Q: I have a reverse mortgage borrower who has been advised her home will be sold in a sheriff's sale due to nonpayment of real estate taxes. She has no mortgage on a $400,000 house that needs extensive repair work, probably including a new roof. She is also a hoarder and the home is totally filled with her things. Are there any special provisions or circumstances in an FHA appraisal that would allow her home to “pass” the appraisal and qualify for a reverse mortgage?
A: With very little exception, FHA appraisals completed for reverse mortgages are no different than an FHA assignment for a standard HUD-insured loan. In short, the property must meet HUD’s Minimum Property Requirements (MPR) to qualify. If conditions exist that do not meet this standard, the appraisal is made “subject to” the repair or correction of the deficient item or condition.
Back in the good old days appraisers were obligated to complete and include a HUD addendum, better known as VC sheets. This four-page addendum required appraisers to specifically address more than 80 site and improvement concerns. Any item that didn’t measure up to the expectations of this form was required to be corrected or repaired prior to closing. However, in January 2006 HUD retired the VC sheets at the same they implemented the mandatory use of the new Fannie Mae report forms.
Although the VC sheets were no longer being used, this didn’t mean homes no longer needed to conform to HUD’s MPRs. Instead, all valuation condition concerns, including repairs, alterations and required inspections, were required to be reported within the appropriate section of the applicable Fannie Mae form.
There are numerous items that could potentially need to be repaired or corrected for a property to meet HUD’s MPRs. To list all of the possible scenarios would take pages of commentary. As such, to make things easier, HUD categorizes all potential concerns into three primary elements, know by many as the three S’s. For a property to qualify for FHA-insured financing, the subject must be safe, sound and secure.
Safety refers to the health, habitability and sanitary condition of a property. Soundness relates to the structure and structural components of the dwelling. And security refers to risk to the insurance fund in terms of a property’s ability to serve as collateral for the FHA-insured loan. It’s these three important elements an appraiser must consider when inspecting a property for an FHA loan. When a deficiency is identified, the appraisal will be conditioned for repair or inspection.
Without inspecting the property that is the subject of your question, it is impossible to determine if the home would “pass” HUD’s MPRs. However, based on your commentary, it would appear the subject would need a new roof to satisfy the soundness element before it would qualify.