Section 4 Guarantee Recovery Fund

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The purpose of this page is to provide information about the Section 4 Guarantee Recovery Fund, a source of financing for rebuilding properties destroyed by acts of arson or terrorism.

Purpose

Section 4 is a loan guarantee provision authorized under the Church Arson Prevention Act of 1996 (the Act). It authorizes a Loan Guarantee Recovery Fund to provide certain nonprofit organizations with a source of financing to rebuild property damaged or destroyed by acts of arson or terrorism. Regulations governing the Section 4 Loan Guarantee Recovery Fund may be found at 24 CFR part 573.

Eligible Applicants

• A Nonprofit Organization is described in Section 501(c)(3) of the Internal Revenue Code of 1986. Though the organization may not have sought or obtained a ruling from the IRS under the section, its purpose must be consistent with that of organizations described therein.
• A Financial Institution serves as a lender, and is a bank, trust company, savings and loan association, credit union, mortgage company, or other issuer regulated by the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Credit Union Administration, or the U.S. Comptroller of the Currency. A Financial Institution may also be a Pension Fund.

Eligible Activities

• Acquisition of improved or unimproved real property in fee or under long term lease.
• Acquisition and installation of personal property.
• Rehabilitation of real property owned, acquired or leased by the Borrower.
• Construction, reconstruction or replacement of real property improvement.
• Clearance, demolition, and removal, including movement of structures to other sites, of buildings, fixtures and improvements on real property.
• Site preparation, including construction, reconstruction, or installation of site improvements, utilities, or facilities.
• Architectural, engineering and similar services necessary to develop plans.
• Acquisition, installation and restoration of security systems.
• Loans for refinancing existing indebtedness.
• Other necessary project costs such as insurance, bonding, legal fees, appraisals, surveys, relocation, closing costs.

Replacement Policy

Guaranteed loan funds are available to aid in rebuilding property damaged or destroyed by arson or terrorism. Section 24 CFR 573.7(4) of the regulations governing the use of the guaranteed loan funds provides that "HUD reserves the right to limit loan guarantees to loans financing the replacement of damaged property with comparable new property."

HUD defines the term "comparable new property" to mean a structure or structure(s) with similar or appropriately enhanced quantitative and qualitative features as the arson-damaged property. Generally, the comparable new property would be approximately the same or similar in size, materials, systems and equipment as the arson-damaged property. A comparable new property also means a structure that meets local building codes (or meet local or national historic property standards, if applicable) and is handicapped accessible.

Where a need can be demonstrated for features not required by the local building codes, such as fire retardant materials, security systems or the like, HUD may allow up to an additional 20% of the replacement cost of the comparable new property to be used to defray such additional expenditures. Additionally, where reasonable growth assumptions are evident, HUD may aid in building a new property that is larger is size by twenty percent or more (square footage) than the arson-damaged property. Such decisions will be made on a case-by-case basis and based on the availability of funding.

Estimating the cost of a comparable new property requires as much knowledge as possible about the property damaged or destroyed by arson. That knowledge may be gained from one or more of the following sources: (1) original building plans (of the property before the act of arson or terrorism), (2) foundation layout, footprint, other drawings or sketches, surveys and/or photos of the original structure, (3) photos of remaining structure(s), and/or (4) a certified statement by the nonprofit organization of the structure's dimensions (total square footage) exterior and interior materials, equipment and systems (heat, air and plumbing, for example) in place before the arson incident.

Loan Term and Repayment Schedule

Loans may be guaranteed for up to 20 years with flexible repayment terms

1. Arson means a fire or explosion causing damage to (or destruction of) real or personal property that a Qualified Certification Official determines, or reasonably believes, to be deliberately set.
2. Terrorism means an act of violence causing damage to (or destruction of) real or personal property that the Secretary or his designee, in consultation with the Federal Bureau of Investigation, determines to be, or reasonably believes to be, a terrorist act, as defined by applicable Federal law or guidelines.
3. Qualified Certification Official (QCO). (A) For the purpose of certifying an act of arson. A State or local official authorized to investigate possible acts of arson. For the purposes of this definition, such an official is authorized to execute an Official Incident Report or its equivalent and may be an official or employee of such agencies as the local fire department, the local police department, or the State Fire Marshall Office or its equivalent. The term "Qualified Certification Official" also includes HUD, which will consult with the Bureau of Alcohol, Tobacco, and Firearms of the Department of the Treasury in making its determinations. (B) For the purpose of certifying an act of terrorism. The Secretary or his designee, in consultation with the Federal Bureau of Investigation, shall determine whether an act of violence is a terrorist act or is reasonably believed to be a terrorist act.

Underwriting Criteria

Nonprofits seeking a loan will note that Financial Institutions may use their usual underwriting standards which may include a review of:

• Financial statements for the past 3 to 5 years.
• The size of the congregation for the past 3 to 5 years.
• Monthly collections.
• Real and personal property owned and pledged as collateral.
• A formal cost proposal for construction or rehabilitation of all damaged or destroyed real property.
• A formal cost proposal of use of loan other than for the construction or rehabilitation of all damaged or destroyed real property.
• Replacement information.
• A history of debt service performance or cash flow clearly available from collections and other operations to repay the loan requested.

Additional Information

For more information, contact Mr. Thann Young at (202) 708-2290.