5-6. “WATCH LIST” MTM PROJECTS

• A. Watch List Contracts are used when:

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1. Recap decides of ineligibility under Section 516(a) of MAHRA; or,

2. An owner refuses to change his/her election from a Lite to a Full after Recap has determined that a renewal without a debt restructuring would not be sufficient to maintain adequate debt service coverage and/or the physical integrity of the project; or,

3. An owner refuses to execute a Restructuring Commitment or close on a Full; or,

4. Recap concludes that the restructuring process will not result in an economically and/or financially feasible project.

See Chapter Six, “Approvals, Ineligibility, and Appeals” in the OPG for further information on ineligibility and discontinuance in Recap.

Use the Watch List Renewal Contract (HUD-9643). These contracts are limited to one year terms; multi-year contract terms are not permitted for projects placed on the Watch List. See HUD-9643, Section 4d (2).

• B. Processing Watch List Contracts: Once the PAE completes the processing, Recap prepares a new one-year Watch List Renewal Contract HUD-9643 and forwards a copy of the contract to the AE/CA.

  1. Market Rents and Term: The Watch List Contract reduces rents to market using Recap’s determination, and requires the owner to submit monthly accounting reports. The project is placed on the Watch List, and defined in IREMS as a project subject to a loan that failed M2M restructuring and is therefore operating under a Watch List Section 8 HAP Contract, to be monitored by a designated Account Resolution Specialist.

  2. Term and Rent Adjustments: Unless the project meets the conditions listed below for removal, a project remains on the Watch List for three years and would receive three contracts, each of one year’s duration. No rent adjustments are allowed during the term of each contract, but OCAF adjustments are permitted between contracts. For example, there could be an OCAF adjustment for the rents established in the second Watch List contract and the third Watch List contract.

  3. Continued Mark-to-Market Eligibility: If, after the effective date of the Watch List Contract, the owner chooses a full debt restructuring, he/she must submit a HUD 9624, Contract Renewal Request Form, to the AE/CA. Recap reserves the right to reassess the eligibility and suitability of the project and the owner. If approved for re-entry, the owner must execute an Interim (Full) Mark-to-Market Renewal Contract at current market rents. Prior to Sunset, the owner must have a binding commitment to restructure the debt in order for processing to continue after Sunset. See Section 5-2.

  4. Removal from the Watch List: A project can only be removed from the Watch List if any one of the following is satisfied:

     • (a) The owner requests to return to Recap, and Recap approves;

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• (b) The project has been on the Watch List for three years, and the Account Resolution Specialist has determined that the project is not experiencing physical, financial, or managerial signs of deterioration;

• (c) The owner has prepaid the mortgage; or

• (d) The owner has opted out of the Section 8 Program.

Multifamily Regional Center may request removal of a project from the Watch List by submitting written justification to Recap Headquarters.

• C. Monitoring Watch List Contracts: Projects on the “Watch List” list are considered to be at greater risk and have questionable long-term financial viability. As a result, these projects must be monitored closely. Refer to Handbook 4350.1 and other guidance for policies and procedures that must be applied to all projects on the Watch List.

• D. File Return and IREMS Documentation: The PAE will return project files to the appropriate AE who is responsible for entering the following information in the problem statement screen in IREMS:

  1. The monitoring category and the reason(s) why, i.e., defined as loans that failed M2M restructuring and are therefore operating under a Watch List Renewal Section 8 HAP Contract, and

  2. Any other relevant information provided by the PAE/ Recap process that indicate the physical, financial and/or management problems that should be closely monitored over the term of the contract.

• E. If, over the term of the contract, the project shows signs of deterioration, the AE/CA should take immediate actions that are consistent with Handbook 4350.1, Multifamily Asset Management and Project Servicing Guide (See Chapter Thirteen of this Guide if it is determined that the housing assistance payments should be abated).

• F. Owner Prepayments: If the owner prepays the mortgage while under a Watch List Contract, the AE will notify Recap, the project will be removed from the Watch List, and the AE will issue a Basic Renewal Contract at the comparable market rents established under the Watch List Contract.