FHA Appraisal & Valuation Part 2- Inspections & Certification FAQs

Written By: Stacey Sprain

This is part 2 of a multi-part series that provides helpful questions and answers about FHA appraisals, properties and valuations. I recently ran across this list as I was actually searching for something on a completely different topic. I found these FAQs so helpful and informative I felt the need to pass them on in hopes they will be useful to you as well!

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Watch our weekly newsletter in the coming weeks for additional questions and answers that you will find very informative for FHA lending!

Inspections & Certification FAQS

Does the appraiser determine what inspections are required or does the lender determine that?
• Mortgagee Letter 2005-48 provides examples of property conditions that will continue to require automatic inspections. The appraiser should note what inspections, if any, are customary for the area, required by state or local law, or that are recommended based on observed property conditions.

Lenders must review the appraisal to determine whether the appraiser has reported any property conditions that affect the health and safety of the occupants, or the security and the soundness of the property, and must require
immediate repair or inspection where the property condition poses a threat to these criteria.

It was stated that handrails and trip hazards are cosmetic. Wouldn’t these items be health and safety issues?
• The appraiser must always be mindful of health and safety issues and report what is readily observable. The missing handrails or trip hazards are property conditions that no longer require automatic repair for existing properties but should be reported by the appraiser. In these instances, lender discretion and prudent underwriting will determine whether or not a repair is advisable. For example, a stairwell or staircase comprised of eight (8) or nine (9) risers without a handrail would probably pose a safety risk.

Are oil tank certifications still required for underground tanks with no evidence of surface contamination?
• The presence of an underground storage tank (UST) does not automatically trigger a certification. The appraiser is to note if there is any surface evidence of USTs. Further analysis or testing is required where the appraiser notes any readily observable surface evidence of leakage from a UST. If there is readily observable evidence of on-site contamination, the appraiser must make a requirement for further inspection in the site section of the report.

The lender should require further analysis in those instances where a UST exists and the source of heating fuel is other than that provided by the UST, i.e. electric, natural gas, etc., to make sure the tank has been properly abandoned. FHA defers to the underwriter to employ prudent underwriting in requiring any tests or certifications based on reported property conditions.

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Are Compliance Inspection Reports (CIRs) still going to be used for verification that repairs have been completed? Since the appraiser is commenting on the condition of the property, and the lender is the one calling for the repairs, please clarify what will be used for evidence that work has been completed?
• The Compliance Inspection Report (CIR), form HUD-92051, will be used by the appraiser to report whether or not required repairs have been completed. If the lender required a repair as the result of an inspection, or through information obtained other than the appraisal, the lender may use whatever they deem appropriate to document compliance with inspection or certification requirements.

Is an engineer's report (certification) still required for manufactured homes?
• Yes, the engineer’s certification of the foundation’s compliance with HUD/FHA criteria is required for all manufactured homes in order to become eligible for Title II insurance. If the manufactured home is proposed, an engineer must design a site-specific foundation that complies with the Permanent Foundations Guide for Manufactured Housing (PFGMH). For existing manufactured homes already installed on a permanent foundation and in cases where the plans and specifications used to construct the permanent foundation are not available, an engineer must inspect the site and foundation to confirm that the design and construction of foundation is in compliance with the PFGMH.

For new construction, who completes a final inspection? Is a final required? Does the appraisal constitute a final? Will the lender’s certification on the 92900-A, page 3 suffice for a final inspection? If there is a Bldg Permit and CO is a final required?
• The final inspection may be completed by anyone the lender selects for those cases processed under the guidance of ML 01-27 (Lender to Certify). Otherwise the final inspection must be done by an FHA fee inspector. Under these scenarios the lender's certification provided via form HUD-92900-A would suffice as a final inspection.

The appraisal may constitute a final for a newly constructed property that is 100% complete on the date the appraiser visits the property, however, page 3 of form HUD-92900-A is still required to certify completion and compliance with HUD requirements and local building code.

Can you confirm my understanding as to whether or not the DE Underwriter has the authority to waive cosmetic repairs if they are listed on the appraisal report? If so, does the DE Underwriter need to fill out a specific form or just leave the repairs off of the Conditional Commitment?
• Please refer to Handbook 4155.2 Rev-1 (4.5, C.1.c) The DE underwriter may waive cosmetic or unnecessary repairs but not repairs to meet Minimum Property Standards or Minimum Property Requirements, which would include defective construction and conditions that impair the safety, security or soundness of the dwelling. DE Underwriters should document the reason for over riding a repair or an inspection that the appraisal is conditioned upon.

Noted lead based paint still seems to be an issue that is unclear in the minds of some appraisers and lenders. Should the lender automatically call for painting only if the home is pre-1978, or should further measures be taken in all cases?
• Page 6 of Appendix D in Handbook 4150.2 states, “For any home built prior to 1978, check for evidence of defective paint surfaces, including: peeling, scaling or chipping paint. For all FHA insured properties, correction is required to all defective paint surfaces in or on structures and/or property improvements built before January 1, 1978 in accordance with 24 CFR Part 35.” The appraiser is further instructed to provide a detailed description and identify the exact location of any deficiency under “physical deficiencies” affecting livability. The appraiser is required to condition the appraisal on the “repair” of any noted lead based paint deficiencies.

As noted in mortgagee letter 2005-48, defective exterior paint surfaces in homes constructed post-1978 where the finish is otherwise unprotected will require automatic repair.

Who can perform repairs when the appraiser noted defective paint in a home built prior to 1978 in view of EPA’s new lead based paint Renovation, Repair and Remodeling Rule?
• On April 22, 2010, the EPA changed its requirements regarding renovation, repair and painting for houses built prior to 1978 as follows:
o Homeowners performing renovation, repair or painting work on their own home are exempt from the rule but are encouraged to learn to perform lead-safe work practices.

o Property owners/landlords who renovate, repair, or prepare surfaces for painting in pre-1978 rental housing must be certified and follow lead-safe work practices required by the rule.

o Contractors who perform the repair must be certified and must follow specific work practices to prevent lead contamination.

Who can inspect for completion of repairs when the appraiser noted defective paint in a home built prior to 1978 in view of EPA’s new lead based paint Renovation, Repair and Remodeling Rule?
• FHA Roster appraisers and inspectors as well as other independent third parties may perform inspections to verify if painting repairs have been performed as required. These inspections are to determine completion of the repairs, not compliance with the Rule.

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What is appropriate documentation to evidence compliance with EPA’s new lead based paint rule?
• If the repair has been made by a contractor and/or property owner/landlord if rental housing, the underwriter must be provided with a copy of the EPA or state-lead training certificate in the name of the party who performed the work. If the repair was made by the homeowner on their own home, the homeowner must provide the underwriter a letter stating that the homeowner made the repair and an inspection to verify completion of the repair is required.

Can the 1004D be used in lieu of form HUD-92051 for manufactured housing?
• No, manufactured housing, whether new or existing, requires the use of HUD form 92051. The 1004D Part B can be used only for existing site built construction (stick built or modular).

About The Author

Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: contact@mortgageprocessor.org.


Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.