N.Y. Private Housing Finance Law § 23-a: Mortgage modifications, evidence of pre-existing indebtedness

§ 23-a. Mortgage modifications, evidence of pre-existing indebtedness.

1. Notwithstanding the provision of any law, general or special, the

supervising agency shall have the power to:

(i) assign or pledge or contract to assign or pledge any mortgage

securing a loan, including any loan to finance the construction of a

project, and any note or bond evidencing indebtedness thereon, made by

the municipality in accordance with the provisions of this article, and

any contract or arrangement, including any subsidy contract or

arrangement, relating to such mortgage, and the receipts to be derived

from any of the foregoing, and may reacquire or accept and contract to

reacquire or accept any such mortgage, note, bond, contract or

arrangement, including any mortgage, note, bond, contract or arrangement

made in substitution thereof, and the receipts to be derived therefrom,

or

(ii) consent to and contract for the modification of any of the terms

of a mortgage, and note or bond secured thereby, made pursuant to

section twenty-three of this chapter for the purpose of obtaining

insurance of such mortgage loan by the federal government in order to

refinance all or any part of the indebtedness evidenced by such mortgage

and note or bond, or

(iii) satisfy such mortgage in order to enable the company to obtain

insurance by the federal government of a mortgage loan made for the

purpose of refinancing all or any part of the indebtedness evidenced by

such mortgage and note or bond.

2. In the event that the existing mortgage loan is satisfied pursuant

to this section, the supervising agency may in consideration of the

issuance of such satisfaction accept a new mortgage and note or bond

insured by the federal government in an amount equal to the maximum

principal amount of a mortgage loan the federal government will insure

or accept the proceeds available to the housing company as a result of

the refinancing.

3. In the event that there is residual indebtedness, the housing

company shall make and the supervising agency shall accept such

instruments evidencing such indebtedness as may be required by the

supervising agency as are consistent with the provisions of subdivision

fifteen of section twelve of this chapter, in such form and upon such

terms as the supervising agency may approve. In the event that there are

residual receipts obligations, the housing company may make and the

supervising agency may accept instruments evidencing such obligations in

accordance with the provisions of subdivision sixteen of section twelve

of this chapter.

4. Notwithstanding any other provisions of this article or any

general, special or local law, where the supervising agency has made the

findings required in subdivision one of section twenty-six or section

twenty-six-a and where a project has been approved pursuant to

subdivision five of section twenty-six of this chapter, the supervising

agency may make or contract to make a mortgage loan or exercise other

related powers pursuant to this section or section twenty-three-b or

subdivision twenty-two-a of section six hundred fifty-four of this

chapter without further findings by the supervising agency or further

approval by the local legislative body.

4-a. Notwithstanding the provisions of this article or any general,

special or local law to the contrary, where an existing mortgage loan is

modified or satisfied pursuant to this section and the supervising

agency has approved a new or modified mortgage or mortgages, including a

mortgage and note or bond insured by the federal government and a

mortgage to secure residual indebtedness, the supervising agency may

sell, assign, or otherwise dispose of, at public or private sale, on

such terms and conditions as shall be deemed appropriate by the

supervising agency subject to the approval of the comptroller or chief

fiscal officer of the municipality wherein such agency is located, such

new or modified mortgage or mortgages and related instruments.

4-b. Notwithstanding the provisions of this article or any general,

special or local law to the contrary, where an existing mortgage loan is

modified or satisfied pursuant to this section, the supervising agency

may pay or incur fees, costs, expenses and other amounts, whether or not

any amounts have been appropriated therefor in order to (1) meet a

municipality's obligations under an agreement with the federal

government on account of mortgage insurance, provided that a

municipality's share of any mortgage insurance claim paid by the federal

government shall not exceed fifty percent of the insurance benefits paid

by the federal government, and further provided that a municipality's

share of such claims under any contract or contracts entered into

between a municipality and the federal government shall not exceed five

percent of the outstanding principal amount of all mortgages of the

municipality at any time insured by the federal government and included

within such contract, (2) make loans for, or establish escrow accounts

for the issuance of mortgage insurance, (3) absorb discounts associated

with any sale, assignment or other disposition of a mortgage note or

bond insured by the federal government, (4) pay fees required by the

federal government as a condition for the issuance of mortgage

insurance, (5) install such life safety devices and satisfy such minimum

property standards, as may be required by the federal government which

devices or standards are in addition to any requirement imposed by the

municipality as mortgagee and to make loans for such purposes, (6) pay

closing and other costs related to obtaining mortgage insurance from the

federal government, (7) permit the municipality to issue obligations

secured by such mortgage or mortgages, (8) meet such other costs as the

federal government may from time to time impose, (9) pay any amounts not

previously advanced under a mortgage or mortgages modified or satisfied

pursuant to this section, and (10) hold an amount not to exceed twenty

million dollars at any one time in a revolving account for a period not

to exceed eighteen months from the time of the first deposit therein, to

pay fees, costs, expenses and other amounts attributable to making and

insuring mortgages pursuant to this section or attributable to issuing

obligations secured by such mortgages. If the municipality sells any

such mortgages insured by the federal government for an amount in excess

of the principal amount thereof at the time of such sale, or if the

municipality issues obligations secured by any such mortgages and the

yield on such mortgages is greater than the yield on such obligations

(the yield on such mortgages and obligations having been calculated in

accordance with section one hundred three of the internal revenue code

of the United States and regulations thereunder), then any such premium

and any such differential may be used by the municipality for any lawful

purpose, provided, however, that an amount equal to the annual sum of

such premium and such differential, to the extent such differential is

not paid to or for the benefit of the holders of such obligations, shall

be credited annually by the municipality, at such times as determined by

the supervising agency, as a payment by all municipally-aided projects

then having residual indebtedness, of the then accrued and unpaid

interest on such residual indebtedness. To the extent that any such

credit otherwise allocable to a project in any year exceeds unpaid

interest on the residual indebtedness of such project in that year, such

excess credit shall be allocated among all other eligible projects

having accrued and unpaid interest on residual indebtedness in that

year. Notwithstanding the provisions of the foregoing sentence of this

subdivision, if an eligible project has made cash payments in any year

for the sum of (i) interest on and principal of a federally insured

mortgage and (ii) interest on and principal of residual indebtedness and

(iii) all other payments on account of such insured mortgage, including

mortgage insurance premium and reserves, at least equal to the sum of

(i) interest and principal which would have been due annually on the

original mortgage loan for the project, at the interest rate in effect

at the time the project is refinanced, and (ii) all other required

annual payments on account of such original mortgage loan, such as

reserve requirements, then any excess credit allocable to such eligible

project shall be credited in the next succeeding year as a payment of

interest on residual indebtedness of such project before any cash

payment is required to be made for such interest. Subject to the

provisions of the preceding sentence of this subdivision, if the total

of such credit in any year available for all eligible projects exceeds

the total of all accrued and unpaid interest in that year on residual

indebtedness of all eligible projects then having residual indebtedness,

an amount equal to such excess credit shall be carried forward and

credited in future years as a payment of accrued and unpaid interest on

residual indebtedness of eligible projects in future years until such

time as no further interest remains unpaid with respect to any residual

indebtedness of eligible projects. The supervising agency shall divide

such credit among eligible projects on the basis of the respective

original principal amounts of the federally insured mortgages on

eligible projects; provided, however, that such credit shall be

allocated to projects which receive federal subsidies only to the extent

that such subsidies are not thereby reduced. When there is a

participation, new loan or investment pursuant to section twenty-three-b

of this article for which the consent of a company is required and which

will be substantially equivalent to a refinancing pursuant to section

twenty-three-a or subdivision twenty-two-a of section six hundred

fifty-four of this article, then for purposes of this subdivision the

interest of the municipality after such participation, new loan or

investment which is secured by a mortgage shall be deemed to be the

equivalent of residual indebtedness and the interest of entities or

organizations other than the municipality in such participation, new

loan or investment shall be deemed to be the equivalent of a federally

insured mortgage.

5. No company shall accept a mortgage loan to be insured by the

federal government made for the purpose of refinancing the existing

mortgage loan of a company which shall exceed the amount which can be

supported by the income derived from the operation of the project at the

rental rate determined by the supervising agency that would be necessary

to meet all necessary payments to be made by the company, of all

expenses including fixed charges, sinking funds, reserves and dividends

on outstanding stock, as authorized by the supervising agency, if the

principal amount of the original mortgage loan of the company were to be

fully repaid over the term of such mortgage loan by constant and equal

payments of principal and interest and if the interest rate on the

company's original mortgage loan was eight and one-half percent per

annum or, where the original mortgage loan provides for the payment of

interest at a maximum rate of less than eight and one-half percent per

annum, such maximum amount.

6. A company shall not accept a mortgage to be insured by the federal

government for the purpose of refinancing an existing mortgage loan of a

municipally-aided project unless the sum of interest and principal

payable in respect of such mortgage to be insured by the federal

government and in respect of any residual indebtedness, over the term of

such mortgage and residual indebtedness, shall be no more than the sum

of interest and principal that would be payable in respect of the

existing mortgage loan, over the term of such existing mortgage loan, at

an interest rate of eight and one-half percent per annum or where the

existing mortgage loan provides for a maximum interest rate of less than

eight and one-half percent, at such maximum interest rate.

7. The terms of any mortgage securing residual indebtedness of a

municipally-aided project shall include a provision to the effect that

so long as the project is subject to a mortgage insured or held by the

federal government (a) interest on and principal of such mortgage

securing residual indebtedness shall be payable only if and to the

extent to which surplus cash, as defined in a regulatory agreement

excecuted by the housing company and the federal government, is

available, and (b) the failure to pay interest and principal on such

mortgage securing residual indebtedness shall not constitute an event of

default unless surplus cash is available and not applied to such

payments of interest and principal.

8. Ten days before an initial application is filed with the federal

government to obtain insurance by the federal government of a mortgage

for the purpose of refinancing all or any part of a mortgage loan for a

municipally-aided project pursuant to section twenty-three-a or

subdivision twenty-two-a of section six hundred fifty-four of this

chapter, the supervising agency shall (a) mail to the president or other

representative of the tenants' association or cooperators' advisory

council, recognized by the supervising agency for such municipally-aided

project, written notice of the proposed refinancing, including a copy of

such initial application, and (b) make a copy of such initial

application available at its offices during business hours, for

inspection and copying by the residents of such municipally-aided

project. Ten days before the closing of a proposed participation, new

loan or investment with respect to a municipally-aided project pursuant

to section twenty-three-b of this article, the supervising agency shall

(a) mail to the president or other representative of the tenants'

association or cooperators' advisory council, recognized by the

supervising agency for such municipally-aided project, written notice of

such proposed participation, new loan or investment, including a summary

of the principal terms and conditions thereof, and (b) make a copy of

such summary available at its offices during business hours, for

inspection and copying by the residents of such municipally-aided

project. The unintentional failure of the supervising agency to comply

with the foregoing provisions of this subdivision shall not invalidate

or otherwise affect any such refinancing of a mortgage loan or any such

participation, new loan or investment.