These regulations prescribe the policies, procedures, and authorizations for making construction loans and providing credit enhancement for the construction of net-zero homes and low-energy homes. In this chapter, the following terms have the meanings indicated. Terms Defined. “Act” means Housing and Community Development Article, Title 4, Subtitle 20, Annotated Code of Maryland. “Administration” means the Community Development Administration, an agency in the Division of Development Finance of the Department of Housing and Community Development. Closing Costs. “Closing costs” means the costs incurred in connection with obtaining a loan from the Department under the Program. “Closing costs” includes: Credit report fees; Appraisal fees; Survey fees; Loan origination and application fees; Title examination and insurance fees; Property taxes and ground rent; Hazard insurance and mortgage insurance premiums; Attorney's fees; Document preparation fees; Recording fees; and Transfer and recordation taxes. “Credit enhancement” means any form of insurance, guarantee, or agreement that increases the credit strength of a loan and reduces the risk of lending to a borrower. “Department” means the Department of Housing and Community Development, a principal department of the State of Maryland. Development Costs. “Development costs” means the costs incurred in carrying out all works and undertakings which the Department deems reasonable and necessary for the acquisition and construction of a project. “Development costs” includes the costs for: Acquisition of land and any buildings on it; Closing costs; Necessary studies, surveys, plans, and specifications; Architectural, engineering, or special services; Site preparation and development; Labor and materials for construction; Fees incurred in connection with financing the project; Construction period interest on the loan; Indemnity and surety bonds; Premiums on insurance; and Other costs the Department deems reasonable and necessary. “Director” means the Director of the Administration. “Home” means a single family residence or a multifamily building used by the occupants as their residence. “Low-energy home” means a home that achieves a Home Energy Rating System (HERS) Index rating of 50 or lower. “Net–zero home” means a home that is designed to produce an amount of energy in 1 year that is equal to the amount of energy that the home uses in 1 year. “Program” means the Energy-Efficient Homes Construction Loan Program. “Program Manager” means the Manager of the Program as assigned by the Department. “Project” means any undertaking or project, or portion thereof, including land, buildings, and improvements, that constitutes a low-energy home or net-zero home upon completion. “Secretary” means the Secretary of Housing and Community Development. To qualify as an eligible borrower under the program, an applicant shall: If a nonprofit organization, corporation, or partnership, be in good standing and qualified to do business in Maryland; Have the legal capacity and all necessary authorization to incur the obligations of the loan; Own the project or have a valid sales contract to purchase the project; Demonstrate credit worthiness and repayment ability acceptable to the Department; and Demonstrate the ability to complete the project. Eligible projects shall be: A low-energy or net-zero home upon completion; Properly zoned for residential use; Rehabilitated or constructed in accordance with the applicable federal, State, and local building, zoning, environmental, health, and housing codes and standards, which includes the latest version of the building codes adopted by the Department; and Sold or rented to an individual that will use the property as their residence. Proceeds of the loan may be used for the: Acquisition of a project; Construction and development costs of a project; and Closing and settlement costs associated with the financing and acquisition of the project. The Department shall establish interest rates for each loan based on the underwriting of each project. The maximum interest rate on a loan shall be a rate which does not impair the financial viability of the project or the capability of the borrower to construct a low-energy home or net-zero home. The Department may establish lower interest rates for projects that achieve greater energy savings. The maximum loan, when added to any superior debts, may not exceed the greater of the: Amount of permanent financing approved for the project; or 100 percent of the market value of the eligible building and property after construction as determined by the Department. Repayment. Terms for repayment of principal and interest shall be established based on the underwriting for each project and in a manner which does not impair the financial viability of the project or the capability of the borrower to construct a project. A program loan shall be evidenced by a promissory note and secured by a mortgage or deed of trust to be recorded in the land records of the county in which the project is located. Loan funds shall be disbursed in accordance with a draw schedule approved by the Department, which may include releasing funds upon successful inspections. The borrower shall agree not to sell, cease to own, assign, transfer, or dispose of all or any part of the project or the borrower's interest in it, during the loan term, without the prior written consent of the Department. Insurance. The borrower shall maintain property, fire, and extended coverage insurance on the buildings comprising a project both during and after construction, which shall name the Department as a loss payee, additional insured, and mortgagee, as applicable. If the project is located on real property which is in the 100-year flood plain, as designated by the United States Department of Housing and Urban Development, the project shall be covered by a flood plain insurance policy. For all secured loans the borrower shall provide a standard American Land Title Association (ALTA) Loan policy or other form of title policy approved by the Department. Taxes and assessments against the property which are due and payable shall be paid at or before closing. The Department may require the borrower to obtain any of the following types of insurance, issued by a company that is approved by the State Insurance Commissioner, depending on the size of the project and risks to the Department: Owner's liability; Owner's property or hazard or contractor's builder's risk; Contractor's liability; Architect's errors and omissions; and Engineer's errors and omissions. In addition to the requirements of §A of this regulation, owner's liability insurance shall: Name the Department as an additional insured; and Remain in force for the duration of the loan. In addition to a promissory note and deed of trust, the Department may require the borrower to execute or provide any of the following documents: A loan agreement; An agreement and declaration of covenants and restrictions; A disbursement agreement; A guaranty of completion or loan payments; A completion assurance agreement; An assignment of the construction contract; An opinion of borrower's counsel; An opinion of contractor's counsel; A contractor's letter and certification; An assurance of compliance with civil rights requirements; A fair practices certification; and Such other documents as the Department may find it desirable or necessary to require. The Department, at its sole discretion, may require additional security or collateral from the borrower to assure completion of the construction of the project or repayment of the loan. The collateral may be in the form of one or more of the following: A cash escrow; A letter of credit in an amount and form and from a financial institution acceptable to the Department; Depository accounts pledged to the Department; Performance and payment bonds from a surety acceptable to the Department; A completion assurance agreement executed by the borrower and backed by some form of monetary collateral; A guaranty of completion or loan payments, or both, executed by a third party who is financially able and willing to back the guarantee by some collateral acceptable to the Department; A pledge of the developer's fee; or Other collateral acceptable to the Department. The Department may accept applications on a first-come, first-served basis or through competitive rounds to be announced by the program periodically. A loan application shall be made upon standard forms prescribed by the Department. Each application shall be fully completed and properly executed and be accompanied by the following items: A copy of the articles of incorporation, bylaws, and most recent financial statements of an applicant for a nonprofit organization, corporation, or partnership; A copy of: The deed to the property; A contract or option agreement to purchase the property; or An agreement of understanding or letter of intent to purchase the property; A preliminary description, plans, and specifications of the low-energy or net-zero home to be constructed; A description of the applicant’s experience and current activity which demonstrates the applicant’s capacity to construct a project; and Identification of how the land is presently zoned. Feasibility Notification. Upon receipt of all documentation necessary to determine the feasibility of a project and the primary loan structure and terms, the Department shall issue a written notification letter to the applicant. The feasibility notification letter shall outline anticipated loan terms and shall specify any additional documentation which shall be provided or other conditions which shall be met in order for the Department to recommend a loan for commitment, including: Plans and specifications or a detailed scope of work for the construction of the project and proposed energy usage by the home; A copy of the contract for the work; Evidence of zoning compliance; A copy of a commitment or letter of intent to provide permanent financing which, at a minimum, shall state the amount, rate, and terms of the permanent financing; and A schedule of the proposed sales price or rent of the home. Approval. Upon satisfaction of all the requirements and conditions of the feasibility notification letter, the Department shall undertake an analysis of each application as to the final recommended loan amount, structure, and terms. Loans shall be submitted to the Housing Finance Review Committee in accordance with COMAR 05.01.07, as applicable, and to the Secretary for approval. Commitment Letter. Upon the approval a loan, the Director or Program Manager is authorized to issue a commitment letter setting forth the amount of the loan, the interest rate on the loan, and the other terms and conditions under which it will be made. Rejection of Applications. The Department shall issue a written notice of the determination of ineligibility if it determines that a project or applicant is not eligible for a loan. Reconsideration. Applicants may request reconsideration of a rejection in accordance with the procedures contained in the program guidelines. The Department may provide credit enhancement on a loan made by a lender for a project that meets the requirements of Regulation .04 of this chapter. A project financed by a loan that is credit-enhanced by the Department shall: Be a net-zero home or a low-energy home upon completion; Have clear and merchantable title acceptable to the Department; Conform to all applicable federal, State, and local building, zoning, environmental, health, and housing codes; Be insured with hazard insurance issued by a company that is approved by the State Insurance Commissioner and, when applicable, flood insurance; Have an appraised value that is satisfactory to the Department; Be secured by a lien against the mortgaged property; and Meet any other standards of the Department. A borrower shall establish to the satisfaction of the Department the capacity to meet the financial obligations of the loan and complete the project. Application. A lender shall submit an application, in the form prescribed by the Department, which shall contain a complete credit package and any other documentation required by the Department. Applications will be reviewed on a loan-by-loan basis by the Department. The Department will consider the following factors when deciding whether it will approve an application for credit enhancement: Amount of loss coverage being requested; The terms of the loan; Financial capability and credit rating of the borrower; Condition and value of property securing loan; Capability of borrower to successfully construct and sell a project; and Any other factors related to the Department’s risk in providing credit enhancement. Scope of Credit Enhancement. The Department may offer the following types of credit enhancement: Mortgage insurance; Guarantee; Risk sharing agreement; or Any other form of credit enhancement. Credit enhancement is limited to economic loss due to a monetary default and does not include loss due to casualty or title risk. Expenses incurred for property repair resulting from casualty loss, including losses due to negligence, flood, fire, termites, vandalism, and defective construction, are not eligible for credit enhancement coverage. Expenses incurred by the lender in the preservation and normal maintenance of a defaulted project may be covered in accordance with the terms and conditions of the credit enhancement agreement with the Department. Premiums for credit enhancement shall be determined by the Department from time to time for various programs and types of coverage. Premiums may be set at different levels for different categories of loans and loan programs depending on the risk factors, which may include the: Amount of loss coverage being requested; Terms of the loan; Financial capability and credit rating of the borrower; Condition and value of property securing the loan; Capability of borrower to successfully construct and sell a project; and Any other factors related to the Department’s risk in providing credit enhancement. The lender shall follow the procedures contained in the credit enhancement agreement with the Department upon default of a loan. The right of the Department to pursue a borrower for deficiency or loss exists in every case to the extent allowed by law and may be enforced at the discretion of the Department. The Department may refuse payment of a claim on the basis of fraud, misrepresentation, or material error or omission with respect to any claim. The Department may participate with a lender to collectively lend money for the construction of net-zero and low-energy homes by: Making loans on a project, including subordinate loans; Pooling loan funds; Entering into loan participation agreements; and Purchasing a loan or an interest in a loan. A lender shall submit an application, in the form prescribed by the Department, which shall contain a complete project description, credit package, and any other documentation required by the Department. The Department’s review and approval of an application shall follow the procedures in Regulation .08 of this chapter. The Department shall enter into an agreement with a lender with whom it has agreed to collectively lend money to a borrower on a project. Each agreement to collectively lend on a project shall specify: Timing of loan repayments; Rate of return for the lender and the Department; Risk of loss attributed to the lender and Department in the event of default; and Any other terms the lender and Department require. Each project shall pass an inspection and verification test that the home was constructed to the standards to achieve the level of energy usage approved by the Department. The Department may require a third party to inspect and verify that the home was constructed to achieve the required energy rating. It is the goal of the Department to increase program participation by minority business enterprises certified under State Finance and Procurement Article, Title 14, Subtitle 3, Annotated Code of Maryland. To increase participation by minority business enterprises, the Department shall: Directly market the program to minority business enterprises; and Require an applicant to submit a minority business plan. An applicant, borrower, or contractor may not discriminate on the basis of race, color, religion, national origin, sex, marital status, physical or mental disability, sexual orientation, or age, except with regard to age as permitted under the federal Housing for Older Persons Act, as amended from time to time, or other similar federal laws, in leasing or otherwise providing dwelling accommodations or in any other aspect of the development, administration, or operation of any project or undertaking financed or assisted under the program, or in any aspect of employment by any sponsor, developer, or contractor in the construction, repair, or maintenance of any property financed or assisted under the program. An applicant, borrower or contractor shall comply with all applicable federal, State, and local laws and Departmental policies and programs regarding discrimination, equal opportunity in employment, housing, and credit practices, and drug and alcohol free workplaces, including: Title VI and VII of the Civil Rights Act of 1964, as amended; Title VIII of the Civil Rights Act of 1968, as amended; The Fair Housing Amendments Act of 1988, as amended; The Department’s Minority Business Enterprise Program, as amended; Executive Order 01.01.1989.18, Drug and Alcohol Free Workplace, and any Department or State regulations adopted or to be adopted to carry out the requirements of that Order; State Government Article, Title 20, Annotated Code of Maryland, as amended; and The Americans with Disabilities Act of 1990, as amended. Covenants implementing these requirements, including affirmative action measures, shall be included in appropriate agreements between the Department and other parties. Program Handbook. The Department may establish from time to time program guidelines or manuals containing internal underwriting standards and loan processing requirements. Fees. The Department may charge an applicant, borrower, or lender customary loan application and loan fees. The Department shall ensure that program guidelines, fee information, and application forms are publicly available on its website and at its offices. Delegation. The Secretary may delegate to the Director of the Administration or to any other official or employee of the Department or Administration the authority to execute or approve any program loans, documents, or contract documents. Waiver. The Secretary may waive or vary particular provisions of these regulations in writing to the extent that the waiver is not inconsistent with the Act if: Conformance to the requirements of any federal, State, or local programs in connection with providing financing to the project necessitates waiver or variance of a regulation; or In the determination of the Secretary, the application of a regulation in a specific case or in any emergency situation would be inequitable or contrary to the purposes of the Act. Housing and Community Development Article, §4-2003(a)(5), Annotated Code of Maryland Effective date: July 31, 2017 (44:15 Md. R. 759)