The Department of Housing and Urban Development (HUD), through its Federal Housing Administration (FHA), recently announced that it is restoring longstanding practice regarding 232/223(f) repairs. AHCA/NCAL, working with other associations, successfully advocated for this change. The Issue
In the November 14, 2024, HUD email blast, it announced a narrow interpretation of the Section 223(f)(4) statutory phrase “necessary costs of refinancing” as that phrase applies to repair costs in a 232/223(f) transaction. HUD stated that, to be compliant with this statutory language, Lenders could only include:
the cost of repairs that are necessary to comply with requirements related to life, health, and safety of occupants (e.g., installation of smoke detectors and radon mitigation measures), environmental requirements, associated issuance of permits, and/or federal, state and local regulatory requirements.
At that time, HUD stated that it was working on further guidance. HUD did subsequently include more detailed guidance as draft edits to the Section 232 Handbook—draft edits that drew industry comments expressing strong concern.
AHCA/NCAL worked with the Healthcare Mortgagee Advisory Council and the Mortgage Bankers Association on a coalition letter to HUD noting concerns on this matter, of which several organizations and law firms signed onto. Should that legal opinion stand, LTC operators would not be able to fully fund certain capital projects and would leave them with no choice but to delay or reconsider much-needed facility upgrades.
Following outreach from AHCA/NCAL and others, HUD announced on April 30th, that effective immediately, it will return to its longstanding practice regarding repairs (both critical and noncritical) in Section 232/223(f) transactions, consistent with the currently effective Section 232 Handbook and controlling documents.
We applaud HUD/FHA for this determination.