Sec. 05.05.01.17. Reserves and Security

A. Reserve for Replacement. The Department may require the sponsor to make periodic payments to the Department or a senior lender for a reserve for replacement account for future repairs, maintenance, and improvement of the project.

B. Appraisal. The sponsor or the Department, in the Department’s discretion, shall obtain an appraisal by an appraiser acceptable to the Department, showing the value of the land and any improvements on the land before and after the proposed rehabilitation or construction in a form and manner acceptable to the Department. The sponsor shall bear the cost of the appraisal.

C. Escrow Account. If there is no prior mortgage or deed of trust requiring the payment of expenses to the mortgagee, the mortgage or deed of trust securing the loan shall require monthly payments to the Department in escrow, consisting of 1/12 of annual real estate taxes, ground rent, property insurance premiums, and, when appropriate, other items for which payments are required by the Department. Interest may or may not be paid to the sponsors on escrows, in the Department’s discretion.

D. Additional Security.

(1) The Department may require additional security from the sponsor both to assure completion of the construction or rehabilitation of the project, and to assure repayment of the loan.

(2) The additional security may be in the form of one or more of the following:

(a) A cash escrow;

(b) A letter of credit in an amount, in a form, and from a financial institution acceptable to the Department;

(c) Depository accounts pledged to the Department;

(d) Payment and performance bonds from a surety acceptable to the Department;

(e) A completion assurance agreement executed by the sponsor and backed by some form of monetary collateral;

(f) A guaranty of completion or loan payments, or both, executed by a third party acceptable to the Department;

(g) A pledge of syndication proceeds;

(h) A pledge of the developer’s fee; or

(i) Other collateral acceptable to the Department.

E. Superior Mortgagee’s Agreement. For loans secured by a subordinate lien, the sponsor shall obtain the written agreement of each superior lender:

(1) Acknowledging and consenting to the subordinate lien of the Department;

(2) Agreeing to provide timely notice to the Department in the event of default by the sponsor on the superior mortgage; and

(3) Agreeing to either suspend acceleration and foreclosure of the superior lien for a reasonable period of time if the Department brings current and maintains timely payments due on the superior mortgage or permitting the Department to cure the event of default.