§ 1715r. — Requirement of builder's cost certification; definitions.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1715r]
TITLE 12--BANKS AND BANKING
CHAPTER 13--NATIONAL HOUSING
SUBCHAPTER II--MORTGAGE INSURANCE
Sec. 1715r. Requirement of builder's cost certification;
definitions
Notwithstanding any other provision of this chapter, no mortgage
covering new or rehabilitated multifamily housing or a property or
project described in subchapter IX-B of this chapter shall be insured
under this chapter unless the mortgagor has agreed (a) to certify, upon
completion of the physical improvements on the mortgaged property or
project and prior to final endorsement of the mortgage, either (i) that
the approved percentage of actual cost (as those terms are herein
defined) equaled or exceeded the proceeds of the mortgage loan or (ii)
the amount by which the proceeds of the mortgage loan exceeded such
approved percentage of actual cost, as the case may be, and (b) to pay
forthwith to the mortgagee, for application to the reduction of the
principal obligation of such mortgage, the amount, if any, certified to
be in excess of such approved percentage of actual cost. Upon the
Secretary's approval of the mortgagor's certification as required
hereunder, such certification shall be final and incontestable, except
for fraud or material misrepresentation on the part of the mortgagor. As
used in this section--
(a) The term ``new or rehabilitated multifamily housing'' means a
project or property approved for mortgage insurance prior to the
construction or the repair and rehabilitation involved and covered by a
mortgage insured or to be insured (i) under section 1713 of this title,
(ii) under section 1715e of this title with respect to any property or
project of a corporation or trust of the character described in
paragraph (1) of subsection (a) of section 1715e of this title or with
respect to any property or project of a mortgagor of the character
described in paragraph (3) of subsection (a) thereof, (iii) under
section 1715k of this title if the mortgage meets the requirements of
paragraph (3)(B) of subsection (d) thereof, (iv) under section 1715l of
this title if the mortgage meets the requirements of paragraph (3) or
paragraph (4) of subsection (d) thereof, (v) under section 1715v of this
title, (vi) under section 1715x of this title if the mortgage meets the
requirements of subsection (b), (vii) under section 1748h-2 of this
title if the mortgage meets the requirements of subsection (f), (viii)
under section 1715y(d) of this title, or (ix) under section 1715z-1 of
this title;
(b) The term ``approved percentage'' means the percentage figure
which, under applicable provisions of this chapter, the Secretary is
authorized to apply to his estimate of value, cost, or replacement
costs, as the case may be, of the property or project in determining the
maximum insurable mortgage amount; except that if the mortgage is to
assist the financing of repair or rehabilitation and no part of the
proceeds will be used to finance the purchase of the land or structure
involved, the approved percentage shall be 100 per centum; and
(c) The term ``actual cost'' has the following meaning: (i) in case
the mortgage is to assist the financing of new construction, the term
means the actual cost to the mortgagor of such construction, including
amounts paid for labor, materials, construction contracts, off-site
public utilities, streets, organizational and legal expenses, such
allocations of general overhead items as are acceptable to the
Secretary, and other items of expense approved by the Secretary, plus
(1) a reasonable allowance for builder's profit if the mortgagor is also
the builder as defined by the Secretary, and (2) an amount equal to the
Secretary's estimate of the fair market value of any land (prior to the
construction of the improvements built as a part of the project) in the
property or project owned by the mortgagor in fee (or, in case the land
in the property or project is held by the mortgagor under a leasehold or
other interest less than a fee, such amount as the mortgagor paid for
the acquisition of such leasehold or other interest but, in no event, in
excess of the fair market value of such leasehold or other interest
exclusive of the proposed improvements), but excluding the amount of any
kickbacks, rebates, or trade discounts received in connection with the
construction of the improvements, or (ii) in case the mortgage is to
assist the financing of repair or rehabilitation the terms means the
actual cost to the mortgagor of such repair or rehabilitation, including
the amounts paid for labor, materials, construction contracts, off-site
public utilities, streets, organization and legal expenses, such
allocations of general overhead items as are acceptable to the
Secretary, and other items of expense approved by the Secretary, plus
(1) a reasonable allowance for builder's profit if the mortgagor is also
the builder as defined by the Secretary, and (2) an additional amount
equal to (A) in case the land and improvements are to be acquired by the
mortgagor and the purchase price thereof is to be financed with part of
the proceeds of the mortgage, the purchase price of such land and
improvements prior to such repair or rehabilitation, or (B) in case the
land and improvements are owned by the mortgagor subject to an
outstanding indebtedness to be refinanced with part of the proceeds of
the mortgage, the amount of such outstanding indebtedness secured by
such land and improvements, but excluding (for the purposes of this
clause (ii)) the amount of any kickbacks, rebates, or trade discounts
received in connection with the construction of the improvements:
Provided, That such additional amount under (A) of this clause (ii)
shall in no event exceed the Secretary's estimate of the fair market
value of such land and improvements prior to such repair or
rehabilitation, and such additional amount under (B) of this clause (ii)
shall in no event exceed the approved percentage of the Secretary's
estimate of the fair market value of such land and improvements prior to
such repair or rehabilitation. In the case of a mortgage insured under
section 1715k, 1715l(d)(3), 1715l(d)(4), 1715v, 1715x, or 1715z-1 of
this title where the mortgagor is also the builder as defined by the
Secretary, there shall be included in the actual cost, in lieu of the
allowance for builder's profit under clause (i) or (ii) of the preceding
sentence, an allowance for builder's and sponsor's profit and risk of 10
per centum (unless the Secretary, after finding that such allowance is
unreasonable, shall by regulation prescribe a lesser percentage) of all
other items entering into the term ``actual cost'' except land or
amounts paid for a leasehold and amounts included under either (A) or
(B) of clause (ii) of the preceding sentence. In the case of a mortgage
insured under section 1715k, 1715l(d)(3), 1715l(d)(4), 1715v, 1715x, or
1715z-1 of this title, where the mortgagor is not also the builder as
defined by the Secretary, there shall be included in the actual cost an
allowance for sponsor's profit and risk of the said 10 per centum or
lesser percentage of all other items entering into the term ``actual
cost'' except land or amounts paid for a leasehold, amounts included
under either (A) or (B) of the said clause (ii), and amounts paid by the
mortgagor under a general construction contract.
(June 27, 1934, ch. 847, title II, Sec. 227, as added Aug. 2, 1954, ch.
649, title I, Sec. 126, 68 Stat. 607; amended Aug. 11, 1955, ch. 783,
title I, Sec. 102(i), 69 Stat. 636; Aug. 7, 1956, ch. 1029, title I,
Secs. 105(d), 109, 70 Stat. 1094, 1095; Pub. L. 86-372, title I,
Sec. 112, Sept. 23, 1959, 73 Stat. 661; Pub. L. 87-70, title VI,
Sec. 612(k), June 30, 1961, 75 Stat. 183; Pub. L. 88-560, title I,
Sec. 119(c), Sept. 2, 1964, 78 Stat. 782; Pub. L. 89-754, title V,
Sec. 502(b), title X, Sec. 1020(b), Nov. 3, 1966, 80 Stat. 1277, 1295;
Pub. L. 90-19, Sec. 1(a)(3), (4), May 25, 1967, 81 Stat. 17; Pub. L. 90-
448, title II, Sec. 201(b)(2), (3), Aug. 1, 1968, 82 Stat. 502.)
Amendments
1968--Subsec. (a). Pub. L. 90-448, Sec. 201(b)(2), included
mortgages insured or to be insured under section 1715z-1 of this title.
Subsec. (c). Pub. L. 90-448, Sec. 201(b)(3), substituted ``section
1715x, or 1715z-1 of this title'' for ``section 1715x(b)(2) of this
title'', in two places.
1967--Pub. L. 90-19 substituted ``Secretary'' for ``Commissioner''
in subsecs. (b) and (c), and ``Secretary's'' for ``Commissioner's'' in
text preceding subsec. (a) and in subsec. (c).
1966--Pub. L. 89-754, Sec. 502(b), made the certification
requirement applicable to mortgage covering property or project
described in subchapter IX-B of this chapter.
Subsec. (a). Pub. L. 89-754, Sec. 1020(b), substituted ``subsection
(b)'' for ``subsection (b)(2)'' in cl. (vi).
1964--Subsec. (a). Pub. L. 88-560 included mortgages insured or to
be insured under section 1715y(d) of this title.
1961--Subsec. (a). Pub. L. 87-70, Sec. 612(k)(1), included property
covered by a mortgage insured or to be insured under section 1715x of
this title if the mortgage meets the requirements of subsection (b)(2).
Subsec. (b). Pub. L. 87-70, Sec. 612(k)(2), substituted ``value,
cost, or replacement cost'' for ``value or replacement cost''.
Subsec. (c). Pub. L. 87-70, Sec. 612(k)(3), substituted ``section
1715l(d)(3), 1715l(d)(4), 1715v, or 1715x(b)(2) of this title'' for
``section 1715l of this title if the mortgage meets the requirements of
paragraph (4) of subsection (d) thereof, or section 1715v of this
title'' in second and third sentences.
1959--Subsec. (a). Pub. L. 86-372, Sec. 112(a), included mortgages
insured or to be insured under subsec. (d)(4) of section 1715l of this
title, under section 1715v of this title, and under section 1748h-2 of
this title, and struck out provisions which related to mortgages insured
or to be insured under sections 1748b, 1750b and 1750g of this title.
Subsec. (c). Pub. L. 86-372, Sec. 112(b), substituted ``under
section 1715k of this title, section 1715l of this title if the mortgage
meets the requirements of paragraph (4) of subsection (d) thereof, or
section 1715v of this title'' for ``under section 1715k of this title''
in two places.
1956--Act Aug. 7, 1956, Sec. 109, inserted sentence preceding
subsec. (a), that upon Commissioner's approval, certification shall be
final and incontestable, except for fraud or misrepresentation by
mortgagor.
Subsec. (a). Act Aug. 7, 1956, Sec. 105(d), inserted ``or with
respect to any property or project of a mortgagor of the character
described in paragraph (3) of subsection (a) of section 1715e of this
title,'' before ``(iii)''.
Subsec. (b). Act Aug. 7, 1956, Sec. 109, inserted provision that if
the insured mortgage is to assist financing of repairs and no part of
proceeds will be used to purchase the land or structure involved, the
approved percentage shall be 100 percent.
Subsec. (c). Act Aug. 7, 1956, Sec. 109, inserted ``such allocations
of general overhead items as are acceptable to the Commissioner,'' after
``legal expenses'' wherever appearing; struck out ``(without reduction
by reason of the application of the approved percentage requirements of
this section)'' before ``secured by such land and improvements,'' in cl.
(ii)(B) by amended proviso to provide that additional amount under (B)
of cl. (ii) should not exceed the approved percentage of the
Commissioner's estimate of the fair market value of the land and
improvements; and inserted provisions at end relating to 10 percent
allowance for builder's profit in mortgages issued under section 1715k.
1955--Act Aug. 11, 1955, substituted ``under section 1715l of this
title if the mortgage meets the requirements of paragraph (3) of
subsection (d) of such section'' for ``under section 1715l of this
title''.
Section Referred to in Other Sections
This section is referred to in sections 1715e, 1715l, 1748g, 1750g
of this title; title 42 section 1434.
