The U.S. Department of Housing and Urban Development (HUD) earlier this month expanded the frequency of surplus cash distributions from multifamily developments from twice per year to as frequently as once per month for nonassisted, HUD-insured properties in Mortgagee Letter 2022-16.

Language in previously executed regulatory agreements allowed for calculation and distribution of surplus cash, as defined in the relevant regulatory agreement version, at year-end, with some versions of regulatory agreements permitting distribution of surplus cash at mid-year.

The updated policy provides expanded cash management flexibility to owners by allowing such calculations and distributions to occur at more frequent intervals. It should be noted that “distributions,” by HUD definition, relate to payments to owners, identity-of-interest entities and/or third parties for expenditures, cash outlays or segregation of cash that may not be directly related to project operations. Monthly calculations and/or distributions are not mandatory if the owner makes the election, but they are allowed at any month end.

The provisions of the mortgagee letter are limited to properties with Federal Housing Administration (FHA)-insured mortgages, specifically excluding those receiving tenant rental assistance or HUD-held notes. Nonassisted properties are those that do not receive tenant rental assistance such as Housing Assistance Payments or Rental Assistance Payments or otherwise referred to or classified as Section 8 housing. The letter is only applicable to developments with loans endorsed after the letter’s date, closing under new regulatory agreements. The owner must request that the applicable language, whereby the owner elects monthly surplus cash distributions, be included in the regulatory agreement. The new policy is subject to eligibility conditions detailed in HUD’s letter and will be incorporated in the next revision of the Form HUD-92466M (Regulatory Agreement).

In addition, owners electing monthly surplus cash distributions will be required to maintain records supporting surplus cash calculations for any months upon with distributions are based and must present positive surplus cash in the annual financial statements as of year-end.

For more information, please consult with Novogradac’s experts in HUD multifamily housing programs.