Important HUD 232 Program Developments (SNF/AL)

Section 232 HUD loans, which help nursing and assisted living facilities finance or refinance the facility purchase or cover the costs of new construction or the substantial rehabilitation of a project, are the subject of a recent legal opinion from the Office of General Counsel (OGC) within HUD.  

Historically, after a HUD loan closes, a facility has been allowed to use the loan proceeds to cover closing expenses (including existing debt, closing costs and legal fees), critical facility repairs (such as life safety issues) and certain non-critical/elective repairs. However, the recent OGC opinion directs the Office of Residential Care Facilities and the Office of Healthcare Programs to reinterpret this approach. Specifically, the opinion challenges the eligibility of non-critical repairs claiming that they conflict with statutory language in the National Housing Act.

If this legal opinion stands, LTC operators may face significant challenges in funding capital projects, potentially leading to delays or cancellations of much-needed facility upgrades. 

Temporary Good News: Following outreach from AHCA and other stakeholders, HUD declared they will temporarily proceed with business as usual. That means, for the time being, non-critical repairs can continue to be included in all deals, whether they have existing commitments, are in HUD underwriting, are in queue or are potential applications in process with lenders. Future loans will also be unaffected until the regulations are officially changed.

Webinar with More Information: AHCA/NCAL is hosting a webinar, “HUD’s 232 Program-Updates in Production and Asset Management,” on September 17 at 2 p.m. This webinar is open to members and non-members. There is no charge for participation.