Application for Hospital Project Mortgage Insurance/Section 242

Agreement and
Certification
For use in Insurance of Advances Cases

This Agreement made this

U.S. Department of Housing
and Urban Development
Office of Housing
Federal Housing Commissioner

day of
,a

, by and between the
*(hereinafter called Mortgagor),

and
,
a
corporation (hereinafter called Mortgagee), and the Secretary of
Housing and Urban Development, acting by and through the Federal Housing Commissioner (hereinafter called Commissioner);
Whereas, Mortgagor has applied to Mortgagee for a mortgage loan for the purpose of erecting a housing project to be located at
and identified as HUD Project No.
; and the Mortgagee has applied to the Commissioner for insurance
of said mortgage loan under Section
of the National Housing Act; and
Whereas, the Commissioner has issued a commitment to insure said mortgage loan in the amount of $
,
subject to reduction of said amount as provided in the National Housing Act and the Regulations promulgated pursuant thereto; and
Whereas, under the provisions of the National Housing Act and the Regulations promulgated pursuant thereto, this agreement is
required;
Now therefore this agreement witnesseth:
1. That in consideration of the agreement by the Mortgagee to
make, and of the Commissioner to insure, said loan, Mortgagor
agrees to submit to the Commissioner prior to the receipt of the
final advance under the mortgage, and within the period fixed
in the building loan agreement for completion of the project or
any extension of such period approved in writing by the
Commissioner, a fully completed and executed Mortgagor's
Certificate of Actual Cost and, if required, a fully completed
and executed Contractor's Certificate of Actual Cost on forms
prescribed by the Commissioner and/or the HUD form for
Contractor's, Subcontractor's and Mortgagor's Certifications.
The Mortgagor understands and agrees that each of the certificates of cost shall be supported by the certificate of an independent public accountant in form acceptable to the Commissioner.
2. The Mortgagor and Mortgagee agree that the total advances of
mortgage monies shall not exceed the amount permitted by the
National Housing Act and the Regulations promulgated pursuant thereto.
3. The Mortgagor agrees that if it receives from the Mortgagee
monies in excess of that permitted under the National Housing
Act and the Regulations promulgated pursuant thereto, it will
pay upon demand forthwith to the Mortgagee any such excess
for application to the reduction of the then outstanding principal balance of the mortgage. Mortgagee agrees that upon its
receipt of such excess the contract of mortgage insurance is
reduced by the amount of such excess.
The Mortgagor further agrees that if the Commissioner, for
cost certification purposes, accepts estimates for any items, the
Mortgagor will, at final endorsement, establish a cash escrow
to pay all the “to be paid in cash items” identified in its
Certification of Actual Cost and debts to third parties who
made the original disbursement for an item listed as paid on the
Mortgagor’s Certification of Actual Cost, unless documentation, satisfactory to the Commissioner, is submitted evidencing
that these amounts were paid by the Mortgagor after the
submission of its Certification of Actual Cost. The Mortgagor

understands that the items covered by this cash escrow must be
paid within 45 days of the date of final endorsement, except for
those items in dispute or involved in litigation. If the
Mortgagor’s actual cost was less than the estimates accepted
for cost certification purposes and the Commissioner determines that this difference plus the net amount (total receipts
less expenses of perfecting claims) of settlement of claims
against bonding companies would have required a reduction of
the insured mortgage, the Mortgagor understands that prepayment of the mortgage in an amount equal to the scheduled
monthly principal payments, to the extent possible, is required
and any remaining balance shall be deposited to the Reserve
Fund for Replacements.
4. Mortgagor certifies that the financial interests or family relationships which exist between Mortgagor or any of its officers,
directors, stockholders with the Architect and with the General
Contractor, subcontractors, suppliers, or equipment lessors
are:
(Please complete page three stating the name, title,
interest, and relationship.) (If none, so state).
5. Mortgagor agrees to notify the Commissioner, in writing, of
any changes in relationship subsequent to the execution of this
agreement which results in an identity of interest of the Mortgagor with the General Contractor or any subcontractor, supplier, or equipment lessor within 10 working days from the date
the change occurred, in which case the Mortgagor's certification of actual cost will be accompanied by the Contractor's
certification of actual cost in form prescribed by the Commissioner and, if required by the Commissioner, certification of
actual cost by such subcontractor, supplier, or equipment
lessor. It is agreed that the absence of such notice may be
treated by the Commissioner as a representation that no change
in relationship has occurred which creates any such identity of
interest.
6. Mortgagor agrees to maintain and keep adequate records of all
costs referred to in (1) above, and to make such records
available for examination by the Commissioner upon request.

* Insert type of mortgagor, e.g. “Individual”, “Partnership”, “(State) Corporation”
Previous editions are obsolete

Page 1 of 3

form HUD-3305 (8/97)
ref Handbook 4470.1

7. Mortgagor agrees that, where this agreement and certification
reveals any identity of interest between the Mortgagor and the
General Contractor, the Mortgagor will include in the contract
for the performance of the construction of the project a
provision requiring the General Contractor, upon completion
of the project, to submit to Mortgagor for delivery to the
Commissioner its certificate of all actual costs of labor and
materials and necessary services as required by paragraph (1)
hereof. Mortgagor further agrees to include in the construction
contract the requirement that the Contractor shall maintain
adequate records of all such costs, and make such records,
documents, contracts and accounts available for review upon
request by the Federal Housing Commissioner.
8. Mortgagor agrees that it will require in the general contract
and in all agreements with subcontractors (which term for the
purposes of this paragraph shall also include material suppliers and equipment lessors) a provision that if there is, or comes
into being, any identity of interest between the Mortgagor and
any Subcontractor, or (in those cases where the General
Contractor is required to certify his actual costs) between the
General Contractor and any Subcontractor, then (a) such
Subcontractor will agree to submit to the Commissioner (unless specifically waived in writing by the Commissioner) a
certificate of the actual cost of providing the material and/or
services after deduction of all kickbacks, rebates, adjustments,
discounts, or any other arrangements in the nature thereof, and
(b) such Subcontractor will join in the execution and submission of the HUD form for Contractor's, Subcontractor's and
Mortgagor's Certifications. The Subcontractor's certificates of
actual cost will be supported by the certification of an independent Certified Public Accountant in a form acceptable to the
Commissioner. For purposes of determining actual cost, no
profit or general overhead may be included in the subcontract
unless the Commissioner has in advance granted approval in
writing of the subcontract and has approved a specific dollar
amount or a specific percentage for profit and/or general
overhead.
9. Mortgagor agrees that if there comes into being any identity of
interest between the Mortgagor and the Architect or between
the General Contractor and the Architect, the Architect will
immediately be relieved of inspection duties and the maximum Architect's fees allowable for cost certification purposes
will be $ _____________________________ * for design
services only. No fees will be allowed to the identity of interest
Architect for supervision.
10. For those cases which include a Builder's and Sponsor's Profit
and Risk Allowance (Sections 220, 221(d)(3) and (4), 231, and
236), the Mortgagor and General Contractor agree that:
(a) If there is any identity of interest between the Mortgagor
and the General Contractor, the construction contract will
be on a cost plus fee basis with a maximum upset price,
provided, however, that in lieu of the contractor's fee, the
Mortgagor shall be entitled to include in its certificate of
actual cost an allowance for Builder's and Sponsor's profit
and risk. The allowance for Builder's and Sponsor's profit
and risk shall be determined by applying the profit and risk

percentage, provided for in Section 227 of the National
Housing Act and the Regulations adopted pursuant thereto
and which was in effect on the date the Commitment was
issued, to the actual cost, as accepted by the Commissioner, of those items which, under the provisions of the
National Housing Act, shall be included in computing the
allowance. Mortgagor further agrees that for the purpose of
determining actual cost, no general overhead expense in
excess of $ ___________________________ * will be
allowed by the Commissioner as actual cost.
(b) In the event there is no identity of interest between the
Mortgagor and the General Contractor, the Builder's and
Sponsor's profit and risk allowance provided for in paragraph 10.(a) herein shall not be applicable, but the Mortgagor shall be entitled to include in its certificate of actual
cost a Sponsor's profit and risk allowance which shall be
determined by applying the profit and risk percentage,
provided for in Section 227 of the National Housing Act
and the Regulations adopted pursuant thereto and which
was in effect on the date the Commitment was issued, to the
actual cost, as accepted by the Commissioner, of those
items which, under the provisions of the National Housing
Act, shall be included in computing the allowance. (The
National Housing Act specifically excludes, among other
items, the amount of the construction contract in computing the allowance.)
(c) If there is any identity of interest between the Mortgagor
and the General Contractor and more than 50 percent of the
actual cost of construction is subcontracted with any one
contractor, or subcontractor, or more than 75 percent with
three or less contractors or subcontractors, the Builder's
and Sponsor's profit and risk allowance provided for in
paragraph 10.(a) herein shall not be permitted as an actual
cost and the Mortgagor shall be limited to the inclusion of
the Sponsor's profit and risk allowance, provided for in
paragraph 10.(b) herein, on its certificate of actual cost.
11. For those cases which do not include a Builder’s and Sponsor’s
Profit and Risk Allowance, the Mortgagor and General Contractor agree that the construction contract will be on a cost
plus fee basis with a maximum upset price if there is any
identity of interest between the General Contractor, or under
any other circumstances where the Commissioner requires the
use of such a contract, and that for the purpose of determining
the actual cost of physical improvements on the mortgaged
property, the allowance for the Contractor’s fee shall not
exceed $ ____________________ * and the general overhead
expense shall not exceed $ ______________________ *;
provided, however, that in the event more than 50 percent of
the actual cost of construction is subcontracted with any one
contractor or subcontractor, or more than 75 percent with three
or less contractors or subcontractors, the Contractor’s fee
provided for herein shall not be allowed as an actual cost.
12. The Mortgagor and General Contractor agree that for the
purpose of paragraphs 10.(c) and 11: (i) the terms contractor
and subcontractor include material suppliers and equipment
lessors, and (ii) any two or more contractors or subcontractors

*Enter amounts from appropriate items on HUD-92264.
Previous editions are obsolete

Page 2 of 3

form HUD-3305 (8/97)
ref Handbook 4470.1

having an identity of interest or common ownership shall be
considered as one contractor or subcontractor. It is understood
that the 50-75 percent rule is not applicable to manufacturers
of industrialized housing, trade items performed by persons on
the general contractor’s payroll, mobile home park program,
supplemental loan program, or rehabilitation programs other
than gut rehabilitation.
13. Mortgagor further agrees that if there comes into being an
identity of interest between the Mortgagor and General Contractor following the execution by the parties of a lump sum
contract, the allowable costs to the Mortgagor of the construction contract and profit and risk allowance shall be determined
in accordance with the applicable provisions of paragraphs
10.(a) through 10.(c) or 11 and 12 herein.

14. The Mortgagor agrees to submit with this form signed duplicate copies of any collateral agreement(s) and/or side deal
agreement(s) executed by the Mortgagor or any principals of
the Mortgagor evidencing any secured or unsecured borrowing made in association with the construction of the project.
The Mortgagor further agrees to obtain the approval of the
Commissioner before entering into any such agreement after
executing this form.
15. The foregoing agreements and certifications by the Mortgagor, Mortgagee, and General Contractor are made and
delivered for the purpose of influencing an official action of
the Federal Housing Commissioner and are to be relied upon
by the Commissioner as true.

In Witness Whereof the parties hereto have duly executed this agreement the day and year first above written.
Identity of Interest
(from paragraph four -- must be completed on each individual entity)

Name __________________________________________________________________________________________________________________________________________

Title ____________________________________________________________________________________________________________________________________________

Address _________________________________________________________________________________________________________________________________________

Relationship tp Mortgagor __________________________________________________________________________________________________________________________

Interest (financial, in-kind service, etc.) ________________________________________________________________________________________________________________
Specify _________________________________________________________________________________________________________________________________________

Attach separate sheets if necessary.

Attest:

(Mortgagor)

By

(General Contractor)

By

(Mortgagee)

By

Secretary of Housing and Urban Development
Acting by and Through the
Federal Housing Commissioner

Previous editions are obsolete

By (Authorized Agent)

Page 3 of 3

form HUD-3305 (8/97)
ref Handbook 4470.1