The story of this single mother’s harrowing experience with a defective home purchase and HUD’s negligent oversight exposes deep flaws in the FHA appraisal and loan review process. After sacrificing for years to rebuild her credit and earn the right to become a homeowner, this borrower found her dream home in the country – or so she thought. During the home inspection, several issues were flagged. The seller, an investor who had purchased the home in an estate sale, was unaware of the system’s location. The seller agreed to have the tanks pumped so the location could be determined. By the time the AMC appraiser arrived, the septic tank had been located and left uncovered for the appraiser to observe. Despite this, the AMC appraiser marked the home as having public water and sewer, failing to note the FHA’s minimum property requirements for the distance between the well and septic. The appraisal was approved, and the home closed.
Three months later, the borrower began experiencing plumbing issues and learned the well and septic system needed to be completely replaced at a cost exceeding $100,000 – far beyond her means. In researching FHA guidelines, she discovered the glaring violations that should have been caught. When she reported the error to the lender, she was told the appraisal was only meant to determine value, not ensure the home met FHA minimum property standards. HUD echoed this, placing the burden on the borrower’s home inspection. Stuck in a nightmare situation, the borrower filed suit against the lender and appraiser.
What followed was a drawn-out legal battle filled with obfuscation and deception. The lender tried to claim the borrower had purchased the home “as is,” ignoring the FHA’s specific requirements. HUD, when contacted, refused to intervene, stating there was nothing they could do. It was only through the borrower’s dogged persistence that she uncovered a disturbing pattern – HUD allows lenders to self-report loan defects and categorize them in ways that minimize penalties, even when the issues are severe enough to make a home unlivable. In this case, the lender classified the defect as a Tier 4, meaning they “did not know and could not have known” about the issues, despite evidence to the contrary.
Worse still, HUD acknowledged the lender was required to order a field review when a borrower complains, but told the lender they did not have to do so in this case. The appraiser, meanwhile, was found to have intentionally omitted key details from the appraisal, cropping out a deck and fence, and failing to note numerous other issues that should have required the home to be appraised “subject to” repairs. Yet when the borrower sought to depose the appraiser, the request was dismissed as “laughable.”
Ultimately, the courts sided with the lender and appraiser, leaving the borrower and her children homeless and financially devastated. HUD’s response to inquiries revealed that the defect categorization was improper and the lender should have been required to mitigate the issue, but the agency has done nothing to rectify the situation. This single mother’s relentless fight has laid bare HUD’s failure to properly oversee the FHA appraisal and loan review process. Her story is a damning indictment of a system that allows predatory practices to thrive at the expense of those it is meant to serve.
In her own words, the following is her story:
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Losing the Battle to Win the War: How a single mother of two’s refusal to quit exposed HUD’s defected defect taxonomy
In December of 2020 recently divorced borrower and single mother of two found a quaint home in the country, 60 miles from their previous, to start over with her children. She spent the prior two years sacrificing and rebuilding her credit her ex-husband destroyed, to earn the right to become a homeowner. She submitted an FHA offer and scheduled her own home inspection. As most home inspections do, the inspector flagged numerous items that she added in an amended sales contract for the seller to have fixed. The listing stated the property was well and septic, however the seller, who was an investor, purchased the home as an estate sale therefore did not know its location, nor was it on the survey. She asked to have the tanks pumped in order for the seller to locate it. It was located weeks after her home inspection and left uncovered in the home’s front flower bed less than 10ft from the home’s front door prior to appraisal for the appraiser to observe.
