Sec. 05.05.02.06. Loan Terms and Requirements — General

A. Amount. The Administration may lend up to 100 percent of the approved replacement cost of any project. "Replacement cost" for this purpose means development costs including those costs of construction, carrying charges, financing costs, and professional fees approved by the Administration, plus the market value of the land on which the project was built or is to be constructed.

B. Term. The terms of loans for financing of projects shall be established by the Administration based on underwriting and market conditions at the time of financing.

C. Interest Rate. The Administration may charge interest at a rate in accordance with the underwriting factors for the project including the term of the loan and income and operating projections.

D. Enhancement of Mortgage or Bonds.

(1) After consideration of underwriting, market conditions, and the requirements of the bond issuance, the Administration shall determine and notify the sponsor whether the sponsor will be required to insure or guarantee the proposed loan, or otherwise insure or enhance the bonds financing the loan.

(2) If required by the Administration, the sponsor shall engage a credit enhancer and secure a commitment to insure or guarantee the proposed loan, or otherwise insure or enhance the bonds financing the loan. This commitment shall be secured before any loan closing or at an earlier time as required by the Administration in its sole discretion.

(3) The sponsor shall comply with any conditions of the insurance or guarantee commitment so that the insurance or guarantee will be in effect from the time of loan closing, with respect to loan insurance, or from the time of the issuance of the bonds, with respect to bond insurance.

E. Local Governments.

(1) For each project for which an application is received under this chapter, the Department shall provide written notice and reasonable opportunity to comment on the project to the chief executive officer or the equivalent officer and the head or president of the legislative body of the political subdivision in which the proposed project is located.

(2) If a proposed project is in a municipal corporation, the notice required under §E(1) of this regulation shall be sent to the chief executive officer and the head or president of the legislative body of the municipal corporation, not the surrounding county.

(3) The notice provided under §E(1) of this regulation shall contain the following information about the proposed project:

(a) Date of application;

(b) Name and description of project;

(c) Address of project;

(d) Sponsor of the project and sponsor’s contact information;

(e) Amount of funding requested;

(f) Amount type and provider of other sources of funding;

(g) Total number of units;

(h) Number of units reserved for households of limited income, including the income and rent limits; and

(i) Such other information as the Department deems relevant.

F. Lien Priority. Except for liens held in connection with public purpose projects, any lien held by the Administration on property shall be a lien superior to all other liens on the property except liens for taxes owed to the State or any subdivision of the State and earlier mortgage liens. The Administration, in its discretion, may require the release and repayment of any liens.

G. Property, Liability, and Other Insurance

(1) At or before closing of a loan, and at such other times as required by the Administration, the sponsor shall provide evidence that the sponsor, contractor and other parties, have obtained and maintained the following insurance:

(a) Owner's liability;

(b) Owner's property or hazard or contractor's builder's risk;

(c) Contractor's liability;

(d) Architect's errors and omissions;

(e) Engineer's errors and omissions; and

(f) Flood insurance, if the project is located in a flood hazard zone.

(2) All insurance required under §G(1) of this regulation shall meet the following requirements:

(a) Be written by a company registered with the Maryland Insurance Administration;

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

(c) Not be terminable without prior notification to the Administration; and

(d) Contain such other terms and coverage satisfactory to the Administration.

(3) In addition to the requirements of §G(2) of this regulation, owner's liability insurance shall:

(a) Name the Administration as an additional insured; and

(b) Remain in force for the duration of the loan.

(4) In addition to the requirements of §G(2) of this regulation, contractor's liability and contractor's builder's risk insurance shall:

(a) Name the Administration as an additional insured; and

(b) Remain in place through final closing or such later date as the Administration requires.

(5) In addition to the requirements of §G(2) of this regulation, owner's property or hazard insurance shall:

(a) Name the Administration as an additional insured, loss payee and mortgagee; and

(b) Remain in force for the duration of the loan.

H. Payment. Sponsors shall repay the loan in substantially equal monthly payments of interest and principal in order that the loan is fully amortized over its term or in amounts which ensure timely payments of interest and principal to the bondholders. In cases where loans are made from proceeds derived from payments or prepayments on loans made or purchased by the Administration with the proceeds of revenue bonds, the Administration may set repayment terms in accordance with the terms and conditions as determined by the Administration which will promote the economic feasibility of its project.

I. Late Charges and Other Fees. Sponsors shall pay any servicing fees, loan insurance premiums, bond insurance premiums, or late charges that the Administration or the loan insurer may require and that are permitted by State law.

J. Expense Escrows. The Administration may require the sponsor to deposit monthly with the Administration 1/6 of the annual amount of real estate taxes, insurance, mortgage insurance premiums, a reserve for replacements, and other expenses of the project. While the loan is outstanding, the Administration may require additional amounts to be deposited into the reserve for replacements.

K. Title Insurance. The sponsor shall provide a standard American Land Title Association Loan policy or other form of title policy acceptable to the Administration and to the Office of the Attorney General, for an amount equal to the maximum principal amount of the loan, insuring the Administration that title to the building and the real property on which the building is located on the date of the construction loan closing is vested in the sponsor, and containing only standard exceptions and encumbrances approved by the Administration.

L. Appraisal. Sponsors shall provide or pay for an appraisal performed by an appraiser acceptable to the Administration which shows the current value of the property and the expected value of the property after completion of the improvements.

M. Security Requirements. The Administration may require the following instruments or guarantees to secure its loans:

(1) Such sureties or guarantees of the loan as may be determined necessary by the Administration.

(2) Cash or an unconditional, irrevocable letter of credit from a financial institution approved by the Administration to meet working capital, operating deficit, and off-site improvement completion requirements.

(3) Payment and performance bonds for rental projects each in an amount equal to 100 percent of the contract price, or alternatively, cash or an irrevocable letter of credit equal to 25 percent of the contract price. For FHA-insured multi-family rental projects, compliance with FHA requirements for completion assurance normally will be accepted.

(4) Guarantees of completion as may be deemed necessary or desirable by the Administration.

(5) Escrows of syndication proceeds when appropriate.

(6) An unconditional, irrevocable letter of credit from a financial institution approved by the Administration to secure any costs of negative arbitage.

N. Disclosure.

(1) All directors, officers, principals, members, general partners, and limited partners of the sponsor shall be identified, and the proportionate share of each in the proposed project so indicated in the application. Subsequent changes in either a general partner, a limited partner having more than a 25 percent interest in the sponsor, a managing member, or member owning more than a 25 percent interest in the sponsor shall be subject to the written approval of the Administration.

(2) The sponsor is responsible for providing any disclosure required by the Administration or any credit enhancer relating to the project, the sponsor, the syndication, and the construction team.

O. Financial Statements. The Administration shall require certified financial statements for all general partners or corporate sponsors acceptable to the Administration in its sole discretion. Furthermore, at the discretion of the Administration, financial statements may be required for all limited partners or any other individuals or entities having an interest in the project.

P. Documentation. The Administration shall prescribe the form and content of all loan documents which may include a note, deed of trust, regulatory agreement, or other instruments that the Administration may, from time to time, require to evidence or secure the loan or enforce the requirements of the Act or this chapter.