For a Mark-to-Market restructuring project, should the owner include interest payable on the second mortgage in the yearend computation of surplus cash?
No. In a Mark-to-Market project, surplus cash is divided between owner distributions and required debt service on the second mortgage. In most deals the owner is allowed to distribute 25 percent of surplus cash, and the remaining 75 percent must be used to make payments on the second mortgage. If the interest payable for the second mortgage were included in the computation of surplus cash, then surplus cash would be reduced. This would cause a corresponding reduction in the owner’s distribution and the required payments on the second mortgage. Since HUD’s goal is to maximize the repayment of the second mortgage and the return to the owner, interest liabilities for the second mortgage should be excluded from the surplus cash computation.
Related Questions
- For a Mark-to-Market restructuring project, should the owner include interest payable on the second mortgage in the yearend computation of surplus cash?
- If an owner of an eligible above-market project has a one-year contract, can they request restructuring under the Option 3 contract renewal?
- If a property owner is suspended or debarred, is the project eligible for restructuring under Option 3 (OMHAR-Lites or OMHAR Fulls)?
