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New FHA Loan On HUD REO Property

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Steven Spychalski

Thread Starter
Sophomore Member
Joined
Jan 14, 2003
Professional Status
Certified Residential Appraiser
State
Illinois
Hello:

I have an issue pertaining to the updated protocol for FHA appraisals on HUD REO properties. Here is the new protocol:

Appraisals for HUD Real Estate Owned Properties Purchased With a New FHA-insured Mortgage (Effective for Case Numbers Assigned on or after March 14, 2016)
A new appraisal must be prepared for all transactions involving the purchase of a HUD REO Property with a new FHA-insured Mortgage. The appraisal must be prepared in accordance with the requirements of HUD Real Estate Owned Properties except as noted.

Property Meets HUD’s MPR (A)
If the appraisal reveals that the Property meets HUD’s MPR, the Appraiser must complete the appraisal report “as is.”
Property Requires Repairs (B)
If the appraisal reveals that the Property requires repairs in order to meet HUD’s MPR, the Appraiser must provide an estimate of the cost to cure and complete the report “Subject to the following repairs or alterations on the basis of the hypothetical condition that the repairs or alterations have been completed.”

I have recived a request to appraise a HUD REO property for a new FHA mortgage. The utilities are not active and HUD will not activate. The lender and Selling agent are citing the above stating that I do not need to have the utilities activated per the requirements of HUD Real Estate Owned Properties. I read the exceptions (particularly B) as the lack of utilities and the inability to test the subsequent systems as causing the subject to fail HUDs MPR.

As such, I would then have to condition for repair. Correct?!?

I did call the HOC and they seemed to be confused.... The rep first insisted there were no new regulations as of March 14th. After I read them verbatim, the rep stated that the intention of that clause was to stop lenders from getting 'Free Appraisals' from HUD and that nothing on my end has changed. I should just complete a 'standard FHA appraisal' and that I am not required to adhere to the protocols of an M&M ordered HUD REO Appraisal."

Anyone have any input? Thanks in advance.
 

Vermonter

Senior Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Vermont
No they will not turn on utilities, but do you have access to the PCR?

I was directed by my HOC to defer to the PCR. It should state what is working and what isn't. If the PCR indicates no MPRs, you do it as is.....but I've never seen one without major MPRs.

Obviously disclose-

The subject property utilities were not connected/functioning on the effective date, therefore the mechanical systems were not checked for functionality by the appraiser, however a visual inspection was performed. The appraiser observed no adverse conditions, however no testing of electrical outlets, plumbing fixtures, heat or appliances was performed. The PCR dated XX/XX/XXXX indicated that all systems were listed in satisfactory condition unless otherwise noted below. If this proves to be false, the appraiser reserves the right to revisit the conclusions and opinion of value in this appraisal report.
 
Last edited:

Steven Spychalski

Thread Starter
Sophomore Member
Joined
Jan 14, 2003
Professional Status
Certified Residential Appraiser
State
Illinois
No they will not turn on utilities, but do you have access to the PCR?

I was directed by my HOC to defer to the PCR. It should state what is working and what isn't. If the PCR indicates no MPRs, you do it as is.....but I've never seen one without major MPRs.

Obviously disclose-

The subject property utilities were not connected/functioning on the effective date, therefore the mechanical systems were not checked for functionality by the appraiser, however a visual inspection was performed. The appraiser observed no adverse conditions, however no testing of electrical outlets, plumbing fixtures, heat or appliances was performed. The PCR dated XX/XX/XXXX indicated that all systems were listed in satisfactory condition unless otherwise noted below. If this proves to be false, the appraiser reserves the right to revisit the conclusions and opinion of value in this appraisal report.

Thanks for the help....

The PCR states everything is 'OK' and 'tested functional' however in the comments it states that the water was off, so the system was not tested. Specifically it states/repeats: "No Pressure. This is a Shard system" and "The water quality and flow capacity was not determined and the full operational functionality of septic systems cannot be determined due to extended non-use of the system and the volume and duration of waste water required to determine same". Only, there is no septic system! the subject is a condo in an urban area. I'm assuming they meant 'Shared System" unless there is some sort of Shard Water System I do not know of....

Am I still supposed to defer to the PCR. At this point I think I may just conduct my inspection, report my results and disclose everything.

The Lender and Seller keep adamantly stating that Utilities are not required when it is a HUD REO property because FHA knows HUD will not activate. I think they are incorrect... And I think they will activate for ~$300, if I recall ($150 on, $150 off)
 

Vermonter

Senior Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Vermont
Oh...condo. I'm no help there.

It is possible to get them to activate the utilities, however I've only seen one agent pull the right strings to get it done around here. All the rest say "never".

Still wondering why the recovery agent couldn't test the plumbing system? They don't need the water on, they usually do it with air pressure. Unless the supply lines are shared between units? Don't think that would work.

Honestly, they aren't the sharpest tools in the shed. I had one recently and nothing in the PCR corresponded to my subject. Stated public water and sewer, it was private well and septic, stated natural gas range and boiler, range was electric and boiler was oil....nearest gas line was 30 miles away. Stated he tested the boiler, but the burner was 18 inches deep in water.

This wasn't for a sale tho, it was for initial listing so it's different, but I addressed everything in the PCR and disclosed what I found.

So if you can't determine the plumbing system is functional and the PCR doesn't indicate it's functional, I would report it subject to either the water on or an inspection from a plumber.
 

Noreen

Senior Member
Joined
Feb 5, 2011
Professional Status
Certified Residential Appraiser
State
New Hampshire
Hello:

I have an issue pertaining to the updated protocol for FHA appraisals on HUD REO properties. Here is the new protocol:

Appraisals for HUD Real Estate Owned Properties Purchased With a New FHA-insured Mortgage (Effective for Case Numbers Assigned on or after March 14, 2016)
A new appraisal must be prepared for all transactions involving the purchase of a HUD REO Property with a new FHA-insured Mortgage. The appraisal must be prepared in accordance with the requirements of HUD Real Estate Owned Properties except as noted.

Property Meets HUD’s MPR (A)
If the appraisal reveals that the Property meets HUD’s MPR, the Appraiser must complete the appraisal report “as is.”
Property Requires Repairs (B)
If the appraisal reveals that the Property requires repairs in order to meet HUD’s MPR, the Appraiser must provide an estimate of the cost to cure and complete the report “Subject to the following repairs or alterations on the basis of the hypothetical condition that the repairs or alterations have been completed.”

I have recived a request to appraise a HUD REO property for a new FHA mortgage. The utilities are not active and HUD will not activate. The lender and Selling agent are citing the above stating that I do not need to have the utilities activated per the requirements of HUD Real Estate Owned Properties. I read the exceptions (particularly B) as the lack of utilities and the inability to test the subsequent systems as causing the subject to fail HUDs MPR.

As such, I would then have to condition for repair. Correct?!?

I did call the HOC and they seemed to be confused.... The rep first insisted there were no new regulations as of March 14th. After I read them verbatim, the rep stated that the intention of that clause was to stop lenders from getting 'Free Appraisals' from HUD and that nothing on my end has changed. I should just complete a 'standard FHA appraisal' and that I am not required to adhere to the protocols of an M&M ordered HUD REO Appraisal."

Anyone have any input? Thanks in advance.
You're fiduciary is to the new lender for the new loan ( and new FHA/HUD approval). The buyer will have to have the utilities turned on to occupy. I take the position of as of this date, this buyer wants an FHA Insured loan and this is what it takes. If the buyer wants it, they will turn on the utilities on their own nickle a little ahead of time for these inspections. ( Won't worry though, you did say it's a condo, common systems?}
 

RSW

Elite Member
Joined
Feb 18, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
I have had this situation come up before and they either had the utilities turned on or I made the report subject to an inspection. I don'the worry about the PCR.
 

Jim Bartley

Senior Member
Joined
Jan 20, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
What he ^^ said.
I just had one like this. PCR mentioned that plumbing failed a pressure test and they could not test water heater and HVAC was not working. I conditioned on all those and on re-inspection once utilities were on.
 
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