www.hudclips.org U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 November 3, 1994 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER MORTGAGEE LETTER 94-53 TO: ALL APPROVED MORTGAGEES SUBJECT: Guide for Opinion of Counsel to the Mortgagor This Mortgagee Letter informs lenders of the cancellation of FHA Form No. 1725, Mortgagor's Attorney's Opinion format submitted at all FHA insured multifamily rental and health care closings. 1.The attached Guide for Opinion of Counsel to the Mortgagor, OMB No. 2510-0010 (expires March 31, 1997), has been developed by the Office of General Counsel for use in all FHA Insured Multifamily Rental and Healthcare Facility Closings and are to be used in lieu of FHA Form No. 1725 which has been canceled and is not to be used in the future. FHA Form 1725 has been cancelled in order to bring HUD practices in this area in conformity with modern opinions and to assist HUD in its goal of being user friendly and providing an improved quality of service to the public. 2.The Guide was developed in consultation with private attorneys, mortgagees and other governmental entities, such as Fannie Mae and Freddie Mac, in an effort to more clearly delineate the matters upon which HUD desired an opinion for itself and mortgagees making insured multifamily and health care loans. Please note that the Guide also has Instructions attached and a Mortgagor's Certification. If you have any questions concerning this new format, please contact Gains Hopkins in the Office of General Counsel at (202) 708-4167. Attachments ____________________________________ Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner For use in FHA Insured Transactions FEBRUARY 18, 1994 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FEDERAL HOUSING ADMINISTRATION GUIDE FOR OPINION OF MORTGAGOR'S COUNSEL {TO BE TYPED ON FIRM LETTERHEAD} {INSERT DATE OF ENDORSEMENT} Re: Project Name ____________ FHA Project No. _________ Location ________________ Mortgagor _______________ [MORTGAGEE] [ADDRESS] [MORTGAGEE'S ATTORNEY] [ADDRESS] FEDERAL HOUSING COMMISSIONER {INSERT APPROPRIATE FIELD OFFICE ADDRESS} Ladies and Gentlemen: We are [I am] [general/special] counsel to _________________ {INSERT NAME OF MORTGAGOR} (the "Mortgagor"), a _______________, {INSERT TYPE OF ENTITY} organized under the laws of the State of ________________ {INSERT STATE} (the "Organizational Jurisdiction), in connection with a mortgage loan (the "Loan") in the [original/ increased] principal amount of ___________________ Dollars ________________ from ________________ {INSERT NAME AND TYPE OF MORTGAGEE} (the "Mortgagee") to the Mortgagor. The proceeds of the Loan will be used to [construct/rehabilitate/purchase/ refinance] a loan secured by that certain [multifamily housing/ hospital/extended care facility/nursing home/board and care] project (the "Project"), commonly known as __________________ and 2 located in ______________ {INSERT COUNTY AND STATE} (said State to be referred to hereinafter as the "Property Jurisdiction") on the property described on Exhibit ___ {ATTACH LEGAL DESCRIPTION} (together with all improvements and fixtures thereon) (the "Property"). The Loan is being insured by the Federal Housing Administration (FHA), an organizational unit of the United States Department of Housing and Urban Development ("HUD"), pursuant to a commitment for insurance [of advances OR upon completion OR for refinancing] issued to Mortgagee by ________________, Agent of the Federal Housing Commissioner, dated ____________________ [as amended by that certain letter from ___________________to __________________, dated _______________] ("FHA Commitment"). The Loan is being funded from _________________________________ {DESCRIBE FINANCING SOURCE, e.g.,tax-exempt bonds/mortgage backed securities guaranteed by GNMA/participation certificates, etc.} The Mortgagor has requested that we [I] deliver this opinion and has consented to reliance by Mortgagee's counsel in rendering its opinion to Mortgagee and to reliance by Mortgagee and HUD in making and insuring, respectively, the Loan and has waived any privity between Mortgagor and us [me] in order to permit said reliance by Mortgagee, counsel to Mortgagee and HUD. We [I] consent to reliance on this opinion by Mortgagee, counsel to Mortgagee, and HUD. In our [my] capacity as [general/special] counsel to the Mortgagor, we [I] have prepared or reviewed the following: A. The [{DESCRIBE ORGANIZATIONAL DOCUMENTS, e.g. for corporations: a certified copies of the articles of incorporation, the by-laws, the borrowing resolution, the incumbency certificate and the good standing certificate(s); for partnerships: certified copies of the partnership agreement and any amendments thereto, the certificate of limited partnership, and any amendments thereto, the good standing certificate (or its equivalent) if provided in the Organizational Jurisdiction, etc.}] of the Mortgagor (collectively, the "Organizational Documents"); B.The FHA Commitment [and assignment(s) thereof, if any]; C. The Commitment executed by the Mortgagee and accepted by the Mortgagor, dated __________, (the "Loan Commitment"); D. The Regulatory Agreement (_____) {INSERT APPROPRIATE FORM NO.} by and between HUD and the Mortgagor, dated _______________, (the "Regulatory Agreement"); E. The Note (_____) {INSERT APPROPRIATE FORM NO.} [in the original principal amount of _______________ Dollars ($____________) OR in the increased principal amount of __________________ Dollars ($_____________) by Mortgagor in favor of Mortgagee, dated _________, (the "Note"); 3 F. [The Mortgage OR Deed of Trust] (______ {INSERT APPROPRIATE FORM NO.}), executed by Mortgagor for the benefit of Mortgagee, granting a security interest in the Property, dated _____________, (the "Mortgage"); G. {INSERT THE NUMBER OF UCC's TO BE FILED} Uniform Commercial Code Financing Statements executed by the Mortgagor as debtor and naming the Mortgagee and HUD as secured parties or as their interests may appear, to be filed in ______________, {INSERT LOCATION(S)} (the Filing Offices), upon the {DESCRIBE EVENTS} (the "Financing Statements"); H. The Security Agreement by and between Mortgagor and the Mortgagee, granting a security interest under the Uniform Commercial Code, in those items of personalty described therein, dated ____________, (the "Security Agreement"); [I. {TO BE INSERTED IF THE MORTGAGE IS ON A LEASEHOLD ESTATE} The Ground Lease executed by _________________ {INSERT LESSOR} as lessor and Mortgagor as lessee recorded in the land records of _____________, dated _____________, (the "Ground Lease").] [J. {TO BE INSERTED FOR CONSTRUCTION/REHABILITATION LOANS} The Building Loan Agreement (92441) executed by Mortgagee and Mortgagor, dated _______________, (the "Building Loan Agreement").] [K. {TO BE INSERTED FOR CONSTRUCTION/REHABILITATION LOANS} The Construction Contract [Lump Sum (92442) or Cost Plus (92442-A)] executed by ___________________ (the "General Contractor") and Mortgagor, dated ________________ (the "Construction Contract").] L. The Mortgagee's Certificate (2434), executed by the Mortgagee, dated _____________________. M. The Mortgagor's Certificate (2433), executed by the Mortgagor, dated _____________________. N. The Agreement and Certification (3305 or 3306), executed by the Mortgagor, dated _________________. O. The Mortgagor's Oath (2478), executed by the Mortgagor, dated __________________. P. The Mortgagor's Opinion Certification, pertaining to factual matters relied on by us [me] in rendering this opinion, executed by the Mortgagor, dated _______________, a copy of which is attached hereto as Exhibit ___ (the "Mortgagor's Opinion Certification"). 4 Q. A search conducted by _______________ dated ________________ {no earlier than 30 days before this opinion} of the financing records of the county and Property Jurisdiction [and Organizational Jurisdiction] (the "UCC Search"). [R. A receipt from the insurance company providing flood insurance evidencing payment for the premium, dated ___________, (the "Flood Insurance Receipt").] S. The Title Insurance Policy issued by _________________ (acceptable company under HUD's regulations}, together with all endorsements, and naming HUD and the Mortgagee as insureds as their interests may appear, dated ____________, (the "Title Policy"). T. The following documents evidencing zoning compliance, __________________________, {DESCRIBE ALL DOCUMENTS FULLY} (the "Zoning Certificate"). U. The building permit(s) issued on ____________________ by _______________ (the "Building Permit"). V. The following permits, ___________________, {DESCRIBE PERMITS} which are required for the operation of the project, issued by _____________________ on ____________________ ("Other Permits"). W. [The Surveyor's Plat OR Survey showing completed project], prepared by __________________, dated ____________, (the "Survey"). X. The Surveyor's Certificate (92457), executed by ____________, dated ____________________, (the "Surveyor's Certificate"). [Y. The deferred note (1710, FHA 1712 or 92223) executed by Mortgagor in favor of ____________, dated ___________, (the "Deferred Note").] Z. [The Performance Bond (92452) and/or the Payment Bond (92452-A)] issued by __________________________________ to secure the payment by/performance of _______________________________ and running to __________________ OR the Completion Assurance Agreement (92450) executed by the General Contractor, dated ________________, (the "Assurance of Completion"). AA. The Owner-Architect Agreement (AIA B181 with HUD Supplement obtained from the HUD Office) executed by __________________ {INSERT DESIGN AND/OR CONSTRUCTION ARCHITECT} and Mortgagor, dated _________, (the "Owner-Architect Agreement"). 5 [BB. The Off-Site Bond (2479) issued by _________________________ to secure the completion of off-site work by _____________________ and running to the Mortgagee and HUD OR Escrow Agreement for Off-Site Facilities (2446) with Schedule "A" executed by ____________________ dated __________________ (the "Assurance of Completion of Off-Site Facilities").] CC. The documents __________________ {DESCRIBE FULLY} assuring water, electricity, sewer, gas, heat or other utility services (the "Assurance of Utility Services"). DD. The Contractor's and/or Mortgagor's Cost Breakdown (2328) executed by the General Contractor, dated _________________, (the "Cost Breakdown"). [EE. The Latent Defects Bond (3259) issued by ________________ and securing the performance of the General Contractor and running to the Mortgagee and HUD OR Escrow executed by _________________, dated _________________ (the "Guarantee against Latent Defects").] [FF. The Escrow Deposit Agreement for Incomplete On-Site Improvements (2456) with Schedule A executed by the General Contractor, dated ______________, (the "On-Site Deposit Escrow").] GG. The Contractor's Prevailing Wage Certificate (92448) executed by ____________________, dated ___________________, (the "Contractor's Prevailing Wage Certificate"). HH. The Request for Endorsement of Credit Instrument (2455) and/or Certificate of Mortgagor and Mortgagee (92023) executed by the Mortgagor and the Mortgagee, dated ______________, (the "Request for Endorsement"). {MODIFY AS APPROPRIATE FOR INSURANCE UPON COMPLETION, REFINANCINGS, ETC.} [II. The Operating Deficit Escrow executed by _________________, dated ____________________, (the "Operating Deposit Escrow").] [JJ. The Repair Escrow executed by ________________, dated __________________, (the "Repair Escrow").] [KK. All documents executed by Mortgagor and any State or local government entity pertaining to development of the Property (the "Public Entity Agreement").] [LL. The following documents executed or delivered in connection with the financing of the loan with the proceeds of bonds exempt from federal taxation: ________________ {LIST 6 DOCUMENTS IN ACCORDANCE WITH INSTRUCTIONS} (the "Bond Documents").] MM. The Good Standing Certificate(s) issued by [Organizational Jurisdiction OR Property Jurisdiction, if different], dated _____________ {DATE INSERTED MUST BE WITHIN 30 DAYS OF THE DATE OF ENDORSEMENT}, (the "Good Standing Certificate"). NN. The certificate executed by _________________ {INSERT ARCHITECT OR OTHER PROFESSIONAL}, dated ________________, (the "Certificate"). OO. A search conducted by __________ dated [no earlier than 30 days before this opinion] of the public records of the federal District Court and State and local courts in: (i) the jurisdiction where the Property is located; (ii) the jurisdiction(s) where the Mortgagor is located and does business; and (iii) the jurisdiction where the general partner of the Mortgagor is organized (the "Docket Search"). NOTE:Numerical references in parentheses above are to FHA and HUD form numbers. The documents listed in B through I above are referred to collectively as the "Loan Documents." The documents listed in J through OO are referred to collectively as the "Supporting Documents." The documents listed in A through OO are referred to collectively as the "Documents." In basing the opinions set forth in this opinion on "our [my] knowledge," the words "our [my] knowledge" signify that, in the course of our [my] representation of the Mortgagor, no facts have come to our [my] attention that would give us [me] actual knowledge or actual notice that any such opinions or other matters are not accurate. Except as otherwise stated in this opinion, we [I] have undertaken no investigation or verification of such matters. Further, the words "our [my] knowledge" as used in this opinion are intended to be limited to the actual knowledge of the attorneys within our [my] firm who have been involved in representing the Mortgagor in any capacity including, but not limited to, in connection with this Loan. We [I] have no reason to believe that any of the documents on which we [I] have relied contain matters which, or the assumptions contained herein, are untrue, contrary to known facts, or unreasonable. In reaching the opinions set forth below, we [I] have assumed, and to our [my] knowledge there are no facts inconsistent with, the following: (a) Each of the parties to the Documents, other than the Mortgagor (and any person executing any of the Documents on 7 behalf the Mortgagor), has duly and validly executed and delivered each such instrument, document, and agreement to be executed in connection with the Loan to which such party is a signatory, and such party's obligations set forth in the Documents are its legal, valid, and binding obligations, enforceable in accordance with their respective terms. (b) Each person executing any of the Documents, other than the Mortgagor (and any person executing any of the Documents on behalf of the Mortgagor), whether individually or on behalf of an entity, is duly authorized to do so. (c) Each natural person executing any of the Documents is legally competent to do so. (d) All signatures of parties other than the Mortgagor (and any person executing any of the Documents on behalf of Mortgagor) are genuine. (e) All Documents which were submitted to us [me] as originals are authentic; all Documents which were submitted to us [me] as certified or photostatic copies conform to the original document, and all public records reviewed are accurate and complete. (f) All applicable Documents have been duly filed, indexed, and recorded among the appropriate official records and all fees, charges, and taxes due and owing as of this date have been paid. (g) The parties to the Documents and their successors and/or assigns will: (i) act in good faith and in a commercially reasonable manner in the exercise of any rights or enforcement of any remedies under the Documents; (ii) not engage in any conduct in the exercise of such rights or enforcement of such remedies that would constitute other than fair and impartial dealing; and (iii) comply with all requirements of applicable procedural and substantive law in exercising any rights or enforcing any remedies under the Documents. (h) The exercise of any rights or enforcement of any remedies under the Documents would not be unconscionable, result in a breach of the peace, or otherwise be contrary to public policy. (i) The Mortgagor has title or other interest in each item of (i) real and (ii) tangible personal property ("Personalty") comprising the Property in which a security interest is purported to be granted under the Loan Documents [and, where Personalty is to be acquired after the date hereof, a security interest is created under the after-acquired property clause of the Security Agreement]. 8 In rendering this opinion we [I] also have assumed that the Documents accurately reflect the complete understanding of the parties with respect to the transactions contemplated thereby and the rights and the obligations of the parties thereunder. We [I] also have assumed that the terms and the conditions of the Loan as stated in the Documents have not been amended, modified or supplemented, directly or indirectly, by any other agreement or understanding of the parties or waiver of any of the material provisions of the Documents. After reasonable inquiry of the Mortgagor, we [I] have no knowledge of any facts or information that would lead us [me] to believe that the assumptions in this paragraph are not justified. In rendering our [my] opinion in paragraph 13, we [I] also have assumed that: (i) all Personalty in which a security interest is created under the Documents (other than accounts or goods of a type normally used in more than one jurisdiction) is located at the Property and (ii) Mortgagor's [Chief Executive Office] [only place of business] [residence] is located in ____________________________. After reasonable inquiry of the Mortgagor, we [I] have no knowledge of any facts or information that would lead us [me] to believe that the assumptions in this paragraph are not justified. In rendering this opinion, we [I] have, with your approval, relied as to certain matters of fact set forth in the Mortgagor's Opinion Certification, the Good Standing Certificate(s) [and certain other specified Documents,] as set forth herein. After reasonable inquiry of the Mortgagor as to the accuracy and completeness of the Mortgagor's Opinion Certification, the Good Standing Certificate(s), [and such other Documents], we [I] have no knowledge of any facts or information that would lead us [me] to believe that such reliance is not justified. Based on the foregoing and subject to the assumptions and qualifications set forth in this letter, it is our [my] opinion that: {TO BE USED IN CASES WHERE ORGANIZATIONAL DOCUMENTS WERE PREPARED BY MORTGAGOR'S ATTORNEY} 1. The Mortgagor is a _____________ {INSERT TYPE OF ENTITY} duly organized and validly existing under the laws of the Organizational Jurisdiction. The Mortgagor is duly qualified to do business and, based solely on the Certificate(s) of Good Standing, copy attached hereto as Exhibit [___], is in good standing under the laws of the Organizational Jurisdiction, [and is qualified to do business as a foreign ___________ entity in the Property Jurisdiction.] {OR, IF THE MORTGAGOR IS A TRUST} 9 The Mortgagor is ______________________ {INSERT NAME OF THE TYPE OF TRUST} duly formed and validly existing under the laws of the Organizational Jurisdiction [, and is qualified to do business as a foreign ______________ entity in the Property Jurisdiction]. {AND, IF THE GENERAL PARTNER OF A PARTNERSHIP MORTGAGOR IS AN ENTITY} The general partner of the Mortgagor is a ______________________ {INSERT TYPE OF ENTITY}, duly organized, validly existing and, based solely on the Certificate(s) of Good Standing, copy attached hereto as Exhibit [___], in good standing under the laws of the Organizational Jurisdiction [and is qualified to do business as a foreign _________________ {INSERT TYPE OF ENTITY} in the Property Jurisdiction ]. {TO BE USED IN CASES, PRINCIPALLY REFINANCINGS, WHERE ORGANIZATIONAL DOCUMENTS WERE NOT PREPARED BY MORTGAGOR'S ATTORNEY} 1. Based solely on the Certificate(s) of Good Standing, copy attached hereto as Exhibit [___], the Mortgagor is a _____________ {INSERT TYPE OF ENTITY} validly existing under the laws of the Organizational Jurisdiction and in good standing under the laws of the Organizational Jurisdiction [and is qualified to do business as a foreign _____________ entity in the Property Jurisdiction]. {OR, IF THE MORTGAGOR IS A TRUST} The Mortgagor is ____________________________ {INSERT NAME OF THE TYPE OF TRUST} validly existing under the laws of the Organizational Jurisdiction [and is duly qualified to do business as a foreign _____________ entity in the Property Jurisdiction]. {AND, IF THE GENERAL PARTNER OF A PARTNERSHIP MORTGAGOR IS AN ENTITY} Based solely on the Good Standing Certificate(s), copy attached hereto as Exhibit [__], the general partner of the Mortgagor is a ________________ __________________ {INSERT TYPE OF ENTITY}, validly existing and in good standing under the laws of ____________________________ {INSERT STATE} [and is qualified to do business as a foreign _______________________ {INSERT TYPE OF ENTITY} in the Property Jurisdiction]. 2. The Mortgagor has the [corporate/partnership/trust] power and authority and possesses all necessary governmental certificates, permits, licenses, qualifications and approvals to own and operate the Property and to carry out all of the transactions required by the Loan Documents and to comply with 10 applicable federal statutes and regulations of HUD in effect on the date of the FHA Commitment. 3. The execution and delivery of the Loan Documents by or on behalf of the Mortgagor, and the consummation by the Mortgagor of the transactions contemplated thereby, and the performance by the Mortgagor of its obligations thereunder, have been duly and validly authorized by all necessary [corporate/partnership/trust] action by, or on behalf of, the Mortgagor. 4. No authorization, consent, approval, permit, or other action by, or filing with, any Organizational and Property Jurisdictions or federal court or governmental authority, other than those that have been obtained, as disclosed on Exhibit ___, attached hereto, and those listed at Paragraphs ___________ of this opinion [i.e. good standing certificate] are required in connection with the execution and delivery by the Mortgagor of the Loan Documents or the ownership [and operation] of the Property. 5. Each of the Loan Documents has been duly executed and delivered by the Mortgagor and constitutes the valid and legally binding promises or obligations of the Mortgagor, enforceable against the Mortgagor in accordance with its terms, subject to the following qualifications: (i) the effect of applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the rights of creditors generally; and (ii) the effect of the exercise of judicial discretion in accordance with general principles of equity (whether applied by a court of law or of equity); and (iii) certain remedies, waivers, and other provisions of the Loan Documents may not be enforceable, but, subject to the qualifications set forth in this paragraph at (i) and (ii) above, such unenforceability will not preclude (a) the enforcement of the obligation of the Mortgagor to make the payments as provided in the Mortgage and Note (and HUD's regulations), and (b) the foreclosure of the Mortgage upon the event of a breach thereunder. [6. {TO BE INSERTED WHEN ANY OR ALL OF THE LOAN DOCUMENTS ARE NOT HUD APPROVED FORMS OR WHEN HUD APPROVED FORMS HAVE BEEN REVISED OR MODIFIED IN CONNECTION WITH THE LOAN} The execution and delivery and receipt of, and the performance of the obligations under, the Loan Documents will not violate the Organizational Documents of the Mortgagor or the applicable statutes and regulations of HUD in effect on the date of the FHA Commitment.] 11 [7. {INSERT FOR LOANS INVOLVING CONSTRUCTION OR REHABILITATION} To our [my] knowledge there are no proposed change(s) of law, ordinance, or governmental regulation (proposed in a formal manner by elected or appointed officials) which, if enacted or promulgated after the commencement of construction/rehabilitation, would require a modification to the Project, and/or prevent the Project from being completed in accordance with the plans and specifications, dated____________, executed by, and referred to in the Construction Contract (the "Plans and Specifications").] [8. {INSERT IF THERE IS NO ZONING ENDORSEMENT INCORPORATED INTO THE TITLE POLICY} The attached Zoning Certificate states that the Property appears on the zoning maps of [Property jurisdiction] as being located in a __________________ zone. According to the zoning ordinance of the Property Jurisdiction, the use of the Property as a _____________________ is a permitted use in such zone. OR Based solely on the Zoning Certificate, the Property may be used for ______________________ as a permitted use.] [9. {USE FOR NEW CONSTRUCTION OR SUBSTANTIAL REHABILITATION IN CASES WHERE THE DEPARTMENT DOES NOT RECEIVE A CERTIFICATE DIRECTLY FROM THE PROFESSIONAL} Based solely on the Certificate, construction/rehabilitation of the Project in accordance with the Plans and Specifications will comply with all applicable land use and zoning requirements. {USE FOR REFINANCINGS} Based solely on the Certificate, the Project complies with all applicable land use and zoning requirements.] 10. Based solely on (a) our [my] knowledge and (b) the Mortgagor's Opinion Certification, the execution and delivery of the Loan Documents will not: (i) cause the Mortgagor to be in violation of, or constitute a default under the provisions of, any agreement to which the Mortgagor is a party or by which the Mortgagor is bound, (ii) conflict with, or result in the breach of, any court judgment, decree or order of any governmental body to which the Mortgagor is subject, or (iii) result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever on any of the property or assets of the Mortgagor, except as specifically contemplated by the Loan Documents. 11. Based solely on (a) our [my] knowledge, (b) the Mortgagor's Opinion Certification and (c) the Docket Search; there is no litigation or other claim pending before any court or administrative or other governmental body or threatened in 12 writing against the Mortgagor, or the Property, [{TO BE INSERTED WHEN MORTGAGOR IS NOT A SOLE-ASSET MORTGAGOR} or any other properties of the Mortgagor] [, except as identified on Exhibit ___]. 12. The Mortgage is in appropriate form for recordation in _________________ {INSERT PROPER NAME OF LOCAL LAND RECORDS OFFICE} of _____________________ {INSERT COUNTY OR CITY} of the Property Jurisdiction, and is sufficient, as to form, to create the encumbrance and security interest it purports to create in the Property. 13. Filing of the Financing Statements in the Filing Offices will perfect the security interest in the Personalty of the Mortgagor located in the Project Jurisdiction, but only to the extent that, under the Uniform Commercial Code in effect in the Project Jurisdiction, a security interest in each described item of Personalty can be perfected by filing. The Filing Offices are the only offices in which the Financing Statements are required to be filed in order to perfect the Mortgagee's security interest in the Personalty. 14. The Loan does not violate the usury laws or laws regulating the use or forbearance of money of the Property Jurisdiction. [15. {FOR USE ONLY IF MORTGAGOR IS A TRUST} The Mortgagor is an irrevocable trust that has a term consistent with HUD's requirements and the term of the irrevocable trust is not affected by the terms of any of the beneficiaries' interests.] [The laws of the Property Jurisdiction govern the interpretation and the enforcement of the Loan Documents notwithstanding that the Mortgagor may be formed in a jurisdiction other than the Property Jurisdiction. The Mortgagor can sue and be sued in the Property Jurisdiction without the necessity of joining any of the beneficiaries of the Mortgagor, including without limitation, a suit on the Note or a foreclosure proceeding arising under the Mortgage. Venue for any foreclosure proceeding under the Mortgage may be had in [Property jurisdiction]. [16. {USE IN CASES INVOLVING BOND FINANCING} Based solely on the opinion of __________________ {INSERT BOND COUNSEL}, dated as of the date hereof and attached hereto as Exhibit ___, to the extent that any of the provisions of the Bond Documents are inconsistent with any of the provisions of the Loan Documents or Supporting Documents, the provisions of the Loan Documents or Supporting Documents shall govern.] [17. {USE IN CASES WHERE THE DEVELOPMENT OF THE PROPERTY IS GOVERNED BY AN AGREEMENT WITH A PUBLIC ENTITY} Based upon our knowledge and the Mortgagor's Opinion Certification, there is no default under the Public Entity Agreement, and construction in 13 accordance with the Plans and Specifications and within the time frame specified in the Construction Contract will not lead to a default under the Public Entity Agreement.] In addition to the assumptions set forth above, the opinions set forth above are also subject to the following qualifications: (i) The Uniform Commercial Code of the Property Jurisdiction requires the periodic filing of continuation statements with _____________ [and ____________] not more than ______________ prior to and not later than the expiration of the _____ year period from the date of filing of the Financing Statements and the expiration of each subsequent ___ year period after the original filing, in order to maintain the perfection and priority of security interests and to keep the Financing Statements in effect. (ii) We express no opinion as to the laws of any jurisdiction other than the laws of the Property jurisdiction [and the Organizational Jurisdiction, if it is different,] and the laws of the United States of America. The opinions expressed above concern only the effect of the laws (excluding the principles of conflict of laws) of the Property Jurisdiction [and the Organizational Jurisdiction, if it is different] and the United States of America as currently in effect. We assume no obligation to supplement this opinion if any applicable laws change after the date of this opinion, or if we become aware of any facts that might change the opinions expressed above after the date of this opinion. We [I] confirm that: (a) based on the Organizational Documents, the name of the Mortgagor in each of the Documents and the Title Policy and FHA Commitment is the correct legal name of the Mortgagor; (b) the legal description of the Property is consistent in the Documents wherein it appears and in Appendix ___ hereto; (c) we [I] do not have any financial interest in the Project, the Property, or the Loan, other than fees for legal services performed by us, arrangements for the payment of which has been made; and we [I] agree not to assert a claim or lien against the Project, the Property, the Mortgagor, the Loan proceeds or income of the Project; (d) other than as counsel for the Mortgagor, we have no interest in the Mortgagor (or any principal thereof) or the Mortgagee or any other party involved in the Loan transaction and do not serve as [a director, officer or] [an] employee of the Mortgagor or the Mortgagee. We have no undisclosed interest in the subject matters of this opinion; 14 (e) based solely on the Surveyor's Certificate and the Surveyor's Plat, flood insurance [is OR is not] required pursuant to 42 U.S.C. 4012a(a); [{INSERT IF FLOOD INSURANCE IS REQUIRED} Based solely on the Flood Insurance Receipt, flood insurance is in effect which satisfies the requirements of 12 U.S.C. 4012a(a);] and (f) to our knowledge, there are no liens or encumbrances against the Property which are not reflected as exceptions to coverage in the Title Policy. The foregoing opinions are for the exclusive reliance of Mortgagee, its counsel and HUD; however, they may be made available for informational purposes to, but not for the reliance of, the assigns or transferees of Mortgagee, or prospective purchasers of the Loan. We [I] acknowledge that the making, or causing to be made, of a false statement of fact in this opinion letter and accompanying materials may lead to criminal prosecution or civil liability as provided pursuant to applicable law, which may include 18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802. Sincerely, _________________________ [Authorized Signature] To be used in FHA Insured Transactions FEBRUARY 18, 1994 EXHIBIT A TO OPINION OF MORTGAGOR'S COUNSEL CERTIFICATION OF MORTGAGOR This Certification of Mortgagor is made the ____________ day of _________________, 19__, by _________________________________, (the "Mortgagor") for reliance upon by ________________________________ (the "Mortgagor's Counsel") in connection with the issuance of an opinion letter dated of even date herewith (the "Opinion Letter") by ("Mortgagor's Counsel") as a condition for the provision of mortgage insurance by the Department of Housing and Urban Development ("HUD") of the $_______________ loan (the "Loan") from __________________ (the "Mortgagee") to Mortgagor. In connection with the Opinion Letter, the Mortgagor hereby certifies to Mortgagor's Counsel for its reliance, the truth, accuracy and completeness of the following matters: 1.The Organizational Documents are the only documents creating the Mortgagor or authorizing the Loan, and the Organizational Documents have not been amended or modified except as stated in the Opinion Letter. 2.The terms and conditions of the Loan as reflected in the Loan Documents have not been amended, modified or supplemented, directly or indirectly, by any other agreement or understanding of the parties or waiver of any of the material provisions of the Loan Documents. 3.All tangible personal property of the Mortgagor in which a security interest is granted under the Loan Documents [other than off-site construction materials and/or accounts or goods of a type normally used in more than one jurisdiction and/or additional collateral personalty] is located at the Property (as defined in the Opinion Letter) and the Mortgagor's [Chief Executive Office] [only place of business] [residence] is located in __________________________________________________________. 4.The execution and delivery of the Loan Documents will not (i) cause the Mortgagor to be in violation of, or constitute a material default under the provisions of any agreement to which the Mortgagor is a party or by which the Mortgagor is bound, (ii) conflict with, or result in the breach of, any court judgment, decree or order of any governmental body to which the Mortgagor is subject, and (iii) result in the creation or imposition of any lien, charge, or encumbrance of any nature whatsoever upon any of the property or assets of the Mortgagor, except as specifically contemplated by the Loan Documents. 5.There is no litigation or other claim pending before any court or administrative or other governmental body or threatened against the Mortgagor, the Property, or any other properties of the Mortgagor [except as identified on Exhibit [___], List of Litigation, in the Opinion Letter.] 6.There is no default under the Public Entity Agreement (as defined in the Opinion Letter) nor have events occurred which with the passage of time will result in a default under the Regulatory Agreement. NOTE: All capitalized terms not defined herein shall have the meanings set forth in the Opinion Letter. IN WITNESS WHEREOF, the Mortgagor has executed this Certification of Mortgagor effective as of the date set forth above. MORTGAGOR: ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ For use in FHA Insured Transactions FEBRUARY 18, 1994 DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FEDERAL HOUSING ADMINISTRATION INSTRUCTIONS TO GUIDE FOR OPINION OF MORTGAGOR'S COUNSEL EXPLANATORY COMMENTS The guide for this opinion has been prepared in view of changes in opinion practice as reflected by the ABA Accord and various state law bar reports on opinion letters. The Department regards the counsel to the Mortgagor as the crucial, central figure in the process of preparing and executing the legal and administrative documents necessary to achieve a closing where the mortgage note is endorsed for mortgage insurance by the Department. Pursuant to 24 CFR Part 24 24.105(p), attorneys or others in a business relationship with the Mortgagor are defined as "principals." Even though the Guide is quite different in form from its predecessor (FHA Form No. 1725), the substance is not intended to be substantially different and the revision does not in any fashion relieve the counsel to the Mortgagor of its obligations to its client, the Mortgagee and the Department. In part, these responsibilities entail the exercise of due diligence to assure the accurate and timely preparation, completion and submission of the forms required by the Department in connection with the transaction. Further, the counsel to the Mortgagor and any other attorneys involved in the transaction, should be thoroughly familiar with the regulations, procedures and directives of the Department pertaining to each mortgage insurance transaction in which counsel participates. The Department takes seriously the preparation and completion of the various documents involved in the mortgage insurance process (most of which are HUD form documents) and cannot overemphasize the importance of the following: "Warning: HUD will prosecute false claims and statements. Conviction may result in criminal and/or civil penalties. (18 U.S.C. 1001, 1010, 1012; 31 U.S.C. 3729, 3802)" With limited state law related exceptions, we expect that Mortgagor's counsel will be able to follow the guide in rendering an opinion and HUD field counsel should not accept opinions that otherwise substantially or materially deviate from the guide. Although we understand that attorneys and law firms may have evolved particular styles and forms of opinion, HUD field counsel do not have time to negotiate each and every opinion for stylistic changes and it is essential that the guide be followed in both style and substance in order to ensure a timely closing. The counsel to the Mortgagor is expected to complete a draft opinion for submission to HUD field counsel at least ten days prior to the closing along with the other closing documents. Any deviations should be specifically identified (blacklined or highlighted) and discussed with field counsel at that time. Any material deviation not required by State or local law must be brought to the attention of the Assistant General Counsel, Multifamily Mortgage Division, by field counsel along with an explanation as to the necessity for the deviation. It is anticipated that the guide can be utilized in connection with all types of closings: insured advances or insurance upon completion (for new construction or substantial rehabilitation); final closings (for refinancings, etc.). Therefore, it is crucial that the correct options be selected in instances where choices are provided. Brackets are used in the opinion letter to indicate alternate language, insertions, documents, or instructions depending on the applicable facts and underlining is used to indicate blanks that must be completed. The guide opinion contains some instructions and definitions and is largely self-explanatory; however, the following instructions and clarifications may be helpful. The numbers and letters used below relate to the paragraph numbers and letters in the guide opinion unless page numbers are specifically designated. Page 1 and Introductory Paragraph: o Letterhead and date: The opinion must be typed on the firm letterhead and dated the date of endorsement of the mortgage note by HUD. o Reference: Data regarding the project name, HUD project number, and location and the name or title of the Mortgagor must be accurate and inserted in the appropriate blanks. o Addressees: The opinion must be delivered to HUD as well as the Mortgagee making the loan to establish the explicit right of each to rely on the opinion. The Mortgagee's counsel may be relying on the opinion for certain aspects of its opinion. If so, the opinion must also be addressed to counsel to the Mortgagee. 2 o Description of the Loan: The loan amount is the original principal amount of the loan being insured unless a modification is necessitated in connection with the closing. o Source of funds for the Loan: In the second full sentence on page 2 the source of funds must be accurately identified. List of Documents: o In General: If there are no brackets around a particular document, the document is one which is commonly used for initial endorsements for insured advances completion cases; however, it should be emphasized that it is impossible to list every document for every insured loan. Further, no attempt has been made to list all documents utilized in all types of refinancings and certain specialized programs, e.g. certificates of need and licenses for health care programs. Conversely, some documents may not be utilized in a particular transaction and should be deleted from the list in the actual opinion. Brackets around the name of the document indicate that the document may or may not be used for every loan. If bracketed documents are not used in a particular loan transaction, then delete such documents from the list in the actual opinion. Each document executed in connection with the loan must be listed by its correct title, showing each party executing it and its date. If documents are dated "as of" a particular date, then such phrase should be included in the description in the text. It is imperative that care must be taken to compile a list that accurately and completely reflects the transaction in the submission to HUD of the initial draft. After HUD review of the initial draft, the opinion may have to be modified, as necessary, to satisfy HUD. All documents executed in connection with the loan transaction must be listed regardless of whether the document is required by HUD. The appropriate HUD or FHA form number, if applicable, must be indicated in parenthesis after each document. Please note that the Guide lists a four digit number after virtually all of the standard HUD documents. In many instances as these forms have been updated, the four digit number have been changed so that they are now preceded by a "9." However, HUD is in the process of changing to a standardized four digit number which should become effective in 1994. A.Organizational Documents: All of the Organizational Documents must be reviewed. 1. In addition to reviewing the Organizational Documents listed in the opinion, the following HUD guidelines should be followed in preparing or reviewing the following organizational documents. 3 a.Corporate mortgagor - any form of corporate charter or articles of incorporation may be used which: (1)contains nothing inconsistent with the Regulatory Agreement, (2)gives the Mortgagor the powers necessary to operate the project and execute the note and mortgage, and (3)specifically authorizes the execution of the Regulatory Agreement. Suggested charter provisions to accomplish the above are: Purposes (a) to create a private corporation to construct or to acquire a [rental housing project or health care facility] and to operate the same; (b) to enable the financing of the construction of such [rental housing project or health care facility] with the assistance of mortgage insurance under the National Housing Act; (c) to enter into, perform, and carry out contracts of any kind necessary to, or in connection with, or incidental to, the accomplishment of the purposes of the corporation, including, expressly, any contract or contracts with the Secretary of Housing and Urban Development which may be desirable or necessary to comply with the requirements of the National Housing Act, as amended, and the Regulations of the Secretary thereunder, relating to the regulation or restriction of mortgagors as to rents, sales, charges, capital structure, rate of return and methods of operation; (d) to acquire any property, real or personal, in fee or under lease, or any rights therein or appurtenant thereto, necessary for the construction and operation of [the rental housing project or health care facility]; and (e) to borrow money, and issue evidence of indebtedness, and to secure the same by mortgage, deed of trust, pledge, or other lien in furtherance of any or all of the objects of its business in connection with the [rental housing project or health care facility]. Powers The corporation shall have the power to do and 4 perform all things whatsoever set out in the PURPOSES section, and necessary or incidental to the accomplishment of said purposes. The corporation, specifically and particularly, shall have the power and authority to enter into a Regulatory Agreement with the Secretary of Housing and Urban Development setting out the requirements of the Department. b.Partnership Mortgagor - A copy of the partnership agreement should be furnished and should be examined to determine that it contains nothing inconsistent with the Regulatory Agreement and that the term of the partnership equals or exceeds the term of the Mortgage Loan. It should further contain a provision substantially as follows: The partnership is authorized to execute a note and mortgage in order to secure a loan to be insured by the Secretary of Housing and Urban Development and to execute a Regulatory Agreement and other documents required by the Secretary in connection with such loan. Any incoming general partner shall as a condition of receiving an interest in the partnership agree to be bound by the note, mortgage, and Regulatory Agreement and other documents required in connection with the FHA insured loan to the same extent and on the same terms as the other general partners. Upon any dissolution, no title or right to possession and control of the project, and no right to collect the rents therefrom shall pass to any person who is not bound by the Regulatory Agreement in a manner satisfactory to the Secretary. c.Trust - any Trust Agreement before it is finally accepted generally should: (1)Give the trustee the powers necessary to execute the note and mortgage; (2)specifically authorize the execution of the Regulatory Agreement; (3)contain nothing inconsistent with the Regulatory Agreement; (4)prohibit the transfer of beneficial interest prior to completion of the project without the prior 5 written consent of the Secretary and prohibit the transfer of such interest subsequent to completion of the project unless the new beneficiary assumes and agrees to be bound by the Regulatory Agreement; and (5)require that the Secretary be advised ten (10) days prior to any proposed transfers of beneficial interests. G.The HUD field counsel have not been consistent in requiring HUD to be named in the Financing Statements as a secured party or as its interests may appear; consequently, the requirement that HUD be so named is now being standardized. This should be clarified through appropriate language in the Security Agreement. The purpose is to clarify that, under certain circumstances, HUD may assert some rights in the personalty arising under the Regulatory Agreement which would precede an assignment of the mortgage. This is desirable in the event HUD exercises some of its remedies under the Regulatory Agreement in cases where the mortgage has not been assigned to HUD. It will not be necessary for HUD to consent to every UCC termination, renewal, assignment, etc. until HUD's rights as a secured party are established. HUD is being named "as its interests appear" so that, for example, where HUD obtains a court order, HUD will be able to establish a paramount interest in the Project income stream, and other personalty pursuant to the Regulatory Agreement. Q.UCC searches: The UCC Search can be conducted by either the title insurance company, a reputable document search firm, the counsel to the Mortgagor or any other attorney licensed in the jurisdiction. T.Evidence of zoning compliance: The evidence of zoning compliance will vary depending on the circumstances. The evidence should establish that the building, if constructed according to plans and circumstances, will comply with all zoning requirements. The evidence may be in the form of a letter or certificate from the appropriate local official stating that, if the building is constructed according to the plans and specifications submitted for review, the building will comply with all zoning requirements. In refinancing cases where no construction is involved, the evidence may be in the form of a letter certifying that the existing building(s) is (are) in compliance with outstanding zoning requirements or, if not, the nonconforming variance, etc., is acceptable. If the locality has no zoning ordinance, a letter should be submitted from the chief executive stating such. In those circumstances, it may be 6 necessary to obtain a letter from the local planning body of the county in which the project is located, that the proposed development is compatible with the county's comprehensive plan. If the zoning approval is based upon a variance or other special action, the closing may have to be delayed until the time for appeals has run. In extremely complex cases, an opinion may need to be obtained from legal counsel specializing in local zoning matters. Such letter must be attached as an exhibit and referenced in the appropriate paragraphs of the Opinion. W.Survey: The survey must be signed, sealed and dated within 90 days of the closing. LL.Bond Documents: This does not include all documents involved in the typical bond financing. It does include those principal documents such as the Prospectus, the Indenture, a sample Bond, etc. Moreover, all documents executed by the Mortgagor or which establish or describe any obligations of the Mortgagor must be included. OO.Docket search: The Docket Search can be conducted by either the title insurance company, a reputable document search firm, the counsel to the Mortgagor or any other attorney licensed in the jurisdiction. Opinions: 1.This paragraph contains several options depending upon whether the Mortgagor's organizational documents were prepared by counsel rendering the opinion and the type of mortgagor entity. Care should be taken to ensure that the correct option is selected and that the requisite information is inserted correctly. It is intended that, where the mortgagor entity or general partner of the mortgagor entity is established by counsel to the Mortgagor, no reliance on other sources is permitted and counsel must opine as to the due organization of the Mortgagor. If a Certificate of Good Standing is not available in the State, but an equivalent document is (i.e., Certificate of Existence), then the bracketed language must be revised to reflect the name/title of the equivalent document so obtained. Any Certificate of Good Standing or equivalent document issued by the applicable governmental authority must be dated no more than 30 days prior to the date of the opinion of Mortgagor's counsel. If a Certificate of Good Standing or equivalent document cannot be obtained from the applicable governmental authority (e.g., for general partnerships, then the Mortgagor's attorney will be required to do the due diligence necessary to give the opinion or may engage other counsel to render such opinion). If the 7 Property jurisdiction is not the State of formation for the mortgagor entity, counsel must also opine that the Mortgagor is qualified to transact business in the Property jurisdiction. Such opinion may be made solely on the basis of a certificate from the applicable governmental authorities of the Property jurisdiction, and if counsel is relying on such certificate(s), then the opinion must expressly identify those certificate(s) and they must be attached to the opinion as an exhibit. If the Mortgagor is an individual, paragraph one should be deleted from the opinion. 13.If any UCC Financing Statements have been filed on the Personalty in conjunction with any transaction other than the Loan, they must be identified to the HUD field counsel as well as details with respect to how such Financing Statements will be terminated at the time of closings. 11.If the Mortgagor or any principal of the Mortgagor is involved in any litigation, all such litigation matter(s) must be disclosed in writing to HUD field counsel in order that the Department can determine whether the endorsement of the loan is possible. If the litigation involves HUD's compliance with civil rights requirements, it must immediately be brought to the attention of appropriate Fair Housing and Equal Opportunity personnel. As an example, it is not uncommon for neighbors of a proposed site for a group home for persons with disabilities to harbor discriminatory attitudes toward persons with disabilities and to sue to attempt to block the establishment or operation of a group home. 13.If the property is an elderly housing project or a health care facility or if the loan otherwise is to be secured by significant amounts of personal property, the matter should be discussed with field counsel. In the event further discussion is necessary, field counsel should contact the Assistant General Counsel, Multifamily Mortgage Division. For projects in which the personalty is mostly household appliances (e.g., refrigerators) or a limited quantity of smaller equipment, the opinion will be limited as shown. One or more UCC searches performed not more than 30 days prior to the date of the opinion of Mortgagor's counsel must be made and retained by the field counsel in the loan file. 15.If the Mortgagor is a trust (other than a land trust), then Paragraph 15 must be included in the opinion letter. The second sentence need only be included if the trust was formed in a jurisdiction other than the Property jurisdiction. 8 Acceptability of Counsel: oMortgagor's counsel must opine as to the law of the Property jurisdiction and the state of Mortgagor's organization, if different from the Property jurisdiction. HUD requires that Mortgagor's counsel be admitted to practice law in each jurisdiction in which such admission is required by the laws or ethical considerations of the bar to be able to give the opinion. If multiple jurisdictions are involved, two opinions may be required: one with respect to the organization of the Mortgagor and another with respect to the real property and loan issues. A combination of the Mortgagor's regular counsel and special local counsel may be required to satisfy this requirement. If counsel's satisfaction of these requirements is not evident from the letterhead of the firm, the field counsel should include a written explanation in the Washington docket. In all events, each provision in the Guide must be addressed whether one or more opinions is required to do so. Signatures: oThe opinion may be signed by an authorized person of the law firm, in that person's name. Mortgagor's Certification: oA form of Mortgagor's Certification is attached. The form represents the minimum amount of information that should be obtained from the Mortgagor (but additions, revisions and rephrasings are acceptable so long as the Mortgagor is certifying as to factual matters and not legal conclusions). The Mortgagor's Certification must be dated the same date as the Loan Documents. 9