Sec. 05.06.03.05. Special Terms and Provisions for Purchase/Rehabilitation Mortgage Loans

A. In addition to the general terms and provisions required under Regulation .04 of this chapter, the terms and provisions in B-----E of this regulation apply to M.H.F. insured mortgage loans that finance both the purchase and the rehabilitation of the property.

B. Standards for Rehabilitation Work. The rehabilitated property shall satisfy the:

(1) State and local planning, zoning, and building codes, and other applicable laws; and

(2) Standards established by M.H.F.

C. Unless an alternative process is approved by M.H.F., all rehabilitation work shall be supervised by a licensed general contractor, a local government agency, or a nonprofit corporation approved by M.H.F.

D. Work Write-Up.

(1) The work write-up describing the rehabilitation work shall:

(a) Be prepared by the party undertaking or supervising the work;

(b) Be approved by M.H.F.;

(c) Include only those rehabilitation costs permitted under Regulation .04C(2) of this chapter; and

(d) Include both a draw schedule and a plan for implementing the work write-up.

(2) Rehabilitation work shall be performed:

(a) In accordance with the work write-up; and

(b) By State-licensed contractors or other entities approved by M.H.F.

E. Inspections. Rehabilitation work shall be inspected in accordance with all of the requirements described below:

(1) Inspectors performing the inspections:

(a) Shall be knowledgeable and experienced about rehabilitation or construction work,

(b) Shall be acceptable to M.H.F. and the mortgage lender making the insured loan, and

(c) May be appraisers;

(2) The inspector shall prepare an inspection report for each inspection performed;

(3) The inspection report in §E(2), above, shall include:

(a) A description of the property,

(b) Name of the contractor,

(c) Name of the mortgage lender,

(d) Date of the inspection,

(e) Stage in the draw schedule,

(f) Work to be inspected, as described in the work write-up, and

(g) Whether the work performed was acceptable and complete;

(4) The final inspection report shall state whether all of the work done was:

(a) Acceptable and complete,

(b) Performed in a workmanlike manner, and

(c) In accordance with all applicable planning, zoning, and building codes, or other applicable laws;

(5) M.H.F. shall receive a copy of each inspection report.

F. Draws. The mortgage lender may not permit a draw of mortgage money to pay for rehabilitation costs unless the requirements of §E, above, are fulfilled.

G. Appraisal Requirements. When the loan insured by M.H.F. finances both purchase and rehabilitation, the appraisal shall establish the following two values in addition to the "as is" value established under Regulation .04E of this chapter:

(1) Predominant Neighborhood Value. The predominant neighborhood value:

(a) Is the value determined by an appraiser to best represent property value in the area surrounding the property being purchased and rehabilitated based on recent sales within that area;

(b) Is based primarily on sales when 90 percent or more of the purchase price was financed, and the first mortgage was a VA or FHA mortgage or was made by an institutional mortgage lender; and

(c) Excludes investor sales with depressed sales prices or sales involving assumptions or creative financing which artificially inflate the sales price.

(2) Value After Rehabilitation.

(a) The value after rehabilitation is the value estimated by the appraiser to be the value of the property securing the insured loan, once the rehabilitation work is complete.

(b) In order to be acceptable to M.H.F., the value after rehabilitation may not exceed 120 percent of the predominant value.