Are HUD 232 Loans Non-Recourse?
If a loan is non-recourse, it means that a lender cannot go after a borrower's personal assets if they default on the loan. Instead, they can only attempt to repossess the loan collateral-- which, in multifamily real estate loans, is typically a piece of property. Fortunately for borrowers, HUD 232
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If a loan is non-recourse, a lender cannot go after a borrower's personal assets if they default on the loan. Instead, they can only attempt to repossess the loan collateral. In multifamily real estate loans, this is typically a piece of property.
Fortunately for borrowers, HUD 232 loans are fully non-recourse. This means that their personal property is usually safe, even if they face a significant financial setback that leads them to default on the loan for their skilled nursing, assisted living, or memory care facility.
However, this doesn't mean that a HUD 232 borrower can do anything and get away with it. Just like most other non-recourse loans, HUD 232 loans have "bad boy" carve-out provisions. This means that, if a borrower is shown to be engaging in fraud or engages in other bad acts (sometimes including 'intentional' bankruptcy), the loan will become full-recourse. In that case, the borrower can go after the borrower's personal assets in order to recoup their losses.
Related Questions
What is a HUD 232 loan?
A HUD 232 loan is a loan program that insures lenders against mortgage defaults. It covers the construction and rehabilitation of facilities for elderly individuals requiring medical care or other long-term care, as well as the purchasing and refinancing of senior-focused healthcare properties. A HUD-Held Loan is a loan that is held by the Department of Housing and Urban Development (HUD). To learn more about HUD 232 loans, fill out the form below to speak to a HUD/FHA loan expert.
Who Can Take Out a HUD 232 Loan?
Terms, Qualifications, and Guidelines
What is a HUD-Held Loan?
Get A Free HUD/FHA Multifamily Loan Quote!What are the benefits of a HUD 232 loan?
HUD 232 portfolio loans have a variety of benefits for large-scale owners of senior properties, including:
- HUD 232 refinancing of multiple properties can greatly increase cash flow, potentially giving developers the capital to purchase or construct new assets
- HUD fixed-rate financing allows large companies to stabilize expenses and make accurate financial projections well into the future
- Low, fixed interest rates
- Loans are fully assumable (with FHA/HUD approval)
- HUD 232 loans are non-recourse, limiting risks for developers
- For purchase and refinancing, HUD offers up to a 35-year loan term and amortization. Over the life of the loan, this saves the borrowers a good deal of money and frees up cash for other expenditures.
- For new construction of healthcare facilities, only HUD offers only a 40-year, fixed-rate, non-recourse loan program.
- Loans are low interest, fixed-rate, non-recourse, fully assumable with no balloon payments.
- This program has one of the highest LTVs (loan-to-value ratio) available.
- There are no financial capacity requirements, no geographic restrictions, and no minimum population requirements.
- This assisted living financing program allows for repair and improvement funds.
- HUD 232 allows supplemental financing.
What are the requirements for a HUD 232 loan?
In order to take out a HUD 232 or HUD 232/223(f) loan, a borrower must typically have experience successfully operating one or more facilities of the same kind that they intend to build or purchase. In addition, a borrower must also be structured as a single asset, special purpose entity (SPE). Eligible borrowers may either be a for-profit or a non-profit entity.
In order to be eligible for HUD 232 financing, properties need to meet a variety of eligibility requirements, including offering continuous care, being appropriately licensed, and having at least 20 patients.
HUD’s detailed requirements for insurance on Section 232 loans are found in Chapter 14 of the Healthcare Mortgage Insurance Program Handbook (4232.1).
Are HUD 232 loans non-recourse?
Yes, HUD 232 loans are non-recourse. This means that their personal property is usually safe, even if they face a significant financial setback that leads them to default on the loan for their skilled nursing, assisted living, or memory care facility. However, this doesn't mean that a HUD 232 borrower can do anything and get away with it. Just like most other non-recourse loans, HUD 232 loans have "bad boy" carve-out provisions. This means that, if a borrower is shown to be engaging in fraud or engages in other bad acts (sometimes including 'intentional' bankruptcy), the loan will become full-recourse. In that case, the lender can go after the borrower's personal assets in order to recoup their losses.
Source: www.hud232.loan/hud-232-glossary/non-recourse-loans
What are the terms of a HUD 232 loan?
HUD 232 loans have terms including:
- Loan Size: $2 million ($7.6 million average loan size)
- Loan Term: 40 years
- Leverage:
- New Construction:
- Skilled Nursing:/Independent Living:
- For profit: 75% LTV
- Non-profit: 80% LTV
- Assisted Living:
- For profit: 75% LTV
- Non-profit: 80% LTV
- Skilled Nursing:/Independent Living:
- Purchase:
- For profit: 75% LTV
- Non-profit: 80% LTV
- Substantial Rehabilitation*:
- For profit: 75% LTV
- Non-profit: 80% LTV
- Borrower owned properties: 100% of existing mortgage debt or 90% pre-rehab market value (95% for non-profits)
- Purchase/substantial rehabilitation properties: 85% of purchase price or 90% pre-rehab market value (95% for non-profits)
- New Construction:
- DSCR: 1.45x minimum DSCR
*For substantial rehabilitation, the hard cost of the rehabilitation needs to be more than 15% of the project's post-rehab value, or, alternatively, two or more major building systems (i.e. plumbing or roofing) must be replaced.