1. (a) Loan Closing. In preparation for closing any Direct Loan the Development Owner must submit the items described in paragraphs (1) - (10) of this subsection:

   1. (1) documentation of the prior or reasonable assurance of a concurrent closing with any superior lien holders or any other sources of funds determined to be necessary for the long-term financial feasibility of the Development and all due diligence determined by the Department to be prudent and necessary to meet the Department's rules and to secure the interests of the Department. Where the Department will have a first lien position and the Applicant provides documentation that closing on other sources is reasonably expected to occur within three (3) months, the Executive Director may approve a closing to move forward without the closing on other sources. The Executive Director may require a personal guarantee from a Principal of the Development Owner for the interim period;
   2. (2) when Department funds have a first lien position, assurance of completion of the Development in the form of payment and performance bonds in the full amount of the construction contract will be required or equivalent guarantee in the sole determination of the Department. Such assurance of completion will run to the Department as obligee. Development Owners also utilizing the USDA §515 program are exempt from this requirement but must meet the alternative requirements set forth by USDA;
   3. (3) Owner/General Contractor agreement and Owner/architect agreement;
   4. (4) survey of the Property that includes a certification to the Department, Development Owner, Title Company, and other lenders;
   5. (5) if layered with Competitive Housing Tax Credits, a fully executed limited partnership agreement between the General Partner and the tax credit investor entity (may be provided concurrent with closing);
   6. (6) a budget that includes the amount of Development funds specifying the acquisition cost, construction costs, developer fees, other soft costs and Match to be provided. The sources of funds used to finance the Development must be submitted. If the budget or sources of funds reflect material changes from what was approved by the Board that may affect the financial feasibility of the Development, the Department may request additional documentation to ensure that the Development continues to meet the requirements of Subchapter D of this chapter (relating to Underwriting and Loan Policy);
   7. (7) if required for the Direct Loan, prior to closing, the Development Owner must have received verification of environmental clearance;
   8. (8) verification of HUD Site and Neighborhood clearance;
   9. (9) documentation necessary to show compliance with the Uniform Relocation Act and any other relocation requirements that may apply; and
   10. (10) any other documentation that is necessary or prudent to meet program requirements or state or federal law in the sole determination of the Department.
2. (b) Loan Documents. The Development Owner is required to execute all loan closing documents required by and in form and substance acceptable to the Legal Division including but not limited to a promissory note, deed of trust, construction loan agreement, LURA, and assignment and security instruments whereby the Developer, the Development Owner, and/or any Affiliate grants the Department any rights, liens, charges, security interests, ownership interests, mortgages, pledges, hypothecations, or other rights, legally or beneficially, collaterally or directly, to provide for the protection of the Department against any failure to adhere to the program's requirements. The construction loan agreement shall provide for a construction or development period of eighteen (18) months from the actual date of loan closing at which point the permanent loan repayment period will begin. An extension of the construction or development period of not more than six (6) months may be approved for good cause by the Executive Director or designee at any time during the construction or development period. Extensions longer than six (6) months or requests other than during the construction or development period may only be approved by the Board for good cause.

3. (c) Disbursement of Funds (including developer fees). The Development Owner must comply with the requirements in paragraphs (1) - (9) of this subsection for a request for disbursement of funds to reimburse eligible costs incurred. Submission of documentation related to the Development Owner's compliance with these requirements may be required with a request for disbursement:

   1. (1) except for disbursements for acquisition and closing costs, a down-date endorsement to the title policy not older than the date of the last disbursement of funds or forty-five (45) calendar days, whichever is later. For release of retainage the down-date endorsement must be dated at least thirty (30) calendar days after the date of the construction completion;
   2. (2) for hard construction costs, documentation of the total construction costs incurred and costs incurred since the last disbursement of funds must be submitted. Such documentation must be signed by the General Contractor and certified by the Development architect and is generally in the form of an AIA Form G702 or G703;
   3. (3) the Department may require that sufficient funds be held back from initial disbursement to allow for periodic disbursements as may be necessary to meet federal requirements;
   4. (4) if applicable, up to 90 percent of Development funds may be drawn before providing evidence of Match. Thereafter, each Development Owner must provide evidence of Match, including the date of provision, prior to release of the final 10 percent of funds. If funds are utilized for acquisition costs, a contract between the Development Owner and the Person providing the Match which specifies the terms of the Match provision may be accepted;

   5. (5) Developer fee disbursement shall be conditioned upon:

      1. (A) for Developments in which the loan is secured by a first lien deed of trust against the Property, 75 percent shall be disbursed in accordance with percent of construction completed (i.e. 75 percent of the total allowable fee will be multiplied by the percent completion) as documented by the construction contract and as may be verified by an inspection by the Department. The remaining 25 percent shall be disbursed at the time of release of retainage; or
      2. (B) for Developments in which the loan is not secured by a first lien deed of trust or the Development is also utilizing Housing Tax Credits, developer fees will not be reimbursed by the Department unless the other lenders and syndicator confirm in writing that they do not have an existing or planned agreement to govern the disbursement of developer fees and expect that Department funds shall be used to fund developer fees. Provided this requirement is met, developer fees shall be reimbursed in the same manner as described in subparagraph (A) of this paragraph; and
      3. (C) the Department may reasonably withhold any disbursement of developer fees if it is determined that the Development is not progressing as necessary to meet Contract benchmarks or that cost overruns may put the Department's funds or completion within budget at risk. Once a reasonable alternative that is deemed acceptable by the Department has been provided, disbursement of the remaining fee may occur;
   6. (6) expenditures must be allowable and reasonable in accordance with federal, state, and local rules and regulations. The Department shall determine the reasonableness of each expenditure requested. The Department may request the Development Owner make modifications to the disbursement request and is authorized to modify the disbursement procedures set forth herein and to establish such additional requirements for payment of Department funds to Development Owner as may be necessary or advisable for compliance with all program requirements;
   7. (7) table funding requests must be submitted to the Department with complete documentation no later than ten (10) business days prior to the anticipated loan closing date. Such a request must generally include a draft settlement statement, title company payee identification information, the Development Owner's authorization for disbursement of funds to the title company, request letter from title company to the Texas Comptroller with bank account wiring instructions, and invoices for soft costs being paid at closing;

   8. (8) include the withholding of 10 percent of the construction contract for retainage. Retainage will be held until at least thirty (30) calendar days after all of the items described in subparagraphs (A) - (D) of this paragraph are received:

      1. (A) completion of construction;
      2. (B) a final inspection, after which receipt, a clearance is issued by the Department;
      3. (C) labor standards final wage compliance report;
      4. (D) receipt of certificates of occupancy for New Construction or a certification of completion from the Development architect for Rehabilitation; and
   9. (9) for final disbursement requests, the Development Owner must submit documentation required for Development completion reports which may include documentation of full compliance with the Uniform Relocation Act and any other applicable relocation requirements.

Source Note:The provisions of this §10.403 adopted to be effective January 8, 2013, 38 TexReg 70.