U.S. Department of Housing and Urban Development

Office of Housing

Special Attention of: Notice H 96-93 (HUD)

All State and Area Coordinators

All Directors, Office of Housing Issued: November 5, 1996

All Directors, Single Family

Housing Divisions Expires: November 30, 1997

All Chiefs, Real Estate Owned

Branches Cross References: Handbook 4310.5 REV-2,

Housing Notices H 96-44 issued

May 22, 1996 and H 96-78

issued September 11, 1996

Subject: Single Family Property Disposition Program - New Initiatives

Relating to Lead-Based Paint Hazards

The Department recently implemented new lead-based paint

disclosure procedures (Housing Notice H 96-78 issued September 11,

1996\) which provide an opportunity for buyers to conduct, at their own

expense, lead-based paint inspections and risk assessments. Helping

buyers to finance these costs as well as lead-based paint repairs is

an important objective. The following initiatives are intended to

meet that objective and encourage greater awareness of the value of

lead hazard evaluation in the prevention of childhood lead poisoning.

FINANCING OPTIONS

1\. Section 203(k), Rehabilitation Home Mortgage Insurance. This is a

reminder that lead-based paint repairs are an eligible

improvement under the 203(k) program. This opportunity to fund

lead-based paint repairs should be emphasized wherever 203(k)

financing is being considered.

2\. New 203(b) Repair Escrow Program for Lead-Based Paint Repairs. A

new 203(b) repair escrow program for lead-based paint repairs has

been developed to permit eligible buyers to finance the costs of

an inspection for lead-based paint, a risk assessment for lead-based

paint hazards, a work write-up and the lead-based paint

treatment, in their mortgage. Eligible costs are limited to 10

percent of the sales price, or \$5,000, whichever is less. The

actual amount of escrow will be 110 percent of the estimated

eligible costs. Eligible buyers are owner occupants and

investors who indicate on the Sales Contract, Part

HSIP: Distribution: W-3-1, R-1, R-2, R-3-1(H)(RC), R-3-2, R-3-3, R-6,

R-6-2, R-7, R-7-2, R-8

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A, line E.1 of the Lead-Based Paint Addendum, that they wish to

conduct a risk assessment or inspection. Buyers who do not

indicate on the Sales Contract, Part A, item E.1 of the Lead-Based

Paint Addendum, that they wish to conduct inspection and

risk assessment will proceed directly to closing with no lead-based

paint repair escrow. Eligible properties are those

constructed prior to 1978 which do not require repairs to meet

the intent of the Minimum Property Standards.

This new program is not an expansion of the standard 203(b)

repair escrow program and must not be confused with that program.

In the standard 203(b) repair escrow program the amount of repair

escrow is included as a deduction from the purchase price on line

3 of the Sales Contract and reduces the net to HUD. The costs of

the new lead-based paint repair escrow are not included in the

net to HUD calculation on the face of the Sales Contract (costs

are not known at the time of bid opening) and the costs do not

reduce the net to HUD.

Listing for Sale. Effective with the issuance of this Notice,

all pre-1978 properties which in their present condition meet the

intent of the Minimum Property Standards are to be listed for

sale indicating the availability of either 203(b) or the new

203(b) with lead-based paint repair escrow. (Offers may be

submitted from bidders not using insured mortgage financing on

properties which have been advertised under these repair escrow

procedures.)

Processing the Sales Contract. If a buyer checks Part A, item

E.1 of the Lead-Based Paint Addendum to the Sales Contract,

inspection and testing must be completed by the mutually-agreed

upon date shown in Part B of the Lead-Based Paint Addendum to the

Contract. At that time, the buyer should indicate their intent

to use the repair escrow program. Detailed instructions for

processing the sales contract, including procedures for

cancellation of the contract-and refund of earnest money where

buyers conduct inspection and risk assessment are included in

Notice H 96-78, Part V., paragraphs A through G.

Addendum to the Sales Contract. The estimated costs to be

disbursed from escrow can only be determined under this program

after inspection and risk assessments are complete and

specifications and cost estimates (work write-ups) have been

provided by the buyer. At that time, the Local Office must

provide the broker with an Addendum to the Sales Contract

authorizing an increase in the amount of mortgage to be insured

up to the maximum authorized in this Notice.

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Use line 105 of the HUD-1 Settlement Statement for the lead-paint

escrow. On the HUD-1 Data Screen, the Finance Type is \"LP\" (lead

paint).

Lead-Based Paint Repair Escrow - Lender Procedures. In order to

compensate lenders for establishing and maintaining this escrow

account, a fee of \$200 will be paid by HUD to the lender at the

time of closing. As part of its responsibility for administering

the escrow account, the lender shall arrange and pay for the

inspection of completed repairs. The lender may use either the

mortgagee certification procedure or request an inspection by an

inspector under contract to inform the Local Office that the work

has been completed. State-certified lead service inspectors are

not required. If an inspection by a contract inspector is

requested, the lender must provide the inspector with results of

the initial lead-based paint inspection, risk assessment and work

write-up. Payment for the final inspection is to be made from

the \$200 fee for establishing the escrow account.

Generally, all lead-based paint and/or lead-based paint hazard

treatment is to be completed by the buyer within 90 days of

closing. Upon satisfactory completion of treatment, the lender

must disburse the escrow to compensate the buyer or the

contractor, as appropriate.

If actual costs are less than the amount escrowed, the balance in

the escrow will be applied to reduce the outstanding principal

balance of the mortgage. If the funds escrowed are not

sufficient, it is the buyer\'s responsibility to bear the

additional cost. If the buyer fails to complete the treatment

within 90 days of closing, or such additional time as is

determined reasonable, or where the repairs are unsatisfactory,

the lender must apply the escrow amount to reduce the outstanding

principal balance of the mortgage.

CREDIT INCENTIVE.

This incentive provides a credit at closing for the cost of

lead-based paint inspection, risk assessment, and/or work write-up.

This incentive is available to all purchasers (including those

who use the new 203(b) lead-based paint escrow) for all

properties constructed before 1978. At closing, the purchaser is

to be credited 50 percent of the costs of lead-based paint

inspection, risk assessment, and work write-up, not to exceed

\$450.

The costs of inspection, risk assessment and work write-up are

not to be reflected on the Sales Contract in determining the net

to HUD. Buyers must provide receipts at closing showing the

actual costs of

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lead hazard inspection, risk assessment and/or work write-up.

Use lines 207 and 507 of the HUD-1 Settlement Statement for this

credit. The HUD-1 Data Screen, Optional Field, is \"LBP\"

(lead-based paint).

CUSTOMER SERVICE

Promotion of Housing\'s Lead-Based Paint Assistance Programs. In

the Department\'s continuing efforts to encourage inspection and

testing for lead-based paint and lead-based paint hazards, every

opportunity should be taken to inform brokers, buyers and lenders

of the programs described in this Notice. Opportunities include

Broker\'s Information Releases, industry meetings and

homeownership seminars. Increased use of the Section 203(k)

repair program for lead-based paint inspection and treatment will

also serve to educate home buyers and the public to the value of

testing and treatment in preventing childhood lead poisoning.

In a further effort to assist buyers to obtain lead testing and

hazard control information, a list of currently qualified lead

service providers must be retained by the local office and be

made available to brokers for distribution to prospective buyers.

(\"Qualified\" means training based on EPA curricula or from a

State-certified training provider. If, however, a state

certification program is currently in place, then the list must

be comprised of State-certified providers.) The following will be

of assistance in maintaining such a list:

1\. Lead Listing. Because of the need for a comprehensive,

centralized listing of qualified lead service providers, the

National Lead Abatement Council, under the sponsorship of

HUD, is developing the National Lead Service Provider\'s

Listing System (\"The Lead Listing\"). The Lead Listing is

accessible on the Internet World Wide Web (WWW) at

http://www.leadlisting.org, and via a toll-free number with

a fax-back option in December, 199-6. As soon as the Lead

Listing is available, it will be distributed to the local

offices. For more information on the Lead Listing, please

contact Matt Ammon of the Office of Lead Hazard Control at

\(202\) 755-1785, ext. 158, or by e-mail to:

Matthew_E.\_Ammon@hud.gov.

2\. State Health and Environmental Agencies. For additional

assistance in making information available to buyers, the

health and environmental agencies listed on page 12 of the

EPA/HUD/CPSC pamphlet Protect Your Family From Lead in Your

Home (Housing Notice H 96-78 issued September 11, 1996) can

provide information on finding locally-qualified lead

service providers.

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Please contact Ann M. Sudduth, Director of the Single Family

Property Disposition Division, if you have any questions concerning

the information in this Notice. Ann can be reached by phone at (202)

708-0740, by fax to (202) 708-4006, or by E-mail to FHCPost 4.

Assistant Secretary for Housing -

Federal Housing Commissioner