Comment: Review the requirements of the account management agreement. Commentators stated that the provisions of paragraph 2, point h) relating to the necessary control arrangements on deposit accounts were too broad. The commentator proposed clarifications and limitations of these provisions. Comment: Operator`s permission to purchase a facility. One commentator challenged Section 26th of the operator`s regulatory agreement and suggested that there may be circumstances in which HUD may accept the operator`s purchase of a facility. The commentator explained that this could be an important incentive for an operator to take over a troubled facility. HUD RESPONSE: In accordance with HUD`s findings regarding the multi-family program, HUD found that defaults in regulatory agreements should not constitute defaults among other credit documents without HUD`s agreement. While the other loan documents set out the lenders` rights to the borrower, the regulatory agreement is a document led by HUD. Contrary to the commentator`s assertions, HUD found that the lender`s ability to convene a default event under other default credit documents in regulatory agreements without HUD approval increases and facilitates the ability of lenders to award defaulted loans, increasing HUD`s risk and exposure.
Comment: Project operating defects should be reviewed and should not be considered “delay events.” One commentator stated that HUD should review its definition of “project operating failures” in various documents, including regulatory agreements and the SNDA, and that HUD should clarify that failures in the operation of the project in these documents should not be considered “failures”. The commentator also indicated that the operators had already raised objections to the “project defects” provisions contained in the current form of SNDA and that incumbent operators would not be willing to comply with these provisions only to cooperate with their lenders to obtain hud insured financing. The commentator explained that this was the case for both related operators and unrelated operators. The commentator explained that there should be no subjective determinants of what constitutes a failure to operate the project and that the lack of operation of the project should not constitute a case of delay that would allow HUD or the lender to terminate an operator`s lease or replace the operator.