HUD Issues September 2016 Revisions to Handbook 4000.1

HUD handbook revisionsThe most recent revisions to Handbook 4000.1, issued by HUD on September 30, 2016, address three topics of importance to appraisers.

  1. Appliances
  2. Effective date
  3. Individual water purification systems

We covered the issue of appliances in a previous article. In this article, we will address the other two issues: effective date and water purification systems.

Section II D 1 A of the Handbook states that the effective date of the FHA appraisal cannot be prior to the FHA case number assignment date unless “the Mortgagee certifies that the appraisal was ordered for conventional lending or government-guaranteed loan purposes and was performed pursuant to FHA guidelines.” The Handbook further states that if the previous appraisal was completed for a conventional or government-guaranteed loan, the FHA appraisal request is considered a new assignment. The appraisal report must indicate that the intended use is “solely to assist FHA in assessing the risk of the Property securing the FHA-insured Mortgage.” FHA and the mortgagee (lender) must be indicated as the intended users of the appraisal report.

What does this mean? Simply, if a lender asks an appraiser to “convert” an existing conventional or government-guaranteed (e.g., VA or USDA) appraisal to an FHA appraisal, this is a new appraisal assignment because the intended users have changed.

If the appraiser determines that a re-inspection of the property is not necessary, then the effective date of the appraisal may be the date of the original inspection. If an FHA-compliant inspection is required, the date of the inspection will become the effective date of the new appraisal. Keep in mind that since this is a new appraisal assignment, it will require disclosure of the prior appraisal assignment at the time of the new assignment and also in the new report certification, as per the ETHICS RULE of USPAP.

Language was added to Section II D 3 B p vi of the Handbook regarding individual residential water purification systems. If a property has an individual residential water purification system, the appraiser must: (1) indicate which type of system is installed, either a point-of-entry or a point-of-use system; and (2) report the conditions requiring connection of the water purification system.

A point-of-entry system would be at or near the main entry of the water supply into the house; it purifies all the water in the dwelling. A point-of-use system would be a water purification device on an individual plumbing fixture (e.g., on the kitchen faucet or under the kitchen sink).

The appraiser is not required to taste the water or test it in any way. The appraiser is merely required to observe the condition, analyze its effect on value (if any), and report what was observed and analyzed in the appraisal report.

You can view the revised Handbook 4000.1 here.

Look to McKissock for the information you need to know about FHA appraisals.

NOTE: The information in this article represents the author’s interpretation of HUD Handbook 4000.1. This article was not written or approved by HUD/FHA or any of its representatives.

Want to learn about other issues that can impact your appraisal work, get advice on how to improve your appraisal business, and more? Browse continuing education courses at McKissock.com.

Article by Daniel A. Bradley, SRA, CDEI. Dan Bradley is the Director of Online Appraisal Curriculum for McKissock LLC. He has been a practicing real property appraiser since 1987, and has been instructing and authoring appraisal courses for over 20 years. He is a state certified general appraiser in Pennsylvania and holds an SRA designation from the Appraisal Institute. From 2004 until 2013, Dan was a member of the Pennsylvania State Board of Certified Real Estate Appraisers, serving for five years as vice-chairman and three years as chairman.

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