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• • simply eliminate the HUD Senior Covenant. Whether consent is reasonable is always a fact question, but the Authority would have a strong argument on this point. Even more importantly, there is no indication that HUD would have any incentive to remove the HUD Senior Covenant if the HUD Mortgage was not in foreclosure. HUD's sole concern, in requiring the subordination, has been to ensure that the Property is fully unencumbered in the case of foreclosure, where HUD (or the insured lender) must dispose of the Property and protect HUD's investment. The language is nationally standard in FHA - insured deals, and reflects typical concerns of FHA in its role as a lender; it does not originate from other areas of HUD that are more concerned with affordable housing. 3. Is there, or can there be, a prohibition on assignment of the HUD Mortgage? No. HUD allows the HUD Mortgage to be assumed by a buyer (along with all the covenants and restrictions that go with it), and would not accept a limitation on that. However, assumption of the HUD Mortgage by a new owner does not impair the Authority's position on the senior restrictions; the HUD Senior Covenant and the City Senior Covenant remain in place as before. In my judgment, the assumability is not a significant issue for the Authority. Conclusion The First Amendment to Contract for Private Redevelopment and Subordination (the Contract), and the Regulatory Agreement for Multifamily Housing Projects (the HUD Regulatory Agreement) are attached. In my view, these documents do not significantly impair the City's goal of retaining the Project in senior use; and in fact, the revised City Senior Covenant extends that limitation for another twenty years after it would have originally expired. The HUD subordination does allow HUD to terminate all senior restrictions in the event of foreclosure, but foreclosure of these types of mortgages is extremely rare. For the reasons described above, there is likewise minimal risk that HUD would, or could, attempt to terminate either the City Senior Covenant or the HUD Senior Covenant even if the Project is not in foreclosure. The City's consent is required for any modification of the HUD Senior Covenant, and it would be reasonable for the City to decline a request to extinguish that covenant. I will be available at the July 6 work session to answer any questions you may have on these matters. 370912v3 SJB LN 140 -25