August 29, 2017
In our previous blog post, we examined FHA loan rules for properties that were in the process of being purchased (but had not closed the deal) before a natural disaster struck. What happens when an FHA home loan is not endorsed by the lender prior to the disaster?
The answer may first depend on whether or not the location of the home is in a federal disaster area or not. The following information applies only to homes located in a federally declared major disaster area-according to HUD 4000.1, the FHA loan handbook:
“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”.
The FHA loan handbook adds that the Incident Period is defined by FEMA, not the FHA.
FHA Loan Escrow And Inspection Requirements For Loans Not Endorsed Prior To A Major Disaster
Escrow and inspection requirements for FHA home loans that were closed but not yet endorsed when the disaster hit have the following requirements, based on circumstance:
-When the mortgage is closed but not yet endorsed, the lender is required to “Inspect the Property to determine if damage exists. Provide drive-by inspection with exterior photographs”.
-If no damage exists, the lender is instructed to close the mortgage and document the inspection.
-If there is damage valued at less than $5,000, the lender is required to “Complete repairs and endorse Mortgage or establish repair escrow and endorse Mortgage”.
-If the damage is above $5,000 or the home is not habitable, the lender is instructed not to close the mortgage until repairs and a new inspection are complete.
Age Of The Appraisal
Appraisal validity in such cases may be an issue. According to HUD 4000.1, “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.”
Furthermore, “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.” Ask your loan officer how/if these instructions apply to your transaction.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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