FHA Shared Well

[ZZGAMAZZ]

The subject of the FHA lending assignment is of a parcel with no public water utility; no well; and water pumped from a well on the adjacent property that the borrower also owns but leases, although the lease terms do not address a "shared well agreement" (although technically the well isn't shared, per se, because the adjacent property where the well is located relies upon public water, but that perspective is way too literal of an interpretation of "shared" IMO).

So . . . the report would be conditioned Subject To CB4 a well certification, with a corresponding Extraordinary Assumption . . . but could the appraiser also impose a Subject To CB3 that the lease terms do indeed address the shared well, becuase all that's needed is an addendum to the lease) with a corresponding Hypothetical Condition.

Seems straightforward--and probably is--but something tells me the HC would be a stretch being applied simply to create a silk purse.

Peer comments?

p.s. If both the EA and HC are appropriate, can the appraiser advise the borrower to provide results of both "Subject To" factors directly to the lender so the appraiser can move on ?

 

[RSW]

I don't think an EA is appropriate. I would make the report Subject To a written agreement for the well maintenance and us a HC.

 

[ZZGAMAZZ]

I don't think an EA is appropriate. I would make the report Subject To a written agreement for the well maintenance and us a HC.

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but the well cert can't be conducted until a lease agreement exists, right??? (obviously my 1st encounter)

 

[glenn walker]

The subject of the FHA lending assignment is of a parcel with no public water utility; no well; and water pumped from a well on the adjacent property that the borrower also owns but leases, although the lease terms do not address a "shared well agreement" (although technically the well isn't shared, per se, because the adjacent property where the well is located relies upon public water, but that perspective is way too literal of an interpretation of "shared" IMO).

So . . . the report would be conditioned Subject To CB4 a well certification, with a corresponding Extraordinary Assumption . . . but could the appraiser also impose a Subject To CB3 that the lease terms do indeed address the shared well, becuase all that's needed is an addendum to the lease) with a corresponding Hypothetical Condition.

Seems straightforward--and probably is--but something tells me the HC would be a stretch being applied simply to create a silk purse.

Peer comments?

p.s. If both the EA and HC are appropriate, can the appraiser advise the borrower to provide results of both "Subject To" factors directly to the lender so the appraiser can move on ?

An-addendum to the shared well lease has nothing to do with the condition of the well, how far is it from the main house and worse is if its also located on a septic system because now you have two potential issues. The well contractor will sketch where the well is located, and what distance it is from the house and any septic tanks. That way the the appraiser is not making any guesses and he may also get a water test to see if its even potable.

Anyway I would not worry about it and make the report subject to a well inspection and certification- wells and septic systems are considered potential health & safety issues and HUD doesn't want the appraiser making any guesses. So dump it on the DE Underwriter and let her do what she needs to have done.

I learned the hard way when I did one years ago and a month after close of escrow the well started-sucking sand and 6 weeks later I got served a subpoena and the new buyer sued me , the seller and the Realtors. The judge said the seller disclosed the property was on a well and made no warranty as to its condition and he let the seller skate but he was not so nice to the Realtors and me and he said we were professionals and one of us should have recommend an-inspection by a licensed well contractor. The judgement was about $12,000 and we split it three ways. When the old well guy came out he told me that I was one lucky SOB because in that area he said it was often difficult to find any water to drill. I can't even imagine if it would have been a shared well then I might of had multiple parties going after me. Anyway I may be wrong but I would be Leary about making Double Assumptions because one is right and one is wrong and why take the risk when a well certification will lay the liability on the DE Undewriter and the contractor... Just saying

An extraordinary assumption is an assumption which if found to be false could alter the resulting opinion or conclusion. A hypothetical condition is an assumption made contrary to fact, but which is assumed for the purpose of discussion, analysis, or formulation of opinions. So your expectation would be that one assumption will wipe out the other assumption ? Unfortunately that is not quite the way it works if you ever get sued.

 

[ZZGAMAZZ]

An-addendum to the shared well lease has nothing to do with the condition of the well, how far is it from the main house and worse is if its also located on a septic system because now you have two potential issues. The well contractor will sketch where the well is located, and what distance it is from the house and any septic tanks. That way the the appraiser is not making any guesses and he may also get a water test to see if its even potable.

Anyway I would not worry about it and make the report subject to a well inspection and certification- wells and septic systems are considered potential health & safety issues and HUD doesn't want the appraiser making any guesses. So dump it on the DE Underwriter and let her do what she needs to have done.

I learned the hard way when I did one years ago and a month after close of escrow the well started-sucking sand and 6 weeks later I got served a subpoena and the new buyer sued me , the seller and the Realtors. The judge said the seller disclosed the property was on a well and made no warranty as to its condition and he let the seller skate but he was not so nice to the Realtors and me and he said we were professionals and one of us should have recommend an-inspection by a licensed well contractor. The judgement was about $12,000 and we split it three ways. When the old well guy came out he told me that I was one lucky SOB because in that area he said it was often difficult to find any water to drill. I can't even imagine if it would have been a shared well then I might of had multiple parties going after me. Anyway I may be wrong but I would be Leary about making Double Assumptions because one is right and one is wrong and why take the risk when a well certification will lay the liability on the DE Undewriter and the contractor... Just saying

An extraordinary assumption is an assumption which if found to be false could alter the resulting opinion or conclusion. A hypothetical condition is an assumption made contrary to fact, but which is assumed for the purpose of discussion, analysis, or formulation of opinions. So your expectation would be that one assumption will wipe out the other assumption ? Unfortunately that is not quite the way it works if you ever get sued.

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My rationale was 1) FHA requires a lease agreement that addresses the sharing; and the CB3 HC would pertain to an addendum to the existing lease; and, an CB4 EA would pertain to satisfactory results of the well cert.

 

[glenn walker]

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My rationale was 1) FHA requires a lease agreement that addresses the sharing; and the CB3 HC would pertain to an addendum to the existing lease; and, an CB4 EA would pertain to satisfactory results of the well cert.

You can do it that way if you want to its a business decision. You may want to send "CAN" a message because he is the man on these well and septic situations. He works a lot more rural properties and has a good grip on the FHA guidelines when it comes to EA & HC. Good luck it's always interesting to work through some of these situations and your rationale my be spot on so if you feel comfortable just do it

 

[jay trotta]

ZZG;
The subject of the FHA lending assignment is of a parcel with no public water utility; no well; and water pumped from a well on the adjacent property that the borrower also owns but leases, although the lease terms do not address a "shared well agreement" (although technically the well isn't shared, per se, because the adjacent property where the well is located relies upon public water, but that perspective is way too literal of an interpretation of "shared" IMO).

What does the "Deed" contain for language on "water rights" ??
Don't know Your area, so I can only recall area's that I've worked where the Deed held specific "water rights"; rights of passage to & from, for accessibility & maintenance, no lease required.
Good Luck

 

[CANative]

You can see the lease for the adjoining land (under the same ownership as your subject.) And I assume you walked over there and took a look at the system. You can see (and tested the flow) of domestic water for your subject property. All is "well" so far.

Here's where the problem comes in: "because the adjacent property where the well is located relies upon public water, "

Water Supply Systems

(1) Public Water Supply System

The Mortgagee must confirm that a connection is made to a public or Community Water System whenever feasible and available at a reasonable cost. If connection costs to the public or community system are not reasonable, the existing onsite systems are acceptable, provided they are functioning properly and meet the requirements of the local health department.

If the existing system is not typical and connection to the public system is feasible and available at a reasonable cost, then the mortgagee must ensure connection to that public source. (my comment)

Condition on connection to public water (it's up to the mortgagee to determine feasibility and cost) using an HC that the connection existed on the effective date. I don't think you need an EA that the owner doesn't have the right to the water that is on his own land, leased or not.

 

[ZZGAMAZZ]

You can see the lease for the adjoining land (under the same ownership as your subject.) And I assume you walked over there and took a look at the system. You can see (and tested the flow) of domestic water for your subject property. All is "well" so far.

Here's where the problem comes in: "because the adjacent property where the well is located relies upon public water, "



If the existing system is not typical and connection to the public system is feasible and available at a reasonable cost, then the mortgagee must ensure connection to that public source. (my comment)

Condition on connection to public water (it's up to the mortgagee to determine feasibility and cost) using an HC that the connection existed on the effective date. I don't think you need an EA that the owner doesn't have the right to the water that is on his own land, leased or not.

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"HC" is for "holy cow" rather than "Hypothetical Condition"!!!!!!

 

[ZZGAMAZZ]

So if public water is reaily available, reliance upon a well is unacceptable to HUD? That is certainly a twist of which I was unaware although the standard as written is straightforward. Thanks very much.