Sec. 05.04.13.16. Loan and Grant Disbursements

A. Monitoring.

(1) The local administrator shall monitor loan and grant disbursements during lead hazard reduction work to assist the Program funding recipient and to ensure that loan funds are properly used.

(2) The local administrator shall make at least two inspections of the project, including:

(a) An initial inspection; and

(b) An inspection before any disbursement of funds.

(3) Based on Program guidelines, the local administrator shall determine the frequency and level of inspections during lead hazard reduction work, taking into consideration:

(a) The capability of the Program funding recipient;

(b) The demonstrated experience and reliability of the contractor;

(c) The amount of the grant or loan;

(d) The availability of local technical assistance; and

(e) Other factors considered relevant by the Department.

B. Payments Generally.

(1) Loan and grant funds shall be disbursed in full at the closing to an account held on behalf of the Program funding recipient by either the political subdivision that is the local administrator for the loan or the subcontractor. The loan or grant funds shall be held in an account established under §C of this regulation.

(2) The local administrator or the subcontractor shall disburse loan and grant proceeds in accordance with the following requirements:

(a) Loan funds may not be disbursed if payments of interest or escrow required by the loan documents are in arrears;

(b) Draws shall be paid by a joint payee check issued to the borrower and contractor unless an alternative payment method is approved by the Program Director;

(c) Advance payments are not permitted; and

(d) Payments shall be made only for work completed.

(3) Payments may not be made for material delivered to the site but not yet installed in the project.

C. Loan Accounts.

(1) Loan funds shall be held in a non-interest-bearing account established by the local administrator or the subcontractor and approved by the Department. The account may be:

(a) An account with a depository institution that is separate from the other operating accounts of the local administrator or subcontractor;

(b) An account with a depository institution that is not separate from the other operating accounts of the local administrator or subcontractor using a separate reconciled general ledger account for all Program funds;

(c) An escrow account or attorney's trust account held and managed by an escrow agent if the escrow agent meets the following minimum criteria to the satisfaction of the Department:

(i) Any employee of the escrow agent with access to the account shall be covered by a fidelity bond, or insured with employee dishonesty liability insurance, in an amount not less than $100,000,

(ii) The escrow agent shall provide the local administrator or the subcontractor, if any, and the Department with the quarterly statements required under §C(2) of this regulation, and

(iii) Any other requirements established by the Department; or

(d) Another type of account approved by the Department.

(2) The local administrator or the subcontractor shall provide the Department with quarterly statements of all loan funds in a loan account. The Department shall review these quarterly statements and shall reconcile the loan balances in the records of the local administrator or the subcontractor with the loan balances in the records of the Department. If the quarterly statements do not correspond with the Department's records of loan funds in the account, the local administrator or subcontractor shall work with the Department to reconcile the differences.

(3) The Department may revoke, at any time, its approval of any loan account established under this regulation.

D. Progress Payments.

(1) Progress payments shall be made in accordance with a schedule setting forth payments and corresponding percentages of completed work. The schedule shall be approved by the local administrator before any payments are made, and may be revised by the local administrator from time to time. The schedule may provide for a holdback of a portion of the loan amount.

(2) If a Program funding recipients' request for payment is refused, the local administrator shall notify the Program funding recipient and give the reasons for the refusal. The determination of the local administrator as to the percentage of work completed is final.

E. Final Payment. Final payment shall be made as follows:

(1) The Program funding recipient shall submit to the local administrator a certificate of completion, executed by the Program funding recipient and contractor, certifying that all work has been completed in accordance with the contract documents;

(2) The Program funding recipient shall submit to the local administrator documentation that the work area meets the lead dust clearance test standard set by MDE or another agency acceptable to the Department;

(3) The Program funding recipient shall submit to the local administrator documentation that the entire dwelling unit meets MDE requirements and that all work required to achieve mechanical and structural soundness has been completed;

(4) Final payment shall be processed upon satisfactory final inspection and receipt of the certificate of completion; and

(5) If, in the opinion of the local administrator, the contractor has satisfied the contract and the Program funding recipient refuses to request or release the final payment, the local administrator may employ the following procedure:

(a) The local administrator may require the Program funding recipient to explain in writing within 10 days why the local administrator should not make direct payment to the contractor,

(b) If the Program funding recipient responds within the 10-day period and requests a meeting, the local administrator shall hold a meeting at which the Program funding recipient shall present the borrower's objections to requesting or releasing the final payment, and

(c) The local administrator, in the local administrator's discretion, may then either approve or disapprove direct payment to the contractor or the Program funding recipient, if applicable.

F. Retainage for Claims. If the Program funding recipient or the local administrator receives written notice that subcontractors, materialmen, or suppliers have not been paid for work done or material supplied to and for the project, the local administrator shall retain amounts sufficient to satisfy the claims, to the extent that loan funds have not been disbursed, until satisfactory evidence of satisfaction and release by the subcontractors, materialmen, or suppliers is presented. The contractor shall promptly pay or bond any liens established.

G. Retainage in General.

(1) The local administrator may retain 10 percent of the loan amount until final payment.

(2) The retainage shall be released at final payment upon confirmation that:

(a) All lead hazard reduction work is complete and acceptable to the local administrator;

(b) The lead dust clearance test standard has been met; and

(c) Verification has been made by a county health department, MDE, or other agency acceptable to the Program that the lead hazard reduction was successful.

H. Payment for Additional Work. Payment for any additional cost to complete work not included in the approved contract proposal is the obligation of the Program funding recipient. A Program funding recipient may apply to the local administrator for a loan increase to cover some or all of the increased costs. Any loan increase shall be subject to approval or disapproval in accordance with the provisions of this chapter. The Department has no obligation to pay for increased costs.

I. Quality Control.

(1) Subject to the rights of tenants, if any, the Department or the local administrator may collect random samples of dust levels in a building before and after completion of the lead hazard reduction activity.

(2) Wipe samples may be analyzed by MDE, or its designee, and the local administrator and the Department may maintain records of the results of the sampling.

(3) The Department may provide MDE with a list of all buildings which undertake lead hazard reduction through the Program.

J. Closeout Procedures.

(1) After final payment or payout is made, the local administrator or the subcontractor shall reconcile all receipts and disbursements.

(2) A copy of the closeout statement shall be forwarded to the Program and the servicer.