FHA Septic & Well Appraiser Lawsuit

[NC Appraising]

Handbook dtd 11/09/2021 as revised 8/2/2023 4000.1 Page# 605(at bottom page numbering) p . 1on Site sewage Disposal Systems aka septic tank & Drain field

I can't cut and paste Sorry maybe someone else can

Is this it?
Per Handbook 4000.1 Page 597:

The Appraiser must also be familiar with the minimum distance requirements between private wells and sources of pollution and, if discernible, comment on them. The Appraiser is not required to sketch or note distances between the well, property lines, septic tanks, drain fields, or building Structures but may provide estimated distances where they are comfortable doing so. When available, the Appraiser should obtain from the homeowner or Mortgagee a copy of a survey or other documents attesting to the separation distances between the well and septic system or other sources of pollution.

1. The OP should turn the appraiser into the state and HUD (already did to HUD).
2. I know some appraisers just lie about the septic and well not being able to be connected just to make the loan to go through. So I guess they could just lie about it being connected to public sources just to make it breeze by the DEU.
3. That being said, the OP needs to eat it and they deserve too. I have to assume that the OP did not know about these distance guidelines.....so after the fact, they want to blame the appraiser for sewage backup?
A. The OP knew from the MLS and the owner's disclosure that it is connected to a private septic system.
B. The OP should have done their due diligence and hired a professional if they were that concerned AND not closed until the results came back.
C. The borrower is not the client. https://www.HUD.gov/sites/dfiles/SF...For Your Protection Get a Home Inspection.pdf
D. If the OP did know about the distance guidelines BEFORE closing, they are even more in the wrong and cannot cry wolf. They should have contacted the appraiser or the lender to have them to correct the report IF THEY WERE REALLY THAT CONCERNED.

That being said, the only issue that the owner can be somewhat upset about is not being able to refi with HUD or when selling the property cannot go FHA. BUT STILL, the OP knew before closing the appraiser screwed up. The OP should had the appraiser to correct it before closing. Although, what about FHA 203K?

Now if the OP did not know FHA guidelines, I can give them a benefit of the doubt...not being able to refi with HUD or when selling the property cannot go FHA. I would be pissed.

 

[Deleted member 142783]

The issue is not an adjustment between public or septic. The issue is the minimum property requirements on this item were not verified and it did not and can not qualify due to not having sufficient space for repair or replacement which would have also had to be verified in the well waiver, and now costs over $100,000.00 to bring up to current health and safety codes.

Only if financially feasible. What did I miss? Is there no public connection and some issue with the well or septic based on lot size/location?

 

[Tom D]

my question, did you get a copy of the appraisal before closing. when did you see the missing non checked box.
i'm a big city appraiser, but don't you other appraisers always check to see if there is a septic, or well, just by asking the owner. when the owner didn't know where it was located it reminds me of cast iron sewer lines in a row home that are original and rusted out inside. or maybe in the old days lead lines just past their life span, and you just bought it before collaspe..
the closeness of the well, or septic, can be over ridden by an underwriter. just like the cost of public connection can be too high to be connected if there, not required by an underwriter.
the poster has a ocd about their FHA deficiency rulings, kinda like the eternal loop of going over and over the same thought without an answer. obviously, since no closure, that loop goes on and on. best of luck, the appraiser made a mistake, but maybe not the only one to.

 

[Zoe]

Is this it?
Per Handbook 4000.1 Page 597:

The Appraiser must also be familiar with the minimum distance requirements between private wells and sources of pollution and, if discernible, comment on them. The Appraiser is not required to sketch or note distances between the well, property lines, septic tanks, drain fields, or building Structures but may provide estimated distances where they are comfortable doing so. When available, the Appraiser should obtain from the homeowner or Mortgagee a copy of a survey or other documents attesting to the separation distances between the well and septic system or other sources of pollution.

1. The OP should turn the appraiser into the state and HUD (already did to HUD).
2. I know some appraisers just lie about the septic and well not being able to be connected just to make the loan to go through. So I guess they could just lie about it being connected to public sources just to make it breeze by the DEU.
3. That being said, the OP needs to eat it and they deserve too. I have to assume that the OP did not know about these distance guidelines.....so after the fact, they want to blame the appraiser for sewage backup?
A. The OP knew from the MLS and the owner's disclosure that it is connected to a private septic system.
B. The OP should have done their due diligence and hired a professional if they were that concerned AND not closed until the results came back.
C. The borrower is not the client. https://www.HUD.gov/sites/dfiles/SFH/documents/92564CN - For Your Protection Get a Home Inspection.pdf
D. If the OP did know about the distance guidelines BEFORE closing, they are even more in the wrong and cannot cry wolf. They should have contacted the appraiser or the lender to have them to correct the report IF THEY WERE REALLY THAT CONCERNED.

That being said, the only issue that the owner can be somewhat upset about is not being able to refi with HUD or when selling the property cannot go FHA. BUT STILL, the OP knew before closing the appraiser screwed up. The OP should had the appraiser to correct it before closing. Although, what about FHA 203K?

Now if the OP did not know FHA guidelines, I can give them a benefit of the doubt...not being able to refi with HUD or when selling the property cannot go FHA. I would be pissed.

There were several players that should have let the buyer know. Many people assume certain things when they don't know. They don't know how strict some code enforcements are, especially when property was not in a jurisdiction and then was annexed and new sewer and water pipes were installed.

I don't think the OP is an appraiser. I think they bought the property. They are listed as general pubic.

 

[Zoe]

Take H&B use as if vacant. One of first things we do is check utilities, zoning, etc. On sewer an aerial view will usually tell you without calling the utility company or code or whoever. You will see manholes on the street or next to the street. Sometimes on roads the public sewer manholes are located just a little off the road or street.

They can pull all of those manholes up pretty quick on a computer and say yes that property has access to public sewer or no that property does not have access to public sewer.

 

[Zoe]

Another point. Many jurisdictions allow non public sewer systems as long as they are sanitary and inspected at time of transfer of the property. In other words, they had a permit pulled when they did the non-public sewer system.

 

[Deleted member 142783]

I'm not sure how an E & O will defend the fact that the appraiser went against what it was listed as.

Error = mistake. I am pretty certain out of the thousands of appraisals I have done, I have checked a wrong box….

Unless there is an email or text thread about purposely misrepresenting the property utilities, this will be an e and O claim and you will be fighting a 500k to 1mm policy

 

[Deleted member 142783]

Only 1.
Local codes require a waiver for the replacement systems water well being less than 100 ft from the drainfield, but FHA does not accept anything less than 75ft in this case even the replacement system would not meet minimum property requirements. 66ft

It makes sense to me now that they have no incentive to point out the error when they can close the loan knowing HUD will not hold them accountable.

They told the lender "there was no way they could have known."

I've seen posts about this particular lender "forcefully" telling appraisers they only accept as is appraisals meaning any subject to further inspection to meet FHA minimum property requirements conditions would have to be removed.

Yea this can happen. Seems like you would need to review all appraiser client communication to find out if this is the case with you…. Probably an expensive endeavor

 

[Zoe]

Yea this can happen. Seems like you would need to review all appraiser client communication to find out if this is the case with you…. Probably an expensive endeavor

Did they have a real estate agent? Did they have a home disclosure from real estate agent representing seller? Don't put that crap on the appraiser alone.

 

[The Bob]

It is apparent you don't, or at least I hope you don't perform FHA appraisals or you would know "grandfathering" is not allowed per FHA, instead the property must either meet FHA minimum property requirements OR be updated to meet them in order for the loan to fund.

In this case the property did not and cannot physically meet the distance requirements on septic and well to qualify for an FHA loan which was not determined because of the APPRAISERS failure to report the system.

The APPRAISER is the only person required to determine and disclose property specific characteristics that determine eligibility to the lender.

You make me question the entire appraisal industry.

See below for your obvious CE needs.

https://appraisersforum.com/forums/...nd-grandfathered-override-known-FHA-d.198800/

"Grandfathering" is not the relevant issue here. Compliance with Minimum Property Requirements is the issue. This property fails MPR. Just report the condition. The DEU will decide if correction is feasible. If not, they will reject the property.

See HUD Handbook 4000.2

2-6 GENERAL ACCEPTABILITY STANDARDS FOR PROPERTY. There are minimum property standards for existing and proposed construction. A property is considered "existing construction" if it was completed more than one year prior to application. See HUD Handbooks 4905.1 and 4910.1 for additional information on existing and proposed construction, respectively.
Underwriters bear primary responsibility for determining eligibility of a property for FHA mortgage insurance. However, the FHA appraiser is the on-site representative for the Mortgagee and provides preliminary verification that these standards have been met. The “Notice to the Lender” requires the FHA appraiser to report the physical conditions that are readily observable on the date of the site visit and to detail the repairs needed to establish and/or maintain the marketability of the property, protect the health and safety of the occupants, and protect the security of the property. These criteria must be addressed by the Mortgagee before closing.
When examination of existing construction reveals noncompliance with the General Acceptability Criteria, an appropriate specific condition to correct the deficiency is required if correction is feasible. If correction is not feasible and only major repairs or alterations can effect compliance, the Mortgagee will reject the property.

The highlighted above is flat out wrong. Even what you posted in the last paragraph bears that out.

Utilities – Well and Septic
Is the appraiser still required to report well, septic and property line distances on an addendum to the URAR or is this only required when problems are noted? How is the lender to determine if these distance requirements are met if the appraiser is not required to identify?

The appraiser is not required to sketch the distances between the well and septic, however, he or she should be mindful of FHA's minimum distance requirements between private wells and sources of pollution (septic systems)in the performance of FHA appraisals; and, if discernible, comment on them. Prudent appraisal practice would have the appraiser requesting a copy of a survey from the homeowner, if available. If the appraisal notes a distance issue, it could be potential for contamination. If the appraisal notes any adverse site conditions, that may warrant further inspections or due diligence. In either case, it is the lender's decision as to whether a qualified third party should map the distances and/or require testing for compliance with local or state requirements, or, in their absence, FHA requirements. Appraisers are expected to have geographic competency, which would include familiarity with local or customary inspection requirements. Local or customary requirements should be noted within the appropriate area of the appraisal report. However, the decision to require a test, certification or inspection, other than what is automatically required as noted in ML 2005-48, is made by the lender and FHA requires the lender to be familiar with the market areas in which they lend.

Is it mandatory for a well/septic report to show distance to lot lines?

There is no standardized well/septic report and its contents would typically be determined by what is requested. If a lender determines that there is a need to confirm distances between well and septic systems, or lot lines, then the lender would specifically request that a qualified third party measure such distances.

I agree you were screwed by an incompetent appraiser checking the wrong box, but lets step back and say what if the appraiser had checked W&S? If the inspector couldn't locate the septic, how do you expect the appraiser to do that? If the appraiser didn't see and obvious evidence of a problem (odor, water pooling on ground, etc...), then there is nothing to report. As far as distances, read the above very carefully....HINT: It's the LENDERS job to verify distances. You got caught in a "catch 22" because the appraiser checked the wrong boxes and the lender failed to catch it. I hope it works out for you.

https://icapweb.org/uploads/FHA%20-%20FAQs%2012-07-2012_1358964931.pdf

https://www.HUD.gov/sites/documents/DOC_12628.PDF