FHA Handbook Updates Confusion And Clarification

[Tejus]

I was planning on writing an article on the FHA Handbook Updates when I had time. While procrastinating, I found an article that covers many of my points so I included a link below (atta-girl to Joanna Conde for the article):

http://www.aareaonline.org/p449.html

The article provides a detailed description of the FHA Appraiser's HVAC inspection requirements and the Appraiser's potential liability.

Many Appraisers may write this off as another scare tactic and claim there are no significant differences in the updated handbook for the Appraiser. This could not be further from the truth. I have personally discussed this specific issue (and many other related issues) with the FHA staff member responsible for the FHA Handbook Appraisal section, (Rob F.)

Due to all the confusion, conflicting claims and chaos related to the FHA Handbook updates, I contacted FHA to discuss this with them directly. Rob F. is the FHA staff member responsible for the FHA Handbook section on Appraisals. Rob stated the handbook updates were written by a committee (which explains some of the confusion and I don't envy Rob for being in the middle of this).

Rob said FHA is having problems with some Appraisers doing a poor job and they are trying to address this fraud with the updated Handbook.

Rob said the general FHA Appraisal inspection requirements are:

Observe - Analyze - Report and use common sense

I agreed with Rob this was a good basis for the appraisal inspection.

I then pointed out to Rob that the Handbook Appraisal inspection requirements are very different than his verbal explanation. The Handbook says do one thing, and the FHA staff say something else. There are also conflicting claims on the inspection requirements from the different FHA/HUD staff.

Rob said he has been contacted by many Appraisers about the Handbook updates. This confirms the confusion in the Appraisal User Community.

We specifically discussed the HVAC inspection requirement. The Handbook states:

i. Heating and Cooling Systems

The Appraiser must examine the heating system to determine if it is adequate for
healthful and comfortable living conditions, regardless of design, fuel or heat source.

The Appraiser must notify the Mortgagee of the deficiency of MPR or MPS if the
permanently installed heating system does not:
• automatically heat the living areas of the house to a minimum of 50 degrees
Fahrenheit in all GLAs, as well as in non-GLAs containing building or system
components subject to failure or damage due to freezing;
• provide healthful and comfortable heat or is not safe to operate;
• rely upon a fuel source that is readily obtainable within the subject’s geographic
area;
• have market acceptance within the subject’s marketplace; and
• operate without human intervention for extended periods of time.

I explained to Rob that most (if not all) Appraisers do not have the expertise or testing equipment to perform this type of an HVAC inspection.

Rob stated all the Appraiser needed to do for the FHA HVAC inspection was to confirm the HVAC system is similar to comparable properties in the neighborhood.

I pointed out to Rob that his verbal explanation for the HVAC inspection requirements is completely different than the Handbook inspection requirements.

We had a similar discussion on the attic inspection. Rob said the Appraiser only needs to enter the attic if this can be done safely. Rob clarified this by saying the attic must have a floor to be safe, the appraiser is not required to crawl over trusses. I again pointed out to Rob that his verbal attic inspection requirements are completely different than the Handbook attic inspection requirements.

Rob finally began to realize the Handbook inspection requirements are very different then what he is telling people. I also explained the Appraiser's potential liability. The Appraiser will be held to the FHA Handbook inspection requirements, not what an FHA staff member (or other party) verbally tells the Appraiser. See the article link above.

I explained to Rob that the FHA Handbook needs to be consistent with the FHA Staff's verbal description of the Appraiser inspection requirements. If the FHA Handbook does not accurately identify the Appraisal inspection requirements, then it MUST be updated to be accurate. FHA must identify the inspection requirements in writing, this is the only way an Appraiser will be able to defend themselves against liability claims.

For the Appraisers currently performing FHA appraisals, I wish you the best of luck but you are leaving yourself wide open to liability claims for your non compliance with the FHA Handbook Appraisal inspection requirements. If your defense is "The FHA staff told me I didn't need to comply with the FHA Handbook Appraisal inspection requirements even though my appraisal says I did", then good luck, you're gonna need it.

Rob will have an FHA webinar later this month. One of the topics will be the inspection requirements. The webinar may be helpful, but FHA still needs to accurately specify the FHA appraisal inspection requirements in writing for the Appraiser to avoid the liability.

Until FHA accurately specifies the FHA Appraisal Inspection requirements in writing, everyone should avoid the FHA assignments.

 

[Terrel L. Shields]

For the Appraisers currently performing FHA appraisals, I wish you the best of luck but you are leaving yourself wide open to liability claims for your non compliance with the FHA Handbook Appraisal inspection requirements

Frustrating to see them say one thing and write something else. Crazy...

 

[chris gallo]

its beyond crazy, you must check the sump pump to see if it is operating correctly. Who is to say that is does or does not? Is it full of water? what is the requirement of the float, did you install it, do you have the guide to that specific pump. No you do not. Reach your hand into that pit and manually try and activate it. There are many reasons why it will and will not run, some just have a bad switch on the electrical side and you take the plug to the switch and move it to wall and all of a sudden it works! The question is why are we doing this? We are not mechanical inspectors and if you miss this you could be liable for the basement flooding based on the handbook. This book needs to be re written or appraisers need to be paid two separate fees, one for the appraisal, the other for the "home inspection".

 

[EddieB]

I would like to see the crawl space inspection protocol discussed. There are few, if any crawls that can be inspected as written without potential for personal injury.

 

[KenAZ]

I would like to see the crawl space inspection protocol discussed. There are few, if any crawls that can be inspected as written without potential for personal injury.

And you need to get a photo while you are down there!
Notice how the HVAC states that the heating must be "Comfortable?" but only is an MPR if it cannot get above 50 degrees.

 

[glenn walker]

It's no different then anything the Government puts together and that is why we need a CPA or Tax attorney to interpret the tax codes. Having grown up around military bureaucrats I learned at a very young age that it's all about implementing rules and procedures that can be broken or violated at anytime. BUT at the same time there are always areas of interpretation. The appraiser reads a section that says entire attic area is to be inspected or observed and that's true so if you stick your head in an attic scuttle and you pull out that big Flashlight and you can only see 5 feet in any direction that's the best you can do ** Appraiser panics and screams I cannot see the entire attic area because there is a FWA/CAC unit in there and there is 2 feet of insulation and there is no floor to walk on. The guy like me says hey wait a minute all I can observe is what is visible so I stick my head up there again and take about 6 photos showing what is in the attic area. ( DONE )

I have done all that I can physically. FHA does not expect the appraiser to walk on a 2 X 4 and fall through the owners ceiling. FHA only expects the appraiser to complete what is reasonable and safe. The appraiser completes the report and states they opened the attic scuttle door and there was no floor to walk on and he/she visually observed the area that was visible. Attach the photos and be done. There are many attics that are not accessible period. State the fact and be done and if the FHA DE Underwriter wants she/he can order a further inspection by a licensed contractor.

If I lived in a cold eastern state and it had just snowed and there was 3 feet of snow on the roof how could you visually inspect the roof from the ground to see if there was missing shingles or if the roof was in poor shape? The appraiser could not so what would I do ? I would take photos of the roof covered with snow and state I could not complete a visual inspection because the roof was covered in snow. DONE

I have worked with FHA for many years and they are very helpful and understand that not everything fits neatly into a manual that was written for the entire nation. The appraisers at FHA/HUD are mostly appraisers themselves and if you call your local HOC most will give you direction on how to handle a situation. Use common sense and document and explain in your report what you did and always include photos.

 

[CANative]

Once again, Glenn Walker tells it like it is.

When did appraisers become such pantywaists?

 

[KenAZ]

Some of what you have stated is not supported by the new FHA regulations. You are interpreting downward to try and state that the FHA regulations are not as strict as they appear to be, when in fact the manual DOES say that you must completely enter the attic, and if you can't, then you do head and shoulders, and if you can't do that . . .YOU must call for a licensed contractor.

I can promise you that even though they may be nice when YOU call THEM, but they are not very nice when THEY call YOU. They will threatened you with sanctions, even if the regulation was never published. If you did not see that roof due to snow, and do not call for an inspection, they will come after you. If you do not flush EVERY toilet and turn on EVERY hot water faucet at the same time, they WILL come after you if there is a hint of a problem.

I live in the real world. After dealing with HUD for over 30 years, they have caused nothing but pain and suffering for the appraisers that try to be "Reasonable" and do not follow the letter of the law.

 

[RSW]

It's no different then anything the Government puts together and that is why we need a CPA or Tax attorney to interpret the tax codes. Having grown up around military bureaucrats I learned at a very young age that it's all about implementing rules and procedures that can be broken or violated at anytime. BUT at the same time there are always areas of interpretation. The appraiser reads a section that says entire attic area is to be inspected or observed and that's true so if you stick your head in an attic scuttle and you pull out that big Flashlight and you can only see 5 feet in any direction that's the best you can do ** Appraiser panics and screams I cannot see the entire attic area because there is a FWA/CAC unit in there and there is 2 feet of insulation and there is no floor to walk on. The guy like me says hey wait a minute all I can observe is what is visible so I stick my head up there again and take about 6 photos showing what is in the attic area. ( DONE )

I have done all that I can physically. FHA does not expect the appraiser to walk on a 2 X 4 and fall through the owners ceiling. FHA only expects the appraiser to complete what is reasonable and safe. The appraiser completes the report and states they opened the attic scuttle door and there was no floor to walk on and he/she visually observed the area that was visible. Attach the photos and be done. There are many attics that are not accessible period. State the fact and be done and if the FHA DE Underwriter wants she/he can order a further inspection by a licensed contractor.

If I lived in a cold eastern state and it had just snowed and there was 3 feet of snow on the roof how could you visually inspect the roof from the ground to see if there was missing shingles or if the roof was in poor shape? The appraiser could not so what would I do ? I would take photos of the roof covered with snow and state I could not complete a visual inspection because the roof was covered in snow. DONE

I have worked with FHA for many years and they are very helpful and understand that not everything fits neatly into a manual that was written for the entire nation. The appraisers at FHA/HUD are mostly appraisers themselves and if you call your local HOC most will give you direction on how to handle a situation. Use common sense and document and explain in your report what you did and always include photos.

Here is the old FHA appraisal protocol for snow covered roofs:

4150.2, 1-24
2.Snow Covered Roofs
a.In areas where the snow is likely to lay for more than a few days:
1)The appraiser is required to make an extra thorough inspection of the attic and all visible
roofing areas for signs of failing roofing materials.
2)If there is evidence of damage and/or leaks the appraiser is to condition appropriately for
correction(s).
3)If there is no evidence of damage and/or water leaks. The borrower must be informed
that the roof was snow covered at the time of the appraisal and that it is acceptable to the
purchaser without any warranty or guarantees from HUD/FHA.
4)If the borrower has concerns, they can request the seller to shovel the roof for inspection
by a qualified roofer. If damage occurs during shoveling, it is between the buyer and seller
to resolve.
b.In areas where the snow is not likely to lay for more than a few days a clear roof
inspection is to be obtained prior to closing.
1)The appraiser is required to make an extra thorough inspection of the attic and all visible
roofing areas for signs of failing roofing materials and call for a clear roofing inspection.
2)If the Underwriter determines, due to unusual weather conditions, it is not possible to
obtain the clear inspection prior to closing, then the purchaser and seller are to sign an
acknowledgment that indicates:
i)The roof was covered with snow at the time of the appraisal inspection,
ii)The snow is likely to continue to cover the roof for several more days and that the roof
cannot be inspected prior to loan closing
iii)HUD/FHA makes no guarantees or warranties as to the roof's condition.
3)A clear roof inspection must then be obtained prior to submission for FHA Insurance or an
escrow account equal to 1 ½ times the cost of a new roof is to be established in the event
repairs or a new roof is found to be needed when the inspection takes place. (Certification is
to be in the insuring package.)

 

[CANative]

Some of what you have stated is not supported by the new FHA regulations. You are interpreting downward to try and state that the FHA regulations are not as strict as they appear to be, when in fact the manual DOES say that you must completely enter the attic, and if you can't, then you do head and shoulders, and if you can't do that . . .YOU must call for a licensed contractor.

Same as before. The old handbook said "entirety" the new handbook says "all."