1. In the version of the Closing Guide that was sent around for field counsel consideration, the Appendices included a rider to the Security Instrument for use when the property was ground leased to our mortgagor. In the later version of the Closing Guide that was sent to the ABA for consideration, that rider was omitted. Why was that rider dropped?
As you know, one goal in revising the Multifamily documents is to eliminate the need for extraneous riders and supplemental language or other extra requirements, particularly those requirements that vary from HUD office to HUD office. Because of the revisions to the Security Instrument and the Ground Lease Addenda, the former Rider to the Mortage relating to Ground Leases is no longer necessary. Although, on the surface, the provisions of the Rider are different from those of either the Security Instrument or the Ground Lease Addenda, the provisions of the Security Instrument and Ground Lease Addenda adequately protect HUD’s interests, to an equal or greater extent than the Ground Lease Rider protected the same interests. Therefore, the Ground Lease Rider is not needed..
2. The security agreement
in the Security Instrument runs to the lender only – not HUD. Without a pledge of collateral, HUD has no security interest to perfect and should not be listed as a secured party on the UCCs. Should the attorney opinion be modified to reflect this situation, or do we need to add language by which the debtor grants HUD a security interest in the collateral?
Please see the question asking whether to delete mention of rents from the secondary financing Subordination Agreement. If, however, by the phrase "delete the assignment of rents" the questioner is asking whether or not the HUD closing attorney should prohibit secondary financing lenders from requiring Borrowers to execute an assignment of rents, the HUD closing attorney may point out that an assignment of HAP rents is not effective unless HUD consents to such assignment and such assignment is made using the proper HUD form and approval process, and may point out that the Subordination Agreement (or, in the case of private secondary financing, the Secondary Financing Rider to the secondary financing mortgage instrument) subordinates the secondary financing lenders' rights to HUD's rights in the event of a default.