CHAPTER 2. CORRECTION OF STRUCTURAL

DEFECTS IN NEW HOMES - SECTION 518(a)

2-1. GENERAL. This Chapter provides procedures for processing

homeowner requests for financial assistance under Section 518(a)

of the National Housing Act.

Section 518(a) authorizes the Secretary, under conditions

described herein, to make expenditures to:

a\. Correct structural defects in the mortgaged property.

b\. Pay the claim of the owner of the property for expenditures

to correct damages to the property arising from structural

defects.

c\. Acquire title to the property with the approval of the

mortgagor and under such terms and conditions as are

satisfactory to the mortgagor.

The type of assistance for the correction of structural defects

to be extended to a homeowner shall be determined by the

Secretary acting through the Field Office.

\* The homeowner shall be entitled to receive relief under Section

518(a) only if the Secretary acting through the Field Office

determines that all criteria which are applicable are met and

the owner completes all applicable processing requirements. \*

2-2. STATUTORY REQUIREMENTS. To be eligible for financial

assistance, the homeowner and the property must meet all of the

following criteria:

a\. The dwelling shall be a one- to four-family structure

covered by an individual mortgage.

b\. The dwelling shall have been approved for mortgage

insurance or Veterans Administration loan guaranty prior to

the beginning of construction and acceptably completed

under HUD or VA inspection.

NOTE: A VA guaranteed property is not eligible for

financial assistance under Section 518(a), even though

inspection during construction was made by HUD. Veterans

Administration legislation similar to Section 518(a) is

provided in Section 1827 of Title 38 of U.S. Code.

8/81

Page 2-1

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

c\. The request for Financial Assistance, Form HUD-92556 SFA,

shall be filed with the Field Office not later than four

years after the date of the first Form HUD-59100, Mortgage

Insurance Certificate issued in connection with the

property.

A mortgagor under a new HUD mortgage on the property or a

new mortgagor on the same mortgage (loan assumption) shall

be entitled to file an application if it is filed within

the same four-year period following the date of the first

Mortgage Insurance Certificate.

d\. The insured mortgage on the property shall have been

endorsed, as evidenced by the issuance of a Mortgage

Insurance Certificate.

e\. The contract of mortgage insurance shall be in force as of

the date the homeowner\'s request for financial assistance

is received.

f\. The homeowner shall have made reasonable, but unsuccessful,

efforts to obtain correction of the structural defect by

the builder, seller, or other appropriate responsible

person.

2-3. DEFINITION OF STRUCTURAL DEFECT. For the purpose of

implementing Section 518(a), a structural defect is defined as

any major structural failure or other major defect which

threatens the structural components of the dwelling. The defect

may be due to construction, material, workmanship, or latent

unpredictable phenomena.

a\. The term includes, but is not limited to:

\(1\) Actual structural failures directly affecting the

basic integrity of the dwelling such as substantial

defects in the foundation, footings, slabs, floors,

framing or roof.

\(2\) Major defects, substantial faults, failures, omissions

or critical unpredictable deficiencies relating to the

structural components of the property such as

dangerous wiring, basement flooding, or failure of

individual sewage disposal or water supply systems.

b\. Defects in manufactured basic home equipment (furnace, air

conditioner, water heater) are covered by the

manufacturer\'s warranty and normally are not eligible for

financial assistance. The homeowner may obtain relief from

the manufacturer for defects in these items. If a defect

develops in any of

8/81

Page 2-2

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

these basic pieces of equipment that is clearly not due to

manufacture, or the manufacturer refuses to make

correction, financial assistance may be offered.

c\. Defects in appliances that are easily removed, such as

clothes washers, dryers, kitchen ranges, and refrigerators,

are not eligible for financial assistance.

d\. Defects in finishing materials, such as paint, stain, or

decorative nonstructural exterior surface coatings, are not

eligible for financial assistance unless the problem is

the direct result of a structural defect.

e\. Assistance under Section 518(a) is not available when the

structural defects are caused by fire, earthquakes, flood,

tornado, or other natural disaster or by failure of the

homeowner to properly maintain the property.

\* f. Section 518(a) is not intended to relieve or expand the

obligation of the builder or insured protection plan to

correct construction deficiencies determined to be the

builder\'s or insurer\'s or warrantor\'s responsibility. \*

g\. HUD will not reimburse the homeowner for damaged household

furnishings.

2-4. APPLICATION FOR FINANCIAL ASSISTANCE. An application for

financial assistance under Section 518(a) shall be submitted by

the homeowner on Form HUD-92556 SFA, Request for Financial

Assistance. The Complaint Officer may assist the homeowner, if

necessary, to prepare and submit the application.

a\. The application shall be filled in completely with all

structural defects listed. Attaching or referring lists

of complaints filed previously is not acceptable.

b\. The receipt of the request for financial assistance shall

be acknowledged by a letter to the homeowner. (See Figure

2-B.)

c\. No statements or promises of relief shall be made to the

homeowner or anyone prior to complete processing of the

application.

2-5. FILES AND RECORDS. Upon receipt of the homeowner\'s application,

any prior complaint file pertaining to the property shall be

made a part of the Special Assistance Binder.

Page 2-3 8/81

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

\* a. The original Construction Complaint Case History Card,

Form HUD-92557, shall be continued. A chronological

history of every action on the application from date of

receipt to date of final disposition shall be entered.

b\. The previous complaint correspondence folder shall become

part of the Special Assistance Binder. All Special

Assistance Binders shall be filed alphabetically by the

last name of the applicant.

c\. If there is no prior complaint file, a Case History Card

and Special Assistance Binder shall be initiated with this

fact noted.

2-6. INITIAL REVIEW BY COMPLAINT OFFICER. The homeowner\'s

application for financial assistance shall be reviewed to

determine statutory eligibility as stated in Paragraph 2-2.

a\. If review shows that the homeowner\'s application is

ineligible, it shall be returned with a letter citing the

appropriate reason(s) for ineligibility (See Figure 2-C.)

b\. Any questions about factual evidence provided as to

statutory eligibility shall be resolved in favor of the

homeowner and the application shall be accepted for further

processing.

c\. The Complaint Officer shall review the prior complaint

file or, if no prior complaint exists, the documentation

with the request for financial assistance to determine

whether appropriate demand has been made upon the builder

for correction of complaint items.

\(1\) If it is determined that the builder has not refused

to correct the justified items of homeowner \*

complaint, the application shall be considered to be a

construction complaint and shall be handled pursuant

to the procedures in Chapter 1 of this Handbook prior

to further processing as an application for financial

assistance.

\(2\) The builder shall be restricted from the use of HUD

programs for refusal or inability to correct justified

items of complaint (see Paragraph 1-12c) unless it is

determined that correction of the defect is not the

builder\'s responsibility. The Special Assistance

Binder shall be so documented.

8/81 Page 2-4

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

\(3\) Prior handling as a construction complaint may be

omitted when it is apparent that the builder is

unwilling or unable to correct the structural defects

\* Known bankruptcy or administrative sanctions pursuant

to 24 CFR Part 24 are acceptable evidence that the

builder will not perform.

d\. When it is determined that the application meets the

statutory requirements, it is considered ready for

technical processing and is referred to the Architectural

and Engineering Branch.

2-7. TECHNICAL REVIEW. The Chief Architect shall review the Special

Assistance Binder. All information necessary to determine that

the defects for which financial assistance is claimed are

structural, as defined in Paragraph 2-3, must be in the binder.

a\. The Chief Architect shall add any comment or instruction

deemed necessary when assigning the case for inspection. A

structural defect inspection shall be made regardless of

any previous complaint inspection.

b\. The Chief architect shall assign each structural defect

case to an inspector.

2-8. STRUCTURAL DEFECT INSPECTION. The inspector shall make the

inspection as soon as possible. An appointment shall be

arranged with the homeowner. It is essential that the homeowner

know that an inspector will be visiting the property. It is

desirable to have the homeowner\'s or owner\'s representative

present during inspection, but mandatory only if the inspector

must enter the house. If a structural defect inspection

involves exterior items, the inspection may be made without the

homeowner being present, but not without their knowledge that

the inspection is scheduled. When an appointment is made to

inspect the property, an entry is made on Form HUD-92557,

Construction Complaint Case History Card, to document this

fact.

a\. The purpose of the inspection is to determine the nature of

the defect(s), the cause, and the method of correction. If

no one is home on the date set for an interior inspection,

the homeowner shall be sent a form letter unless other

arrangements for inspection can be made expeditiously by

telephone.

b\. The inspector must take care not to give the homeowner any

indication that financial assistance will be given. The

inspector may answer any questions and provide technical

explanations. \*

8/81

Page 2-5

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

c\. A structural defect inspection report shall be prepared in

memorandum form by the inspector to the Chief Architect.

\* (1) Each item listed on the Form HUD-92556 SFA shall be

covered individually.

\(2\) Each item shall be defined, clarified, or explained as

necessary so that it may be clearly understood.

\(3\) The cause of the defect shall be stated.

\(4\) The work necessary to correct the defect (including

work already under way or completed by the homeowner

and acceptable to HUD) shall be listed. Correction

shall be permanent in nature and commensurate with

the value and type of property. The format shall be

such that specifications and invitations to bid can be

prepared pursuant to housing management procedures.

(See Reference (1) of the Foreword.)

\(5\) An estimate of the cost of repairing the defect shall

be stated. This estimate may be made by the inspector

or cost analyst.

\(6\) A statement shall be made as to whether the defect is

considered \"structural\" in accordance with the

definition in Paragraph 2-3.

d\. The Chief Architect shall review the report for

completeness and technical accuracy and indicate

concurrence by signing the structural defect inspection

report and returning it to the Complaint Officer with the

Special Assistance Binder.

2-9. REVIEW BY COMPLAINT OFFICER. The Complaint Officer shall review

the structural defect inspection report and recommend to the

Director, Housing Division/Supervisor the manner in which

financial assistance, if any, should be given. (See Paragraph

2-1.) The final determination is made by the Area Office

Manager/Service Office Supervisor. If the Area Office Manager/

Service Office Supervisor determines that the owner is entitled

to relief, the homeowner shall be advised by letter of the type

of financial assistance which will be extended (repair,

reimbursement or acquisition). The date of this letter will be

the cut-off time used in the preparation of the quarterly

report. (Figure 2-E.)

2-10.DETERMINATION FOR NO ASSISTANCE. It it is determined that the \*

owner is not entitled to receive special assistance, the

following action shall be taken by the Complaint Officer.

8/81 Page 2-6

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

\* a. Address a letter to the mortgagor, and to their

attorney, if so represented, for the Area Office

Manager/Service Office Supervisor\'s signature,

explaining: (See Figure 2-F.)

\(1\) Reasons HUD cannot be assistance.

\(2\) Describing HUD\'s opinion of how the defect can be

corrected including HUD\'s estimate of cost to

correct.

\(3\) Offering to guide the mortgagor in contracting

the work.

\(4\) Offering to aid the mortgagor in obtaining any

financing needed to correct the defect.

b\. If the owner requests permission to examine the

drawings and specifications, approved change orders,

inspection reports and all other documents pertaining

to the property, these exhibits shall be made

available for the owner\'s review and copying.

Technical assistance to review and interpret these

exhibits and to explain HUD-FHA requirements shall be

made available. Under no circumstances may the

exhibits be removed from the office. Copies may be

made at the homeowner\'s expense.

c\. The file is closed and the duplicate Construction

Complaint Case History Card is filed in a special

section of the case history file designated for the

filing of all cards pertaining to requests for

financial assistance. The original Construction

Complaint Case History Card is retained in the

\"builder\" portion of the file.

2-11. DETERMINATION TO REPAIR. When it is determined to proceed

with repairs to the property in accordance with repair

specifications and cost estimates prepared by the

Architectural and Engineering Branch, the Property

Disposition Branch shall contract for the repairs. \*

If the authorized repairs require moving the family while

the work is being performed, the Field Office is authorized

to reimburse the family for temporary living quarters while

such repairs are being made. This expenditure is not to

exceed the amount available to a Government family in

travel status within the Continental United States.

8/81

Page 2-7

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

\* Bidding, contracting, vouchering Form SF-1034 and paying

for the correction of defects shall follow the procedures

set forth in the Property Disposition Contracting Handbook

4320.1. (See Reference (3) of the Foreword.) The voucher

shall not be executed until the inspection by the

Architectural and Engineering Staff reveals that the

corrective work complies with the terms of the repair

contract. Preparation of the voucher, Form SF-1034, shall

be in accordance with instructions in the Fiscal

Administrative Handbook 4045.1. (See Reference (2) of the

Foreword.)

The Davis-Bacon Act is not applicable in Section 518(a)

contracts.

A subrogation agreement must be signed by the mortgagor

before any contract is let for repairs. (See Figure 2D.)

The original and two copies of each voucher, properly

certified, shall be sent to the Office of Finance and

Accounting, Director, General and Program Accounting,

Attention: Diversified Payments Division. The voucher must

be marked \"structural defect-518(a).\"

Prior to initiating the vouchers, a written statement from

the owner \"that repairs are acceptable\" shall be obtained.

In all correspondence, including voucher submissions (Form

SF-1034), reference shall be made to the FHA case number,

including the section of the Housing Act Code.

Prior to contracting for repairs, the Area Office Manager

shall issue an Order of Temporary Denial of Participation

to the builder of the property. (See Paragraph 1-12c). As

a condition, the builder must reimburse HUD for funds \*

expended to make the necessary repairs.

For the purpose of monitoring this program, any eligible

request in an estimated amount of \$5,000 or more must be

promptly reported to the Assistant Secretary for Housing,

Attention: Office of Single Family Housing. The report

shall include the nature and cause of the defect.

2-12. DETERMINATION TO REIMBURSE HOMEOWNER. Reimbursement for

corrective work that has been complete or is under way must

be supported by copies of paid invoices, cancelled checks,

unpaid invoices, or other evidence.

8/81 Page 2-8

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

Prior to execution of the voucher, a determination shall be

made that the owner has paid in full for the repair work.

If the contractor has not been paid or only partially paid,

the payee on the voucher shall be the owner and the

contractor. If amounts are due to two or more contractors

or material dealers, separate vouchers shall be prepared

for each claim.

2-13. DETERMINATION TO ACQUIRE. If the option of acquisition of

\* the property is being considered, the Director, Housing

Division/Supervisor may determine that the total cost (and

net loss) to HUD to acquire may be greater than the cost to

repair the property with title remaining with the present

homeowner. When the cost analysis indicates that it is in

the best interests of the Department to acquire the

property, three alternatives exist: \*

a\. To restore the property and to sell it in the

competitive sales market.

\(1\) Restoration of the property is rarely, if ever

recommended as additional costs over and above

the owner\'s claim for correcting structural

defects will be encountered. These may include

additional repairs and redecorating to make the

property saleable, expenses of ownership and

management during the period of HUD ownership,

and sales commission and expenses in connection

with release of the property.

\(2\) Also, the homeowner faces a loss due to the

problem of finding a new dwelling and the expense

of moving. Whenever field review and other

information show that structural defects can be

corrected in a satisfactory manner, the objective

must be to do it for the present homeowner.

b\. To sell the property in an \"as is\" condition.

c\. Raze the structure and sell the land.

If a recommendation for acquisition is made, the amount of

the owner\'s total current investment in the property must

be established. This amount is the owner\'s downpayment,

plus principal payments on the mortgage loan, the cost of

any capital improvements made by the homeowner, and

special assessments for off-site improvements paid by the

owner.

A recommendation for HUD to acquire the property must be

supported by a copy of the purchase agreement or sales

contract, evidence of payments for capital improvements,

etc.

Page 2-9 8/81

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

No allowance is included for normal maintenance

expenditures, property taxes, or payments to interest on

the mortgage. When circumstances warrant, reasonable

expenses to relocate the mortgagor may be paid. However,

the Uniform Relocation Assistance and Real Property

Acquisition Policies Act of 1970 (PL 91-646) does not apply

to 518(a) acquisitions.

As claims for financial assistance must be submitted within

4 years of initial insurance endorsement, HUD will

disregard either appreciation or depreciation in the market

and permit the owner to recover only the total investment.

a\. Cash payment shall be made to the owner through a

local escrow or title company who will close the

purchase transaction and distribute the sales proceeds

to those having a claim in the property. After

conveyance of a marketable title to the Secretary, the

case is closed.

b\. Properties acquired pursuant to Section 518(a) shall

be considered and treated as any other property

acquired in settlement of a claim for insurance

benefits. Such properties shall be carried on the

reports and inventory records of the office until

final disposition.

2-14. QUARTERLY REPORT OF SECTION 518(a) REQUEST FOR FINANCIAL

ASSISTANCE. At the end of each quarter, the Complaints

\* Officer shall prepare and forward a summary report of all

518(a) activity during the quarter (see Figure 2-E). This

report will be due in Headquarters for each preceding

quarter no later than April 30, July 31, October 31, and

January 31. Forward this report to: \*

Department of Housing and Urban Development

Office of Management

Management Information Systems Division

Washington, D.C. 20410

8/81 Page 2-10

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

CHAPTER 2, FIGURE 2-B

(Letter of Acknowledgement to Mortgagor)

Dear \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_:

This will acknowledge receipt of your recent Request for Financial

Assistance under Section 518(a) of the National Housing Act.

We have started the assembly and analysis of all pertinent facts

necessary to process your case. I will write and advise you of our

findings.

Sincerely,

Page 2-13 8/81

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

CHAPTER 2, FIGURE 2-C

(Letter to Homeowner Advising that Request Does not Meet

Statutory Requirements)

Dear

This is in reply to your Request for Financial Assistance under

Section 518(a). We have carefully reviewed your request and we must

advise you that your request for assistance cannot be approved

because it does not meet the following criterion (criteria)

established by law as (a) requirement(s) for eligibility.

a\. The dwelling shall be a one- to four-family structure covered by

an individual mortgage.

b\. The dwelling shall have been approved for mortgage insurance or

VA loan guaranty prior to beginning of construction and

acceptably completed under HUD or VA inspection.

c\. The Request for Financial Assistance, Form HUD-92556 SFA, shall

be filed with the Field Office not later than four years after

the date of the first Mortgage Insurance Certificate issued in

connection with the property.

d\. The insured mortgage on the property shall have been endorsed,

as evidenced by a Mortgage Insurance Certificate.

e\. The contract of mortgage insurance shall be in force as of the

date the homeowner\'s Request for Financial Assistance is

received.

If you believe that your request has not been fairly reviewed in view

of the requirements of the law, you may request a reconsideration by

writing to me and explaining why you believe the rejection of your

request was in error.

Sincerely,

8/81 Page 2-14

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

CHAPTER 2, FIGURE 2-D

SUBROGATION ASSIGNMENT AGREEMENT

THIS agreement made this \_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_,
19\_\_\_\_ by and

between
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
(hereinafter called

Mortgagors) and the Secretary of Housing and Urban Development of

Washington, D.C., his successors and assigns (hereinafter called

Secretary).

WHEREAS, Mortgagors have applied to the Secretary for assistance

in the Correction of Structural Defects according to the terms and

conditions set forth in HUD Regulations, 24 CFR, Chapter II, Subpart

K 200.500 through 200.515.

WHEREAS, the Secretary has determined it appropriate and

necessary to take the following action to correct the structural

defect(s):

THEREFORE, in consideration of the assistance the Secretary has

given and will give under the provisions of 200.510 of the HUD

Regulations, and pursuant to such provisions, we,
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

(Mortgagors) do hereby assign, transfer and set over to the Secretary

of Housing and Urban Development, his successors, and assigns all

claims, demands, causes of action, and any other legal rights arising

out of or because of the aforementioned structural defect(s), which

we have had, now have, or may have against the builder, seller, or

any other party who may be liable to us thereunder.

GIVEN under our hands and seals this \_\_\_\_\_ day of
\_\_\_\_\_\_\_\_\_\_\_\_,

19\_\_\_\_.

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

(Mortgagor)

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

(Mortgagor)

STATE OF )

COUNTY OF )ss

Page 2-15 8/81

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

CHAPTER 2, FIGURE 2-D

On this \_\_\_\_\_\_ day of \_\_\_\_\_\_\_\_\_\_\_\_\_\_, 19\_\_\_,
before me

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_,
a Notary Public in and for said

County, personally appeared
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ known
to me to be the persons whose

names are subscribed to the within instrument, and acknowledged that

they executed the same.

Witness my hand and official seal.

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

Notary Public in and for said County and State

8/81 Page 2-16

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

CHAPTER 2, FIGURE 2-E

SUMMARIZATION OF SECTION 518(a) ACTIVITY DURING \_\_\_\_ QUARTER OF
19\_\_\_

Number of Cases Amount in

Dollars

1\. Requests on Hand Beginning

of Quarter \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

2\. Number of New Requests

Received During Quarter \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

\*3. Total Actions Taken During

Quarter

a\. Applications Rejected \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

b\. Repairs Approved \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_

c\. Homeowners Reimbursed \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
\_\_\_\_\_\_\_\_

d\. Acquisitions \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_\_\_\_\_\_\_\_

4\. Applications on Hand End

of Quarter \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

5\. Average Processing Time

(Staff Days/Application) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

6\. Classification of Defects

for which assistance

authorized in 3 above

(number)

FOUNDATION

FLOOR

WALL

ROOF

INDIVIDUAL SEWAGE

MECHANICAL

(PLUMBING, HEATING,

A/C, ELECTRICAL)

OTHER (SPECIFY)

NOTE: This report is to

be sent to Head-

quarters at the

end of each

quarter.

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

Signature of Complaint Officer

\*Cut off date for this entry will be the date of the letter to the

homeowner advising of the type of assistance, if any, to be extended.

Page 2-17 8/81

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

CHAPTER 2, FIGURE 2-F

(Letter to Homeowner Advising that Request Does not Meet

Definition of Structural Defect)

Dear

\*

This is in reply to your request for financial assistance under

Section 518(a). We have carefully reviewed your request and have

determined that it cannot be approved because the defects do not meet

HUD\'s definition of a \"structural defect.\"

Under Section 518(a), a structural defect is defined as any major

structural failure or other major defect which threatens the

structural components of the dwelling. The defect may be due to

construction, material, workmanship, or latent unpredictable

occurrence.

a\. The term includes:

\(1\) Actual structural failures directly affecting the basic

integrity of the dwelling, such as substantial defects in

the foundation, footings, slabs, floors, framing or roof.

\(2\) Major defects, substantial faults, failures, omissions or

critical unpredictable deficiencies relating to the

structural components of the property, such as dangerous

wiring, basement flooding, or failure of individual sewage

disposal or water supply systems.

Although we cannot provide financial help, if requested, we will

offer an opinion as to how these defects can be corrected; and if you

decide to correct these defects, we will be pleased to furnish the

names of several contractors qualified to do the work. We estimate

the cost of repairs to be approximately \$\_\_\_\_\_\_.

We will also assist you in obtaining financing, if necessary, by

providing the names of lending institutions whom you may contact for

possible financial assistance. We will also provide you with

information on other HUD rehabilitation and home improvement programs

for which you might be eligible.

IF YOU BELIEVE THAT YOUR REQUEST FOR ASSISTANCE HAS BEEN UNFAIRLY

REVIEWED, YOU MAY REQUEST RECONSIDERATION BY WRITING TO ME AND

PRESENTING FACTS, INFORMATION OR ARGUMENTS NOT PREVIOUSLY CONSIDERED.

You may look at all documents in our files about your home, including

plans, specifications, approved change orders and inspection reports.

If you need copies, you will be charged \$\_\_\_\_ for each copy. If you

wish to examine these documents, please call or write
\_\_\_\_\_\_\_\_\_\_\_\_\_\_

at \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, telephone number
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, for an

appointment to do so. If the necessary staff is available, we will

assist you in understanding the documents. \*

Sincerely,

8/81 Page 2-18

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

CHAPTER 2, FIGURE 2-G

FACT SHEET

SECTION 518(a)

Section 518(a) became a part of the National Housing Act on

September 2, 1964. Section 518(a) was established to provide

financial assistance to homeowners with HUD-insured mortgages to

avert family catastrophe or loss of property caused by structural

defects in their home.

Interpretation and implementation of this Section of the Act is

based on Secretary-authorized Regulations and HUD Handbook

procedures specifying the terms, conditions, and types of assistance

available to homeowners, as determined by HUD Field Offices, on a

case-by-case basis.

To be eligible for financial assistance, the homeowner and the

property must meet all of the following statutory requirements:

a\. The dwelling shall be a one- to four-family structure covered by

an individual mortgage.

b\. The dwelling shall have been approved for mortgage insurance or

Veterans Administration loan guaranty prior to the beginning of

construction and acceptably completed under HUD or VA

inspection.

NOTE: A VA guaranteed property is not eligible for

financial assistance under Section 518(a), even

though inspection during construction was made by

HUD. Veterans Administration legislation similar to

Section 518(a) is provided in Section 1827 of Title 38

of U.S. Code.

c\. The request for Financial Assistance (Form HUD-92556 SFA),

shall be filed with the Field Office not later than four years

after the date of the first Form HUD-59100, Mortgage Insurance

Certificate issued in connection with the property.

A mortgagor under a new HUD mortgage on the property shall be

entitled to file an application if it is filed within the same

four-year period following the date of the first Mortgage

Insurance Certificate.

d\. The insured mortgage on the property shall have been endorsed,

as evidenced by the issuance of a Mortgage Insurance

Certificate, after September 2, 1964, the date of enactment of

the Housing Act of 1964.

e\. The contract of mortgage insurance shall be in force as of the

date the homeowner\'s request for financial assistance is

received.

8/81

Page 2-19

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

CHAPTER 2, Figure 2-G

f\. The homeowner shall have made reasonable, but successful

efforts to obtain correction of the structural defect by the

builder, seller, or other appropriate responsible person.

In addition to meeting the statutory requirements, the defect must

meet the definition of a \"structural defect.\" For the purpose of

implementing Section 518(a), a structural defect which threatens the

structural components of the dwelling. The defect may be due to

construction, material, workmanship, or latent unpredictable

phenomena.

a\. The term includes, but is not limited to:

\(1\) Actual structural failures directly affecting the basic

integrity of the dwelling, such as substantial defects in

the foundation, footings, slabs, floors, framing or roof.

\(2\) Major defects, substantial faults, failures, omissions or

critical unpredictable deficiencies relating to the

structural components of the property, such as dangerous

wiring, basement flooding, or failure of individual sewage

disposal or water supply systems.

b\. Defects in manufactured basic home equipment (furnace,

air conditioner, water heater) are covered by the

manufacturer\'s warranty and normally are not eligible for

financial assistance. The homeowner may obtain relief from the

manufacturer for defects in these items. If a defect develops

in any of these basic pieces of equipment that is clearly not

due to manufacture, or the manufacturer refuses to make

correction, financial assistance may be offered.

c\. Defects in appliances that are easily removed, such as

clothes washers, dryers, kitchen ranges, and refrigerators, are

not eligible for financial assistance.

d\. Defects in finishing materials, such as paint, stain, or

decorative nonstructural exterior surface coatings, are not

eligible for financial assistance unless the problem is the

direct result of a structural defect.

e\. Assistance under Section 518(a) is not available when the

structural defects are caused by fire, earthquakes, flood,

tornado, or other natural disaster or by failure of the

homeowner to properly maintain the property.

8/81

Page 2-20

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

CHAPTER 2, Figure 2-G

Section 518(a) authorizes the Field Office, under conditions

described above, to make expenditures to:

a\. Correct structural defects in the mortgage property.

b\. Pay the claim of the owner of the property for expenditures to

correct damages to the property arising from structural defects.

c\. Acquire title to the property with the approval of the

mortgagor and under such terms and conditions as are

satisfactory to the mortgagor.

8/81

Page 2-21

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

CHAPTER 2, Figure 2 H covered by an individual

mortgage that was insured by

the Commissioner after September

Chapter II-Office of Assistant 2, 1964.

Secretary for Housing (b) The dwelling was approved

for mortgage insurance prior to

Subpart K-Correction of the beginning of construction

Structural Defects. and was inspected by the

Commissioner or by the Veterans

200.500 Purpose. Administration.

\(c\) He has made reasonable

The purpose of this efforts to obtain a correction

subpart is to specify the terms, of a structural defect in his

conditions, and types of property by the builder, seller,

assistance that the Federal or other persons, and that the

Housing Administration will defect has not been corrected.

render to an eligible mortgagor

who has been unable to secure 200.510 Type of assistance.

satisfactory reconstruction or

replacement of structural The type of assistance in the

defects in his property. correction of structural defects

to be rendered a mortgagor who

200.502 Application for establishes eligibility shall be

assistance. determined by the Commissioner.

In those cases where the

An application for Commissioner determines it is

assistance in the correction of appropriate and necessary, he

structural defects, in form may take any actions as follows:

satisfactory to the Commission- (a) Pay expenses in connection

er, shall be filed by a with having the defect

mortgagor under an FHA-insured corrected.

mortgage with the Field Office (b) Pay the claim of the

Director having jurisdiction mortgagor for corrected damages

over the area in which the to the property arising out of

property is located. The such defect.

application shall be filed not (c) Acquire title to the

later than four years after property with the approval of

the date of the first mortgage the mortgagor and under such

insurance certificate issued in terms and conditions as are

connection with the property. A satisfactory to the mortgagor.

mortgagor under a new FHA

mortgage on the same property 200.512 Subrogation by

shall be entitled to file an ap- mortgagor.

plication if it is filed within

the same four-year period Where the Commissioner has

following the date of the first taken action as provided in

insured mortgage certificate. 200.510, any legal rights the

mortgagor may have against the

200.505 Nature of defect. builder, seller, or other

persons, arising out of the

Assistance in the correction defect in his property shall be

of structural defects shall be assigned and set over to the

available only in connection Commissioner.

with a structural defect in

the property which the 200.515 Right and finality of

Commissioner has determined to determination.

be of such a nature as to

seriously affect the liability The mortgagor shall not be

of the property. Such assistance entitled, as a matter of right,

shall not be available where the to receive the assistance in the

defect occurs as a result of correction of structural defects

fire, earthquake,flood, tor- provided in this subpart. Any

nado, or waste. determination made by the

Commissioner in connection with

200.507 Eligibility Requirements. a mortgagor\'s application for

assistance shall be final and

To be eligible for consideration conclusive and shall not be

by the Commissioner for receiving subject to judicial review.

assistance in the correction of

structural defects, the SOURCE OF MATERIAL -

mortgagor must establish that:

\(a\) He is the owner of a one- 24 CFR - 1980

to four-family dwelling

8/81 Page 2-22

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