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CHAPTER 4. LOCATION ANALYSIS

SECTION 1 - NEIGHBORHOOD CHARACTERISTICS

4-1. PURPOSE OF LOCATION ANALYSIS. The purpose of Location Analysis is
to

identify the characteristics of location which affect the value and

economic life of a specific property.

4-2. GENERAL. The analysis of location requires a determination of

desirability and utility of the site and the degree and extent to

which the site, by reason of its environmental influences, shares in

the market for comparable and competitive sites in the community.

The analysis of location requires a forecast of the changes likely to

be experienced at the site due to probable future trends. An

appraisal of the present situation and knowledge of the trends which

affect the valuation of real property is necessary to properly

analyze the location. The principle of change is fundamental to real

estate appraising and to the analysis of a location. Value is

created and modified by economic, social and governmental changes

which occur outside of the property itself. It is necessary to

predict the direction of the trend and determine the future effect it

will have on property values.

4-3. COMPETITIVE LOCATIONS. Locations are competitive when they are

improved with, or appropriate for, residential properties that are

approximately similar in accommodations, and are within a sales price

range or rental range that proves acceptable to typical residents or

prospective occupants.

4-4. THE METHOD OF ANALYSIS. Each feature of the location is compared

with the same feature of competitive locations in the community. An

acceptable location must be related to the needs of the prospective

occupants and to the alternatives available to them in other

competitive locations.

4-5. CONSIDERATION IN THE ANALYSIS OF LOCATION. In the analysis of

location, no cognizance is taken of the character or quality of the

building improvements which exist on the site or which are proposed

in the application for mortgage insurance. A vacant site will,

therefore, have the same location evaluation of quality as an

improved site under similar environmental influences.

4-6. ECONOMIC TRENDS. Consideration must be given to economic trends of

the neighborhood, such as:

A. Industrial, commercial, agricultural and retail sales activity.

B. Price and wage levels - purchasing power of individuals.

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(4-6) C. Employment.

D. Supply and demand for living units.

E. Taxation levels.

F. Mortgage interest rates.

G. Building costs.

H. Population change.

I. Activity in the real estate sales market.

4-7. LAND USES. Location Analysis involves a determination of the effect

of actual and potential neighborhood land uses upon the subject

location. A location which contains the proper balance of land

usage such as residential, commercial, parks, schools and

playgrounds, enhances the value and the economic security of a

property. The following are factors which form the pattern for

present and future land uses:

A. Zoning. Appropriate and well drawn zoning ordinances and land

use controls which receive public approval and are strictly

enforced will provide one of the means of protecting residential

locations from adverse influences that diminish the desirability

of sites.

B. Protective Covenants. Properly drawn protective covenants have

proved more effective than zoning ordinances in providing

protection from adverse environmental influences; and, when

combined with proper zoning, provide maximum legal protection to

assure that a developed residential area will maintain desirable

characteristics, or that a proposed, or partially built-up

neighborhood will develop in a desirable manner. The protective

covenants should be superior to any mortgage and should be

binding on all parties and all persons claiming under them.

C. Identification of Inharmonious Land Uses. Inharmonious land

uses in the neighborhood must be identified. The present and

long term effect such uses will have on the market value and

economic life of the subject property must be defined. The

market value and remaining economic life must reflect these

influences. In situations where the inharmonious land uses

represent a serious detriment to either the health or safety of

the occupants or to the economic security of the property, the

application for mortgage insurance must be rejected.

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(4-7) D. Natural Physical Features and Landscaping. Few, if any,

homeowners are oblivious the favorable topographic and site

features such as pleasing view, wooded lots, broad vistas, and

climatic advantages. Attractive street layouts and preservation

of natural attractiveness are characteristics of good

neighborhood design. Streets which have been laid out with

proper regard to drainage, land contours and traffic flow

increase the desirability of the neighborhood.

E. Attractiveness of Neighborhood Buildings. The appeal of a

location is strengthened if the buildings in a neighborhood are

attractive as a group and harmonize with one another and with

their physical surroundings. A pleasing variety that results in

harmoniously blended properties without monotonous repetition is

desirable. It has been demonstrated that a pleasing variety in

dwelling design need not be sacrificed in neighborhoods composed

of low-cost housing.

F. Neighborhood Character. Mobility and economic growth have

combined to alter neighborhood patterns. Shopping, recreation,

places of worship, schools and places of employment should he

reached with comparative ease. The lessened disparity between

income of professions and trades and of management and skilled

labor has contributed to a mingling of such families in stable

neighborhoods.

G. Character of Neighborhood Structures. In the analysis of this

element, the age, quality, obsolescence, and appropriateness of

typical properties in a neighborhood must be carefully studied.

These characteristics affect the stability and attractiveness of

the properties in the neighborhood. The analysis must take into

account the attitude of the user group as well as the

alternative choices available to the specific market under

consideration.

H. Effect of Age of Structures. Age of neighborhood structures is

not as important as the condition and maintenance of the

buildings, and the amount of rehabilitation which has taken

place or is taking place in the neighborhood. In any case, age

of structures in an area is not a cause for rejection of a

property.

4-8. COMMUNITY SERVICES. Community Services include commercial, civic

and social centers. For a neighborhood to remain stable and retain

a high degree of desirability it should be adequately served by

elementary and secondary schools, neighborhood shopping centers,

churches, playgrounds, parks, community halls, libraries, hospitals,

and theaters. Areas occupied by low income families will ordinarily

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(4-8) require easier and less expensive access to these facilities.

Analysis of this feature gives consideration to: quality and

accessibility of schools; quality and accessibility of shopping

centers and quality and accessibility of community facilities such

as churches and recreation centers.

4-9. TRANSPORTATION. Ready access to places of employment, shopping

districts and centers, civic and social centers as well as to

adjacent neighborhoods in the area is a requisite of neighborhood

stability. The transportation requirements of all members of the

family must be considered. No single method of transportation

should be considered to the exclusion of all others:

4-10. UTILITIES AND SERVICES. Utilities and neighborhood services to be

considered are police and fire protection, telephone service,

electric, gas, garbage disposal, street lighting, water supply,

sewage disposal, drainage, street improvements and maintenance.

Some neighborhoods may not have all services, yet acceptability of

this feature may be warranted if the occupants do not consider the

lack of such services a deficiency too great to be acceptable. In

most metropolitan areas, subdivisions typically have hard surfaced

streets, concrete curbs, gutters and walks. Locations not having

these improvements would be at a competitive disadvantage. On the

other hand, in small communities the predominant street improvements

may be found to be gravel streets, grass swales, and no walks. If

improvements of this type have no adverse effect on marketability

they will be acceptable. In judging this feature a comparison is

made of the extent and quality of utilities, street improvements,

and other services available with those available in all other

competitive neighborhoods. The charges for utilities and services

are considered only when they produce advantages or disadvantages in

the location as compared with all other competitive locations in the

area. The cost is not considered when it is substantially the same

for all competitive neighborhoods. The cost of maintaining

individual sewage treatment and water systems will usually offset

the advantage of lower monthly cost of utilities.

4-11. SINGLE INDUSTRY COMMUNITIES.

A. In communities whose economy is dependent on a single industry,

proper underwriting requires a careful evaluation of the

long-term economic prospects of the industry, since a finding of

long-term economic soundness or a degree of risk acceptable to

HUD is required for all Title II programs. This problem may be

particularly acute in new communities whose single dominant

industry is based on the exploitation of a natural resource,

e.g., natural gas, oil, coal, etc., the supply of which may be

limited and, in particular, may not be sufficient to support the

economy of the area for a period at least as long as that of a

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(4-11) typical HUD-insured mortgage. In such areas, there must be a

careful economic evaluation of the industry\'s prospects and

probable housing market impacts by EMAD and Valuation Branches

staff.

B. Handbook 4010.1, Definitions, Policy Statements and General

Rulings, \"Conditions Loading to Surplus Housing\" is applicable

to these situations.

C. While Headquarters\' referral procedure described for marginal

military installations is not required for single-industry

locations, market considerations are pertinent in single family

industry market areas.

4-12. STUDY OF FUTURE UTILITY OF PROPERTY.

A. The study of future utility includes:

1\) Selection of possible uses;

2\) Determination of uses in terms of alternative kinds of

possible typical buyers and differing motives of these

buyers; and

3\) Rejection of uses which are obviously lower or higher than

the most probable uses.

B. The study of the future uses and utility of a particular

property will lead the appraiser to its highest and best use.

4-13. NEIGHBORHOOD CHANGE. Residential areas in any city change in

desirability with the passage of a substantial period of time.

Population growth has been one of the main causes of the change

which residential districts experience.

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(4-13) Infiltration of commercial, manufacturing, industrial

enterprises and other nonconforming uses in residential

sections, and the physical deterioration of buildings in these

sections are other obvious and common causes. Consideration

must be given to any such factors that cause decline in

desirability and utility of residential districts in order to

develop the greatest accuracy in valuation estimates.

A. Gentrification. There is a phenomenon which affects some older

declining neighborhoods which have not experienced heavy

commercial or industrial encroachment and which reverses the

decay and decline in values. This is known as \"Gentrification.\"

It is brought about by the immigration of people into a

deteriorating or renewed city area. In recent years many people

have recognized the craftsmanship and artisanship in some older

homes which cannot be found in new modern homes. Because of the

desirability of these features and the advantage of living in

town close to their places of employment, they have purchased

and restored them to their original classic beauty. As more and

more people follow suit, the neighborhood desirability and

values gradually increase to a point whereby the neighborhood

becomes once again viable and desirable.

B. Covenants and Zoning. Another area of concern to the appraiser

is the adequacy of existing covenants and zoning. Residential

neighborhoods in which zoning or covenants are lacking or are

not effectively enforced are often subject to a decline in

desirability.

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4-14. MARKETABILITY. The demand for homeownership in a neighborhood is

directly related to the marketability of the homes within the

neighborhood or competitive neighborhoods. Data regarding

percentages of homeownership, vacancies and the marketing time of

the dwellings in a neighborhood helps the appraiser to determine the

strength of the demand and the extent of supply.

4-15. SMALL COMMUNITIES. There is no particular formula for use in

appraising properties in small communities. The factors affecting

mortgage risk and value are basically the same as those in large

cities, but there are also important differences which must be

recognized by the appraiser to avoid making errors. It is important

to understand that real estate patterns in small communities include

social and economic preferences which are dissimilar to those

encountered in larger towns and cities. Certain services and

conveniences desired by the urban dweller are not necessary or

desired by the homeowner who lives in a small community.

A. Small Community Market Preferences. The small town may have its

own set of standards. Architectural design, livability, style

of mechanical equipment, lot size and placement of structure,

nature of street improvements, and all features of the physical

property and environment must be judged in the light of local

acceptance of local standards and local preferences.

B. Rate of Marketability. The rate of marketability must be judged

by local standards. Market depth may be partially dependent

upon the number of farmers, ranchers, or pensioners who retire

and look to the community for homes, and a limited number of

merchants and professional persons. This total, combined with

the second generation populace, may increase the demand or serve

to maintain it at a fairly constant level. The sum total may be

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(4-15) a numerically small annual demand for housing. However,

typically this demand may be on the market for a much longer

time before it sells than would be expected in the city, and no

modest price reduction would cause a quicker sale.

C. Mobility of People. Another factor is the mobility of people.

Industry sometimes moves to the small community and draws its

employees from other small communities in the surrounding area.

Improved highways and modern vehicles permit commuting distances

once considered unthinkable. Shopping facilities in attractive

centers outside the congested urban areas are as convenient to

the small town resident some miles distant as may be the central

business district to the urban resident. This widens the market

for small town properties. The purchaser may not be confined to

the few categories mentioned above, but may appear from any

point within the commuting radius. Thus, properties within

these towns may then be competitive, and market transactions in

one may be applicable to others.

D. Stagnant or Declining Growth. The small town in which all

semblance of former industrial or commercial activity is gone

presents different aspects. Its residences may be occupied by

retired persons, or families commuting to employment who live in

the town because of the low cost of housing. Current

transactions may involve repair or remodeling plans which will

produce a housing facility at far less than current replacement

costs of equivalent properties. Proposed construction may not

be economically feasible as long as existing properties are

available at very low prices.

4-16. OUTLYING LOCATIONS AND ISOLATED SITES. Areas outside of towns and

cities have shared in residential construction activity to a

considerable degree. The segment of the market interested in buying

in outlying locations compares the advantages and disadvantages of

other outlying locations. In many localities the rather strong

appeal of these outlying locations is evidenced by the activity of

the market for properties so located. In most instances, the sites

of outlying properties are larger than the sites of nearby town or

city properties. Some dwellings in outlying locations are

constructed on wooded sites or on land where the topography is such

that some natural protection is afforded against encroachment by

value destroying uses or influences; others are constructed on sites

taken from agricultural land. The presence of normal agricultural

use of land in the vicinity of an outlying site will not of itself

constitute a valid reason for finding the property ineligible as

mortgage security.

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(4-16) Many people prefer outlying locations for the purpose of raising

horses or having a small hobby farm. Provided that the use of the

property such as raising horses or farming does not constitute the

primary income of the occupants, such locations are usually

acceptable under Section 203(b) rather than 203(i). Such sites may

be ten acres or more but are still considered in relation to the

typical size lots in the area.

However, if the size of the site is excessive, such as 30 acres in

an area where only ten acres is typical for that purpose, the excess

land is not considered in the appraisal nor included in the

mortgage.

4-17. ACCEPTABLE LOCATIONS PURSUANT TO SECTION 223(e). Any older
existing

community which is found unacceptable because of certain features

adversely affecting its location may be eligible pursuant to Section

223(e). (See HUD Handbook 4260.1 for a complete discussion.)

Special funds have been appropriated by the Congress for this

program since the insurance of mortgages in such areas constitutes a

higher risk than other localities. Therefore, the Chief Appraiser

in each field office should become acquainted with and be aware of

such neighborhoods so as to assure that the special high risk funds

are used for properties in such areas.

This is not to be confused with \"redlining.\" To redline is to

withhold home loan funds or insurance from neighborhoods considered

poor economic risks. HUD does not withhold insurance but rather

designates the insurance fund program which must be used in

connection with the insuring of loans in these areas.

A. The purpose of Section 223(e) is to permit the use of HUD

mortgage insurance in older, declining urban areas, in order to

provide housing for low- and moderate-income families and to

contribute to the upgrading or stabilization of such areas.

B. Environmental factors which render a property unacceptable

because of conditions which constitute a danger to the health

and safety of the occupants or to the preservation of the

property are not subject to waiver under Section 223(e).

C. The physical life of the property must be sufficient to permit

the long-term mortgage. The substitution of physical life for

economic life is justified because the Section 223(e) special

risk provisions compensate for those environmental factors which

adversely affect the property, thus permitting a mortgage of up

to 30 years (See paragraphs 2-7 and 2-8). At the same time, HUD

should not be insuring loans on homes that have a high degree of

certainty of failure due to any circumstances.

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4-18. CONSIDERATION OF GENERAL TAXES AND SPECIAL ASSESSMENTS. General

real estate taxes related to specific locations are a recurring

periodic expense in the ownership of taxable real property and must

always be taken into account in the estimate of value. Also,

special assessments of various types are frequently an additional

expense to the ownership of certain property and when encountered

must similarly be taken into account.

A. General Taxes. In most communities general tax levels are

fairly well equalized and sales prices and rentals reflect the

effect of the burden. In other areas, and occasionally because

of differences in contiguous taxing jurisdictions, wide

variations in the level of assessments for similar properties

are encountered.

1\) In such cases the effect on the cost of ownership and upon

net income expectancy must be recognized and all market

data should be carefully scrutinized to ascertain the

differences in prices and rentals which are attributable to

the varying level of assessments.

2\) Where the general tax levels are not equalized and market

data do not reflect uniformly the effect of general taxes,

the data must be adjusted to compensate for the

differences.

4-19. LEVEL OF TAXES AND ASSESSMENTS. A determination is made as to the

relative effect of the tax and special assessment burden upon the

desirability of the location. The elements considered are:

A. The Tax Burden. The only concern is to determine the relative

advantages or disadvantages of the tax burden on the subject

location in comparison with all other competitive locations.

The weight of the general tax burden does not influence the

conclusion if the tax burden on a location is substantially the

same as that borne by competitive locations.

1\) The basis of assessment for taxation purposes, and often

the tax rate itself, may vary for different neighborhoods

within a community.

2\) If the location is in a neighborhood which is receiving

preferential treatment with respect to assessments or tax

rates and it is believed that the condition will continue,

the beneficial effect will be recognized regardless of the

reasons for the condition.

B. Unassessed Properties. Where the tax burden is unknown, as with

a proposed new building or a newly constructed building not yet

listed for tax purposes, an estimate is made of the probable

tax.

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(4-19) The estimate is accomplished by comparison with known tax

assessments for recently assessed similar properties, adjusted

for visible differences in the properties, and by taking into

account any pending change in the general level of assessed

values or of tax rates.

C. Special Assessments. Special assessments are usually imposed to

provide the taxing jurisdiction with funds to pay for, or to

provide a sinking fund to liquidate bonds issued to pay for

street improvements, sidewalks, sewers or other utilities which

are for the benefit of the property so assessed. Such

improvements will usually have the effect of increasing the

value of the benefited property in a sum at least equal to their

cost. If special assessments exist, or if they are in immediate

prospect, the length of time such assessments continue as well

as the total payment required are considered. Even though

special assessment payments may be required for only a few

years, they must be given consideration. A few years of high

special assessments may seriously affect desirability for home

ownership. A distinction must be made, however, between general

assessments and prepayable assessments which specifically

benefit the properties assessed. The latter are rarely

objectionable, since they usually enhance the properties in

proportion to their amount. In some communities each individual

property is made security for an entire bond issue and the

property cannot be freed from the special assessment lien until

the bond issue has been entirely retired.

Because favorable financing is usually obtained when special

assessments are used, the formation of these Districts should

not be discouraged. HUD does not require that where assessments

are prepayable, they must always be prepaid. Based on the bond

financing, current interest rates, etc., it may be to the

purchaser\'s advantage not to prepay. This is a decision which

should be left to the purchaser.

Since market data may not uniformly reflect the effect of these

assessments, it may be necessary to adjust the comparables to

compensate for the differences. The estimate of value is to be

predicated on fee simple title unencumbered by the assessment.

Accordingly, where necessary, an adjustment to reflect the

amount of the special assessment remaining unpaid will have to

be made. For example:

Indicated Value Without Special Assessment \$50,000

Unpaid Amount of Special Assessment 5,000

\_\_\_\_\_\_\_

Estimated Market Value \$45,000

Where this type of adjustment is made, an appropriate notation

should be made on the URAR.

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2/90

4-11

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4150.1 REV-1

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(4-19) D. Non-prepayable Assessment and Benefit Bonds. It has become

customary in some taxing jurisdictions to finance by the

issuance of bonds, installations of street improvements,

utilities, public water, or sewage disposal systems. These

bonds differ from the usual special assessment bonds and more

nearly resemble general obligation bonds. Obligations of this

type are variously known as Front Foot Benefit Bonds, Revenue

Bonds, or similar titles. Payments by property owners of

principal and interest into sinking funds for retirement of

Front Foot Benefit Bonds are usually spread over a long term of

years and are collected semi-annually or annually with general

taxes. Payments for retirement of Revenue Bonds are customarily

chargeable to users of water and sanitary facilities; they are

usually based upon water consumption, calculated as a percentage

of the water used and collected with water bills. Bonds of

these types usually do not constitute prior liens against

properties in a lump sum amount but only become a lien for the

amounts of any delinquent payments. Such assessments are

usually nonprepayable in fact or because of prohibitive or

costly penalties attached to prepayment privileges. For these

reasons it is considered unnecessary to reflect the total

amounts of such assessments in Estimates of Value for insured

mortgage loan purposes. The annual payments will be treated in

the appraisal process as costs of ownership or operation.

E. Imminent Assessments Not Yet Levied. Occasionally, at the time

of appraisal, public work is imminent or has been authorized but

the amount of the impending special assessment is not definitely

known and there is reasonable certainty that at the time of

closing the loan the assessment will not have been spread upon

the tax roll. If, in such instances, it is deemed advisable to

predicate the appraisal upon the assumption of completion of the

proposed work, the amount of its costs will be estimated and

reflected in the Estimate of Value in accordance with the

instructions of Paragraph 4-19c above. The amount of the

estimated assessment will be noted in the appropriate space so

it can be dealt with upon the assumption that the assessment

will not be paid off from the proceeds of the settlement, but

will continue as a lien.

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2/90

4-12

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4150.1 REV-1

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SECTION 2 - SPECIAL NEIGHBORHOOD HAZARDS AND NUISANCES

4-20. UNACCEPTABLE LOCATIONS. The rejection of a location is warranted

only in instances where the property being appraised is subject to

hazards, noxious odors, offensive sights or excessive noises to the

point of endangering the physical improvements or seriously

affecting the livability of the property, its marketability or the

health and safety of its occupants. Rejection may also be

appropriate if the future economic life of the property is so

shortened by obvious and compelling pressure to a higher use as to

make a fairly long term mortgage loan impractical. These

considerations are applicable on an individual case basis, however,

taking into account the needs and desires of the user group to which

the property will appeal. There is no policy which categorically

causes rejection of any property because of proximity to adverse

influences. For example, properties should not be rejected simply

because they abut commercial use. Some commercial uses may be

entirely inoffensive to a specific market segment while other

commercial uses may be intolerable. The decision to accept or

reject a property affected by any of the above-cited conditions, or

any other conditions must be made on a case-by-case basis by the

appraiser who inspects the property and its environment to determine

if the property meets the eligibility criteria, the objectives of

the MPS and the location criteria.

4-21. PHYSICAL ATTRACTIVENESS. The features listed below are analyzed to

determine the physical conditions of the neighborhood that affect

the physical improvements and the health and safety of the occupants

or influence their pleasure in the appearance of the environment.

The elements considered in this analysis are:

A. Hazards and Nuisances. Physical conditions may be found in some

neighborhoods that are a hazard to the personal health and

safety of the occupants or may endanger the physical

improvements. Such conditions include unusual topography,

subsidence, flood, unstable soils, traffic hazards, and various

kinds of grossly offensive nuisances.

1\) Topography. Special hazards are sometimes found to result

from the peculiar topography of a neighborhood.

Marketability is often adversely affected in hillside areas

by the hazards caused by denuded slopes, soil erosion, and

land slippages. Earth and mud slides from an adjoining

property, falling rocks, etc., are some of the hazards

associated with steep grades and must be considered in the

evaluation of the location.

2\) Subsidence. Danger of subsidence is a special hazard that

may be encountered under a variety of circumstances. The

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2/90

4-13

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4150.1 REV-1

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(4-21) danger may exist when buildings are constructed on

uncontrolled fill or unsuitable soil containing foreign

matter such as organic material. It may be present in

certain areas where the subsoil is unstable and subject to

slippage or expansion. In mining areas consideration must

be given to the depth or extent of mining operations, and

the location of operating or abandoned shafts or tunnels in

order to reach a conclusion as to whether the danger is

imminent, probable, or negligible. In locations where the

danger of subsidence exists, a specific site will be deemed

ineligible unless complete and satisfactory evidence can be

secured that will establish the probability that any threat

of subsidence is negligible.

4-22. OPERATING AND ABANDONED OIL OR GAS WELLS. Both operating and

abandoned oil and gas wells pose several potential hazards to

housing. Hazards include potential fire, spray or other pollution,

and explosion. Accordingly, no dwelling may be located closer than

300 feet from an active or planned drilling site; this applies to

the site boundary, not to the actual well location.

A. Operating Wells. When operating wells are located in single

family subdivisions, it is required that no housing be built

within 75 feet of an actual operating well unless mitigation

measures are taken. This is to avoid nuisance during

maintenance, to diminish noise levels caused by pumping and to

reduce the likelihood of contamination by potential petroleum

spills. Field Offices should require that operating wells be

fenced and permanently screened by appropriate tall and dense

landscaping.

B. Abandoned Wells. Most petroleum producing States have specific

required well abandonment practices, but some wells have been

abandoned in the past without necessary precautionary actions.

Since it is infeasible for HUD personnel to verify the adequacy

or safety of an abandoned well, a letter from the responsible

authority within the State government should state that the

specific well in question was safely and permanently abandoned.

Where such a letter is provided housing may be located no closer

than ten feet from an abandoned well.

Hazards from improperly abandoned wells include blowout and

potential fire. Where a State does not issue a letter as

described, housing must be located at least 300 feet from an

abandoned well.

C. Special Case \-- Proposed, Existing or Abandoned Wells. In some

geographic areas (Wyoming is one) hydrogen sulfide gas may be

emitted from petroleum product wells. It is considered a major

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2/90

4-14

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4150.1 REV-1

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(4-22) hazard since it is highly toxic and a threat to life and health.

It is heavier than air and tends to flow downslope, through

valleys and canyons and can cause deaths before people become

aware of the problem and can escape. Minimum clearances from

sour gas wells may be established only after a petroleum

engineer\'s assessment of risk and clearance recommendations are

obtained and concurred with by State authorities responsible for

petroleum industry regulation and for public health and safety.

D. Slush Pits. A slush pit is a basin, in which drilling \"mud\" is

mixed and circulated. The mud is circulated during drilling to

lubricate and cool the dill bit and to flush away rock cuttings.

Drilling mud normally contains large quantities of bentonite,

which is a very expansive soil material, and results in a site

with great soil volume change potential, which may be very

damaging to buildings. Whenever a building is proposed near an

active or abandoned well, the old slush pit location should be

determined. After it is located, either all unstable and toxic

materials should be removed from it and the pit filled with

compacted selected materials or no dwelling construction may be

accepted on a lot that includes any part of a slush pit.

4-23. FLOOD HAZARD AREAS.

General. When a property, including any portion of the site, is

located in an area designated as a special flood hazard area, or is

otherwise determined to be subject to a flood hazard, it shall be

required by special condition on the conditional or firm commitment

or DE approval that the mortgagor and mortgagee must obtain and

maintain, where available, NFIP (National Flood Insurance Program)

flood insurance coverage on the property during such time as the

mortgage is insured. Such insurance is required by law under the

Flood Disaster Protection Act of 1973 with respect to mortgages on

properties insured by HUD. However, if the Office Manager

determines that the improvement on a property is located at such a

high elevation that there is no risk of flooding, even though a

portion of the property is located within a special flood hazard

area, be may exempt the property from the flood insurance

requirement. This determination shall only be made in those cases

where the building site grade is substantially above the 100-year

frequency water surface elevation and where it is obvious, because

of the location of the property in relation to other properties in

the designated flood hazard area, that there is no risk of flooding

involved. The Manager shall place the burden on the mortgagee and

mortgagor of establishing the facts necessary to make this

determination.

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2/90

4-15

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4150.1 REV-1

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(4-23) Properties should be rejected if they are subject to frequently

recurring flooding, or if there is any potential hazard to life or

safety, or if escape to high ground would be infeasible during

severe flood.

A. Extent of Flood Insurance Coverage Required. The flood

insurance to be maintained shall be in an amount at least equal

to either the outstanding balance of the mortgage less estimated

land value or the maximum amount of NFIP insurance available

with respect to the property, whichever is less.

B. Designation of Special Flood Hazard Areas. The Federal

Emergency Management Agency (FEMA) is responsible for

determining special flood hazard areas on a nationwide basis.

The designation of these areas within a community is

accomplished by the issuance by FEMA of a Flood Hazard Boundary

Map. An area of special flood hazard may be designated as Zones

A, AO, AH, A1-30, AE, A99, VO, or V1-30, VE or V. Only those

properties within zones \"A\" and \"V\" require flood insurance.

Zones \"B\" or \"C\" do not require flood insurance because FEMA

designates only \"A\" and \"V\" zones as \"Special Flood Hazard

Areas.\"

C. Availability of Flood Insurance. Flood Insurance is available

for all eligible buildings located within participating

communities.

D. HUD instructions for property appraisals require identification

of whether a property is in a FEMA-mapped flood hazard area. An

Appraisal Report with positive indication of a property location

in a flood hazard area will trigger a commitment requirement for

flood insurance coverage. Under the Direct Endorsement Program,

the mortgagee must impose the flood insurance requirement.

Mortgagees are responsible for checking negative indications of

flood hazard areas.

Appraisers must be careful to identify special flood hazard

area, and make a requirement for flood insurance where

applicable because:

1\) The mortgagee may be surcharged on its mortgage insurance

claim if the default is due to flood damage or destruction

and there is no flood insurance to cover the cost of repair

or replacement.

2\) The mortgagee may lose its FHA approval.

3\) The mortgagee may be subject to an action by a mortgagor

against the mortgagee for negligence.

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2/90

4-16

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4150.1 REV-1

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(4-23) 4) The property and the mortgagor may become ineligible for

Federally-administered disaster assistance loans or grants.

5\) The fee appraiser may be removed from the fee panel because

of his negligence.

E. Distribution of FEMA Maps. Field Office Managers must contact

the Federal Emergency Management Agency, Flood Map Distribution

Center 6930 (A-F) San Tomas Road, Baltimore, MD., 21227-6227 for

copies of Flood Hazard Boundary Maps and Flood Insurance Rate

Maps. Community eligibility information can also be obtained

from this same source. Maps may also be ordered by calling

1-800-333-1363.

F. Special Flood Hazard Requirements.

1\) Proposed construction, located or to be located within a

Special Flood Hazard area, is unacceptable regardless of

whether or not the property is, or will be, covered by

Flood Insurance because HUD does not wish to encourage

development in such areas unless mitigation measures are

adopted. In such cases, Field Offices should implement

procedures contained in Executive Order 11988.

2\) The eligibility of existing properties located in an area

designated as a special flood hazard area by FEMA will be

determined by market attitude and acceptance. Flood

insurance will be required of those properties accepted for

mortgage insurance within the designated flood hazard areas

as determined by FEMA.

3\) In a condominium, the Homeowners Association is responsible

for maintaining flood insurance on the project as a whole

rather than each individual unit owner being responsible

for their own unit.

4\) Obtaining NFIP Flood Insurance. Persons seeking advice as

to the availability of NFIP flood insurance should be

directed to any State-licensed property insurance broker or

agent in the community, or to the NFIP servicing company at

\(800\) 638-6620 or to any participating \"write your own\"

company (W.Y.O.).

4-24. OVERHEAD HIGH VOLTAGE TRANSMISSION LINES. No dwelling may be

located within ten feet of the outer boundary of a High Voltage

transmission line easement nor may the site be any closer than the

fall distance of a structural tower supporting the lines.

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2/90

4-17

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4150.1 REV-1

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4-25. HEAVY TRAFFIC. Location on streets having heavy or fast traffic

lessens desirability because of noise and danger and often affect\'s

the value. Sites backing to freeways or other thoroughfares which

are heavily screened or where traffic is well below grade and

sufficient distance from the property may not be adversely affected.

If the appraiser feels that there is sufficient noise to affect the

marketability of the property, it should be rejected and a clear

explanation provided. Distance alone is not sufficient to reject

the property.

4-26. AIRPORT NOISE & HAZARDS. Locations near an airport may be
subjected

to the noise and hazard of low-flying aircraft. Therefore,

consideration must be given to the desirability of an affected

location in comparison with unaffected locations that are improved

with or are appropriate for competitive structures.

A. Proposed Residential Properties - Noise Zones.

1\) If proposed housing locations lie in an area in which the

noise factor exceeds 75 decibels, the site should be

rejected and no new residential development should be

considered in this zone.

2\) If proposed housing locations lie in an area in which the

noise factor exceeds 65 decibels but not 75 decibels, while

normally not acceptable, may be mitigated by appropriate

sound attenuation measures such as soundproofing, year

around air conditioning, or other treatment.

3\) Where the proposed location lies within an area in which

noise levels are 65 decibels or less, noise should not be a

factor in considering residential development.

B. Existing Properties. Existing properties are not to be rejected

solely because of airport influences if there is evidence of

acceptance in the market. HUD\'s position is that since the

dwellings are in use and are expected to continue so in the

foreseeable future, their marketability should be the strongest

indicator of their acceptability.

1\) Market Survey. When it appears that significant and

substantial changes are occurring, or are likely to occur,

in the marketability of properties near an airport, a

comprehensive in-depth market survey will be initiated by

the Chief Appraiser for the information and guidance of the

Director of Housing/Housing Development. This market

survey will be directed to such facts and opinions as:

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2/90

4-18

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4150.1 REV-1

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(4-26) a. Selling prices and rentals of homes, as compared with

similar homes in other areas not subject to this

influence.

b\. Length of time properties sold were on the market, as

compared with the exposure of similar properties sold

in unaffected areas.

c\. Length of time rental properties were unoccupied, as

compared with those in unaffected areas.

d\. Number of properties for sale or for rent, as compared

with other unaffected areas.

e\. Increase or decrease in sales since previous survey.

2\) This survey should tap any informed sources of information,

and should be recorded block by block. It should include

opinions of former owners who have moved from the affected

area, or their attorneys, brokers, etc., if the owners are

not available. The reports of the HUD Area Economist will

be useful in determining the potential market demand

created by the airport and related industries.

3\) In the event that these market reports indicate adverse

changes in market attitudes, one copy of the report of the

survey and any supporting data must be forwarded upon

completion to Headquarters, Office of Insured Single Family

Housing, Valuation and Technical Support Branch, for

review, and one copy to the Assistant Regional

Administrator.

4\) Continuing Marketability. The value of individual

properties and their continuing marketability will depend

to a great degree upon the type of planes, the frequency

and timing of flights, the intensity of noise, and other

factors. There will be varying reactions with distance

from the airport, and these variances will be recognized in

value in accordance with demonstrated market reaction and

evidence of trend. Also, there will be wide variances in

the attitudes of different communities or localities, since

some will be much less sensitive to particular types of

disturbance than will others. This is not peculiar since

similar attitudes are found with respect to certain

industrial plants, types of highway installation, etc.

5\) Location Analysis. After giving consideration to the

determinations previously mentioned involving existing

construction, the basic principles of location analysis

will

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2/90

4-19

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4150.1 REV-1

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(4-26) be applied in accordance with outstanding instructions.

Consideration should be given to the following:

a\. Plans for future expansion of airport facilities and

services.

b\. Prospective or probable increases in the number of jet

or other flights using the field or specific runways.

c\. The timing of the volume of the flights, (day, night,

etc.).

d\. Other factors that may increase the annoyance in given

locations in the future.

6\) If such changes are in reasonable prospect, as in the case

of plans to lengthen or relocate runways, to enlarge the

airport and build new runways, to increase the number of

flights or the weight of planes used, etc., the appraisal

must anticipate any adverse effect that is likely to

result.

Each case will be judged on its own merits. The effect of

aircraft activity on the desirability of a particular

location shall be compared with other locations that are

improved with or appropriate for structures which are

competitive with those that are typical of the neighborhood

of the subject site.

C. Airport Hazards.

1\) HUD will not accept proposed construction cases and

existing dwellings less than one year old if the property

is located within Runway Clear Zones at Civil Airports or

Clear Zones or Accident Potential Zone I at Military

Airfields.

2\) Existing dwellings more than one year old are acceptable

provided the prospective purchaser acknowledges awareness

that the property is located in a Runway Clear Zone/Clear

Zone. This acknowledgment \"Notice to Prospective Buyers of

Properties Located in Runway Clear, Zones and Military

Airport Clear Zones\" must be used in every instance where

applicable and should be used without change. A signed

acknowledgment must accompany the application for firm

commitment. See suggested format on pages 4-24a and 4-24b.

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2/90

4-20

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4150.1 REV-1

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(4-26) 3) Applications are not acceptable for existing dwellings if

major modernization or rehabilitation is involved. Any

project which significantly prolongs the physical life of

existing units or increases the density or number of people

at the site will render the property unacceptable.

4\) Approved Appraisers, Direct Endorsement mortgagees and

approved HUD lenders must all be made aware of these

requirements and be provided copies of appropriate maps.

Appraisers are responsible for identifying properties

affected and must condition acceptance on notification

being provided to the prospective purchaser. Mortgagees

are responsible for inserting the property address and the

name of the airport on the Notice. Mortgagees must also

ensure that the prospective purchaser receives the

notification at the time loan application is initiated.

Copies of the completed notification with the case number

included should be distributed as follows:

a\. HUD;

b\. Mortgagees\' records;

c\. Purchaser; and

d\. Real Estate Agent (if appropriate).

For cases being processed by HUD, the Notice must accompany

the application for Firm Commitment.

4-27. FIRE AND EXPLOSION. The storage or manufacture of volatile or

explosive products, and other conditions that constitute

extraordinary exposure to the danger of explosion or conflagration

from nearby industry, gas lines, or contiguous brush or grass land,

are hazards that adversely affect value of the dwellings in the

neighborhood.

A. Locations Near High Pressure Gas and Liquid Petroleum

Transportation Pipelines. No part of any residential structure

shall be located less than ten feet from the outer boundary of

the pipeline easement of high pressure gas and liquid petroleum

transmission lines. When new construction or subdivision land

planning is proposed in areas outside the ten foot limit, but

within an area that extends 220 yards on either side of the

centerline of such high pressure transmission line, the

developer shall be required to comply with the following

procedure prior to HUD acceptance of applications for commitment

on individual properties.

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2/90

4-21

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4150.1 REV-1

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(4-27) B. The developer must provide HUD with a statement from an

authorized official of a gas pipeline company certifying

compliance with each of the following paragraphs of Title 49,

Transportation, of the Code of Federal Regulations.

1\) 192.607 - Initial determination of class location and

confirmation or establishment of maximum allowable

operating pressure.

2\) 192.609 - Required study for change in class location.

3\) 192.611 - Change in class location; confirmation or

revision of maximum allowable operating pressure.

4\) 192.613 - Continuing surveillance practices (identification

and operating methods used by survey team.)

C. For liquid petroleum, certifying that the pipeline complies with

CFR-195 and all amendments thereto.

D. Pipeline companies maintain records of the above, per agreement

with the Department of Transportation as recorded in Federal

Register, Volume 35, Number 161, dated August 19, 1970, which

has been previously distributed to all Field Offices.

E. The above statements obtained by the developer shall be retained

in the subdivision file.

4-28. SMOKE, FUMES, OFFENSIVE NOISE AND ODORS, AND FAILING SEWAGE
SYSTEMS.

Smoke, fog, chemical fumes, noxious odors, stagnant ponds or

marshes, poor surface drainage and excessive dampness may exist to a

degree that is hazardous to the health of neighborhood occupants.

Offensive noises and unsightly neighborhood features such as

stables, kennels, and malfunctioning sewage disposal systems

adversely affect the appeal of the neighborhood.

Sewage System Failure. Where individual sewage disposal systems

are involved, an analysis of the location must be made to assure

that the area is free from conditions which adversely affect the

operation of the systems. Consideration will be given to the

type of systems, topography, depth to ground water, soil

permeability and the type of soil to a depth of several feet

below the surface. A check of other, septic systems in the

neighborhood must be made to assure that failures within the

neighborhood will not adversely affect the subject property.

Whenever there are instances of doubt concerning the operation

of sewage disposal systems in a neighborhood, the services of

the local health authority should be obtained.

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2/90

4-22

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4150.1 REV-1

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(4-23) \*NOTE: More detailed information and instructions concerning
many

of the foregoing special hazards and nuisances may be found

in HUD Handbooks 1390.2, 1390.4, 4135.1, 24 CFR Part 51 and

24 CFR Part 200.926.

4-29. TERMITES. Termites can cause serious problems in the wood

structural components of a home and in many cases go undetected for

a long period of time. Because the structural integrity of a

building can be seriously affected, and the marketability of an

infested home questionable, the Department requires assurance, to

the extent possible, that a home is free of any infestation.

A. PROPOSED CONSTRUCTION:

To protect against decay and termite infestation, builders must

follow the requirements in HUD-approved local, state or CABO

building codes. The builder must specify the type of treatment

to be used. See USDA Forest Service Home and Garden Bulletin

64, Subterranean Termites-Their Prevention and Control in

Buildings. If soil treatment is used, submit Form HUD 92052,

Termite Soil Treatment Guarantee as required by the Conditional

Commitment/Direct Endorsement Statement of Appraised Value, Form

HUD 92800.5B.

B. EXISTING CONSTRUCTION:

In those parts of the country susceptible to termite

infestation, appraisers must look in areas of the property which

have a potential for termite infestation such as the bottoms of

outside doors and frames, wood siding in contact with the ground

and crawl spaces. They should also look for mud tunnels running

from the ground up the side of the house. If there is any

evidence or potential for termite infestation, the appraiser

must make a requirement for an inspection by a reputable,

licensed termite company.

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2/90

4-23

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4150.1 REV-1

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NOTICE TO PROSPECTIVE BUYERS OF PROPERTIES LOCATED IN

RUNWAY CLEAR ZONES AND MILITARY AIRPORT CLEAR ZONES

(In accordance with 24 CFR 51.303(a)(3), notice must be given to anyone

interested either in buying an existing HUD property, or using HUD

assistance to buy an existing property, which is located in either a
Runway

Clear Zone at a civil airport or Clear Zone at a military installation.)

The property which you are interested in purchasing at
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is located in the Runway Clear Zone/Clear Zone for
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Studies have shown that if an accident were to occur it is more likely
to

occur within the Runway Clear Zone/Clear Zone then in other areas around

the airport/airfield. Please note that we are not discussing the chances

that an accident will occur, only where one is most likely to occur.

You should also be aware that the airport/airfield operator may wish to

purchase the property at some point in the future as part of a clear
zone

acquisition program. Such programs have been underway for many years at

airports and airfields across the country. We cannot predict if or when

this might happen since it is a function of many factors, particularly
the

availability of funds, but it is a possibility.

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2/90

4-24(a)

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4150.1 REV-1

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We wanted to bring this information to your attention. Your signature on

the space below indicates that you are now aware that the property you
are

interested in is located in a Runway Clear Zone/Clear Zone.

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Signature of prospective buyer Date

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Type or print name of prospective buyer

(This notice must be maintained as part of the HUD file on this action.)

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2/90

4-24(b)