II.A.7.c. Inspection and Repair Escrow Requirements for Mortgages Pending Closing or Endorsement in Presidentially-Declared Major Disaster Areas (09/14/15)
- Kacey Olson
© HUD Single Family Housing Policy Handbook 4000.1
All Properties with pending Mortgages or endorsements in Presidentially-Declared Major Disaster Areas (PDMDA) must have a damage inspection report that identifies and quantifies any dwelling damage. The damage inspection report must be completed by an FHA Roster Appraiser even if the inspection shows no damage to the Property, and the report must be dated after the Incident Period (as defined by FEMA). FHA does not require a specific form for a damage inspection report.
Streamline Refinances are allowed to proceed to closing and/or endorsement without any additional requirements.
FHA does not require the Appraiser to ensure utilities are on at the time of this inspection if they have not yet been restored for the area.
Damage inspections should be completed by the original Appraiser. However, if the original Appraiser is not available, another FHA Roster Appraiser in good standing with geographic competence in the affected market may be used. If the Mortgagee uses a different Appraiser to inspect the Property, the Appraiser performing the damage inspection must be provided with a complete copy of the original appraisal.
All damages must be repaired by licensed contractors or per local jurisdictional requirements. All damages, regardless of amount, must be repaired and the Property restored to pre-loss condition with appropriate and applicable documentation.
Included in this section are:
i. Mortgages Pending Closing
ii. Mortgages Pending Endorsement
iii. Pre-Closing Appraisal Validity in Disaster Areas
i. Mortgages Pending Closing
The following table shows inspection and repair escrow requirements that apply to Mortgages on Properties that have not yet been closed:
Pending Mortgage Closure | |
If… | Then… |
The Mortgage is not closed, | Inspect the Property to determine damage exists. Provide on-site inspection with interior/exterior photographs. |
No damage exists, | Close Mortgage and document inspection. |
Damage exists but is below $5,000 and Property is habitable, | Complete repairs and close Mortgage or establish repair escrow and close Mortgage. |
Damage exists and is above $5,000 or the Property is not habitable, | Do not close Mortgage. Repairs must be complete prior to closing. |
When… | Then… |
Repairs above $5,000 are completed and inspected with interior/exterior photographs, | Document inspection and close Mortgage. |
ii. Mortgages Pending Endorsement
The following table shows inspection and escrow requirements that apply to Mortgages on Properties that have closed but are not yet endorsed:
Pending Mortgage Endorsement | |
If… | Then… |
The Mortgage is closed but not yet endorsed, | Inspect the Property to determine if damage exists. Provide drive-by inspection with exterior photographs. |
No damage exists, | Endorse Mortgage and document inspection. |
Damage exists but is below $5,000 and Property is habitable, | Complete repairs and endorse Mortgage or establish repair escrow and endorse Mortgage. |
Damage exists and is above $5,000 or the Property is not habitable, | Do not endorse Mortgage. |
When… | Then… |
Repairs above $5,000 are completed and inspected with interior/exterior photographs, | Document inspection and endorse Mortgage. |
iii. Pre-Closing Appraisal Validity in Disaster Areas
For Mortgages that are not closed prior to the Incident Period, as defined by FEMA, in PDMDAs where a damage inspection report reveals property damage, the appraisal validity period is extended from 120 Days to a maximum of one year from the effective date of the original appraisal.
In no instance will an appraisal be acceptable for a mortgage closing that has an effective date beyond one year. Mortgages with appraisals having effective dates in excess of one year require a new appraisal.