Important Updates

Who is responsible for turning on utilities of REO/Bank Owned properties for FHA loans? Since there is no occupant, utility companies are hesitant to turn utilities on. Therefore, in some cases no one is responsible.

Does HUD require the utilities to be on for REO/Bank Owned properties? HUD understands that there are instances when properties are winterized and/or bank owned which will make it near impossible to have utilities turned on. In such cases the underwriter is responsible for clearing these conditions.

Is the appraiser required to inspect utility components for REO/Bank Owned properties? Absolutely, just as the appraiser would for any other standard FHA appraisal inspection.

Is the appraisal subject to utility inspection for REO/Bank Owned properties? Absolutely, just as the appraiser would for any other standard FHA appraisal inspection.

Is there anything the lender/underwriter can do? According to Mortgagee Letter 00-27, yes the underwriter is responsible for clearing these conditions.

Please read the email string below for clarification:

From: Douglas E. Hendricks [mailto:dhendricks@hendricksappraisal.com] Sent: Thursday, April 22, 2010 11:15 AM

To: HUD

Subject: Utilities for REO properties

Hello, I am aware that the utilities for REO or bank owned properties has been addressed in a previous mortgagee letter. However, I cannot recall which one specifically. Regardless, I am running into the same issue quite often and would appreciate your clarification or confirmation. I have had lenders/underwriters demand and require me to go back to the property in order to complete the utility inspection and when I get there the utilities are still turned off. A few days later I am told to go back out again and end up with the same results. Again, this is specific to REO properties. From what I understand, the appraiser is always required to perform all standard FHA inspections regardless of the owner or if vacant. All inspection results are to be disclosed in the appraisal report. However, if the property is a REO/Bank Owned property and the dwelling has been winterized or utilities are not on then the appraiser is to request a copy of the Home Inspection if available and rely on it to address utility items. If the home inspection is to available or not produced within a reasonable time, then the appraiser is to address and explain the steps taken in the report. At which point the lender/underwriter may override due to the fact that it is a REO property and there will be no one responsible for connecting the utilities. Will you please shed some light on this for me? In addition to how I can address with the lender and point them in the right direction for clarity and confirmation as well.

Respectfully,

 Douglas E. Hendricks

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Response from HUD:

Mr. Hendricks,

Mortgagee Letter 00-27 pertains specifically to HUD REO properties. Pursuant to Handbook 4150.2, Valuation Protocol Appendix D, the appraiser is required to check all mechanical, plumbing, and electrical systems in the subject property.

For REO properties that have been winterized, the appraiser cannot rely on a Home Inspection; therefore, the appraisal should be completed subject to verification or inspection the systems are in functioning condition. The underwriter will be responsible to clear the condition. For future questions, please submit via info@fhaoutreach.com. 

Sincerely,

Department of HUD Denver Homeownership Center

Technical Support Branch