## Chapter 10

## Property Eligibility and Appraisal Requests

#### Overview

+------------+---------------------------------------------------------+
| ##### In   | > This chapter contains information about               |
| troduction |                                                         |
|            | 1.  the eligibility of property to be the security for  |
|            |     a VA guaranteed loan, and                           |
|            |                                                         |
|            | 2.  appraisal requests.                                 |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | This chapter contains the following topics.             |
| #### In th |                                                         |
| is Chapter |                                                         |
+------------+---------------------------------------------------------+

  ---------------------------------------------------------- ------------
  Topic                                                      See Page

  10.01 Why An Appraisal Is Required                         10-2

  10.02 Who Can Request an Appraisal                         10-3

  10.03 The Appraisal System                                 10-4

  10.04 How to Request an Appraisal                          10-5

  10.05 Types of Property Eligible for Appraisal             10-8

  10.06 Properties Not Eligible for Appraisal                10-12

  10.07 Other Appraisal Request Restrictions                 10-14

  10.08 New Construction                                     10-17

  10.09 Proposed or Under Construction                       10-19

  10.10 Construction Exhibits                                10-21

  10.11 Conversion of HUD Value Notices for VA Use           10-27

  10.12 Fees For Appraisals and Inspections                  10-28

  Figure 1: Builder Information and Certifications           10-30

  Figure 2: VA Appraisal Request Checklist                   10-31
  ---------------------------------------------------------- ------------

#### 10.01 Why An Appraisal Is Required

+------------+---------------------------------------------------------+
| #####      | > An appraisal is required to help ensure that any      |
| Value and  | > property which will become the security for a         |
| Condition  | > VA-guaranteed loan                                    |
|            |                                                         |
|            | 3.  has a value of at least as much as the loan amount, |
|            |     and                                                 |
|            |                                                         |
|            | 4.  is in a condition acceptable to VA.                 |
+------------+---------------------------------------------------------+

#### 10.02 Who Can Request an Appraisal

+------------+---------------------------------------------------------+
| ##         | > VA prefers that the appraisal be requested by the     |
| ### Lender | > lender, although it can be requested by any other     |
|  Preferred | > party to the transaction, provided the appraiser is   |
|            | > assigned by VA.                                       |
|            | >                                                       |
|            | > Lenders must ensure that agents and mortgage brokers  |
|            | > requesting VA appraisals on their behalf are familiar |
|            | > with the requirements in this chapter.                |
+------------+---------------------------------------------------------+

#### 10.03 The Appraisal System

+------------+---------------------------------------------------------+
| ###        | > The Appraisal System (TAS) allows appraisal           |
| ## Purpose | > requesters to contact VA via the Internet any time of |
|  of System | > the day or night to obtain VA assignment of a case    |
|            | > number and fee appraiser (and construction inspector, |
|            | > if applicable).                                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > The Internet address for TAS is http://tas.vba.va.gov |
| Access to  | >                                                       |
| and Instru | > Instructions for use of the system are available      |
| ctions for | > on-line.                                              |
|  Using TAS |                                                         |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > ***Problem with user ID or password or fee            |
| #### Probl | > panel-related problem?***                             |
| em Solving | >                                                       |
|            | > Contact the VA office of jurisdiction for the         |
|            | > property (Appendix A is a list of VA offices).        |
|            | >                                                       |
|            | > ***Technical problem with TAS?***                     |
|            | >                                                       |
|            | > Contact the VA Help Desk in Philadelphia at (215)     |
|            | > 381-3050.                                             |
|            | >                                                       |
|            | > ***No access to the Internet or unable to resolve     |
|            | > problem with TAS?***                                  |
|            | >                                                       |
|            | > Assignments can be requested on a limited basis by    |
|            | > telephone, fax or in                                  |
|            | >                                                       |
|            | > writing.                                              |
|            | >                                                       |
|            | > ***Reference**:* See Section 10.04 for more           |
|            | > information.                                          |
+------------+---------------------------------------------------------+

#### 10.04 How to Request an Appraisal

+------------+---------------------------------------------------------+
| #####      | > Follow the steps in the table below to request an     |
|  Procedure | > appraisal. More detailed guidance is provided in      |
|            | > Figure 2, VA Appraisal Request Checklist, at the end  |
|            | > of this chapter.                                      |
+------------+---------------------------------------------------------+

+-------+--------------------------------------------------------------+
| Step  | Action                                                       |
+-------+--------------------------------------------------------------+
| 1     | Ensure that the property is eligible for appraisal **and**   |
|       | all other appraisal request requirements can be satisfied    |
|       | (Sections 10.05 through 10.10). Contact the VA office of     |
|       | jurisdiction for the property if there are                   |
|       |                                                              |
|       | 5.  questions about the property's eligibility, or           |
|       |                                                              |
|       | 6.  if the property is not eligible for appraisal but is     |
|       |     already the security for a VA loan.                      |
|       |                                                              |
|       |     **Note**: Every property eligible for the Lender         |
|       |     Appraisal Processing Program (LAPP) should be processed  |
|       |     under LAPP. *If a LAPP lender fails to process an        |
|       |     eligible property under LAPP, the request for VA         |
|       |     guaranty must include a detailed explanation.*           |
+-------+--------------------------------------------------------------+
| 7.  2 | Access TAS per Section 10.03, and provide all necessary      |
|       | information about the case.                                  |
|       |                                                              |
|       | TAS will:                                                    |
|       |                                                              |
|       | 8.  assign                                                   |
|       |                                                              |
|       | 9.  a case number (in liquidation cases, this will be the    |
|       |     existing VA loan number for the property, as provided by |
|       |     the requester)                                           |
|       |                                                              |
|       | 10. an appraiser (since VA is required by law to select the  |
|       |     fee appraiser on a rotational basis from a panel         |
|       |     maintained by VA), and                                   |
|       |                                                              |
|       | 11. an inspector, if appropriate, and                        |
|       |                                                              |
|       | 12. issue a complete VA Form 26-1805-1, VA Request for       |
|       |     Determination of Reasonable Value, which includes the    |
|       |     above information                                        |
|       |                                                              |
|       |     **Note**: LAPP lenders and loan holders/servicers who    |
|       |     wish to have the appraisal report e-mailed to them must  |
|       |     provide an e-mail address in Item 5 of the appraisal     |
|       |     request.                                                 |
+-------+--------------------------------------------------------------+

Continued on next page

10.04 How to Request an Appraisal, Continued

  -----------------------------------------------------------------------
  Procedure (continued)

  -----------------------------------------------------------------------

+-------+--------------------------------------------------------------+
| Step  | Action                                                       |
+-------+--------------------------------------------------------------+
| 3     | The same day as the assignment is made e-mail, fax or mail   |
|       | the TAS-generated VA Form 26-1805-1, and any other required  |
|       | documentation, to the appraiser assigned.                    |
|       |                                                              |
|       | For [liquidation appraisals]{.underline}, include the name   |
|       | and telephone number of the current or last known occupant.  |
|       | If the property is vacant, also include the keys to the      |
|       | property, or sufficient information to enable the appraiser  |
|       | to gain access to the property; for example, the name and    |
|       | telephone number of a local person to contact.               |
|       |                                                              |
|       | If appraised as "[Proposed or Under                          |
|       | Construction]{.underline},"                                  |
|       |                                                              |
|       | 13. ensure that the construction exhibits meet the           |
|       |     requirements in Section 10.10                            |
|       |                                                              |
|       | 14. mark the case number assigned on the outside of each set |
|       |     of the construction exhibits                             |
|       |                                                              |
|       | 15. include a set of the construction exhibits with the      |
|       |     appraiser's VA Form 26-1805-1. This will be considered   |
|       |     the VA file copy, and                                    |
|       |                                                              |
|       | 16. send the inspector, if assigned, a copy of VA Form       |
|       |     26-1805-1 and a set of the construction exhibits.        |
|       |                                                              |
|       |     If the veteran is acting as the general contractor in    |
|       |     building a home for his or her own occupancy, include:   |
|       |                                                              |
|       | 17. any construction exhibits needed for appraisal purposes, |
|       |     and                                                      |
|       |                                                              |
|       | 18. the veteran's written agreement to pay for any special   |
|       |     VA fee inspections that may be needed to ensure that the |
|       |     work meets VA Minimum Property Requirements for existing |
|       |     (not proposed) construction.                             |
+-------+--------------------------------------------------------------+

Continued on next page

10.04 How to Request an Appraisal, Continued

+------------+---------------------------------------------------------+
| ##### I    | > If Internet access to TAS is not available, complete  |
| f Access t | > Step 1 for the previously listed procedures. Then     |
| o TAS Is U | > complete VA Form 26-1805, VA Request for              |
| navailable | > Determination of Reasonable Value. A typed, fully     |
|            | > completed form is required for every request, except  |
|            | > for the following:                                    |
|            |                                                         |
|            | 19. properties already listed on a valid VA Form        |
|            |     26-1843a, Master Certificate of Reasonable Value    |
|            |     (***Reference:*** See Section 13.03, Step 6)        |
|            |                                                         |
|            | 20. loans for alterations, improvements or repairs of   |
|            |     \$3,500 or less (***Reference:*** See Section       |
|            |     10.05), or                                          |
|            |                                                         |
|            | 21. partial release of the security for a VA-guaranteed |
|            |     loan (***Reference:*** See Section 10.05)           |
|            |                                                         |
|            |     > For LAPP Cases, write "LAP" as the prefix for the |
|            |     > case number in Item 1 of VA Form 26-1805 and      |
|            |     > write "LENDER APPRAISAL PROCESSING PROGRAM" in    |
|            |     > capital letters under the lender's name and       |
|            |     > address in Item 5. This lets the appraiser know   |
|            |     > to forward the appraisal report to the lender,    |
|            |     > not VA, for processing.                           |
|            |                                                         |
|            |     > For liquidation cases, write "LIQUIDATION         |
|            |     > APPRAISAL" in capital letters in Item 28 of VA    |
|            |     > Form 26-1805. Also include the name and telephone |
|            |     > number of the current or last known occupant. If  |
|            |     > the property is vacant, the request must also     |
|            |     > include the keys to the property, or sufficient   |
|            |     > information to enable the appraiser to gain       |
|            |     > access to the property (such as, the name and     |
|            |     > telephone number of a local person to contact.    |
|            |                                                         |
|            |     > Then telephone the necessary information to the   |
|            |     > VA office of jurisdiction for the location of the |
|            |     > property, or fax or mail VA Form 26-1805 and any  |
|            |     > exhibits to that office.                          |
|            |                                                         |
|            |     > Finally, for telephoned or faxed requests         |
|            |                                                         |
|            | 22. enter the case number assigned by VA in Item 1 of   |
|            |     VA Form 26-1805 and the name of the appraiser (and  |
|            |     inspector, if assigned) in Item 43, **and**         |
|            |                                                         |
|            | 23. complete Step 3 in the previously listed            |
|            |     procedures.                                         |
+------------+---------------------------------------------------------+

#### 10.05 Types of Property Eligible for Appraisal

+------------+---------------------------------------------------------+
| ##### L    | > If the lender fails to exercise due diligence in      |
| ender Resp | > determining appraisal eligibility, VA may deny or     |
| onsibility | > reduce payment on a future claim based on the         |
|            | > ineligibility of the property.                        |
|            | >                                                       |
|            | > Properties not eligible for appraisal and other       |
|            | > appraisal request restrictions are described in       |
|            | > Sections 10.06 and 10.07.                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### E    | > A home which has either been previously               |
| xisting Co | > owner-occupied or had all onsite and offsite          |
| nstruction | > improvements fully completed for one year or more is  |
|            | > eligible.                                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > Newly completed properties (completed less than one   |
| ### New Co | > year and never owner-occupied) are eligible if either |
| nstruction |                                                         |
|            | 24. covered by a one-year VA builder's warranty         |
|            |                                                         |
|            | 25. enrolled in a HUD-accepted ten-year insured         |
|            |     protection plan, or                                 |
|            |                                                         |
|            | 26. built by a veteran, as the general contractor, for  |
|            |     his/her own occupancy.                              |
|            |                                                         |
|            |     > **Note**: An exception may be made for a veteran  |
|            |     > who wishes to purchase a new home from a builder  |
|            |     > who is not more than occasionally involved with   |
|            |     > VA financing and will not provide either a        |
|            |     > one-year VA builder's warranty or a ten-year      |
|            |     > insured protection plan.                          |
|            |                                                         |
|            |     > ***Reference:*** See Section 10.08 for details.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > Property is eligible for appraisal prior to           |
| Proposed o | > construction or during construction, if               |
| r Under Co |                                                         |
| nstruction | -   the appraisal is based on proposed construction     |
|            |     > exhibits, and                                     |
|            |                                                         |
|            | -   the property is inspected by VA or HUD during       |
|            |     > construction                                      |
|            |                                                         |
|            |     > ***Reference:*** See Section 10.09 for details.   |
+------------+---------------------------------------------------------+

Continued on next page

10.05 Types of Property Eligible for Appraisal, Continued

+------------+---------------------------------------------------------+
| **Ma       | > To be eligible for a VA loan term of 30 years, a      |
| nufactured | > manufactured home must be                             |
| Home       |                                                         |
| Classified | 27. classified and taxed as real property               |
| as Real    |                                                         |
| Estate**   | 28. properly affixed to a permanent foundation (Section |
|            |     12.10)                                              |
|            |                                                         |
|            | 29. substantially conform with VA MPRs (Chapter 12),    |
|            |     and                                                 |
|            |                                                         |
|            | 30. conform with applicable building code and zoning    |
|            |     requirements for real estate.                       |
|            |                                                         |
|            |     > ***Reference*:**                                  |
|            |                                                         |
|            | 31. Section 10.10, *Construction* *Exhibits,*           |
|            |                                                         |
|            | 32. Section 11.12, *Other Property Types and            |
|            |     Situations,*                                        |
|            |                                                         |
|            | 33. Section 13.06, *notice of Value Conditions and      |
|            |     Requirements*, and                                  |
|            |                                                         |
|            | 34. Section 14.04, *Manufactured Homes Classified as    |
|            |     Real Estate*.                                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### Othe | > Modular homes are eligible, provided they are covered |
| r Manufact | > by a HUD structural engineering bulletin, or          |
| ured Homes | > constructed to the standards of the State in which    |
|            | > the factory is located and receive that State's       |
|            | > approval certification. They are delivered to the     |
|            | > building site in sections, but are not attached to a  |
|            | > chassis supported by wheels. For homes processed as   |
|            | > "proposed or under construction. (***Reference:***    |
|            | > See "Modular Construction" in Section 10.10)          |
|            | >                                                       |
|            | > For traditional manufactured homes (not classified as |
|            | > real estate and attached to a chassis which is        |
|            | > supported by wheels), ***Reference:*** See Title [38  |
|            | > CFR 36.4200]{.underline} series.                      |
|            | >                                                       |
|            | > **\[[38 CFR 36.4200]{.underline}\]**                  |
+------------+---------------------------------------------------------+

Continued on next page

10.05 Types of Property Eligible for Appraisal, Continued

+------------+---------------------------------------------------------+
| ##### Pr   | > A VA-guaranteed loan may be acquired to alter,        |
| operty to  | > improve or repair a property owned and occupied by    |
| be Altered | > the veteran as the veteran's home. The property is    |
| / Improved | > eligible for appraisal either                         |
| / Repaired |                                                         |
|            | 35. prior to being altered, improved or repaired. (When |
|            |     extensive alterations, improvements or repairs are  |
|            |     to be made, VA must determine on a case-by-case     |
|            |     basis at the time of the appraisal request which of |
|            |     the construction exhibits in Section 10.10 are      |
|            |     required. All work must be inspected, to the extent |
|            |     determined appropriate by VA on a case-by-case      |
|            |     basis.), **or**                                     |
|            |                                                         |
|            | 36. after being altered, improved or repaired.          |
|            |                                                         |
|            |     ***Note***: This usually involves a VA-guaranteed   |
|            |     loan for refinancing purposes. No construction      |
|            |     exhibits or inspections are generally required, if  |
|            |     the work was completed prior to the appraisal.      |
|            |                                                         |
|            |     > In either situation, all work must be acceptably  |
|            |     > completed before VA guaranty of the loan.         |
|            |                                                         |
|            |     > ***Reference:*** See Section 7.03 for more        |
|            |     > information on energy efficiency-related          |
|            |     > alterations or repairs.                           |
+------------+---------------------------------------------------------+

Continued on next page

10.05 Types of Property Eligible for Appraisal, Continued

+------------+---------------------------------------------------------+
| #####      | > Property securing an existing VA loan is eligible for |
|  Security  | > appraisal for the following purposes:                 |
| for Existi | >                                                       |
| ng VA Loan | > ***Refinancing***:                                    |
|            | >                                                       |
|            | > > Either                                              |
|            |                                                         |
|            | 37. cash-out, which requires both an appraisal and a VA |
|            |     notice of value, or                                 |
|            |                                                         |
|            | 38. interest rate reduction only, which requires        |
|            |     neither an appraisal nor a notice of value.         |
|            |     However, if the new loan balance will exceed the    |
|            |     original loan amount by 5% or more, the lender may  |
|            |     wish to consider requesting an appraisal.           |
|            |                                                         |
|            |     > ***Partial release of security***:                |
|            |                                                         |
|            |     > The request must be in writing and include any    |
|            |     > information that the VA office of jurisdiction    |
|            |     > considers necessary. A formal appraisal is not    |
|            |     > required if there is sufficient information for   |
|            |     > VA staff to determine the reasonable value of the |
|            |     > property being released and the value of the      |
|            |     > security remaining.                               |
|            |                                                         |
|            |     > ***Foreclosure***:                                |
|            |                                                         |
|            |     > When the VA loan is in default. A liquidation     |
|            |     > appraisal should be requested at the time the     |
|            |     > notice of sale is forwarded to VA, but no later   |
|            |     > than 30 days prior to the estimated or scheduled  |
|            |     > sale date. The lender/holder/servicer is          |
|            |     > responsible for assisting the appraiser in        |
|            |     > gaining access to the interior of the property.   |
|            |                                                         |
|            |     > ***Reference:*** See Section 11.13 for more       |
|            |     > information about interior access.                |
+------------+---------------------------------------------------------+

#### 10.06 Properties Not Eligible for Appraisal

.

+------------+---------------------------------------------------------+
| ##### Prop | > Property in a badly deteriorated condition is not     |
| erties Not | > eligible for appraisal unless VA agrees there is a    |
|  Likely to | > reasonable likelihood that it can be repaired to meet |
|  Meet MPRs | > VA Minimum Property Requirements (MPRs) prior to loan |
|            | > closing.                                              |
|            | >                                                       |
|            | > Other MPR-related restrictions are outlined in        |
|            | > Chapter 12.                                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### Loca | > Property is not eligible for appraisal if the         |
| tion-Relat | > improvements are or will be located in                |
| ed Problem |                                                         |
|            | 39. a Special Flood Hazard Area (SFHA) and either       |
|            |                                                         |
|            | 40. it is proposed/under/new construction with          |
|            |     elevation of the lowest floor below the 100 year    |
|            |     flood level, or                                     |
|            |                                                         |
|            | 41. flood insurance is not available (***Reference:***  |
|            |     See Section 11.12)                                  |
|            |                                                         |
|            | 42. an area subject to regular flooding for whatever    |
|            |     reason, whether or not it is in an SFHA             |
|            |     (***Reference:*** See Section 11.12)                |
|            |                                                         |
|            | 43. a Coastal Barrier Resources System area             |
|            |     (***Reference:*** See Section 11.12)                |
|            |                                                         |
|            | 44. an airport Noise Zone 3, if proposed or under       |
|            |     construction (*Reference:* See Section 11.12)       |
|            |                                                         |
|            | 45. a transmission line easement involving              |
|            |     high-pressure gas or liquid petroleum or high       |
|            |     voltage electricity, if any part of the residential |
|            |     structure is located within the easement            |
|            |     (***Reference***: See Section 12.07), or            |
|            |                                                         |
|            | 46. an area susceptible to geological or soil           |
|            |     instability (earthquakes, landslides or other       |
|            |     history of unstable soils), if proposed/under/new   |
|            |     construction and the builder cannot provide         |
|            |     evidence that either the site is not affected or    |
|            |     the problem has been adequately addressed in the    |
|            |     engineering design (***Reference:*** See Section    |
|            |     10.10).                                             |
+------------+---------------------------------------------------------+

Continued on next page

10.06 Properties Not Eligible for Appraisal, Continued

+------------+---------------------------------------------------------+
| ####       | > A condominium must be acceptable to VA before any     |
| # Condo No | > unit in the project can be eligible for VA loan       |
| t Approved | > guaranty.                                             |
|            | >                                                       |
|            | > To avoid an unnecessary appraisal fee, a condominium  |
|            | > unit should not be appraised unless there is a        |
|            | > reasonable likelihood that VA or HUD will accept the  |
|            | > project prior to loan closing.                        |
|            | >                                                       |
|            | > ***Reference:*** See Chapter 16.                      |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### Owne | > Property involving a less than fee simple ownership   |
| rship Not  | > (i.e.**,** leaseholds, cooperatives, ground rental    |
| Fee Simple | > arrangements) is not eligible for appraisal without   |
|            | > prior VA approval of the specific legal arrangement   |
|            | > or project. Submissions to VA Central Office (262A)   |
|            | > must include                                          |
|            |                                                         |
|            | 47. details of the ownership arrangement                |
|            |                                                         |
|            | 48. copies of leases or other instruments creating the  |
|            |     estate, and                                         |
|            |                                                         |
|            | 49. recommendations of the VA office of jurisdiction.   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > ***Reference**:* See Section 10.07.                   |
| ## Other I |                                                         |
| neligible  |                                                         |
| Properties |                                                         |
+------------+---------------------------------------------------------+

#### 10.07 Other Appraisal Request Restrictions

+------------+---------------------------------------------------------+
| ##### No   | > No new appraisal can be requested on property which   |
| Duplicate  | > already has a valid VA value determination.           |
| Appraisals | >                                                       |
|            | > The process for changing notices of value is outlined |
|            | > in Chapter 13.                                        |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > For any property appraised as either "proposed or     |
|  Builder I | > under construction" or "new construction", the        |
| D Required | > builder must have a valid builder identification      |
|            | > number prior to a VA notice of value being issued.    |
|            | >                                                       |
|            | > To obtain and maintain a valid, VA-assigned builder   |
|            | > ID, all of the following must be fully-executed,      |
|            | > up-to-date and on file at the VA office of            |
|            | > jurisdiction over the location of the property:       |
|            |                                                         |
|            | 50. VA Form 26-421, Equal Employment Opportunity        |
|            |     Certification.                                      |
|            |                                                         |
|            | 51. VA Form 26-8791, VA Affirmative Marketing           |
|            |     Certification.                                      |
|            |                                                         |
|            | 52. The identifying information and certifications      |
|            |     shown in Figure 1 of this chapter, as worded and in |
|            |     the order shown, and either on the builder's        |
|            |     letterhead or attached to a statement on the        |
|            |     builder's letterhead which references it.           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > Property is ineligible for VA appraisal if any party  |
| # No Appra | > of interest to the transaction, other than the        |
| isal Due t | > purchaser, is debarred Government-wide, or otherwise  |
| o Sanction | > excluded from participation in the Loan Guaranty      |
|            | > program due to a VA-imposed sanction for              |
|            | > substantially prejudicing a veteran by either         |
|            |                                                         |
|            | 53. failing to correct justified construction complaint |
|            |     items                                               |
|            |                                                         |
|            | 54. violating VA Minimum Property Requirements          |
|            |                                                         |
|            | 55. deviating from plans and specifications without VA  |
|            |     approval                                            |
|            |                                                         |
|            | 56. failing to honor other contractual obligations on   |
|            |     houses previously built and sold with VA financing, |
|            |     or                                                  |
|            |                                                         |
|            | 57. using a sales contract or marketing method or       |
|            |     practice which VA considered to be unfair or unduly |
|            |     prejudicial to the veteran involved.                |
+------------+---------------------------------------------------------+

Continued on next page

10.07 Other Appraisal Request Restrictions, Continued

+------------+---------------------------------------------------------+
| #####      | > When the sanctioned party is a builder, this          |
| No Apprais | > restriction applies to any property still owned by    |
| al Due to  | > the builder, including houses under construction and  |
| Sanction ( | > existing houses. VA's refusal to appraise will not be |
| continued) | > affected by either the fact that                      |
|            |                                                         |
|            | 58. a fee inspector approved the work on which the      |
|            |     sanction was based, or                              |
|            |                                                         |
|            | 59. the builder changes the company's name or           |
|            |     organization or becomes a principal or officer in   |
|            |     another organization.                               |
|            |                                                         |
|            |     **Note:** ***Reference***: See Section 17.01.       |
|            |     Lenders are responsible for identifying builders on |
|            |     the GSA list. For sanctioned builders not on the    |
|            |     GSA list, each VA office of jurisdiction will       |
|            |     either                                              |
|            |                                                         |
|            | 60. periodically provide lenders with a list of such    |
|            |     builders to check or                                |
|            |                                                         |
|            | 61. assume responsibility for ensuring that those       |
|            |     builders do not participate in the VA loan guaranty |
|            |     program.                                            |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > If there are local building authority requirements    |
| #### Build | > due to building code enforcement or urban renewal,    |
| ing Code E | > either                                                |
| nforcement |                                                         |
|            | 62. provide evidence with the appraisal request that    |
|            |     those requirement(s) are satisfied, or              |
|            |                                                         |
|            | 63. the notice of value will be conditioned to require  |
|            |     such evidence.                                      |
|            |                                                         |
|            |     > ***Reference:*** See Section 13.06.               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > During times of heavy VA workload or limited          |
| # Potentia | > resources, a VA field station may notify lenders that |
| l Restrict | > it will temporarily accept only appraisal requests    |
| ion to Vet | > involving a veteran under contract. In that           |
| erans Unde | > situation, the appraisal request must either          |
| r Contract |                                                         |
|            | 64. be accompanied by a copy of the fully-executed      |
|            |     purchase agreement, or otherwise clearly identify   |
|            |     the transaction with a proposed VA loan, or         |
|            |                                                         |
|            | 65. indicate that the appraisal is for a purpose not    |
|            |     affected by this restriction (such as, proposed     |
|            |     construction, refinancing, foreclosure, or a loan   |
|            |     for alterations/improvements/repairs).              |
+------------+---------------------------------------------------------+

Continued on next page

10.07 Other Appraisal Request Restrictions, Continued

+------------+---------------------------------------------------------+
| ##### P    | > During times of heavy VA workload or limited          |
| otential " | > resources and with VA Central Office concurrence, a   |
| Master" Ap | > VA field station may temporarily refuse a builder's   |
| praisal Re | > requests for "master" appraisals if experience with   |
| strictions | > that builder or location indicates that a minority of |
|            | > the units will receive VA financing. In that          |
|            | > situation, the builder may obtain an individual       |
|            | > appraisal on any property sold to a veteran.          |
|            | >                                                       |
|            | > With VA Central Office concurrence, a VA field        |
|            | > station may also limit the number of                  |
|            |                                                         |
|            | 66. units in a "master" appraisal to the number which   |
|            |     it believes can be successfully marketed during the |
|            |     validity period of the VA value notice, or          |
|            |                                                         |
|            | 67. optional items of equipment or variations from      |
|            |     basic house types to be included in a "master"      |
|            |     appraisal.                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #          | > In areas where there is no qualified VA or HUD fee    |
| #### If No | > inspector, properties cannot be appraised until they  |
|  Inspector | > qualify as                                            |
|  Available |                                                         |
|            | 68. "new construction" (***Reference:*** See Section    |
|            |     10.08), or                                          |
|            |                                                         |
|            | 69. "existing construction" (***Reference:*** See       |
|            |     Section 10.05).                                     |
+------------+---------------------------------------------------------+

#### 10.08 New Construction

+------------+---------------------------------------------------------+
| #####      | > To be eligible for appraisal as "new construction",   |
| Definition | > the property must be fully                            |
|            | >                                                       |
| **Co       | > completed or completed except for customer preference |
| nstruction | > items (such as, interior wall finishes, floor         |
| Exhibits   | > covering, appliances, fixtures and equipment, etc.)   |
| and        | > and those improvements for which escrows are          |
| Ins        | > permitted (***Reference:*** See Section 9.09). This   |
| pections** | > eliminates the need for construction exhibits.        |
|            | >                                                       |
|            | > ***Note***: For properties which do not meet the      |
|            | > criteria for appraisal as "new construction",         |
|            | > ***Reference:*** See Section 10.05 ("Proposed or      |
|            | > Under Construction" and "Existing Construction").     |
|            | >                                                       |
|            | > Neither construction exhibits nor VA or HUD           |
|            | > inspections during construction are required for      |
|            | > properties appraised as "new construction".           |
|            | >                                                       |
|            | > Note: Appraisal without VA or HUD inspections during  |
|            | > construction is a privilege available only to         |
|            | > builders who routinely provide good quality           |
|            | > construction. Builders who are required to obtain VA  |
|            | > or HUD inspections during construction will be        |
|            | > notified by VA in writing. VA, not lenders, will      |
|            | > monitor builder compliance with this restriction.     |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | > Properties appraised as "new construction" must be    |
| onstructio | > covered by either                                     |
| n Warranty |                                                         |
|            | -   a one-year VA builder's warranty, or                |
|            |                                                         |
|            | -   a ten-year insurance-backed protection plan.        |
|            |                                                         |
|            |     > If the builder will provide a [one-year VA        |
|            |     > builder's warranty]{.underline}, then both of the |
|            |     > following will be required                        |
|            |                                                         |
|            | -   the veteran purchaser's written acknowledgment      |
|            |     that, "I am aware that VA did not inspect this      |
|            |     property during construction and that VA assistance |
|            |     with construction complaints will be limited to     |
|            |     defects in equipment, material and workmanship      |
|            |     reported in writing during the one-year VA          |
|            |     builder's warranty period." ***Reference:*** See    |
|            |     Section 13.06, "Not Inspected Acknowledgment."      |
|            |                                                         |
|            | -   a one-year VA builder's warranty on VA Form         |
|            |     26-1859, Warranty of Completion of Construction.    |
|            |     ***Reference:*** See Section 13.06, "Construction   |
|            |     Warranty".                                          |
+------------+---------------------------------------------------------+

Continued on next page

#### New Construction, Continued

+------------+---------------------------------------------------------+
| ##### Co   | > If the builder will provide a [ten-year               |
| nstruction | > insurance-backed protection plan]{.underline}, then   |
|  Warranty, | > both of the following will be required                |
|  Continued |                                                         |
|            | 70. the veteran purchaser's written acknowledgment      |
|            |     that, "I am aware that VA did not inspect this      |
|            |     property during construction and that it does not   |
|            |     qualify for VA assistance with construction         |
|            |     complaints." ***Reference:*** See Section 13.06,    |
|            |     "Not Inspected Acknowledgment".                     |
|            |                                                         |
|            | 71. evidence of enrollment of the property in a         |
|            |     ten-year insured plan acceptable to HUD**.          |
|            |     *Reference: ***See Section 13.06, "Ten Year Insured |
|            |     Protection Plan".                                   |
|            |                                                         |
|            |     ***Exception*:** An exception may be made for a     |
|            |     veteran who wishes to purchase a new home from a    |
|            |     builder who is [not more than                       |
|            |     occasionally]{.underline} involved with VA          |
|            |     financing and will [not]{.underline} provide either |
|            |     a one-year VA builder's warranty or a ten-year      |
|            |     insured protection plan. In that situation,         |
|            |     [all]{.underline} of the following will be          |
|            |     required:                                           |
|            |                                                         |
|            | 72. the veteran purchaser's written acknowledgment      |
|            |     that, "I am aware that this property does not       |
|            |     qualify for VA assistance with construction         |
|            |     complaints, since it was not inspected by VA during |
|            |     construction. I am also aware that this new         |
|            |     property will not be covered by either a one-year   |
|            |     VA builder's warranty or a ten-year insured         |
|            |     protection plan, as is normally required in this    |
|            |     situation."                                         |
|            |                                                         |
|            | 73. the builder's written certification that, "This     |
|            |     company is not more than occasionally involved with |
|            |     VA financing and is aware that this property is     |
|            |     being accepted without any VA-required warranty on  |
|            |     an exception basis only upon the request of the     |
|            |     veteran purchaser. The dwelling was constructed     |
|            |     according to standard building practices and is in  |
|            |     conformity with all applicable building codes and   |
|            |     complies with the energy conservation standards of  |
|            |     the 1992 Council of American Building Officials     |
|            |     Model Energy Code," **and**,                        |
|            |                                                         |
|            | 74. the lender obtains a copy of documentation issued   |
|            |     by the local building authority to verify that      |
|            |     construction was acceptably completed, such a final |
|            |     inspection or occupancy permit. Where local         |
|            |     authorities do not perform building inspections,    |
|            |     the builder must certify in writing that "The       |
|            |     dwelling was not inspected during construction by   |
|            |     any State, county or local jurisdiction.            |
+------------+---------------------------------------------------------+

#### 10.09 Proposed or Under Construction 

+------------+---------------------------------------------------------+
| ##### Indi | > Properties can be appraised prior to the start or     |
| vidual vs. | > completion of construction either                     |
|  "Master"  |                                                         |
| Appraisals | 75. individually, or                                    |
|            |                                                         |
|            | 76. as a group of 5 or more on a "master" appraisal.    |
|            |     Each model or house type is appraised at the same   |
|            |     time by the same fee appraiser on a separate        |
|            |     appraisal report. All of the properties are         |
|            |     included on the same *VA Master Certificate of      |
|            |     Reasonable Value*.                                  |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### C    | 77. Construction exhibits must be provided with the     |
| onstructio |     request to appraise properties as "proposed or      |
| n Exhibits |     under construction". ***Reference***: See Sections  |
|            |     10.04 and 10.10.                                    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### Cons | > Properties appraised as "proposed or under            |
| truction I | > construction" must be inspected by VA or HUD during   |
| nspections | > construction (***Reference***: See Chapter 14).       |
|            | >                                                       |
|            | > The purpose of the inspection(s) is to help ensure    |
|            | > that the property                                     |
|            |                                                         |
|            | 78. is built according to the construction exhibits     |
|            |     used in the appraisal, and                          |
|            |                                                         |
|            | 79. meets VA Minimum Property Requirements for proposed |
|            |     construction (***Reference:*** See Section 12.02).  |
|            |                                                         |
|            |     > Only a final inspection is required if either     |
|            |                                                         |
|            | 80. the property is to be covered by a ten-year insured |
|            |     protection plan (***Reference:*** See "Construction |
|            |     Warranty" below), or                                |
|            |                                                         |
|            | 81. VA can rely on local building authority inspections |
|            |     in lieu of first and second stage VA inspections    |
|            |     (***Reference:*** See Section 14.03).               |
|            |                                                         |
|            | 82.                                                     |
|            |                                                         |
|            | 83. ***Note***: VA acceptance of only a final VA or HUD |
|            |     inspection during construction is a privilege       |
|            |     available only to builders who routinely provide    |
|            |     good quality construction. Builders who are         |
|            |     required to obtain a full complement of inspections |
|            |     during construction will be notified by VA in       |
|            |     writing. VA, not lenders, will monitor builder      |
|            |     compliance with the restriction.                    |
+------------+---------------------------------------------------------+

Continued on next page

10.09 Proposed or Under Construction, Continued

+------------+---------------------------------------------------------+
| ##### C    | > In [every]{.underline} case processed as proposed or  |
| onstructio | > under construction, the builder must provide the      |
| n Warranty | > veteran home buyer with a one-year VA builder's       |
|            | > warranty on VA Form 26-1859, Warranty of Completion   |
|            | > of Construction.                                      |
|            | >                                                       |
|            | > If only a final VA or HUD inspection is made during   |
|            | > construction (***Reference:*** See "Construction      |
|            | > Inspections" above), a ten-year insured protection    |
|            | > plan acceptable to HUD is also required (unless the   |
|            | > builder provides evidence of local building authority |
|            | > inspections acceptable to VA in lieu of VA first and  |
|            | > second stage inspections per Section 14.03).          |
|            |                                                         |
|            | 84.                                                     |
|            |                                                         |
|            | 85. ***Reference:*** See Section 13.06, "Construction   |
|            |     Warranty".                                          |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### De   | 86. Use the table below to determine the type of        |
| termining  |     warranty required.                                  |
| the Type o |                                                         |
| f Warranty |                                                         |
+------------+---------------------------------------------------------+

+------------------------------------+---------------------------------+
| When the property is appraised     | **...then...**                  |
| as...                              |                                 |
+------------------------------------+---------------------------------+
| > existing construction            | > no warranty is required.      |
+------------------------------------+---------------------------------+
| > new construction                 | > either:                       |
|                                    |                                 |
|                                    | 1.  1 year builder's warranty   |
|                                    |     > is required, **or**       |
|                                    |                                 |
|                                    | 2.  a 10 year insured           |
|                                    |     > protection plan is        |
|                                    |     > required.                 |
+------------------------------------+---------------------------------+
| 3.  proposed or under construction | > only a 1 year builder's       |
|     > with a full complement of VA | > warranty is required.         |
|     > inspections                  |                                 |
+------------------------------------+---------------------------------+
| > proposed or under construction   | > only a 1 year builder's       |
| > (with only a final VA inspection | > warranty is required.         |
| > and local inspections are        |                                 |
| > accepted in lieu of VA first and |                                 |
| > second stage inspections per     |                                 |
| > Section 14.03)                   |                                 |
+------------------------------------+---------------------------------+
| > proposed or under construction   | 4.  both a 1 year builder's     |
| > (with only a final VA inspection |     > warranty, **and**         |
| > and local inspections are        |                                 |
| > **not** accepted in lieu of VA   | 5.  a 10 year insured           |
| > first and second stage           |     > protection plan are       |
| > inspections per Section 14.03)   |     > required.                 |
+------------------------------------+---------------------------------+

#### 10.10 Construction Exhibits

+------------+---------------------------------------------------------+
| #####      | > Construction exhibits are required for properties     |
|  General R | > appraised as "proposed or under construction". They   |
| equirement | > are **not** required for properties appraised as      |
|            | > either "new construction" or "existing construction." |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ###        | > Each set of proposed construction exhibits must       |
| ## Require | > include                                               |
| d Exhibits |                                                         |
|            | 87. specifications on VA Form 26-1852, Description of   |
|            |     Materials, signed and dated by the builder in all   |
|            |     cases and by the veteran when one is under contract |
|            |     in an individual case processed as "proposed or     |
|            |     under construction". Other specification formats    |
|            |     are also acceptable, provided they are signed and   |
|            |     dated by the builder and veteran as described above |
|            |     and are sufficiently detailed for VA appraisal and  |
|            |     compliance inspection purposes.                     |
|            |                                                         |
|            | 88. plot plan which includes the location of the        |
|            |     well/septic systems, if applicable.                 |
|            |                                                         |
|            | 89. all exterior building elevations.                   |
|            |                                                         |
|            | 90. foundation or basement plan.                        |
|            |                                                         |
|            | 91. plan of all floors.                                 |
|            |                                                         |
|            | 92. sectional wall details.                             |
|            |                                                         |
|            | 93. a certification signed and dated by a technically   |
|            |     qualified and properly identified individual (such  |
|            |     as, builder, architect, engineer, etc.) which       |
|            |     states, "I certify that the construction exhibits   |
|            |     for (identification of the property by house type,  |
|            |     lot, block, subdivision name, etc.) meet all local  |
|            |     code requirements and are in substantial conformity |
|            |     with VA Minimum Property Requirements, including    |
|            |     the energy conservation standards of the 1992       |
|            |     Council of American Building Officials' Model       |
|            |     Energy Code and the requirement for lead-free water |
|            |     piping." VA will accept [HUD Form                   |
|            |     92541]{.underline}, Builder's Certification of      |
|            |     Plans, Specifications and Site, in lieu of this     |
|            |     certification.                                      |
|            |                                                         |
|            |     **Note:** In most cases for HUD Form 92541 to be    |
|            |     acceptable, it must have the identifying            |
|            |     information at the top completed, as well as Items  |
|            |     2 and 4 **or** Items 5, 6, 9, 10, 12 and 13.        |
+------------+---------------------------------------------------------+

Continued on next page

10.10 Construction Exhibits, Continued

+------------+---------------------------------------------------------+
| #####      | > If inspections during construction are to be made by  |
|  Number an |                                                         |
| d Distribu | 94. VA, then two sets of construction exhibits are      |
| tion of Ex |     required. ***Reference:*** See Section 10.04 (Step  |
| hibit Sets |     3), regarding distribution details.                 |
|            |                                                         |
|            | 95. HUD, then only one set of construction exhibits is  |
|            |     required. The appraisal requester will include that |
|            |     set with the assignment notice to the appraiser.    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > VA highly recommends the use of reduced-size          |
| # Reduced- | > construction drawings to save reproduction, mailing   |
| Size Plans | > and storage costs for all parties involved. Building  |
|            | > plans, elevations and details, traditionally drawn at |
|            | > ¼ inch scale and larger, can be photographically      |
|            | > reduced or computer-drawn to be clearly readable on   |
|            | > 8½ by 14 inch sheets.                                 |
|            | >                                                       |
|            | > While VA will currently accept 11 by 17 inch sheets,  |
|            | > this size is not compatible with standard industry    |
|            | > scanner equipment generally available to VA and       |
|            | > program participants. Therefore, this size is         |
|            | > discouraged and in the future may be eliminated as an |
|            | > option. Other exhibits normally provided in an 8½ by  |
|            | > 11 inch format (such as specifications,               |
|            | > certifications, etc.) must not be further reduced.    |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > ***Reference:*** See Section 14.07 for information    |
|  Changes t | > about changing the construction exhibits after they   |
| o Exhibits | > are used for VA appraisal purposes, but prior to loan |
|            | > closing.                                              |
+------------+---------------------------------------------------------+

10.10 Construction Exhibits, Continued

+------------+---------------------------------------------------------+
| #####      | > In addition to the other requirements in this         |
|  "Master"  | > section, a "master" appraisal request must include    |
| Appraisals | > the following:                                        |
|            |                                                         |
|            | 96. Plat showing the locations of each lot or unit to   |
|            |     be included in the appraisal,                       |
|            |                                                         |
|            | 97. completed VA Form 26-1843b, Master Certificate of   |
|            |     Reasonable Value Worksheet, and                     |
|            |                                                         |
|            | 98. Building Program Statement, which includes:         |
|            |                                                         |
|            | 99. total number of dwellings to be built in the        |
|            |     project                                             |
|            |                                                         |
|            | 100. number of dwellings contemplated in the primary    |
|            |      construction phase, and anticipated starting and   |
|            |      completion dates of that phase                     |
|            |                                                         |
|            | 101. arrangements regarding the construction,           |
|            |      dedication and maintenance of streets and          |
|            |      utilities, and                                     |
|            |                                                         |
|            | 102. information regarding any special assessments to   |
|            |      be assumed by purchaser.                           |
+------------+---------------------------------------------------------+

+-----------+----------------------------------------------------------+
| ###       | > ***Reference:*** See Section 10.05.                    |
| ## Proper |                                                          |
| ty to be  |                                                          |
| Altered/  |                                                          |
| Improved/ |                                                          |
|  Repaired |                                                          |
+-----------+----------------------------------------------------------+

+-----------+----------------------------------------------------------+
| ##### Vet | > ***Reference:*** See Section 10.04, Step 3.            |
| eran as C |                                                          |
| ontractor |                                                          |
+-----------+----------------------------------------------------------+

Continued on next page

10.10 Construction Exhibits, Continued

+------------+---------------------------------------------------------+
| ##### M    | > In addition to the other requirements in this         |
| odular Con | > section, an appraisal request involving modular       |
| struction  | > construction must include either                      |
|            |                                                         |
|            | 103. evidence of coverage by a HUD structural           |
|            |      engineering bulletin, or                           |
|            |                                                         |
|            | 104. a certification of approval by the State in which  |
|            |      the unit is fabricated. This requirement will be   |
|            |      made a condition of the VA value notice if not     |
|            |      submitted with the appraisal request.              |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### Man  | > Any case in which the foundation has not been fully   |
| ufactured  | > completed and the manufactured home unit installed is |
| Home Class | > considered to be "proposed or under construction."    |
| ified as R | >                                                       |
| eal Estate | > In those cases, each set of construction exhibits     |
|            | > must include                                          |
|            |                                                         |
|            | 105. specifications for the foundation and a plot plan  |
|            |      as required for conventional site-built homes      |
|            |                                                         |
|            | 106. in double-wide homes, a detail of the mating line  |
|            |      piers, if applicable                               |
|            |                                                         |
|            | 107. a foundation plan showing the location and a       |
|            |      cross-sectional detail of the supporting piers. In |
|            |      all cases, include drawings of the foundation      |
|            |      anchorage details.                                 |
|            |                                                         |
|            | 108. a floor plan of the unit and exterior elevation    |
|            |      drawings/photographs of the front and rear of the  |
|            |      home, unless the unit is physically located on the |
|            |      site to be appraised or the appraiser has access   |
|            |      to the unit on the dealer's lot. These may be      |
|            |      provided in the manufacturer's advertising or      |
|            |      technical installation manual.                     |
|            |                                                         |
|            | 109. in States or localities that require the underside |
|            |      of the unit to be completely enclosed, details of  |
|            |      the perimeter enclosure that comply with those     |
|            |      requirements.                                      |
|            |                                                         |
|            | 110. since site conditions vary considerably from       |
|            |      location to location, any revision needed to       |
|            |      information provided in the manufacturer's         |
|            |      technical installation manual in order to comply   |
|            |      with local requirements.                           |
|            |                                                         |
|            | 111. appropriate construction exhibits for any other    |
|            |      on-site improvements, such as decks, enclosed      |
|            |      patios, garages and carports, etc., to be financed |
|            |      with the loan proceeds.                            |
+------------+---------------------------------------------------------+

Continued on next page

10.10 Construction Exhibits, Continued

+------------+---------------------------------------------------------+
| #          | 112. a certification signed and dated by a technically  |
| #### Manuf |      qualified and properly identified individual (such |
| actured Ho |      as builder, architect, engineer, etc.) which       |
| me Classif |      states, "I certify that the construction exhibits  |
| ied as Rea |      for (identification of the property by house type, |
| l Estate ( |      lot, block, subdivision name, etc.) meet all local |
| continued) |      code requirements and are in substantial           |
|            |      conformity with VA Minimum Property Requirements,  |
|            |      including the energy conservation standards of the |
|            |      1992 Council of American Building Officials' Model |
|            |      Energy Code and the requirement for lead-free      |
|            |      water piping." VA will accept HUD 92541, Builder's |
|            |      Certification of Plans, Specifications and Site,   |
|            |      in lieu of this certification.                     |
|            |                                                         |
|            |      **Note:** In most cases for HUD Form 92541 to be   |
|            |      acceptable, it must have the identifying           |
|            |      information at the top completed, as well as Items |
|            |      2 and 4 **or** Items 5, 6, 9, 10, 12 and 13.       |
|            |                                                         |
|            |      > ***Reference:*** See Section 12.02 for specific  |
|            |      > Minimum Property Requirement-related information |
|            |      > that could impact what is required in the        |
|            |      > construction exhibits.                           |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > In areas that have a history of geological or soil    |
| Geological | > instability, the builder must submit either           |
|  or Soil I |                                                         |
| nstability | 113. a certification that to the best of the builder's  |
|            |      knowledge and belief, any geological or            |
|            |      soil-related hazard has been compensated for in    |
|            |      the engineering design of the improvements and no  |
|            |      portion of the construction will rest on fill,     |
|            |      **or**                                             |
|            |                                                         |
|            | 114. evidence from a qualified geologist or engineer    |
|            |      that the subject site either does not present      |
|            |      unusual geological soils-related hazards or such   |
|            |      hazards have been compensated for in the           |
|            |      engineering design of the improvements.            |
|            |                                                         |
|            |      Qualified geologists are State licensed or are a   |
|            |      member of a national or State organization which   |
|            |      requires responsibility, experience, education and |
|            |      demonstrated ability in the field of engineering   |
|            |      geology.                                           |
+------------+---------------------------------------------------------+

Continued on next page

10.10 Construction Exhibits, Continued

+------------+---------------------------------------------------------+
| ##### If   | > If HUD will make the inspections during construction, |
|  Inspectio | > the appraisal request must include                    |
| ns to be M |                                                         |
| ade by HUD | 115. The construction exhibits required above, except   |
|            |      for the certification regarding those exhibits.    |
|            |                                                         |
|            | 116. The certification directly above item 38 on VA     |
|            |      Form 26-1805.                                      |
|            |                                                         |
|            | 117. A certification by the builder or lender that the  |
|            |      construction exhibits submitted to VA, including   |
|            |      any HUD-accepted change orders, are identical to   |
|            |      those submitted to HUD.                            |
|            |                                                         |
|            | 118. A copy of the final HUD inspection report          |
|            |      countersigned by HUD or a HUD Direct Endorsement   |
|            |      underwriter, or a letter from HUD that the         |
|            |      property has been completed in accordance with the |
|            |      approved plans and specifications and acceptable   |
|            |      change orders, if any. This requirement will be    |
|            |      made a condition of the VA notice of value if not  |
|            |      submitted with the appraisal request.              |
|            |                                                         |
|            | 119. If the final HUD inspection report stipulates that |
|            |      certain incomplete work, such as street            |
|            |      improvements, will be completed according to       |
|            |      requirements specified by HUD elsewhere, a copy of |
|            |      the documentation that states those requirements   |
|            |      must be furnished. In that situation, there must   |
|            |      also be a VA-approved escrow agreement and a       |
|            |      subsequent VA or HUD re-inspection report or other |
|            |      acceptable evidence of satisfactory completion.    |
|            |      The veteran cannot be charged the cost of that     |
|            |      re-inspection.                                     |
|            |                                                         |
|            |      > If there is a question about HUD consistency     |
|            |      > with VA in the interpretation                    |
|            |                                                         |
|            |      > and application of VA/HUD Minimum Property       |
|            |      > Requirements, the VA field                       |
|            |                                                         |
|            |      > station may impose a VA inspection, at an        |
|            |      > appropriate inspection stage, in                 |
|            |                                                         |
|            |      > addition to the HUD inspections.                 |
+------------+---------------------------------------------------------+

#### 10.11 Conversion of HUD Value Notices for VA Use

+------------+---------------------------------------------------------+
| ##         | > Generally, HUD value notices cannot be converted for  |
| ### Policy | > VA use, since VA is required by law to assign fee     |
|            | > appraisers and HUD allows lenders to select           |
|            | > appraisers.                                           |
|            | >                                                       |
|            | > There is one exception.                               |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > To eliminate duplicative efforts and unnecessary      |
| Exception  | > appraisal costs for veterans, VA staff will convert a |
|            | > HUD conditional commitment issued by either HUD staff |
|            | > or a Direct Endorsement lender to a VA Certificate of |
|            | > Reasonable Value (CRV) if **all** of the following    |
|            | > requirements are met:                                 |
|            |                                                         |
|            | 120. The appraiser is                                   |
|            |                                                         |
|            | 121. a VA fee panel member, and                         |
|            |                                                         |
|            | 122. not a staff employee of the lender.                |
|            |                                                         |
|            | 123. The property                                       |
|            |                                                         |
|            | 124. was appraised as an individual case (that is, not  |
|            |      listed on a valid HUD "master" value               |
|            |      determination)                                     |
|            |                                                         |
|            | 125. did not already have a valid VA value              |
|            |      determination on the date of the purchase          |
|            |      agreement, and                                     |
|            |                                                         |
|            | 126. was appraised for HUD purposes and the lender      |
|            |      documents a legitimate need to change to VA        |
|            |      financing after the appraisal was made. That is,   |
|            |      the buyer changed from HUD to VA financing while   |
|            |      under contract, or the property is being purchased |
|            |      with VA financing after a contract with a previous |
|            |      buyer requiring HUD financing fell through.        |
|            |                                                         |
|            | 127. The lender submits to the VA office of             |
|            |      jurisdiction                                       |
|            |                                                         |
|            | 128. the lender's written request for conversion, which |
|            |      includes a certification that identifies the       |
|            |      property and addresses **each** of the above       |
|            |      requirements                                       |
|            |                                                         |
|            | 129. a completed VA Form 26-1805, Request for           |
|            |      Determination of Reasonable Value                  |
|            |                                                         |
|            | 130. the HUD value notice and                           |
|            |                                                         |
|            | 131. the original appraisal report, including           |
|            |      photographs and all other addenda.                 |
|            |                                                         |
|            |      > VA will list applicable VA requirements and      |
|            |      > conditions on the CRV.                           |
+------------+---------------------------------------------------------+

#### 10.12 Fees For Appraisals and Inspections

+------------+---------------------------------------------------------+
| ##         | > The maximum appraisal and inspection fees allowed by  |
| ### Policy | > each VA field station is based on customary fees for  |
|            | > similar services in that station's jurisdiction.      |
|            | > Regardless of the amount of the maximum fee,          |
|            | > appraisers and inspectors must not charge veterans    |
|            | > more than they charge other clients for similar       |
|            | > services.                                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##         | > The appraisal requester will pay the appraiser's fee  |
| ### Liquid | > and the expense will be included in the claim under   |
| ation Appr | > loan guaranty.                                        |
| aisal Fees | >                                                       |
|            | > If the borrower attempts to pay the full arrears      |
|            | > after the appraisal is obtained, the holder must      |
|            | > include the cost of the appraisal in its computation  |
|            | > of the total amount delinquent.                       |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ##### "Ma  | > Veterans cannot be charged for any portion of a       |
| ster" Appr | > "master" appraisal fee.                               |
| aisal Fees | >                                                       |
|            | > Total maximum "master" appraisal fee = (Fee per House |
|            | > Type x Number House Types x Number Appraisers         |
|            | > Assigned) + (Fee per Lot x Number Lots) + (Fee per    |
|            | > Option x Number Options).                             |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| ####       | > The builder, sponsor, or lender will pay the          |
| # Construc | > inspection fees, which are not to exceed \$100 per    |
| tion Inspe | > inspection unless otherwise specified by the VA field |
| ction Fees | > station.                                              |
|            | >                                                       |
|            | > While the veteran can be charged for all regular      |
|            | > inspections of an individual property, the veteran    |
|            | > **cannot** be charged for re-inspections due to       |
|            |                                                         |
|            | 132. the builder's noncompliance with VA requirements   |
|            |                                                         |
|            | 133. the builder's failure to provide access to the     |
|            |      property or have the work ready for inspection, or |
|            |                                                         |
|            | 134. the inspector's failure to arrive at the appointed |
|            |      time.                                              |
+------------+---------------------------------------------------------+

Continued on next page

10.12 Fees For Appraisals and Inspections, Continued

+------------+---------------------------------------------------------+
| ##### M    | > If a property is located outside of the fee person's  |
| ileage Fee | > normal business area, an additional fee may be        |
|            | > charged **only** for that portion of travel beyond    |
|            | > the normal business area and at a mileage rate not to |
|            | > exceed that allowed for federal employee travel.      |
|            | >                                                       |
|            | > That travel must be by the most direct route and the  |
|            | > billing must include a breakdown of the mileage. VA   |
|            | > offices will consider adding more fee panel members   |
|            | > to provide better coverage in areas where             |
|            | > mileage-related fees are excessive.                   |
+------------+---------------------------------------------------------+

+------------+---------------------------------------------------------+
| #####      | > VA offices may allow a fee panel member to require    |
| Fee Paymen | > payment in advance from a particular appraisal or     |
| t Problems | > inspection requester if both                          |
|            |                                                         |
|            | 135. a regular, ongoing payment problem that is well    |
|            |      outside of normal business practices is documented |
|            |      by the fee person, and                             |
|            |                                                         |
|            | 136. the party responsible for payment fails to         |
|            |      reasonably respond to the fee person's written     |
|            |      notice about the problem and its possible          |
|            |      consequences.                                      |
|            |                                                         |
|            | 137.                                                    |
|            |                                                         |
|            | > In such cases, VA will review the documentation from  |
|            | > the fee appraiser. If in concurrence, VA will contact |
|            | > the requester to discuss and attempt to resolve the   |
|            | > problem. If this contact does not resolve the matter, |
|            | > VA will notify the requester that written authority   |
|            | > will be sent to all fee appraisers indicating that    |
|            | > they are authorized to require advance payment in     |
|            | > future cases from this particular                     |
|            | > appraisal/inspection requester.                       |
|            | >                                                       |
|            | > **Note**: Appraisers may not require advance payment  |
|            | > from requesters unless they have been given this      |
|            | > written authority from VA.                            |
+------------+---------------------------------------------------------+

+------+-------------------------------+-------------------------------+
| ###  | > Late fees may be authorized |                               |
| ## L | > by VA Regional Loan         |                               |
| ate  | > Centers. Fee appraisers     |                               |
| Fees | > must have prior             |                               |
|      | > authorization by VA to      |                               |
| ##   | > assess late fees.           |                               |
| ###  |                               |                               |
+------+-------------------------------+-------------------------------+

#### Figure 1: Builder Information and Certifications

\[on builder's letterhead\]

**Builder Information and Certifications**

**VA Loan Guaranty Program**

138. This is to certify that this company:

139. Will not use any marketing practices or sales contracts which
     include features considered by VA to be unfair or prejudicial to
     veteran-purchasers per Section 9.08 of the VA Lenders Handbook. I
     understand that the closing of the loan denotes that the builder
     has determined that the contract is acceptable to VA.

140. Will construct every property which is to become the security for a
     VA-guaranteed loan to substantially conform to applicable building
     codes, applicable VA requirements and the standards of quality as
     measured by acceptable trade practices.

141. In cases processed by VA as "proposed or under construction", I
     understand that all construction must equal or exceed that shown or
     described in the construction exhibits used by VA to appraise the
     property and that, in any conflict between those construction
     exhibits and the applicable VA minimum property requirements, the
     latter will govern; and that VA will consider changes to those
     exhibits to be binding only when they are listed on a properly
     executed VA Form 26-1844, Request for Acceptance of Changes in
     Approved Drawings and Specifications; and that I will be proceeding
     at my own risk in changing or deviating from those exhibits without
     advance VA approval.

142. A fully executed VA Form 26-421, Equal Employment Opportunity
     Certification, and VA Form 8791, VA Affirmative Marketing
     Certification, is either attached or was previously submitted to
     VA.

143. Names of all persons who have a controlling or proprietary interest
     in this company or are principal shareholders, officers or
     directors. This company agrees to keep this list updated with VA:

144. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
     \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

145. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
     \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

146. \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
     \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Name (*Type or print*) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Title \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Signature
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Date
\_\_\_\_\_\_\_\_\_

####   {#section-1 .unnumbered}

#### FIGURE 2: VA Appraisal Request Checklist 

4.  How will the property be appraised? (The choices are:
    [existing]{.underline} construction, [new]{.underline} construction,
    or [proposed or under]{.underline} construction. Definitions are in
    Section 10.05.)

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4.  Have you been made aware that any of the following affect the
    property, making it [ineligible]{.underline} for VA appraisal?
    (Details are in Sections 10.06 and 10.07.)

    a.  A valid VA value determination already exists.

    b.  Bad physical condition.

    c.  Located in a condominium unlikely to be approved by VA or HUD
        prior to loan closing.

    d.  Less than fee simple ownership without VA approval.

    e.  A party of interest to the transaction is excluded from
        participation in the VA Loan Guaranty program for any reason.

    f.  Proposed, new or under construction and the builder is unable to
        obtain a VA builder identification number.

    g.  Located in a Special Flood Hazard Area (SFHA) [and]{.underline}:

        i.  Flood insurance is not available, or

        ii. Proposed, new or under construction and the elevation of the
            lowest floor is below the 100 year flood level.

    h.  Subject to regular flooding, whether or not it is in a SFHA.

    i.  Located in a Coastal Barrier Resources System area.

    j.  Proposed or under construction and in an airport Noise Zone 3.

    k.  Any part of the residence is within a transmission line easement
        for high-pressure gas, liquid petroleum or high voltage
        electricity.

    l.  Proposed, new or under construction and in an area susceptible
        to earthquakes or landslides or having a history of unstable
        soils and the builder cannot provide evidence that either the
        site is not affected or the problem has been adequately
        addressed in the engineering design.

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4.  Will the appraisal involve any of the following? (Special
    requirements or other pertinent information for each is in Section
    10.05, unless otherwise noted.)

    a.  Common interest community (Sections 16-A.01 and 16-A.02)

    b.  Manufactured or modular home

    c.  Existing property to have major alterations or improvements
        prior to loan closing

    d.  Refinance only for interest rate reduction purposes

    e.  Partial release of the security for an existing loan

    f.  Conversion of a HUD value determination (Section 10.11)

    g.  Foreclosure on a defaulted loan

Continued on next page

**FIGURE 2: VA Appraisal Request Checklist,** Continued

4.  If the property will be appraised as [new]{.underline} construction:

    a.  Is the builder on the GSA list as debarred Government--wide
        (Section 10.07)?

    b.  Does the builder have a VA builder identification number, as
        required (Section 10.07)?

    c.  Is the construction fully completed except for "customer
        preference" items or items for which escrows are permitted, as
        required (Section 10.08)?

    d.  Does the builder agree to provide the veteran purchaser with
        either a one-year VA builder's warranty or a ten-year insured
        protection plan, as required (Section 10.08)?

    e.  Will the veteran purchaser agree to make the required written
        acknowledgment (Section 10.08)?

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4.  If the property will be appraised as [proposed or under]{.underline}
    construction:

    a.  Is the builder on the GSA list as debarred Government--wide
        (Section 10.07)?

    b.  Does the builder have a VA builder identification number, as
        required (Section 10.07)?

    c.  Did the builder provide the construction exhibits described in
        Section 10.10, as required?

    d.  Does the builder agree to have the property inspected by VA, as
        required (Section 10.09)?

    e.  Does the builder agree to provide the veteran purchaser with a
        one-year VA builder's warranty (Section 10.09)?

    f.  If the property is eligible for only a final VA inspection (per
        Section 10.09) and local building authority inspections are not
        acceptable to VA in lieu of VA first and second stage
        inspections (per Section 14.03), does the builder agree to
        provide the veteran purchaser with both a one-year VA builder's
        warranty and a ten-year insured protection plan?

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4.  Request the appraisal according to the instructions in Section 10.04
    if:

    a.  You've determined how the property will be appraised (Item 1
        above), and

    b.  The property appears to be eligible for VA appraisal (Item 2
        above), and

    c.  You are aware of VA requirements if the appraisal involves any
        of the issues in Items 3, 4 and 5 above.

**Note**: When in doubt, look for guidance in the VA Lender's Handbook,
including its index. If still in doubt, contact the VA office with
jurisdiction over the location of the property.