privately or cooperatively owned water system if he makes each of the following determinations with respect to the system:

(1) It will be consistent with other existing or prospective systems within the area.

(2) It will be adequate to serve the needs of the area being developed.

(3) It will be regulated, during the period of ownership, by the State or a political subdivision or an agency thereof, or in the absence of such State or local regulation, it will otherwise be regulated in a manner acceptable to the Commissioner. The regulation shall cover user rates and charges, capital structure, methods of operation, rate of return, and conditions and terms of any sale or transfer.

(c) Private sewerage systems—(1) Existing systems. The Commissioner may approve the use of an existing privately or cooperatively owned sewerage system if he determines that the system will be adequate to serve the needs of the area being developed and that its operation will be regulated by the State or a political subdivision or an agency thereof, or in the absence of such State or local regulation, it will otherwise be regulated in a manner acceptable to the Commissioner. The regulation shall cover user rates and charges, capital structure, methods of operation, rate of return, and conditions and terms of any sale or transfer. (2) New systems. The Commissioner may approve the use of a newly developed privately or cooperatively owned sewerage system if he makes each of the following determinations with respect to the system:

(i) Public ownership of the system is not feasible.

(ii) It will be adequate to serve the needs of the area being developed.

(iii) It will be consistent with other existing or prospective systems within the area.

(iv) It will be regulated during the period of ownership by the State or a political subdivision or any agency thereof, or in the absence of such State or local regulation, it will otherwise be regulated in a manner acceptable to the Commissioner. The regulation shall cover user rates and charges,

capital structure, methods of operation, and rate of return.

(v) Adequate plans exist for the sale or transfer of the system to a local public authority under terms and conditions which are satisfactory to the Commissioner and which provide reasonable assurance the sale or transfer will eventually be made.

§ 205.95 Labor standards.

Any contract, subcontract, or building loan agreement executed for the performance of construction of the project shall comply with all applicable standards and provisions of the Regulations of the Secretary of Labor, published in Title 29, Code of Federal Regulations, as Part 5 of Subtitle A thereof, and as amended from time to time.

§ 205.100 Ineligible advances.

Unless approved by the Commissioner, no advance under the mortgage shall be eligible for insurance after notification from the Commissioner that the general contractor or any subcontractor (or any firm, corporation, partnership, or association in which such contractor or subcontractor has a substantial interest) was, on the date the contract or subcontract was executed, on the ineligible list established by the Commissioner or by the Comptroller General under 29 CFR Part 5.

(Sec. 7(d), Department of HUD Act, 3535(d)) [49 FR 45126, Nov. 15, 1984]

8 205.102 Wage certificate.

No advance under the mortgage shall be eligible for insurance unless there is filed with the application for such advance a certificate as required by the Commissioner. The certificate shall state that the laborers and mechanics employed in the construction of the project have been paid not less than the wages prevailing in the locality for the corresponding classes of laborers and mechanics employed on construction of similar character. The prevailing wage determination shall be made by the Secretary of Labor prior to the beginning of construction and after the date of filing of the application for insurance.

8 205.105 Discrimination prohibited.

Any contract or subcontract executed for the development of land shall contain a provision that there shall be no discrimination against any employee, or applicant for employment because of race, color, creed, or national origin. Where the mortgagor is the general contractor, the building loan agreement shall contain the above provisions.

COST CERTIFICATION REQUIREMENTS

8 205.110 Certification of cost requirements.

(a) Prior to initial endorsement of the mortgage for insurance, the mortgagor, the mortgagee, and the Commissioner shall enter into an agreement approved by the Commissioner for the purpose of precluding any excess of mortgage proceeds over the amounts specified in § 205.132. Under this agreement, the mortgagor shall agree to:

(1) Disclose its relationship with the general contractor, including any collateral agreement, and with subcontractors and suppliers;

(2) Enter into a development contract the terms of which shall depend on whether or not there exists an identity of interest between the mortgagor and the contractor;

(3) Execute a certificate prior to each insured advance showing actual amounts disbursed prior to the initial endorsement of the mortgage for in

surance or since the last insured advance; and

(4) Apply any excess of mortgage proceeds over the amounts specified in § 205.132 to reduction of the outstanding balance of the principal of the mortgage, as and when directed by the Commissioner.

(b) The provisions of paragraphs (a) (1) and (2) of this section shall not apply where the mortgagor is the general contractor.

§ 205.112 Form of contract.

The form of contract between the mortgagor and the general contractor shall be in accordance with the following:

(a) Lump sum contract. If the Commissioner determines that neither the mortgagor nor any of the officers, directors, stockholders, partners or beneficiaries of the mortgagor have any interest in the general contractor, there may be used a lump sum form of contract providing for payment of a specified amount.

(b) Fixed fee contract. If the Commissioner determines that the mortgagor, its officers, directors, stockholders, partners or beneficiaries have any interest, financial or otherwise, in the general contractor, the form of contract shall provide for payment of the actual cost of land development not to exceed an upset price and may provide for payment of a fixed fee to the general contractor which shall not exceed a reasonable allowance as established by the Commissioner, in accordance with customary practices in the area. § 205.115 Certificate as to subcontracts.

If the Commissioner determines that the mortgagor, its officers, directors, stockholders, partners or beneficiaries have any interest, financial or otherwise in any subcontractor or material supplier, the mortgagor shall certify (at such times and in such form as may be prescribed by the Commissioner prior to final endorsement of the mortgage for insurance) that the amounts paid to such subcontractor or material supplier were not more than the rate prevailing in the locality for similar type labor and materials.

(1) Development contract, where the mortgagor and the general contractor are separate entities.

(2) Construction of the improvements where the mortgagor is the general contractor and there is no development contract.

(3) Architect's fee, engineer's fee, and land planning fees.

(4) Offsite public utilities and streets not included in computations under paragraphs (b) (1) and (2) of this section.

(5) Organization and legal work.

(6) Other items of expense approved by the Commissioner.

(c) Items not to be included. The certificate shall not include as actual cost any kickbacks, rebates, trade discounts, or other similar payments to the mortgagor, or to any of its officers, directors, stockholders, partners, or beneficiaries Any such payments shall be deducted from the costs determined under paragraph (b) of this section.

In the case of a cost plus fixed fee contract or where the mortgagor is the general contractor and there is no development contract, the certificate of actual cost, in addition to the requirements of § 205.117, shall show the following allowances:

(a) Such general overhead items as are acceptable to the Commissioner.

(b) A reasonable allowance for the general contractor's profit as established by the Commissioner.

8 205.122 Certificate of actual cost-subcontractor's cost.

(a) Submission of certificates. The Commissioner may require the mortgagor to submit a certificate of actual cost showing all amounts actually paid by a subcontractor, material supplier

or equipment lessor, where it is determined by the Commissioner that an identity of interest exists between either of the following:

(1) The mortgagor or any of its officers, directors, stockholders, partners or beneficiaries and any subcontractor, material supplier, or equipment lessor.

(2) The general contractor and any subcontractor, material supplier, or equipment lessor.

(b) Items to be included. Each certificate shall show the amounts paid for labor, materials, subcontracts and overhead.

(c) Items not to be included. The certificate shall not include amounts paid for any kickbacks, rebates, trade discounts, or other similar payments to the general contractor, the mortgagor, or any of its officers, directors, stockholders, partners, or beneficiaries.

The mortgagor shall keep and maintain adequate records of all costs of any development or other cost items not representing work under the general contract and shall require the general contractor to keep similar records. Upon request by the Commissioner, such records, together with any collateral agreements, shall be made available for examination.

§ 205.130 Certificate of public accountant.

The certificates of actual cost shall be supported by certificates, when required by the Commissioner, as to accuracy by an independent Certified Public Accountant or independent

public accountant, and shall include a statement that the accounts, records and supporting documents have been examined in accordance with generally accepted auditing standards to the extent deemed necessary to verify the actual costs.

§ 205.132 Reduction in mortgage amount.

The principal obligation of the mortgage shall be reduced at final endorsement for insurance or at such earlier times as may be required by the Commissioner, to an amount not exceeding (with respect to that portion of the land remaining under the mortgage) 80 percent of the Commissioner's estimated value of such portion of the land prior to development plus 90 percent of the actual cost of the land development allocated by the Commissioner to such portion.

[40 FR 3, Jan. 2, 1975]

§ 205.135 Effect of agreement.

Any agreement, undertaking, statement, or certification required in connection with cost certification shall specifically state that it has been made, presented, and delivered for the purpose of influencing an official action of the Commissioner and may be relied upon as a true statement of the facts contained therein.

§ 205.137 Cost certification incontestable.

Upon the Commissioner's approval of the certification by the mortgagor as to actual costs submitted in connection with the request for the final insured advance of mortgage proceeds, such certification shall be final and incontestable, except for fraud or material misrepresentation on the part of the mortgagor. This provision shall not apply to any other certification by the mortgagor as to actual costs.

§ 205.138 Waiver of eligibility requirements for mortgage insurance.

The Secretary may insure under this part, without regard to any limitation upon eligibility contained in this subpart, any mortgage assigned to him in connection with payment under a contract of mortgage insurance, or executed in connection with a sale by him of

any property acquired under any section or title of the Act.

[39 FR 2757, Jan. 24, 1974]

TITLE

§ 205.140 Eligibility of title.

In order for the mortgaged property to be eligible for insurance, the Commissioner shall determine that marketable title thereto is vested in the mortgagor as of the date the mortgage is filed for record. The title evidence shall be examined by the Commissioner and the original endorsement of the credit instrument for insurance shall be evidence of its acceptability.

8 205.142 Title evidence.

Upon insurance of the mortgage, the mortgagee shall furnish to the Commissioner a survey of the mortgaged property, satisfactory to him, and a policy of title insurance covering such property, as provided in paragraph (a) of this section. If, for reasons the Commissioner deems satisfactory, title insurance cannot be furnished, the mortgagee shall furnish such evidence of title in accordance with paragraph (b) or (c) of this section, as the Commissioner may require. Any survey, policy of title insurance, or evidence of title required under this section shall be furnished without expense to the Commissioner. The types of title evidence are:

(a) A policy of title insurance issued by a company and in a form satisfactory to the Commissioner. The policy shall name as the insureds the mortgagee and the Secretary of Housing and Urban Development, as their respective interests may appear. The policy shall provide that upon acquisition of title by the mortgagee or the Secretary, it will become an owner's policy running to the mortgagee or the Secretary, as the case may be.

(b) An abstract of title satisfactory to the Commissioner, prepared by an abstract company or individual engaged in the business of preparing abstracts of title, accompanied by a legal opinion satisfactory to the Commissioner as to the quality of such title, signed by an attorney at law experienced in the examination of titles.

207.252 First, second, and third premiums. 207.253 Termination by prepayment and voluntary termination.

(b) For the purposes of this subpart, all references in Part 207 of this chapter to section 207 of the Act shall be construed to refer to title X of the Act.

(c) All of the definitions in § 205.1 shall apply to this subpart. In addition, as used in this part, the term "contract of insurance" means the agreement evidenced by the Commissioner's insurance endorsement and includes the provisions of this subpart and of the Act.

[36 FR 24531, Dec. 22, 1971, as amended at 37 FR 8662, Apr. 29, 1972]

§ 205.253 Mortgage insurance premium. Mortgage insurance premiums shall be payable in advance by the mortgagee to the Commissioner in accordance with the following provisions:

(a) In all cases except where the mortgage cover a water and/or sewer system, the mortgage insurance premium shall be paid as follows:

(1) Upon initial endorsement of the mortgage for insurance, there shall be paid an amount equal to 2 percent of the face amount of the mortgage. Such payment shall cover the first 3 years of the mortgage insurance or the entire term of the mortgage insurance when such term does not exceed 3 years.

(2) If the mortgage term exceeds 3 years there shall be paid on the third anniversary of the initial endorsement of the mortgage for insurance, and on each succeeding anniversary date of such endorsement, an amount equal to 1 percent of the cutstanding principal balance of the mortgage at the end of the previous mortgage insurance year, which shall be adjusted to give effect to reductions in the principal balance of the mortgage resulting from sale of portions of the property covered by the mortgage, but without taking into consideration delinquent payments or prepayments.

(3) If the mortgage term exceeds 3 years and contains amortization provisions, the mortgage insurance premium shall be adjusted so that subsequent mortgage insurance premiums shall be paid on the anniversary dates of the commencement of amortization rather than on the anniversary dates of the initial endorsement of the mortgage for insurance.

(b) If the mortgage covers a water and/or sewer system, the mortgage insurance premium shall be paid as follows:

(1) Upon initial endorsement of the mortgage for insurance, there shall be paid an amount equal to one-twelfth of 1 percent of the original face amount of the mortgage for each month or fraction thereof prior to the date of commencement of amortization.

(2) Upon commencement of amortization and on each anniversary date thereafter until the mortgage is paid in full (or until receipt by the Commissioner of an application for insurance benefits, or until the contract of mortgage insurance is otherwise terminated with the consent of the Commis