SECTION 202 AND SECTION 811- DEVELOPMENT TEAM REFERENCE GUIDE
For Project Development and Preservation
Richard Silverblatt Associates, Inc.
Follow the basic procedure for submitting change orders in the 2011 HUD memo, subject: Change
Types of Change Orders
Change orders can refer to work that must be done, or a "necessity" change order, or to work that
is not required but is desired by the owner, known as a "betterment" change order. There also
can be a change order that is required which has no financial result, such as a change order to
extend the construction period. The cost of a necessity change order can be paid for with
available project funds under contingency reserve (in the case of a rehab) and by available
project contingency funds. A betterment change order is not paid for by HUD and HUD looks to the
owner or sponsor to cover that cost.
HUD Processing of Change Orders
Once the change order has been completed and Form HUD-92437 has been signed by the general
contractor, architect and owner (mortgagor), it is forwarded to the HUD project inspector for
review. Sometimes, the development team will submit a number of change orders for HUD to
review. The HUD inspector will review the change order to determine whether it is a necessity or
a betterment. The HUD inspector will also determine if the change order budget is reasonable
and will write the HUD-approved cost in the column "HUD Estimated Effect on Cost + or - ". HUD
Mortgage Credit will then complete the bottom part of Form HUD-92437, which indicates whether
there are sufficient funds remaining in available contingency lines to cover the cost of the
necessity change order. HUD will number the change order and return the completed form to the
owner or general contractor. If contingency funds are not available to cover the cost of the
change order, HUD will indicate on the form that the amount of the shortfall must be escrowed by
To request HUD funds to cover the change order, the owner submits a standard requisition, Form
HUD-92403-CA. List the number of change orders and the HUD-approved amounts to be paid from
available contingency funds. Attach the fully-completed Form HUD-92437 for each change order
that is to be submitted for payment. When the HUD inspector confirms to Mortgage Credit that the
change order work has been fully completed, then HUD will advance the funds to the owner's
If Mortgage Credit has determined that available HUD contingency funds from the project cannot
cover the total cost of the change order, HUD will require that the owner escrow the amount of the
shortfall and complete Form HUD-92464, Request for Approval of Advance of Escrow Funds, to
provide evidence that those funds have been set aside in a bank. Three originals are to be
submitted to HUD.
As an example of how this will work, say the total change order cost is $10,000 and that there are
funds still available in contingency reserve in the amount of $7,500. HUD will use $7,500 from
project funds and request that the owner escrow $2,500 for the balance needed. The owner's
requisition, Form HUD-92403-CA will show a request for $7,500 and attached to the requisition will
be the HUD-approved change order(s) on Form HUD-92437 and completed Form HUD-92464,
Request for Approval of Advance of Escrow Funds. HUD will advance its portion into the owner's
construction account and will send to the bank and the owner written approval on Form
HUD-92437 authorization to release the $2,500 needed to cover the balance. The owner will write a
check to the general contractor for the $2,500 amount.
The Form HUD-92464 is also used in the event that HUD has processed a change order as a
betterment and will indicate to HUD that there is sufficient funds in the Sponsor's bank account to
cover the amount of the betterment change order.
In the event that a bank is resistant to signing the form, HUD will accept the following:
1. a letter from the bank to HUD Mortgage Credit indicating that there are funds in an account of
the Sponsor sufficient to cover the dollar amount of the betterment change order.
2. a letter from the Sponsor or Owner to HUD Mortgage Credit requesting that HUD approve
payment to the General Contractor for the betterment.
3. a letter from the General Contractor to HUD Mortgage Credit indicating that the Contractor has
been paid in full for the betterment change order.