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Senior Living: HUD 232 Program as an Alternative to Traditional Bond Financing

Senior living providers long have considered the bond market to be a primary vehicle for financing. However, not all transactions are a good fit for tax-exempt bonds. State law issuer considerations, transaction and borrower size, and equity contribution requirements are a few factors that may make a public bond issue unfeasible.

The U.S. Department of Housing and Urban Development (HUD)/Federal Housing Administration’s (FHA) Section 232 program (used for skilled nursing and assisted living facilities) may provide a more user friendly alternative.

What is a Section 232 Loan?

HUD/FHA provides mortgage insurance on loans that cover residential care facilities. Known as Section 232 loans, these loans help finance nursing homes, assisted living facilities, and board and care facilities. FHA mortgage insurance provides lenders with protection against losses as the result of borrowers defaulting on their mortgage loans. Proposed projects are evaluated on the basis of whether the proposal is an acceptable insurance risk for the FHA Insurance Fund. It is not a competitive process.

An Alternative to Bond Financing

Section 232 may be used to finance the purchase, refinance, new construction, or substantial rehabilitation of a project. A combination of these uses is acceptable - e.g. refinance of a nursing home coupled with new construction of an assisted living facility.

The Section 232 program has various parameters and limits that will apply to borrowers—namely, limits on the amount of loan amounts (which will vary depending on whether the borrower is a for-profit or not-for-profit entity); loan term; and prepayment options.

As borrowers consider financing and refinancing senior living facilities, the Section 232 program may provide a reasonable alternative to traditional bond financing.

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About this Author

Heidi H. Jeffery, Foley Lardner, Municipal Finance Transaction Lawyer, private activity bond Attorney
Partner

Heidi H. Jeffery is a partner and business lawyer with Foley & Lardner LLP. Ms. Jeffery has experience in general municipal, private activity bond, housing, student loan, health care and senior living finance. In such transactions, she has served as bond counsel and counsel to developers, underwriters, credit enhancers, issuers and borrowers. Ms. Jeffery is a member and former vice chair of the firm’s Senior Living Team. She is also a member of the firm’s Finance & Financial Institutions, Health Care Finance, and Public Finance Practices and the Health Care...

312-832-4518
RobNederhood, business lawyer
Senior Counsel

Robert Nederhood is a senior counsel and business lawyer with Foley & Lardner LLP where he focuses his practice on mergers and acquisitions, and represents public and private companies in connection with transactions, corporate restructurings, and commercial contracting. He also has experience representing both debtors and purchasers in connection with the sale of companies in bankruptcy, and assists clients with a variety of Michigan state government matters.

313-234-7154