FHA/HUD | 2026-11-04

HUD Working Capital Escrows Need Two Release Tracks

HUD-92412M separates working capital from any construction contingency, limits their permitted uses, and ties unused balances to different release milestones.

HUD's current forms page identifies HUD-92412M, Escrow Agreement for Working Capital, for transactions with firm commitments issued on or after April 1, 2026. When the Firm Commitment requires the escrow, the borrower must fund it at or before HUD's initial endorsement of the Note. The form states that this requirement applies to both profit-motivated and not-for-profit borrowers.

The lender controls the escrow at all times. For new construction, when the Firm Commitment requires it, the escrow is split equally between a Working Capital Amount and a Construction Contingency Amount; outside new construction, it consists only of the Working Capital Amount. Funding may be cash or one or more unconditional, irrevocable letters of credit issued to the lender by a compliant banking institution and attached as Exhibit A.

The two amounts have different permitted uses. Working capital may cover project furniture, fixtures, and equipment not paid from loan proceeds, marketing and lease-up costs, and specified construction or post-completion accruals after available Building Loan Agreement funds are exhausted. The construction contingency, when applicable, may cover cost overruns and HUD-approved change orders. Other releases or allocations require HUD's prior written approval.

Unused working capital is returned at the borrower's request at the later of 12 months after final endorsement or six consecutive months of Sustaining Occupancy at 1.0 debt-service coverage, subject to any different figures inserted under Program Obligations. By contrast, an unused construction-contingency balance is returned at final endorsement. A closing tracker should separately identify each amount, funding form, letter-of-credit issuer and duration, permitted uses, approval path, release test, supporting evidence, and responsible party. This note is informational only and is not legal advice for any specific transaction.