N.J. Admin. Code § 5:80-5.10

Current through Register Vol. 56, No. 9, May 6, 2024

Section 5:80-5.10 - Prepayment

(a) Prepayment of the mortgage loan made by the Agency is prohibited, except as permitted in (b) below.

(b) Prepayment of the Agency mortgage loan will be permitted, with the prior written approval of the Agency's Executive Director, Deputy Executive Director, Chief Financial Officer, or Chief of Legal and Regulatory Affairs, provided all of the following conditions are met:

1. Sponsors of projects may prepay the mortgage at any time following the 15-year period following the date of the mortgage closing. However, any such prepayment shall be conditioned upon the housing sponsor's agreement that: the Agency policies on tax, insurance, and repair and replacement reserves; the provisions of N.J.S.A. 55:14K-7b; and the statutory provisions at N.J.S.A. 55:14K-1et seq., and the corresponding rules under this chapter regarding tenant income eligibility, tenant selection, rent increases, certification/recertification of income, affirmative fair housing marketing, transfer of ownership interests, and return on equity (except as modified by (b)7 below) shall continue to be applicable in their entirety to the sponsor, project and tenants residing therein until the original expiration date of the original mortgage loan. Such prepayment shall also be conditioned upon the agreement of the sponsor to pay the servicing fees and charges currently being paid by the sponsor under the mortgage documents, through the remainder of the original mortgage term, in order to cover the administrative costs of the Agency in monitoring the statutory and regulatory controls that will continue to apply to the project. The Agency may require housing sponsors to execute a deed restriction or other appropriate agreement upon prepayment whereby the sponsor acknowledges the continuing statutory and regulatory control of the Agency and its obligation to pay fees and charges determined by the Agency.

2. Any repairs or improvements pursuant to N.J.A.C. 5:80-5.4(d) must be made prior to prepayment or an amount sufficient to fund such repairs or improvements must be paid into an Agency-controlled escrow account or Agency-approved construction funding account upon prepayment.

3. All fees and charges due the Agency must be paid prior to prepayment.

4. All supplemental financing on the project provided by the Agency or other State agency must be prepaid, unless prohibited by the terms of that supplemental financing or by (c) below or any other applicable law or regulation.

5. After prepayment, in implementing the provisions of N.J.S.A. 55:14K-7.b, the Agency will require the following:

i. Submission of an annual budget;

ii. Submission of annual audited financial statements;

iii. Annual physical inspections conducted by the Agency.

6. The Agency reserves the right to implement any of the additional provisions of N.J.S.A. 55:14K-7b, if determined by the Agency to be needed to preserve the financial viability of the project or its status as a low-and moderate-income project, to maintain the physical condition of the project or to help ensure the safety and well-being of the tenants residing at the project.

7. After prepayment, return on equity rules at N.J.A.C. 5:80-3 shall continue until the expiration of the original mortgage term or until the owner funds an operating reserve account, whichever is sooner. Upon funding of an operating reserve account, return on equity rules shall terminate. The operating reserve shall be equal to three months of operating expenses (for senior citizen projects) or six months of operating expenses (for family projects), which includes debt service and reserve payments. The three/six months of operating expenses shall be calculated based on the Agency-approved annual budget. Once established, interest earned on a fully-funded operating reserve account may be withdrawn by the owner upon written request to and verification by the Agency that the account is fully-funded. If the operating reserve is thereafter used, return on equity rules shall be reinstituted until the operating reserve is again fully-funded. The determination of a fully-funded operating account after its initial establishment shall be based on the Agency-approved budget in effect at the time the project first established the operating reserve account.

8. Additional mortgage financing placed on the project upon prepayment, or otherwise during the Agency's continued statutory and regulatory oversight period pursuant to (b)1 above, shall be subject to Agency staff's prior determination of continued project financial feasibility throughout the remainder of such period.

(c) Notwithstanding (b) above, prepayment shall not be approved or permitted in cases that would:

1. Cause the Agency to be in default under its obligations to the bondholders of the bonds issued to finance the project;

2. Jeopardize the continuing tax exempt status of the bonds; or

3 . Reduce or terminate subsidies to the project such as HUD Section 8 or Section 236, unless a reduction or termination is imposed by HUD or other issuing authority and results in a renewal of the subsidy or in a new subsidy to the project that will be sufficient to maintain the financial viability of the project through the end of the original mortgage term.

(d) Upon prepayment of the Agency mortgage as provided in (b) above, the Agency will endorse the mortgage for cancellation so the Sponsor may cancel it of record. In addition, upon prepayment, the statutory and regulatory controls of the Agency at 55:14K-1 et seq. and this chapter shall terminate for the Housing Sponsor and project, except for those preserved by (b)1 above. The termination of the Agency's statutory and regulatory controls shall not affect the requirements, restrictions and obligations of Housing Sponsors as mandated by N.J.S.A. 55:16-1 et seq. or any other applicable statute under which the corporate entity of the Housing Sponsor was created.

(e) The provisions of this section regarding prepayment shall not apply to projects financed under the Agency's New Jersey Urban Multi-Family Production Program (JUMPP).

(f) The provisions of this section that impose conditions on prepayment regarding Agency policies on the insurance and repair and replacement reserves, the provisions of N.J.S.A. 55:14K-7b, and the regulations on transfer of ownership interests and return on equity shall not be applicable to projects financed between October 15, 1990 and January 17, 1995.

(g) All prepayment requests shall be accompanied by a non-refundable processing fee of $ 5,000 payable to the Agency, except that such prepayment processing fee shall not be applicable where the prepayment is to occur simultaneously with a transfer of ownership necessitating a full review as set forth in this subchapter.

N.J. Admin. Code § 5:80-5.10

Amended by 51 N.J.R. 1420(a), effective 9/3/2019