very low income.

(2) The interest rates charged on loans may not be more than private lending rates for comparable loans.

C. Insurance.

(1) Hazard Insurance. The owner of the building shall maintain fire and extended coverage insurance at the owner's expense in an amount not less than the sum of the loan and any other indebtedness secured by the building, and the hazard insurance policy shall:

(a) Be written by companies authorized to transact business in the State;

(b) Be in force at the time of loan closing;

(c) Name the Department as named insured and loss payee as its interest may appear in a standard mortgagee endorsement attached to or printed in the policy; and

(d) Contain terms and coverage satisfactory to the Department.

(2) Flood Insurance. If the building is in a 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the:

(a) Building shall be covered by a flood plain insurance policy in an amount equal to the sum of the loan and any other indebtedness secured by the building, naming the Department as beneficiary; and

(b) Flood plain policy may not be terminated without prior notification to the Department.

D. Term. The term of each loan may not exceed 30 years from the date of completion of the improvements, and shall be based upon the amount of the loan, the borrower's ability to repay, and the expected economic life of the building.

E. Periodic Payment. Except for deferred payment loans, periodic payments shall be charged which shall be applied to expenses, when applicable, interest, and principal in that order.

F. Late Charge. Late charges, as permitted by law, may be imposed.

G. Security for Loans.

(1) Loans of $5,000 or less shall be evidenced by a promissory note and such other documents as may be required by the Department.

(2) Except as provided in §§G(4)-(5) of this regulation, loans in excess of $5,000, and loans providing for deferred payments, shall be secured by a mortgage or deed of trust, in the form required by the Department, which shall be recorded in the land records of the county in which the building is located. The mortgage or deed of trust may be subordinate to other recorded mortgage liens if the mortgagee of the mortgage gives any consents required by the prior mortgagee's loan documents or by the Department.

(3) Loans to political subdivisions may be secured by a recorded mortgage or deed of trust on real property, or by another security device acceptable to the Department.

(4) A loan to a trust described in 42 U.S.C. §1396P (D)(4) may be secured by a mortgage or deed of trust on real property, or other security device acceptable to the Department.

(5) A loan in excess of $5,000 to a borrower in a housing cooperative unit may be secured by another security device acceptable to the Department.

H. Appraisals.

(1) At the discretion of the Program Director or the local administrator, borrowers may be required to obtain an appraisal in a form and manner acceptable to the Department from an acceptable independent fee appraiser showing the building's value before and after the proposed rehabilitation.

(2) Applicants shall bear the costs of appraisals, which may be financed in the case of a loan made to an owner-occupant.

I. Change of Borrower Eligibility. If the borrower's income changes or the borrower no longer satisfies other requirements of Regulation .04 of this chapter, the Department may, in accordance with the terms of the loan agreements between the borrower and the Department:

(1) Increase the interest rate up to a rate set by the Program from time to time;

(2) Accelerate the payment of the entire principal and interest due; or

(3) If the income of the individuals served by the loan changes, increase or decrease the interest rate to a rate permitted by §B of this regulation.

J. Change of Ownership.

(1) If the loan finances improvements for a residential rental building, except for an owner-occupied building with four or fewer residential units, then the borrower may not sell, cease to own, assign, transfer, mortgage, pledge, encumber, grant a security interest in, or dispose of all or any part of the building or the borrower's interest in the building, or lease the dwelling unit in which the owner-occupant resides, during the loan term, without the prior written consent of the Department.

(2) If the loan finances improvements for a residential building with four or fewer units, one of which is occupied by the borrower, then the loan is due and payable in full upon the sale, encumbrance, or other transfer of the building or any interest in the building, including a lease of the owner's unit for more than 3 years, unless the transfer is made to a person who will occupy the owner's unit and the transfer is:

(a) Made by operation of law upon the death of a joint tenant;

(b) To a spouse upon separation or divorce;

(c) To a spouse or child;

(d) To a relative upon the death of the owner;

(e) To an inter vivos trust whereby the borrower is the beneficiary and owner of the property and provides assurances acceptable to the Department of any subsequent transfer; or

(f) A transfer for which the parties have received the prior written consent of the Department, in its sole discretion.

K. Default. Remedies upon loan default shall be exercised in the discretion of the Department and may be one or more of the remedies provided for in the loan documents or by law, such as:

(1) Adjustments to the interest rate of the loan upward or downward;

(2) Suspension or debarment from the Department's programs;

(3) Foreclosure;

(4) Accepting a deed in lieu of foreclosure;

(5) Appointment of a receiver; and

(6) Other legal action which protects the Department's interests.

L. Refinancing. The Department may not refinance existing debt related to an eligible building.