Sec. 05.06.04.14. Claims Payment

A. Limits.

(1) Coverage by the Fund does not include loss from:

(a) Casualty losses;

(b) Impaired title losses; or

(c) Default due to loss of tax-exempt status of the loan.

(2) Expenses incurred for property repair resulting from insurable causes including, but not limited to, negligence, flood, fire, infestation, vandalism, and defective construction are not eligible for claim payment.

(3) The repair of any damaged property by the lender is not a condition to payment of the lender's mortgage insurance claim by the Fund.

B. Form of Payment. The Fund shall pay the claims of the lender in cash in accordance with §C of this regulation, or by delivery of a promissory claim note in accordance with §D of this regulation.

C. Cash Payments. If a claim is paid in cash, the payment is calculated as follows:

(1) The principal amount of the insured mortgage loan at the time of default; plus

(2) Interest at the mortgage rate from the date of assignment or claim through the date of claim settlement; plus

(3) Expenses paid by the lender during the period of default in connection with preserving the mortgaged premises, including:

(a) Property taxes,

(b) Insurance premiums,

(c) Other customary expenses; plus

(4) Any periodic payments, not including principal payments, which the lender would have been entitled to under Regulation .13D of this chapter, but for which no request was made; minus

(5) All amounts:

(a) Received by the lender after default from any source on behalf of the sponsor or the project, including all rental receipts or other income, after deducting actual and reasonable expenses for operating the mortgaged property, and

(b) Retained for the account of the sponsor from any source including undisbursed loan proceeds.

D. Promissory Claim Note Payments.

(1) A claim may be paid by delivery of a promissory claim note if all of the following conditions are satisfied:

(a) The insured mortgagee consents;

(b) The Fund makes a cash payment to the insured mortgagee equal to all delinquent principal and interest on the loan through the date of claim settlement, plus or minus the amounts set forth in §C of this regulation; and

(c) The principal amount of the claim note, when aggregated with the outstanding principal amounts of all other claim notes issued by the Fund, does not exceed 25 percent of the multifamily insurance reserve.

(2) If payment by claim note is permitted under §D(1) of this regulation:

(a) The principal amount of the claim note may not be more than the insured principal balance of the loan which would have been outstanding at the date of claim settlement had all payments of principal and interest been made timely;

(b) The claim note shall require principal and interest payments equal to those required by the loan payable at the times payments were to have been made under the loan;

(c) The Fund's obligation to repay the claim note shall be backed generally by the multifamily insurance reserve and the unrestricted unallocated reserve;

(d) The Fund shall restrict an amount equal to the principal amount of the claim note in one or more of the following accounts:

(i) The cash operating account,

(ii) The unallocated reserve, or

(iii) The multifamily insurance reserve;

(e) Funds restricted in the unallocated reserve or the cash operating account are not considered part of the multifamily insurance reserve for purposes of computing the leverage ratio under the Amended and Restated Multifamily Insurance Agreement dated August 30, 1988.

(3) A note issued in payment of a claim shall mature and be paid upon the first to occur of the following:

(a) Sale of the project financed by the loan;

(b) Maturity of the loan;

(c) 7 years from the date of issuance of the claim note; or

(d) The date on which the unrestricted amount of the multifamily insurance reserve is less than 75 percent of the unrestricted amount of the multifamily insurance reserve at the time the claim note was issued.