Consumer complaint received 2023-05-19
Product: Mortgage — FHA mortgage
Issue: Applying for a mortgage or refinancing an existing mortgage — 
Company: CARDINAL FINANCIAL COMPANY, LIMITED PARTNERSHIP (TX)

FHA/HUD/CARDINAL FINANCIALXXXX XXXX XXXX  ERROR LEAVES SINGLE MOTHER OF XXXX FACING FORECLOSURE AND {$100000.00} REPAIR BILL FORCING THEM TO LIVE IN UNINHABITABLE HOME FOR TWO YEARS.

In XXXX  of XXXX, I left my diagnosed XXXX husband and my financially, verbally, and emotionally XXXX  marriage, and filed for divorce. My XXXX children and I lived in a two bedroom apartment for 2  years while I rebuilt my credit that was destroyed by my ex husband in order to purchase a home for us. In XXXX of XXXX I purchased a home in XXXX XXXX, Texas using a FHA loan in hopes of rebuilding a life for my kids and I. 

FHA : When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development ( HUD ) requires him to determine the current market value, as with any appraisal. But they also require a property inspection to make sure the home meets HUD 's minimum standards for health and safety. 
4150.2 The appraisal process is the lenders tool for determining if a property meets the minimum property requirements and eligibility standards for a FHA insured mortgage. Underwriters bear primary responsibility for determining eligibility ; however, the appraiser is the on-site representative for the lender and provides preliminary verification that the General Acceptability Criteria standards have been met. 

" FHA-approved lenders are obliged to apply to our underwriting standards, not only to protect our insurance fund, but to make certain families can sustain their mortgages, '' said Acting FHA Commissioner XXXX XXXX . " Due diligence is at the root of mortgage lending protecting lenders, the FHA, and certainly homeowners from the prospect of foreclosure. '' In XXXX of XXXX we began having plumbing issues and in XXXX of XXXX I noticed an error in my appraisal that would have disqualified the home and the loan from funding. The appraiser used by Cardinal Financial marked my utilities as public water and sewer when in fact they are private water well and septic. Had it been marked properly Cardinal was required to ensure the following minimum property requirements per the FHA. 

6Does the report indicate that the water is private? If yes, does the appraiser provide a comment on the availability of public water and if the subject is required to connect? Also, does the appraiser comment if private utilities are common for the area and if there is any impact on the subject 's marketability?

8Does the report indicate that the sewer is private? If yes, does the appraiser provide a comment on the availability of public sewer and if the subject is required to connect?

If also on private water, is there a comment noting if the subject meets the minimum FHA distance requirements from the well to the storage tank, drain field, and property? 
Also, does the appraiser comment if private utilities are common for the area and if there is any impact on the subject 's marketability?

This was not performed, and the home does not and can not physically qualify. The costs to bring the property up to todays health and safety code are over {$100000.00} FHA WELL TO SEPTIC REQUIREMENTS ARE AS FOLLOWS. 

Septic to well minimum XXXX distance this property is less than XXXXt Well to drain field minimum XXXX ft although they will allow a minimum of XXXX with a waiver this property is XXXXft FHA will accept the state/local distance requirements for well/septic systems as long as they are not less than XXXX  feet between the well and septic tank drainfield Well to property line minimum of XXXXft this property is less than XXXXft For properties that are served by wells, FHA loan rules now say, When an individual Water Supply System is present, the Mortgagee must ensure that the water quality meets the requirements of the health authority with jurisdiction . 

( a ) Requirements for Well Water TestingA well water test is required for, but not limited to, Properties : where the distance between the well and septic system is less than 100 feet.

( Q ) Sewage SystemThe Mortgagee must confirm that a connection is made to a public or community sewage disposal system whenever feasible and available at a reasonable cost. If connection costs to the public or community system are not reasonable, the existing Onsite Sewage Disposal Systems are acceptable provided they are functioning properly and meet the requirements of the local health department. When the Onsite Sewage Disposal System is not sufficient and an off-site system is available, the Mortgagee must confirm connection to an off-site sewage system. When the Onsite Sewage Disposal System is not sufficient and an off-site system is not available, the Mortgagee must reject the Property unless the Onsite Sewage Disposal System is repaired or replaced and complies with local health department standards.

Per Cardinal Financials website by definition a FHA appraisal is the following.

What is an FHA appraisal? 
The FHA appraisal process is unique in that the appraiser basically performs double-duty as both an appraiser and an inspector.

When you use a Conventional loan to buy a house, your appraiser is mainly concerned about the current market value of the property. But when you use a federally-insured FHA loan , the appraiser has two objectives : Determine the houses value, and inspect it to make sure it meets minimum standards for health and safety set by the Department of Housing and Urban Development ( HUD ).

The real difference between the two is the level of inspection that HUD requires in order to fund the loan.

If the FHA appraiser flags certain issuespeeling paint, loose handrails, or other safety issuesthe loan is put on hold until theyre fixed. Thats not the case with a regular appraisal used for a Conventional home loan.

Note they include FHAs minimum standards for health and safety.

minimum standards for health and safety The FHA has put these minimum property standard requirements into place in order to protect lenders.

Requiring that the property meet minimum standards protects the lender. It means that the property should be easier to sell and command a higher price if the lender has to seize it.

At the same time, this requirement also protects the borrower : It means they will not be burdened with costly home repair bills and maintenance from the start. In addition, with a fundamentally sound place to live, the borrower may have more of an incentive to make their payments in order to keep the home.

What Are the FHA 's Minimum Property Standards?

According to the U.S. Department of Housing and Urban Development ( HUD ), the FHA requires that the properties financed with its loan products meet the following minimum standards : Safety : The home should protect the health and safety of the occupants.

Security : The home should protect the security of the property.

Soundness : The property should not have physical deficiencies or conditions affecting its structural integrity.1 According to information found on the FHA/HUD official site , the lender is responsible for making sure a particular property lives up to local requirements and that community sewage systems are properly licensed and that said systems are " adequate '' enough to service the property.

The reason this property can not physically qualify even with repair is the following again directly from Cardinals website under what if my home does not pass FHA inspection? The only alternative is a FHA XXXX loan aka a rehab loan which requires a minimum of 1 acre for properties with both a well and septic. This property is less than 1 acre and that is the reason a replacement system is so expensive for this property. There is physically not enough room for repair or replacement which is requirement number XXXX  in the checklist for well and septic waivers that was yet another requirement not performed prior to approval.

5. Evidence that the system is working properly. And there is sufficient space for repair/maintenance. 


It has been over a year and a half since I reported the error to XXXX XXXX and Cardinal. Rather than taking accountability for their error, I have been unable to pay my mortgage since XXXX of XXXX due to spending over {$30000.00} to date on maintenance and attorneys fees trying to prove liability. I had to take a {$9000.00} loan at a XXXX XXXX interest rate for the initial retainer. I also can not afford alternative living expenses while paying an attorney so my XXXX children and I are forced to live in an uninhabitable health hazardous home until this is resolved. 

My kids and I have not had a safe, sound home in 2 years. We do not know if our water is safe due to it being less than XXXX from a source of pollution. There is raw sewage coming up my shower drains and running across my driveway. Not to mention I live on XXXX XXXX and this is an environmental hazard. Everything we own smells like mold. I have been put on XXXX XXXX medication due to not knowing if we will be forced to start over again. It is apparent their only strategy is to mentally and financially drain me to the point I am forced to give up pursuing them. 

Despite the following from the FHA handbook ; 4155.2 4.1.b Lender Responsibility for Appraisals Lenders, including sponsoring lenders, are equally responsible, along with appraisers, for the quality, integrity, accuracy and thoroughness of appraisals. The lender will be held accountable if it knew, or should have known, that there were problems with the integrity, accuracy and thoroughness of an appraisal submitted to FHA for mortgage insurance purposes. Lenders that submit appraisals to HUD that do not meet FHA requirements are subject to the imposition of sanctions by the HUD Mortgagee Review Board ( MRB ). 

XXXX XXXX from the FHA Home ownership department has stated that there was no way the lender could have known the actual source of the utilities since the appraiser marked them as public ( although it was listed as septic and well in the public XXXX and the appraiser took a picture of the water well storage tank included in the appraisal ) therefore they are not holding Cardinal accountable to their own rules and regulations, and Cardinal has taken that as they are not liable for their clients mistake leaving me holding an over {$100000.00} repair bill or to spend thousands facing the possibility of being homeless to pursue them. 

The FHA also states the following which has not been done. 

" Lenders must report to FHA all findings of fraud and material misrepresentations. Lenders must also report any material findings concerning the origination, underwriting, or servicing of the loan, that the lender is unable to mitigate or otherwise resolve. '' I have also found evidence below that Cardinal Financial forces appraisers to submit as is appraisals only.

I recently did an appraisal for them for one property and called for a foundation inspection since I noticed a crack in the wall, and noticeable sagging on the first and second floors of the house. There was nothing out of the ordinary with the report otherwise. Cardinal came back 3 TIMES and forcefully told me " we require as-is reports ''. So basically Cardinal Financial is just cancelling orders immediately once they find out the appraiser is not going to rubber stamp and ignore an obvious issue. they told me to change my report from subject to inspection to as-is and remove the concern about the foundation. they didnt want a cost to cure. They wanted an as is ignoring the problem. Wasnt about me not complying with a cost to cure or finding the value of a defect situation Weve had two AMCs recent that asks us to ignore the problems too. Wonder if it has to do with packaging the loans up and MBSs and some type of quality issue? Its completely wrong. The sad part is this -- if they find an appraiser who rubber stamps this, then the borrower could be out tons of money, I spoke with some of the other people at the old firm I used to work at and they confirmed that they have had issues with Cardinal in the past. One time Cardinal even asked one of their appraisers to change the effective date on a appraisal and when he refused they said " we wont tattle ''. So you know what, good riddance. I'm glad I asked that they be taken off my client list. I don't need a shady *** client like that. I just spoke with an appraiser @ HUD. She said it does not matter what the report is for, if there is an FHA case number, the property does not meet HUD 's minimum property standards and the report is 'as-is ', this is in violation of FHA guidelines and ( at a minimum ) the appraiser is going to get a letter from HUD. She said she wouldn't touch this assignment with a XXXX foot pole. I've asked them to reassign. 

https : XXXX The FHA appraisal report guide says to complete AS-IS when, - there are no repairs, alterations or inspection conditions noted by the appraiser ; Meaning by Cardinal Financial only accepting `` as is '' appraisals, it does not allow the appraiser to notate any needed/required inspections aka subject to which wouldve been required had the appraiser marked well and septic. Therefore they are bypassing FHA requirements and passing all liability to the appraiser/borrower. Essentially telling the appraiser we do not accept a property that requires further inspection which they would only know after the assignment has been performed and if you want the assignment/to get paid change it from subject to to " as is '' and assume all liability. 

On XX/XX/XXXX I sent the following to the FHA along with the amendment to the sales contract notating the property was well and septic. 

I have not received any communication on the below information provided proving the lender Cardinal Financial was aware the property was on private septic and well. Not to mention the XXXX stated the same. You are creating a culture of irresponsibility by not holding your FHA lenders accountable to the rules you created. You are providing the loophole for the lender to get away with great harm to both the borrower and the appraiser as you will see below multiple questionable practices from Cardinal Financial persuading appraisers to " look the other way '' as was done in my case leaving me and the appraiser holding an over XXXX bill. Cardinal has stated to me personally that " the FHA has investigated the matter and have not requested any additional information. '' If the FHA does not care to hold them accountable then it falls on the borrower and appraisers liability insurance with zero consequence to them and at a cost of foreclosure to the home owner. 

As of XX/XX/XXXX I have not received a response yet the FHA states Lenders are responsible to determine if any repairs will be required to meet HUD Handbook standards. Lenders are reminded they are responsible for the acts of their agents, including appraisers When lending to low- and moderate-income borrowers, lenders are expected to use professional judgment and rely upon prudent underwriting practices in determining when a property condition requires additional inspections or repairs. 

Conditions that would warrant additional repairs include those that pose a threat to the safety of the occupants, jeopardize the soundness and structural integrity of the property, or adversely affect the likelihood of a low- or moderate-income borrower from becoming a successful homeowner. 

In the appraisers responses during discovery to my attorney and Is requests for communication with the appraisal management company she provided documentation from XXXX XXXX stating Cardinal needs to perform an appraisal compliant to FHA rules and regulations to determine the property does not qualify on XX/XX/XXXX. 

As of XX/XX/XXXX Cardinal Financial has refused to do so. 

Both the FHA and Cardinal have attempted to deflect to my personal home inspection.

Todays question : Is a home inspection required when using an FHA mortgage loan?

The short answer is no. 
Again, this quote comes from HUD, which is the federal department that oversees the Federal Housing Administration mortgage insurance program. They are the official source for all guidelines and requirements relating to this program. And their disclosure clearly states that a home inspection is not required when using an FHA loan. 
For a Federal Housing Administration ( FHA ) loan to be approved, the home must pass an FHA inspection and appraisal. That means it must be worth the purchase price and have such basics as electricity, drinkable water, adequate heat, a stable roof, fire exits and more. 
They have also insultingly provided me with a document I signed entitled For your protection get a home inspection which directly contradicts the FHA appraisal definition by stating An appraisal is different from a home inspection and does not replace a home inspection. Appraisals estimate the value of the property for lenders. An appraisal is required to ensure the property is marketable. Home inspections evaluate the condition of the home for buyers. 

Note this document conveniently leaves out the following. 

FHA : When an FHA loan is being used, the appraiser has two objectives. The Department of Housing and Urban Development ( HUD ) requires him to determine the current market value, as with any appraisal. But they also require a property inspection to make sure the home meets HUD 's minimum standards for health and safety.

The FHA appraisal process is unique in that the appraiser basically performs double-duty as both an appraiser and an inspector.

When you use a Conventional loan to buy a house, your appraiser is mainly concerned about the current market value of the property. But when you use a federally-insured FHA loan , the appraiser has two objectives : Determine the houses value, and inspect it to make sure it meets minimum standards for health and safety set by the Department of Housing and Urban Development ( HUD ).

The real difference between the two is the level of inspection that HUD requires in order to fund the loan.

It goes on to state If you find problems with your new home after closing, FHA can not give or lend you money for repairs, and FHA can not buy the home back from you. Ask a qualified home inspector to inspect your potential new home and give you the information you need to make a wise decision. 

Finding problems with your home after closing is profoundly different from finding an error in the appraisal that would have disqualified the home and the loan from funding. 

To be clear this is not about a broken or working septic system for that matter. My realtor myself nor my home inspector know or are required to know or verify minimum property requirements pertaining to lending approvals. The lender and appraiser are the only parties required to do so. This home did not qualify based on minimum distance requirements, not due to a broken septic system. Despite this fact, Cardinals latest stall/drain tactic is to add the seller, an investor, who never lived in the home, who listed the property correctly as well and septic and is not responsible for determining if the property qualifies for the loan, to the lawsuit in attempts to shift liability, which will not only add time that we are living in a health hazardous home but more finances I do not have. It is beyond immoral that a bank would rather spend thousands and put the consumer through XXXX to prove liability when presented with a blatant error that has placed them in a financial hardship and environmentally unsafe living conditions rather than use that money to make it right. Cardinal Financial is the definition of Greed and the FHA the definition of false advertisementXXXX XXXX XXXX XXXX  negligence, Cardinals lack of underwriting and the FHAs lack of resolution and accountability have caused great harm and hardship on my children and I and we can not financially, mentally or physically take another year of living amongst raw sewage and without the simple peace of mind of having clean water or a safe home for us to live in. My dream of being a home owner has been demolished. I no longer have the money to pursue them due to having to use my finances for a safe place to live, nor do I have the money to fix it and selling would not gain the amount of money the loan was obtained for. Just to get out of the situation would require filing for bankruptcy and all the repercussions that come with it. This has to be prevented from happening to anyone else. This error went through multiple entities uncaught by simply checking the incorrect box and just because a person does not have the means to pursue them does not mean they should get away with negligence that causes someone to lose their home. I am curious how many people have suffered at the incompetence of XXXX XXXX XXXX and Cardinals lack of underwriting and at the very least I would like them to order a second FHA appraisal to determine the home did not qualify and for the FHA to implement checks and balances to prevent this from happening, to not only hold their lenders accountable, but also close the loophole that causes great harm to the borrower. They can not claim they are committed to the occupants safety security and soundness of the home as well as anything that would adversely affect the likelihood of a low or moderate income borrower from becoming a successful homeowner yet refuse to enforce the regulations in place to ensure that.