New Lean Two Year Debt Rule

Project debt that is less than 24 months old will need to be investigated and must meet the definition of “Eligible Debt” below (See Section Below) if it is to be used in the calculation of the cost to refinance. No investigation is needed on project debt that is at least 24 months old prior to using it in the calculation of the cost to refinance,provided the identity of interest described in the next sentence is not present,provided the identity of interest described in the next sentence is not present.

Definition of Eligible Debt: Project debt that meets any of the below definitions, may be included in the cost to refinance – there is no seasoning required.

1. Outstanding mortgage(s) incurred in connection with the construction or purchase of the project, or with capital improvements made to the property as confirmed by the current mortgagee – provided it can be demonstrated that there was no cash out to the mortgagor of the proposed FHA Insured loan or its principals. However, if the debt was incurred as a result of an identity of interest ** purchase, the debt is not considered eligible debt and must meet the seasoning requirements described herein. Furthermore, if the debt was incurred as a result of buying out a partner, the debt is not considered eligible debt and must meet the seasoning requirements above.

2. Other recorded indebtedness such as mechanic's liens and tax liens provided they did not result from personal obligations of the mortgagor.

3. Unrecorded debt directly connected with the project supported by documentation from the mortgagor. If the indebtedness is not recorded, the mortgagor must provide the Lender with documentation that substantially verifies that the obligation is directly connected to the project. Examples include:

a. Indebtedness incurred in making needed improvements and betterments to the property.

b. Indebtedness incurred or advances made to cover operating deficits.

4. Other eligible costs associated with paying off the eligible debt. Examples are:

a. Reasonable delinquent and accrued interest,

b. Reasonable prepayment penalties on the mortgage,

c. Recording, release, and re-conveyance fees,

d. Documentation or processing fees,