Consumer complaint received 2019-06-28
Product: Mortgage — FHA mortgage
Issue: Applying for a mortgage or refinancing an existing mortgage — 
Company: National Asset Direct, Inc. (CT)

In XX/XX/2017 we closed on a home that was supplied by a private well. This was a fact known to all parties included in the transaction ( i.e. the IServe Residential Lending Loan Officer, the IServe Residential Lending Underwriter and the appraiser that the IServe Lending Underwriter   selected to perform the FHA appraisal ). We were first time home buyers with a XXXX month old baby, as consumers trusting that the professionals who claimed to know all about the FHA guidelines would do their job to FHA standards ( which are designed to protect consumers from buying a home that does not meet health and safety standards ). On XX/XX/XXXX there was a discussion about the feasibility of connecting to public water and the selling agent obtained a quote that was all inclusive at a price of {$7500.00}. We were then informed that the sellers would put some money towards that cost of connection but told we would have to pay the balance of the connection. At no point in time did the IServe Loan Officer mention the stringent guidelines that FHA has for houses supplied by a private well. He sent an email on XX/XX/XXXX saying that " We can do the escrow hold back as long as we can complete the job within a week of closing. Credit from the seller and the additional money needed from the buyer will be held in escrow by the closing agent until completion of the job ''. When they told us this we explained that we could not afford to add money. At this time, the IServe Residential Loan Officer, as a professional who knows all about the FHA process made no effort to explain the FHA requirements around a home supplied by a well. He asked if we had the money to pay for connection and we said we did not and he proceeded to process the loan and move forward with the appraisal and underwriting. However, having now downloaded and read the handbooks for both appraisers and underwriters on FHA loan applications, there are several huge problems with the way our loan was underwritten by the IServe Underwriter and the appraisal report that was written by the appraiser that the underwriter selected to do the appraisal. Having studied all of the FHA requirements for a home supplied by a well, the IServe Loan Officer or the Iserve Underwriter should have known that FHA has the following requirements : " The Mortgagee must confirm that a connection is made to a public or Community Water System whenever feasible and available at a reasonable cost. If connection costs to the public or community system are not reasonable, the existing onsite systems are acceptable, provided they are functioning properly and meet the requirements of the local health department '' ( reasonable cost is defined by HUD as 3 % of the appraised value of the home. The appraiser put the value of the home as {$300000.00}, 3 % of {$300000.00} = {$9100.00} ). Therefore, in light of the FHA requirement to connect to public water whenever feasible and available at a reasonable cost, connection to public water should have been forced in order to proceed with the purchase of the house as the quote to connect to public water was only {$7500.00}. The IServe Loan Officer and Underwriter should have shared that requirement. If they had, we would have had the option to negotiate with the seller to see how much of a concession they could offer, or simply we would have walked away from the home. However, IServe Residential Lending 's staff withheld that information from us and the underwriter pushed the loan through stating that the home met all FHA requirements. We are now living in a home for which we have a 30 year mortgage that is non-FHA compliant as the well does not meet the requirements of the Local or State level Health Department and that violates Building Department code. Also it is because of the IServe Residential Lending 's Underwriter 's choice of appraiser that a bad and erroneous appraisal report was made. FHA requires that the Appraiser must report when water to a Property is supplied by dug wells, cisterns or holding tanks used in conjunction with water purchased and hauled to the site. The Appraiser must report whether such systems are readily accepted by local market participants and that the water supply system may violate Minimum Property Requirements or Minimum Property Standards. If the appraiser that was selected by IServe Residential Lending 's Underwriter had performed the appraisal adhering strictly to the FHA guidelines, the location of the well would have been discovered and a frank discussion held. The IServe Residential Lending Underwriter was fully aware that the home was supplied by a well and it appears made no attempt to ask any questions about the well 's suitability to meet FHA minimum property standards. The underwriter failed to request information from the appraiser to ensure that the home met all FHA health and safety guidelines and requirements before sending the loan for approval. If the IServe Residential Lending Underwriter had a thorough working knowledge of the FHA approval process there is no way that she would have neglected asking questions about the location and legality of the well. If the Underwriter had faithfully adhered to the FHA guidelines there should have been an open discussion about the need to force a connection to public water in view of the fact that the cost of connection was indeed by HUD 's definition feasibile. At that point we would have been given the opportunity to make a decision to walk away from the home. However, between the IServe Residential Lending Loan Officer,  the IServe Residential Lending Underwriter and the appraiser selected by the IServe Lending Underwriter not strictly adhering to FHA guidelines for approval for a home supplied by a private well, we now own a home that can not be sold to any consumer, as due to the IServe Residential Lending staff 's total failure to address the situation with the well in accordance and complete compliance of the FHA guidelines and regulations for a home supplied by a private dug well, the IServe Residential Lending 's Underwriter submitted our application while failing to report any problem with the well and so we were approved an FHA loan for a home that IS NOT FHA compliant due to the situation with the well therefore rendering the home NOT " readily accepted by local market participants '' leaving us and our now XXXX year old daughter with a water supply system that DOES violate Minimum Property Requirements or Minimum Property Standards, thus also jeopardizing the resale value of the home and potentially our health and safety as a family. Several months after moving in we had pressure issues where we could not get any water on the second floor of the home ( in the sink, shower or toilet on the second floor ). We only buy 5 gallon bottles of water for cooking and drinking water. I have placed a water filter on the showerhead of the shower on the first floor however my husband showers in the shower on the second floor and that does not have a filter and for several months he developed a XXXX all over his XXXX  and his XXXX became XXXX with a XXXX from the shower upstairs. We have contacted the State and local Department of Health that has jurisdiction over all private wells in Connecticut and we were told that there is no way that the First Floor Addition that was built over the wellhead should have ever been permitted by The City of XXXX to be built as it violates all health and safety and building codes. We have also have spent over a year trying to have recourse with the City of XXXX XXXX building, zoning and land use departments only to be told that we can not sue the City for an error made in XXXX. We were advised that as consumers, the FHA Approval process should have protected us from buying a home that has health and safety concerns, however, due to the actions of the IServe Residential Lending LLC Loan Officer and the Underwriter, and their selection of a non-qualified appraiser, the fact that they were not transparent in any way about trying to educate us on the FHA guidelines and requirements for a home supplied by a dug well, we now own a home that we have to worry about the health and safety of the water supply and we are unable to sell the home to anyone that might want to use an FHA Mortgage to buy our house as due to the well situation the house is NOT FHA compliant. I would also like to add that I have already spoken with HUD about this situation. I have also spoken with the Appraisers Subcommittee which is an agency of the government that oversees appraisers. I also spoke several times with staff at IServe Residential Lending only to be told that they can not help me. I have the names of the people I spoke with regarding every aspect of this case. I went on to submit a FOIA request to obtain a full copy of the HUD Case Binder that was submitted by the I Serve Residential Lending Underwriter to see if there was any trace of any mention of a concern about the well 's location or any attempt documented somewhere by the underwriter attempting to ask the appraiser for verification of the well 's compliance with FHA guidelines. No where in the over 300 pages of the HUD Case Binder is there any indication that the IServe Residential Lending Underwriter made any attempt to question and address the well situation with the appraiser. Therefore we are in this situation as innocent vicitims of the negligent practices of the IServe Residential Lending 's Loan Officer, the Underwriter and the non-compliant Appraiser they selected to perform the FHA Appraisal. Please help and advise.