In the last few years, we have seen an increase in the number of multifamily housing projects being sold at the completion of the 15-year low-income housing tax credit compliance period. Strong rental demand in many areas of the country and low financing rates have created a favorable market for selling these types of projects.

Many of the projects being sold have been financed with proceeds of tax-exempt bonds. Some project owners are surprised to learn that it can be somewhat complicated to prepay the bonds. Sometimes closings are delayed because of the prepayment requirements contained in the related bond documents.

Here is a useful list of items that are commonly required to be provided in connection with the prepayment of an issue of tax-exempt bonds: (1) timely notice from the project owner to the bond trustee, bond issuer, credit enhancer and servicer, (2) direction letters from the project owner and the bond issuer to the bond trustee, (3) timely notice from the trustee to bondholders, (4) consents from the bond issuer and the credit enhancer, (5) tax opinions from bond counsel, (6) opinions from borrower counsel regarding certain bankruptcy code provisions, (7) defeasance escrow agreements, (8) releases of liens from the bond trustee and the credit enhancer, (9) release of the bond regulatory agreement from the bond issuer, (10) certificates from the bond trustee, bond issuer and credit enhancer and (11) dissolution agreements may be required if the tax-exempt bonds are secured by a mortgage-backed security structure.

In addition, bond counsel will usually require evidence from the project owner that the qualified project period will end with the redemption of the tax-exempt bonds. The project owner may need to provide evidence of the date on which at least 50% of the units in the project were first occupied and evidence that the project has been in compliance with the terms of the bond regulatory agreement.

Project owners who are considering selling a multifamily project financed with tax-exempt bonds will want to be aware of the process and time required to prepaying the bonds.