Applying For Housing Fund And Fire Safety Loans


The following is a general outline of procedures and requirements for applying for Housing Fund and Fire *& Safety loans. The procedure is not absolute, but is intended to serve as a guide in terms of legal and financing requirements. Every situation is different, and undoubtedly some of the procedures below will have to be modified to fit certain local situations.

Applications by house corporations for mortgage loans are normally received and considered at an time during the year. Applications to be considered should be in the hands of the Chief Executive Officer at least 45 days before the funds are required. The Loan Committee endeavors to reach a decision within 30 days after receipt of a completed application. Ballots may, at the discretion of the Chairman be conducted via email. Loans will not be funded until all conditions have been satisfied.

I. Applicants - Mortgage loans will be made only to legally constituted chapter house corporations. These corporations must be in good standing and so recorded by the Secretary of State's Office in the state in which such corporations have been chartered and recognized.

II. Loans - Mortgage loans from the Housing Fund are ordinarily made on a first or second mortgage basis only. Priority is given to newer chapters which have not had the opportunity to build as much equity as older chapters. The total amount loaned to any chapter house corporation shall be limited by four considerations: (1) the value of the property, (2) the ability of the local chapter to carry any debt being considered, (3) the availability of Housing Fund loan funds, and (4) loan limits that may from time to time be modified by the National Council. During periods of peak demand participation loans with banks and insurance companies may have to be arranged or some alternatives found to Fraternity financing. Loans bear an interest rate at or near the prime rate and as shall be established from time to time by the National Council. Loans ordinarily shall be fully amortized over a period not exceeding 7 years and shall be secured by a mortgage deed or Deed of Trust at the time the loan is transacted. It is generally desirable to finance older and new construction over a shorter period of time than conventional home mortgage loans because of the considerable wear and tear to which fraternity houses are subjected.
III. Equity - Ordinarily a house corporation must have a minimum equity of 30% in the property and must demonstrate to the satisfaction of the Committee that it has cash or other assets in such amount as, together with the proceeds of the loan or loans from the Fraternity, shall be sufficient to acquire, construct or improve the property.

IV. Finances

A. The applicant house corporation must demonstrate the reasonableness of the proposed use of the loan proceeds and show that it will receive income from the chapter sufficient to pay all operating costs including, at the very least, all taxes, insurance, installments of principal and interest, and such repairs and maintenance as may reasonably be required to maintain or increase the value of the property. In this connection, in applying for a loan, the house corporation must submit (or the chapter and corporation shall have already submitted, as the case may be) the following financial date:

l. Undergraduate chapter financial reports for the last fiscal period and to date.

2. An undergraduate chapter budget for the next fiscal year—that year following the approval of the loan for which applied.

3. The following house corporation financial data:

a. House Corporation financial statement for the last fiscal period.

b. A pro forma house corporation financial statement for the current fiscal period.

c. A pro forma house corporation financial statement of income and expense for the next two fiscal years following the approval of the loan for which it has applied.

d. A statement comparing chapter dues and fees for the period prior to application for the loan and for the next year following approval of such loan. It may be helpful to compare these, too, with other campus fraternities and dorms.

B. No loan will be granted until:

l. The Committee is satisfied that the chapters financial condition, alumni support, compliance with the Constitution and Bylaws of Phi Kappa Tau.

2. The Board finds the official attitude of the institution regarding fraternities and the overall outlook for fraternities located there to be favorable.

3. The Committee is satisfied that the house corporation in the exercise of reasonable diligence regarding the financial affairs of the undergraduate chapter is able to meet its financial obligation to the extent noted above.

4. The Committee is satisfied that there is sufficient alumni involvement and depth of management on the house corporation and an adequate chapter advisor or advisory committee and pool of replacements for these position(s).

V. Appraisals - House corporations shall furnish the Board with an appraisal or appraisals of the property or properties securing any loan, such appraisal(s) to be made by an appraiser (or appraisers) certified by M.A.I. or S.R.A. or otherwise approved by the Board or Executive Vice President. Cost of such appraisal(s) shall be paid by the corporation. If the Board finds it necessary to consider additional appraisals, these will be made at the expense of the corporation.

VI. Photographs - House corporations applying for loans for the purpose of purchasing new property shall submit one or more 8 x 10 photographs of the building. If the Executive Vice President feels that it is necessary, he may request from time to time such photographs of existing properties owned by house corporations.

VII. Architects - Applicants for loans for the construction of chapter houses, the construction of additions or major renovations to existing chapter houses shall submit an architect's description and sketch of the proposed building, additions or renovation together with his opinion. These will first be reviewed by the Fraternity's architect and his recommendations studied. No construction shall be commenced until the Fraternity's consulting architect's approval of final working drawings and specifications is obtained nor until Fraternity financing is approved. Once the loan is approved, construction may be started and loans will be released by the lender as construction progresses.

VIII. Legal Counsel - The applicant house corporation shall retain counsel admitted to practice in the state or province in which the corporation is located to represent it. The Fraternity's counsel will send a letter of instruction and sample documents to the house corporation's counsel. The necessary papers and legal opinions, satisfactory to the Fraternity's counsel, must be submitted before any payout will be made on the loan. Charges made by the Fraternity's legal counsel (not to exceed $250 to any borrowing corporation) shall be paid by the borrowing house corporation.

IX. Insurance - All property secured by a Fraternity loan must be insured by the Fraternity's insurance program.

X. Closing - When a loan has been approved by the Board, the following documents will usually be required in conjunction with the closing:

A. Borrowing resolution by the house corporation.

B. Agreement entered into by the House Corporation and chapter outlining payments by the chapter to the corporation.

C. Promissory note secured by an Indenture of Mortgage or Deed of Trust.

D. Issuance of a policy of Title Insurance (or abstract where still used) and opinion letter of counsel retained by the house corporation.

E. A Certificate of Good Standing of the borrowing corporation certified to date by the Secretary of State in the state or province in which it is chartered.

F. Bylaws of the borrowing corporation certified to date by the Secretary thereof.

G. Articles of Incorporation of the borrowing corporation certified to date by the Secretary of State in the state or province in which it is chartered.

H. Certificate of Insurance issued by the Fraternity's carrier with clause payable to Phi Kappa Tau Fraternity (mortgagee clause). The premiums on such policy shall be paid at least one year in advance.

XI. Amortization of Loans - Payment on both principal and interest shall be amortized over the period of years as directed in the motion approving such loans, and such payments shall ordinarily be made on a 9-month payment schedule designed to coincide with the chapter's operating year.

XII. Amendments - From time to time, the National Council may amend or modify these procedures and reserves the right to require such additional information and/or security as it may deem advisable and to review any application for any reason. In applying for house corporation loans, it should be kept in mind that the National Council is charged with trustee responsibility and with the duty of preserving the funds entrusted to its care. The Council should not be requested nor expected to grant loans which represent undue risk from the standpoint of the value of the property in relation to the loan requested nor to grant loans to house corporations to the extent that it places an undue financial burden on the local chapter. It is expected that all loans will be repaid strictly in accordance with the terms of the loan agreement in order that as many chapters as possible can benefit from the limited funds available in the Housing Fund.

XIII. Processing of Loans - From past experience, it should be anticipated that once a loan is finally approved, a minimum of 15 days will be required to process the necessary legal papers and other documents. Where new construction is involved and architectural review and approval required in addition to preparation and execution of legal documents, substantially more time may be required.

XIV. Communications - Communications concerning applications for house corporation loans should be addressed to:

Chief Executive Officer
Phi Kappa Tau Fraternity
5221 Morning Sun Road
Oxford, OH 45056
(513) 523-4193
FAX – (513) 523-xxxx

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