203k: The Importance of the Condition Report: Managing Repair Costs

203k: The Importance of the Condition Report: Managing Repair Costs

While we, as HUD Consultants, have no authority or responsibility for the actions of the contractor after the loan closes, we do however have responsibility to clearly understand the means, methods and techniques generally accepted in residential construction for the purpose of preparing our Cost Estimate. The HUD Consultant is often faced with nebulous conditions that are suspect and not visible at the time of inspection. Often what appears to be a simple problem combines failures from various Categories. While it may be easier to just require replacement of any system or component that's questionable, it may not always be in the best interest of the borrower to do so. While the Cost Estimate defines the various Work Items to be completed, it does little to enumerate failures requiring?such repairs detailed sufficient for the borrower and lender, and the appraiser to easily understand. By balancing "what is and what could be"? also benefits the lender as they may explore other options if need be. The emphasis here is to put the borrower on notice, providing advanced warning to the lender not much different than a Home Inspection, that the potential for future repairs may be imminent...?

Excerpt from the Condition Report: (This is a 3 unit masonry building constructed in the 1880's)?The masonry structure including Foundation, which is limestone, is sound showing no observable vertical or horizontal displacement at the time of inspection; the building envelope has been neglected and requires excessive deferred maintenance; the parapet wall is pargeted indicating that the original masonry was deteriorated beyond tuck pointing; several areas that were pargeted are broken away exposing the masonry below; further, there are signs of water infiltration on second, first floor and basement possibly?seeping in through the deteriorated masonry above;?although the roofing material is newer, it is a non-professional installation with the roof membrane draped over the parapet wall for about 30 feet on the left elevation. This indicates that it was not possible to attach the roofing to the deteriorated masonry wall, which is not observable but presumably concluded; although repairs for this condition are outlined by the above work items, the actual condition of masonry above the roof deck cannot be determined without exhaustive demolition being performed.?The balance of brickwork around the building has been neglected with deterioration of the mortar joints at all locations and requires professional tuckpointing to be performed to prevent further water penetration; this building was constructed?utilizing a triple wythe masonry system that does not allow for drainage once the Integrity of the wall has been breached; in this case it's presumed that water is entering the wall at the upper levels and filtering down to the various floors below; it is the opinion of this HUD consultant that proper installation of the parapet tiles will eliminate further moisture penetration;

While the general cost of repairs may be determined combined with the Contingency Reserve sufficient to complete the work, it is by no means total replacement. The Condition Report puts the parties on notice to that effect. The details of a Condition Report corroborates the required repairs and indemnifies the consultant from accusation for overlooking the problem, thus limiting the consultant's risk while benefiting the borrower as to the true condition of the building.

As HUD Consultants it's essential for us to determine the origin of the problem, a remediation plan to resolve the problem and a control budget for the resolution to the problem. This requires extensive knowledge of construction that cannot be attained by a single course of study. It was the intention of the department that the HUD Consultant filled this role when the program began?and further testimony supporting continued education for consultant candidates far beyond?the signed affidavit stating that you read the guidelines.

In Conclusion:?For lenders to accept reports from HUD Consultants that "do not have" a Condition Report sufficient to enumerate the circumstances surrounding repairs, is in conflict with the regulations thus doing a disservice to everyone in the transaction. It's notable that this is not addressed by a Minimum Property Requirements or Minimum Property Standards report, or checklist, as some may suggest. Visit 203kconsultingpros.com

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