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Transfer-Physical Assets

Change in Property Ownership

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A full Transfer of Physical Assets (TPA) is a property sales transaction involving the assumption of a HUD-insured loan. Transactions which do not involve a complete change in ownership may be eligible for a Modified TPA. Transactions involving Section 8, HAP Contracts and/or Preservation or other use agreements may have additional considerations (see below).

An Assignment or Assumption of Housing Assistance Payments (HAP) Contract is required when the property being sold is subject to a HAP contract, with or without mortgage insurance. The HAP rents are set by a variety of factors, so it's important to understand how the rents may change from year to year before purchasing a property. Section 8 Contract Renewals and rent increase procedures are outlined in the Section 8 Contract Renewal Policy Guide. The renewal guide is consistently being updated.

Certain HUD properties also have "Use Agreements" which must be assumed by a purchaser. These agreements may also limit rents, so it's important to understand these before agreeing to a sales price. Each "Use Agreement" is unique, so it's important to read these thoroughly to understand which provisions will remain in effect. Transactions involving "Preservation Use Agreements" will have additional considerations.

Modified Transfer of Physical Assets (TPA)

Change in Property Ownership

When the transaction does not involve a complete change in ownership, the Modified TPA Review must be used. These transactions may include:

  • Single transfer of in excess of 50 percent of the interest of a partnership/mortgagor which does not cause a dissolution of the existing partnership/mortgagor under state law

  • Substitution of one or more of the general partners

  • Single transfer of an amount in excess of 50 percent of the corporate stock of the corporate mortgagor or a single transfer of an amount less than 50 percent of the total corporate stock of the corporate mortgagor where such transfer results in a change in control of the corporate mortgagor

  • An assignment/transfer of a portion of or all of the beneficial interest in a passive trust when there is no change in control of the project

  • Single transfer of an amount in excess of 50 percent of the corporate stock of corporate General Partner or a single transfer of an amount less than 50 percent of the corporate stock of a corporate General Partner

  • Any transaction which does not fall within any of the other categories but which, nevertheless, results in a change of control of the mortgagor.

Additional documentation may be required if there are physical, management, financial or other issues at the property, or if secondary financing is involved.

If the transfer involves 50 percent or more of the corporate entity, corporate General Partner, Partnership or Beneficial trust, the applicant must also provide:

  1. A letter addressing HUD Determinative Criteria. (Required for Full & Modified TPAs)

  2. Copies of any proposed amendments to the existing partnership agreement and/or additional financing documents.

  3. An attorney's opinion that the transfer does not cause dissolution of the partnership under applicable state law, if the applicant is a partnership.

If the transfer involves substitution or addition of one or more general partners the applicant must provide:

  • A resume of the incoming general partners

If the transfer involves less than 50 percent of the corporate stock, which results in a change in control of the corporate mortgagor or corporate general partner, the stock purchaser (s) must meet with HUD staff to discuss:
 

  1. The project's physical and financial condition. If the project is suffering physical, management or financial deficiencies, a plan for remedying the deficiencies will be discussed. All parties will agree to a target date for delivery of a written plan for correcting all physical and financial problems.

  2. The duties of the owner (stockholders) under the Regulatory Agreement and the mortgage documents.

A Capital Needs Assessment (CNA) and full Reserve for Replacement Analysis (R4R) to identify the remaining useful life of building components and the amount needed in the R4R account. This analysis is often forgotten.

I am not an attorney, but can provide consultation on preparing HUD TPAs . You can realize a savings by using my services and just use your attorney to prepare legal documents  Contact me  by phone 301-277-3465 or by email at alvinl.sutherlin@verizon.net and we can discuss the status of your project.

Date Updated: 12/02/2017 04:34:53 AM