Thursday, January 21, 2016

The Limitations of a Home Inspection

The Home Inspection Defined
 
A general home inspection is a visual inspection for system and major accessible component defects and safety issues. The inspection is not technically exhaustive. A "general home inspection" and a "home inspection" are the same thing.
 
A home inspection is designed to reflect, as accurately as possible, the visible condition of the home at the time of the inspection. Conditions at a home for sale can change radically in only a day or two, so a home inspection is not meant to guarantee what condition a home will be in when the transaction closes. It’s not uncommon for conditions to change between the time of the inspection and the closing date.
 
 
Above:  an overloaded outlet with no cover
It’s a Visual Inspection
A “visual” inspection means that a home inspection report is limited to describing conditions in those parts of a home that an inspector can see during the inspection. Obviously, parts of the home that are permanently hidden by wall, ceiling and floor coverings are excluded, but so are parts of the home that were inaccessible during the inspection for some other reason. Some reasons might include lack of an access point, such as a door or hatch, or a locked access point, or because an occupant’s belongings blocked access, or because of dangerous or unsanitary conditions.
There can be many more reasons. The point is that if an inspector can’t see a portion of the home, the inspector can’t assume responsibility for ensuring that a safe and proper condition exists or that systems are operating properly in that hidden space.
Safety
Safety can be a matter of perception. Some conditions, such as exposed electrical wiring, are obviously unsafe. Other conditions, such as the presence of mold, aren’t as clear-cut.
In the example of the possible existence of mold, it's difficult to accurately call it out during a general home inspection because mold sometimes grows in places where it can’t be readily seen, such as inside walls, making its discovery beyond the scope of the inspection.  Also, the dangers to human health are from the inhalation of spores from indoor air.
Most people with healthy immune systems have little or no problem with inhaling spores. A few people whose immune systems are compromised by lung disease, asthma or allergies can develop serious or even fatal fungal infections from mold spore levels that wouldn’t affect most people. Every home has mold and mold colonies can grow very quickly, given the right conditions. Mold can be a safety concern, but it often isn’t. The dangers represented by mold are a controversial subject. Other potential safety issues also fall into this category.
 
 
Above:  the cutting torch and gutter system of roof drainage management
 
System Defects
 
Although the majority of the inspection is visual, the InterNACHI Standards of Practice do require inspectors to operate space and water heating equipment, and air-conditioning equipment, if it can be done without damaging the equipment.
 
Inspectors will also examine the major accessible components of certain systems as required by the Standards of Practice. Furnace air filters are one example.
A home inspection is not technically exhaustive, meaning that systems or components will not be disassembled as part of the inspection. For example, an inspector will not partially disassemble a furnace to more accurately check the condition of the heat exchanger. Inspectors typically disclaim heat exchangers.
Hazardous Materials
Asbestos, mold, lead, water purity, and other environmental issues or potential hazards typically require a specialist inspection, and may additionally require laboratory analysis.
Home Inspectors are Generalists
Home inspectors are not experts in every home system but are generalists trained to recognize evidence of potential problems in the different home systems and their major components. Inspectors need to know when a problem is serious enough to recommend a specialist inspection. Recommendations are often made for a qualified contractor, such as a plumber or electrician, and sometimes for a structural engineer.
 
 
Above:  the result of subfloor movement
Inspector Qualifications
Very few home inspectors have been in the inspection industry for their entire working lives. According to an InterNACHI poll, about half the home inspectors have a background in the building trades. Those with a construction background started with a general idea of the systems and components that they might find installed, as well as how those systems age and fail.
This doesn’t mean that inspectors with a background in something other than the building trades are not qualified -- only that they started in the inspection industry at a relative disadvantage. Building the skills and developing the judgment to consistently recognize and interpret evidence correctly and make appropriate recommendations are things that can be improved with practice and continuing education.

Above:  improper electrical splice
 
Managing Expectations
Part of a home inspector’s job is to manage the expectations of their client. This is especially true when a client has never dealt with a home inspector before. Explaining the limitations of a home inspection to a client will help them develop realistic expectations concerning what to expect from a home inspection report, and what lies beyond the scope of the inspection.
When a home buyer is interviewing inspectors, the buyer should ask about how the inspector handles special safety concerns.
Disclaimers are portions of an inspection agreement or report in which an inspector notifies the client that the inspector will not accept the responsibility for confirming the condition of a portion of the home or of a particular system or component.
Creating realistic expectations in a client’s mind will help prevent misunderstandings and promote smooth real estate transactions.

by Nick Gromicko and Kenton Shepard

Ten Tips to Speed Up Your Home Inspection

Speed up your home sale by preparing your home ahead of time using the following tips. Your home inspection will go smoother, with fewer concerns to delay closing.

 
  1. Confirm that that the water, electrical and gas services are turned on (including pilot lights).
  2. Make sure your pets won't hinder your home inspection. Ideally, they should be removed from the premises or secured outside. Tell your agent about any pets at home.
  3. Replace burned-out light bulbs to avoid a "light is inoperable" report that may suggest an electrical problem.
  4. Test smoke and carbon monoxide detectors, and replace dead batteries.
  5. Clean or replace dirty HVAC air filters. They should fit securely.
  6. Remove stored items, debris and wood from the foundation. These may be cited as "conducive conditions" for termites.
  7. Remove items blocking access to HVAC equipment, electrical service panels, the water heater, attic and crawlspace.
  8. Unlock any locked areas that your home inspector must access, such as the attic door or hatch, the electrical service panel, the door to the basement, and any exterior gates.
  9. Trim tree limbs so that they're at least 10 feet away from the roof.  Trim any shrubs that are too close to the house and can hides pests or hold moisture against the exterior. 
  10. Repair or replace any broken or missing items, such as doorknobs, locks or latches, windowpanes or screens, gutters or downspouts, or chimney caps.
Checking these areas before your home inspection is an investment in selling your property. Better yet, have your InterNACHI inspector ensure that your home is Move-In Certified™.  Your real estate agent will thank you!

Stucco

The term "stucco" is used to describe a type of exterior plaster applied as a two- or three-part coating directly onto masonry, or applied over wood or metal lath to a log or wood frame structure. Stucco is found in many forms on historic structures throughout the United States. It is so common, in fact, that it frequently goes unnoticed, and is often disguised or used to imitate another material. Historic stucco is also sometimes incorrectly viewed as a sacrificial coating, and consequently removed to reveal stone, brick or logs that historically were never intended to be exposed. Age and lack of maintenance hasten the deterioration of many historic stucco buildings. Like most historic building materials, stucco is at the mercy of the elements, and even though it is a protective coating, it is particularly susceptible to water damage. Stucco is a material of deceptive simplicity; in most cases, its repair should not be undertaken by a property owner unfamiliar with the art of plastering. Successful stucco repair requires the skill and experience of a professional plasterer. Although several stucco mixes are representative of different periods, they are provided here for reference.  Each project is unique, with its own set of problems that require individual solutions.
  
Historical Background 
  
The stucco on the early-19th century Richardson-Owens-Thomas House in Savannah, Georgia, is a type of natural cement. 
Stucco has been used since ancient times. Still widely used throughout the world, it is one of the most common of traditional building materials. Up until the late 1800s, stucco, like mortar, was primarily lime-based, but the popularization of Portland cement changed the composition of stucco, as well as mortar, to a harder material. Historically, the term "plaster" has often been interchangeable with "stucco"; the term is still favored by many, particularly when referring to the traditional lime-based coating. By the 19th century "stucco," although originally denoting fine interior ornamental plasterwork, had gained wide acceptance in the United States to describe exterior plastering. "Render" and "rendering" are also terms used to describe stucco, especially in Great Britain. Other historic treatments and coatings related to stucco, in that they consist (at least in part) of a similarly plastic or malleable material, include: parging and pargeting, wattle and daub, "cob" or chalk mud, pise de terre, rammed earth, briquete entre poteaux or bousillage, half-timbering, and adobe. All of these are regional variations on traditional mixtures of mud, clay, lime, chalk, cement, gravel or straw. Many are still used today.
  
The stucco finish on Arlington House, Arlington, Virginia, was marbleized in the 1

Revival Styles Promote the Use of Stucco

The introduction of the many revival styles of architecture around the turn of the 20th century, combined with the improvement and increased availability of Portland cement, resulted in a craze for stucco as a building material in the United States. Beginning about 1890 and gaining momentum into the 1930s and 1940s, stucco was associated with certain historic architectural styles, including: Prairie; Art Deco and Art Moderne; Spanish Colonial, Mission, Pueblo, Mediterranean, English Cotswold Cottage, and Tudor Revival styles; as well as the ubiquitous bungalow and four-square house. The fad for Spanish Colonial Revival, and other variations on this theme, was especially important in furthering stucco as a building material in the United States during this period, since stucco clearly looked like adobe.
Although stucco buildings were especially prevalent in California, the Southwest and Florida, ostensibly because of their Spanish heritage, this period also spawned stucco-coated, revival-style buildings all over the United States and Canada. The popularity of stucco as a cheap and readily available material meant that, by the 1920s, it was used for an increasing variety of building types. Resort hotels, apartment buildings, private mansions and movie theaters, railroad stations, and even gas stations and tourist courts took advantage of the "romance" of period styles, and adopted the stucco construction that had become synonymous with these styles.
  
The damage to this stucco appears to be caused by moisture infiltration.

A Practical Building Material

Stucco has traditionally been popular for a variety of reasons. It was an inexpensive material that could simulate finely dressed stonework, especially when scored or lined, in the European tradition. A stucco coating over a less finished and less costly substrate, such as rubblestone, fieldstone, brick, log or wood frame, gave the building the appearance of being a more expensive and important structure. As a weather-repellent coating, stucco protects the building from wind and rain penetration, and also offers a certain amount of fire protection. While stucco was usually applied during construction as part of the building design, particularly over rubblestone or fieldstone, in some instances, it was added later to protect the structure, or when a rise in the owner's social status demanded a comparable rise in his standard of living.

Composition of Historic Stucco

Before the mid-to late 19th century, stucco consisted primarily of hydrated or slaked lime, water and sand, with straw or animal hair mixed in as a binder. Natural cements were frequently used in stucco mixes after their discovery in the United States during the 1820s. Portland cement was first manufactured in the United States in 1871, and it gradually replaced natural cement. After about 1900, most stucco was composed primarily of Portland cement, mixed with some lime. With the addition of Portland cement, stucco became even more versatile and durable. No longer used just as a coating for a substantial material like masonry or log, stucco could now be applied over wood or metal lath attached to a light wood frame. With this increased strength, stucco ceased to be just a veneer and became a more integral part of the building structure.
  
Caulking is not an appropriate method for repairing cracks in historic stucco. 
Today, gypsum, which is hydrated calcium sulfate or sulfate of lime, has, to a great extent, replaced lime.  Gypsum is preferred because it hardens faster and has less shrinkage than lime. Lime is generally used only in the finish coat in contemporary stucco work.
The composition of stucco depends on local custom and available materials. Stucco often contains substantial amounts of mud or clay, marble or brick dust, or even sawdust, and an array of additives ranging from animal blood or urine, to eggs, keratin or gluesize (animal hooves and horns), varnish, wheat paste, sugar, salt, sodium silicate, alum, tallow, linseed oil, beeswax, and wine, beer or rye whiskey. Waxes, fats and oils were included to introduce water-repellent properties, sugary materials reduced the amount of water needed and slowed down the setting time, and alcohol acted as an air entrainer. All of these additives contribute to the strength and durability of the stucco.
The appearance of much stucco was determined by the color of the sand -- or sometimes burnt clay -- used in the mix.  Often, stucco was also tinted with natural pigments, or the surface whitewashed or color-washed after stuccoing was completed. Brick dust could provide color, and other coloring materials that were not affected by lime, mostly mineral pigments, could be added to the mix for the final finish coat. Stucco was also marbled or marbleized -- stained to look like stone by diluting oil of vitriol (sulfuric acid) with water, and mixing this with a yellow ochre, or another color. As the 20th century progressed, manufactured and synthetic pigments were added at the factory to some prepared stucco mixes.

Methods of Application

Stucco is applied directly, without lath, to masonry substrates, such as brick, stone, concrete or hollow tile. But on wood structures, stucco, like its interior counterpart plaster, must be applied over lath in order to obtain an adequate key to hold the stucco. Thus, when applied over a log structure, stucco is laid on horizontal wood lath that has been nailed on vertical wood furring strips attached to the logs. If it is applied over a wood frame structure, stucco may be applied to wood or metal lath nailed directly to the wood frame; it may also be placed on lath that has been attached to furring strips. The furring strips are themselves laid over building paper covering the wood sheathing.
  
The dry materials must be mixed thoroughly before adding water to make the stucco. 
Wood lath was gradually superseded by expanded metal lath introduced in the late 19th and early 20th centuries. When stuccoing over a stone or brick substrate, it was customary to cut back or rake out the mortar joints, if they were not already recessed, by natural weathering or erosion, and sometimes the bricks themselves were gouged to provide a key for the stucco. This helped provide the necessary bond for the stucco to remain attached to the masonry, much like the key provided by wood or metal lath on frame buildings.
 
Like interior wall plaster, stucco has traditionally been applied as a multiple-layer process, sometimes consisting of two coats, but more commonly as three. Whether applied directly to a masonry substrate or onto wood or metal lath, this consists of a first "scratch" or "pricking-up" coat, followed by a second scratch coat, sometimes referred to as a "floating" or "brown" coat, followed finally by the "finishing" coat. Up until the late 19th century, the first and the second coats were of much the same composition, generally consisting of lime or natural cement, sand, perhaps clay, and one or more of the additives previously mentioned. Straw or animal hair was usually added to the first coat as a binder. The third, or finishing coat, consisted primarily of a very fine mesh-grade of lime and sand, and sometimes pigment. As already noted, after the 1820s, natural cement was also a common ingredient in stucco, until it was replaced by Portland cement. Both masonry and wood lath must be kept wet or damp to ensure a good bond with the stucco. Wetting these materials helps to prevent them from pulling moisture out of the stucco too rapidly, which results in cracking, loss of bond, and generally poor-quality stucco work.

Traditional Stucco Finishes

Until the early 20th century when a variety of novelty finishes and textures were introduced, the last coat of stucco was commonly given a smooth, troweled finish, and then scored or lined in imitation of ashlar. The illusion of masonry joints was sometimes enhanced by a thin line of white lime putty, graphite, or some other pigment. Some 19th century buildings feature a water table or raised foundation of roughcast stucco that differentiates it from the stucco surface above, which is smooth and scored. Other novelty and textured finishes associated with the "period" or revival styles of the early 20th century include: the English cottage finish, adobe and Spanish, pebble-dashed or dry-dash surface, fan and sponge texture, reticulated and vermiculated, roughcast (or wet dash), and sgraffito.

Regular Maintenance 

Although A.J. Downing alluded to stuccoed houses in Pennsylvania that had survived for over a century in relatively good condition, historic stucco is inherently not a particularly permanent or long-lasting building material. Regular maintenance is required to keep it in good condition. Unfortunately, many older and historic buildings are not always accorded this kind of care. An InterNACHI inspector can be consulted for advice regarding stucco maintenance.
 
Because building owners knew stucco to be a protective, but also somewhat fragile coating, they employed a variety of means to prolong its usefulness. The most common treatment was to whitewash stucco, often annually. The lime in the whitewash offered protection and stability, and helped to harden the stucco. Most importantly, it filled hairline cracks before they could develop into larger cracks and let in moisture. To improve water repellency, stucco buildings were also sometimes coated with paraffin, another type of wax, or other stucco-like coatings, such as oil mastics.

Assessing Damage

Most stucco deterioration is the result of water infiltration into the building's structure, either through the roof, around chimneys, window and door openings, or excessive ground water or moisture penetrating through, or splashing up from the foundation. Potential causes of deterioration include: ground settlement lintel and door frame settlement; inadequate and leaking gutters and downspouts; intrusive vegetation; moisture migration within walls due to interior condensation and humidity; vapor drive problems caused by furnace, bathroom and kitchen vents; and rising damp resulting from excessive ground water and poor drainage around the foundation. Water infiltration will cause wood lath to rot, and metal lath and nails to rust, which eventually will cause stucco to lose its bond and pull away from its substrate.
  
The deteriorated surface of this catch basin is being re-stuccoed. 
After the cause of deterioration has been identified, any necessary repairs to the building should be made first before repairing the stucco. Such work is likely to include repairs designed to keep excessive water away from the stucco, such as roof, gutter, downspout and flashing repairs, improving drainage, and redirecting rainwater runoff and splash-back away from the building. Horizontal areas, such as the tops of parapet walls and chimneys, are particularly vulnerable to water infiltration, and may require modifications to their original design, such as the addition of flashing to correct the problem.
Previous repairs inexpertly carried out may have caused additional deterioration, particularly if executed in Portland cement, which tends to be very rigid and, therefore, incompatible with early, mostly soft lime-based stucco that is more flexible. Incompatible repairs, external vibration caused by traffic and construction, and building settlement can also result in cracks which permit the entrance of water and cause the stucco to fail.
Before beginning any stucco repair, an assessment of the stucco should be undertaken to determine the extent of the damage, and how much must be replaced or repaired. Testing should be carried out systematically on all elevations of the building to determine the overall condition of the stucco. Some areas in need of repair will be clearly evidenced by missing sections of stucco or stucco layers. Bulging or cracked areas are obvious places to begin. Unsound, punky or soft areas that have lost their key will echo with a hollow sound when tapped gently with a wooden or acrylic hammer or mallet.

Identifying the Stucco Type

Analysis of the historic stucco will provide useful information on its primary ingredients and their proportions, and will help to ensure that the new replacement stucco will duplicate the old in strength, composition, color and texture as closely as possible. However, unless authentic, period restoration is required, it may not be worthwhile, nor in many instances even possible, to attempt to duplicate all of the ingredients (particularly some of the additives) in creating the new stucco mortar. Some items are no longer available, and others, notably sand and lime -- the major components of traditional stucco -- have changed radically over time. For example, most sand used in contemporary masonry work is manufactured sand, because river sand, which was used historically, is difficult to obtain today in many parts of the country. The physical and visual qualities of manufactured sand versus river sand are quite different, and this affects the way stucco works, as well as the way it looks. The same is true of lime, which is frequently replaced by gypsum in modern stucco mixes. And even if identification of all the items in the historic stucco mix were possible, the analysis would still not reveal how the original stucco was mixed and applied.
There are, however, simple tests that can be carried out on a small piece of stucco to determine its basic makeup. A dilute solution of hydrochloric (muriatic) acid will dissolve lime-based stucco, but not Portland cement. Although the use of Portland cement became common after 1900, there are no precise cutoff dates, as stuccoing practices varied among individual plasterers, and from region to region. Some plasterers began using Portland cement in the 1880s, but others may have continued to favor lime stucco well into the early 20th century. While it is safe to assume that a late-18th or early-19th century stucco is lime-based, late-19th or early-20th century stucco may be based on either lime or Portland cement. Another important factor to take into consideration is that an early lime-stucco building is likely to have been repaired many times over the ensuing years, and it is probable that at least some of these patches consist of Portland cement.

Planning the Repair

Once the extent of damage has been determined, a number of repair options may be considered. Small hairline cracks usually are not serious and may be sealed with a thin slurry coat consisting of the finish coat ingredients, or even with a coat of paint or whitewash.
Commercially available caulking compounds are not suitable materials for patching hairline cracks. Because their consistency and texture is unlike that of stucco, they tend to weather differently, and attract more dirt; as a result, repairs made with caulking compounds may be highly visible and unsightly. Larger cracks will have to be cut out in preparation for more extensive repair. Most stucco repairs will require the skill and expertise of a professional plasterer.
  
The stucco will be applied to the wire lath laid over the area to be patched. 
In the interest of saving or preserving as much as possible of the historic stucco, patching rather than wholesale replacement is preferable. When repairing heavily textured surfaces, it is not usually necessary to replace an entire wall section, since the textured finish, if well-executed, tends to conceal patches, and helps them to blend in with the existing stucco. However, because of the nature of smooth-finished stucco, patching a number of small areas scattered over one elevation may not be a successful repair approach unless the stucco has been previously painted, or is to be painted following the repair work. On unpainted stucco, such patches are hard to conceal, because they may not match exactly or blend in with the rest of the historic stucco surface. For this reason, it is recommended, if possible, that stucco repair be carried out in a contained or well-defined area, or if the stucco is scored, the repair patch should be "squared-off" in such a way as to follow existing scoring. In some cases, especially in a highly visible location, it may be preferable to re-stucco an entire wall section or feature. In this way, any differences between the patched area and the historic surface will not be so readily apparent.
Repair of historic stucco generally follows most of the same principles used in plaster repair. First, all deteriorated, severely cracked and loose stucco should be removed down to the lath (assuming that the lath is securely attached to the substrate), or down to the masonry if the stucco is directly applied to a masonry substrate. A clean surface is necessary to obtain a good bond between the stucco and substrate. The areas to be patched should be cleaned of all debris with a bristle brush, and all plant growth, dirt, loose paint, oil and grease should be removed. If necessary, brick or stone mortar joints should then be raked out to a depth of approximately 5/8-inches to ensure a good bond between the substrate and the new stucco.
To obtain a neat repair, the area to be patched should be squared-off with a butt joint using a cold chisel, a hatchet, a diamond-blade saw, or a masonry bit. Sometimes, it may be preferable to leave the area to be patched in an irregular shape, which may result in a less conspicuous patch. Proper preparation of the area to be patched requires very sharp tools and extreme caution on the part of the plasterer not to break keys of surrounding good stucco by "over-sounding" when removing deteriorated stucco.
To ensure a firm bond, the new patch must not overlap the old stucco. If the stucco has lost its bond or key from wood lath, or the lath has deteriorated or come loose from the substrate, a decision must be made whether to try to re-attach the old lath, to replace deteriorated lath with new wood lath, or to leave the historic wood lath in place and supplement it with modern expanded metal lath. Unless authenticity is important, it is generally preferable (and easier) to nail new metal lath over the old wood lath to support the patch. Metal lath that is no longer securely fastened to the substrate may be removed and replaced in kind, or left in place and supplemented with new wire lath.
 
When repairing lime-based stucco applied directly to masonry, the new stucco should be applied in the same manner, directly onto the stone or brick. The stucco will bond onto the masonry itself without the addition of lath because of the irregularities in the masonry or those of its mortar joints, or because its surface has been scratched, scored or otherwise roughened to provide an additional key. Cutting out the old stucco at a diagonal angle may also help secure the bond between the new and the old stucco. For the most part, it is not advisable to insert metal lath when re-stuccoing historic masonry in sound condition, as it can hasten deterioration of the repair work. Not only will attaching the lath damage the masonry, but the slightest moisture penetration can cause metal lath to rust. This will cause metal to expand, eventually resulting in spalling of the stucco, and possibly the masonry substrate, too.
  
The final finish coat will be applied to this scratch coat. 
If the area to be patched is properly cleaned and prepared, a bonding agent is usually not necessary. However, a bonding agent may be useful when repairing hairline cracks, or when dealing with substrates that do not offer a good bonding surface. These may include dense stone or brick, previously painted or stuccoed masonry, or spalling brick substrates. A good mechanical bond is always preferable to reliance on bonding agents. Bonding agents should not be used on a wall that is likely to remain damp or where large amounts of salt are present. Many bonding agents do not survive well under such conditions, and their use could jeopardize the longevity of the stucco repair.
A stucco mix compatible with the historic stucco should be selected after analyzing the existing stucco. It can be adapted from a standard traditional mix of the period, or based on one of the mixes included here. Stucco consisting mostly of Portland cement generally will not be physically compatible with the softer, more flexible, lime-rich historic stuccos used throughout the 18th and much of the 19th centuries. The differing expansion and contraction rates of lime stucco and Portland cement stucco will normally cause the stucco to crack. Choosing a stucco mix that is durable and compatible with the historic stucco on the building is likely to involve considerable trial and error, and probably will require a number of test samples, and even more, if it is necessary to match the color. It is best to let the stucco test samples weather as long as possible -- ideally, one year, or at least through a change of seasons -- in order to study the durability of the mix and its compatibility with the existing stucco, as well as the weathering of the tint, if the building will not be painted and color-match is an important factor.
If the test samples are not executed on the building, they should be placed next to the stucco remaining on the building to compare the color, texture and composition of the samples with the original. The number and thickness of stucco coats used in the repair should also match the original.
 
After thoroughly dampening the masonry or wood lath, the first scratch coat should be applied to the masonry substrate, or wood or metal lath, in a thickness that corresponds to the original (if extant), or generally about 1/4-inch to 3/8-inch. The scratch coat should be scratched or crosshatched with a comb to provide a key to hold the second coat. It usually takes 24 to 72 hours, and longer in cold weather, for each coat to dry before the next coat can be applied. The second coat should be about the same thickness as the first, and the total thickness of the first two coats should generally not exceed about 5/8-inch. This second or leveling coat should be roughened using a wood float with a nail protruding to provide a key for the final or finish coat. The finish coat, about 1/4-inch thick, is applied after the previous coat has initially set. If this is not feasible, the base coat should be thoroughly dampened when the finish coat is applied later. The finish coat should be worked to match the texture of the original stucco.

Colors and Tints for Historic Stucco Repair

  
The new addition on the right is stucco scored to imitate the limestone of the historic building on the left. 
The color of most early stucco was supplied by the aggregate included in the mix -- usually, the sand. Sometimes, natural pigments were added to the mix, and 18th- and 19th-century scored stucco was often marbleized or painted in imitation of marble and granite. Stucco was also frequently coated with whitewash or a colorwash. This tradition later evolved into the use of paint, its popularity depending on the vagaries of fashion, as much as a means of concealing repairs. Because most of the early colors were derived from nature, the resultant stucco tints tended to be mostly earth tones. This was true until the advent of brightly colored stucco in the early decades of the 20th century. This was the so-called "Jazz Plaster" developed by O.A. Malone, the "man who put color into California," and who founded the California Stone Products Corporation in 1927. California stucco was revolutionary for its time as the first stucco/plaster to contain colored pigment in its pre-packaged factory mix.
When patching or repairing an historic stucco surface known to have been tinted, it may be possible to determine through visual or microscopic analysis whether the source of the coloring is sand, cement or pigment. Although some pigments or aggregates used traditionally may no longer be available, a sufficiently close color match can generally be approximated using sand, natural or mineral pigments, or a combination of these. Obtaining such a match will require testing and comparing the color of the dried test samples to the original. Successfully combining pigments in the dry stucco mix prepared for the finish coat requires considerable skill. The amount of pigment must be carefully measured for each batch of stucco. Overworking the mix can make the pigment separate from the lime. Changing the amount of water added to the mix, or using water to apply the tinted finish coat, will also affect the color of the stucco when it dries.
Generally, the color obtained by hand-mixing these ingredients will provide a sufficiently close match to cover an entire wall or an area distinct enough from the rest of the structure that the color differences will not be obvious. However, it may not work for small patches conspicuously located on a primary elevation, where color differences will be especially noticeable. In these instances, it may be necessary to conceal the repairs by painting the entire patched elevation, or even the whole building.
Many stucco buildings have been painted over the years, and will require re-painting after the stucco repairs have been made. Limewash or cement-based paint, latex paint, or oil-based paint are appropriate coatings for stucco buildings. The most important factor to consider when re-painting a previously painted or coated surface is that the new paint be compatible with any coating already on the surface. In preparation for re-painting, all loose and peeling paint, and other coating material not firmly adhered to the stucco, must be removed by hand-scraping or natural bristle brushes. The surface should then be cleaned.
Cement-based paints, most of which now contain some Portland cement and are really a type of limewash, have traditionally been used on stucco buildings. The ingredients were easily obtainable. Furthermore, the lime in such paints actually bonded or joined with the stucco and provided a very durable coating. In many regions, whitewash was applied annually during spring cleaning. Modern, commercially available, pre-mixed masonry and mineral-based paints may also be used on historic stucco buildings.
If the structure must be painted for the first time to conceal repairs, almost any of these coatings may be acceptable, depending on the situation. Latex paint, for example, may be applied to slightly damp walls or where there is an excess of moisture, but latex paint will not stick to chalky or powdery areas. Oil-based or alkyd paints must be applied only to dry walls; new stucco must cure up to a year before it can be painted with oil-based paint.

Contemporary Stucco Products

There are many contemporary stucco products on the market today. Many of them are not compatible, either physically or visually, with historic stucco buildings. Such products should be considered for use only after consulting with a specialist in historic masonry. However, some of these pre-packaged tinted stucco coatings may be suitable for use on stucco buildings dating from the late 19th and early 20th centuries, as long as the color and texture are appropriate for the period and style of the building. While some masonry contractors may, as a matter of course, suggest that a water-repellent coating be applied after repairing old stucco, in most cases, this should not be necessary, since color washes and paints serve the same purpose, and stucco itself is a protective coating.

Cleaning Historic Stucco Surfaces

Historic stucco buildings often exhibit multiple layers of paint or limewash. Although some stucco surfaces may be cleaned by water-washing, the relative success of this procedure depends on two factors: the surface texture of the stucco, and the type of dirt to be removed. If simply removing airborne dirt, smooth unpainted stucco, and heavily-textured painted stucco, may sometimes be cleaned using a low-pressure water wash, supplemented by scrubbing with soft natural bristle brushes, and possibly non-ionic detergents. Organic plant material, such as algae and mold, and metallic stains may be removed from stucco using poultices and appropriate solvents. Although these same methods may be employed to clean unpainted roughcast, pebble-dash, or any stucco surface featuring exposed aggregate, due to the surface irregularities, it may be difficult to remove dirt without also removing portions of the decorative textured surface. Difficulty in cleaning these surfaces may explain why so many of these textured surfaces have been painted.

When Total Replacement is Necessary

Complete replacement of the historic stucco with new stucco of either a traditional or modern mix will probably be necessary only in cases of extreme deterioration -- that is, a loss of bond on over 40% to 50% of the stucco surface. Another reason for total removal might be that the physical and visual integrity of the historic stucco has been so compromised by prior incompatible and ill-conceived repairs that patching would not be successful.
When stucco no longer exists on a building, there is more flexibility in choosing a suitable mix for the replacement. Since compatibility of old and new stucco will not be an issue, the most important factors to consider are durability, color, texture and finish. Depending on the construction and substrate of the building, in some instances, it may be acceptable to use a relatively strong cement-based stucco mortar. This is certainly true for many late 19th and early 20th century buildings, and may even be appropriate to use on some stone substrates, even if the original mortar would have been weaker, as long as the historic visual qualities noted above have been replicated. Generally, the best principle to follow for a masonry building is that the stucco mix, whether for repair or replacement of historic stucco, should be somewhat weaker than the masonry to which it is to be applied in order not to damage the substrate.

General Guidance for Historic Stucco Repair

A skilled professional plasterer will be familiar with the properties of materials involved in stucco repair and will be able to avoid some of the pitfalls that would hinder someone less experienced. General suggestions for successful stucco repair parallel those involving restoration and repair of historic mortar and plaster. In addition, the following principles are important to remember:
  • Mix only as much stucco as can be used in one-and-a-half to two hours. This will depend on the weather (mortar will harden faster under hot and dry, or sunny conditions).  Experience is likely to be the best guidance. Any remaining mortar should be discarded; it should not be re-tempered.
  • Stucco mortar should not be over-mixed. (Hand mix it for 10 to 15 minutes after adding water, or machine-mix for three to four minutes after all ingredients are in mixer.) Over-mixing can cause crazing and discoloration, especially in tinted mortars. Over-mixing will also tend to make the mortar set too fast, which will result in cracking and poor bonding or keying to the lath or masonry substrate.
  • Wood lath or a masonry substrate, but not metal lath, must be thoroughly wetted before applying stucco patches so that it does not draw moisture out of the stucco too rapidly. To a certain extent, bonding agents also serve this same purpose. Wetting the substrate helps retard drying.
  • To prevent cracking, it is imperative that stucco not dry too fast. Therefore, the area to be stuccoed should be shaded, or even covered, if possible, particularly in hot weather. It is also a good idea in hot weather to keep the newly stuccoed area damp, at approximately 90% humidity, for a period of 48 to 72 hours.
  • Stucco repairs, like most other exterior masonry work, should not be undertaken in cold weather (below 40 degrees Fahrenheit, and preferably warmer), or if there is danger of frost.

Historic Stucco Textures

Most of the oldest stucco in the U.S. dating prior to the late 19th century will generally have a smooth, troweled finish (sometimes called a "sand" or "float" finish), possibly scored to resemble ashlar masonry units. Scoring may be incised to simulate masonry joints, the scored lines may be emphasized by black or white penciling, or the lines may simply be drawn or painted on the surface of the stucco. In some regions, at least as early as the first decades of the 19th century, it was not uncommon to use a roughcast finish on the foundation or base of an otherwise smooth-surfaced building. Roughcast was also used as an overall stucco finish for some out buildings, and other less-important types of structures.
  
This stucco house has a rough cast finish.
A wide variety of decorative surface textures may be found on revival-style stucco buildings, particularly residential architecture. These styles evolved in the late 19th century and peaked in popularity in the early decades of the 20th century. Frank Lloyd Wright favored a smooth-finish stucco, which was imitated on much of the Prairie-style architecture inspired by his work. Some of the more picturesque surface textures include: English Cottage or English Cotswold finish; sponge finish; fan texture; adobe finish; and Spanish or Italian finish. Many of these finishes and countless other regional and personalized variations on them are still in use.
The most common early 20th-century stucco finishes are often found on bungalow-style houses, and include: spatter or spatterdash (sometimes called roughcast, harling or wetdash), and pebble-dash or drydash. The spatterdash finish is applied by throwing the stucco mortar against the wall using a whisk broom or a stiff fiber brush, and it requires considerable skill on the part of the plasterer to achieve a consistently rough wall surface. The mortar used to obtain this texture is usually composed simply of a regular sand, lime and cement mortar, although it may sometimes contain small pebbles or crushed stone aggregate, which replaces half the normal sand content. The pebble-dash or drydash finish is accomplished manually by the plasterer throwing or "dashing" dry pebbles (about 1/8-inch to 1/4-inch in size)onto a coat of stucco freshly applied by another plasterer. The pebbles must be thrown at the wall with a scoop with sufficient force and skill that they will stick to the stuccoed wall. A more even or uniform surface can be achieved by patting the stones down with a wooden float. This finish may also be created using a texturing machine.
Stucco on historic buildings is especially vulnerable not only to the wear of time and exposure to the elements, but also at the hands of well-intentioned "restorers" who may want to remove stucco from 18th and 19th century structures to expose what they believe to be the original or more "historic" brick, stone or log underneath. Historic stucco is a character-defining feature and should be considered an important historic building material, significant in its own right. While many 18th and 19th century buildings were stuccoed at the time of construction, others were stuccoed later for reasons of fashion or practicality. As such, it is likely that this stucco has acquired significance, over time, as part of the history and evolution of a building. Thus, even later, non-historic stucco should be retained, in most instances; and similar logic dictates that new stucco should not be applied to an historic building that was not stuccoed previously. When repairing historic stucco, the new stucco should duplicate the old as closely as possible in strength, composition, color and texture.

Wednesday, January 20, 2016

Rehab a Home

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD), administers various single-family mortgage insurance programs. These programs operate through FHA-approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved. These lenders fund the mortgage loans which the Department insures. HUD does not make direct loans to help people buy homes. The Section 203(k) Program is HUD's primary program for the rehabilitation and repair of single- family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities. Since these are the primary goals of HUD, it believes that Section 203(k) is an important program and intends to continue to strongly support the program and the lenders that participate in it.
 
Many lenders have successfully used the Section 203(k) Program in partnership with state and local housing agencies and nonprofit organizations to rehabilitate properties. These lenders, along with state and local government agencies, have found ways to combine Section 203(k) with other financial resources, such as HUD's HOME, HOPE, and Community Development Block Grant Programs, to assist borrowers. Several state housing finance agencies have designed programs specifically for use with Section 203(k), and some lenders have also used the expertise of local housing agencies and nonprofit organizations to help manage the rehabilitation processing. HUD also believes that the Section 203(k) Program is an excellent means for lenders to demonstrate their commitment to lending in low-income communities and to help meet their responsibilities under the Community Reinvestment Act (CRA). HUD is committed to increasing homeownership opportunities for families in these communities and Section 203(k) is an excellent product for use with CRA-type lending programs. If you have questions about the 203(k) Program or are interested in getting a 203(k)- insured mortgage loan, we suggest that you get in touch with an FHA-approved lender in your area or the homeownership center in your area.
 
Most mortgage financing plans provide only permanent financing. That is, the lender will not usually close the loan and release the mortgage proceeds unless the condition and value of the property provide adequate loan security. When rehabilitation is involved, this means that a lender typically requires the improvements to be finished before a long-term mortgage is made. When a home buyer wants to purchase a house in need of repair or modernization, he or she usually has to obtain financing first to purchase the dwelling, additional financing to do the rehabilitation construction, and a permanent mortgage when the work is completed to pay off the interim loans. Often, the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods. The Section 203(k) Program was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. To minimize the risk to the mortgage lender, the mortgage loan (the maximum allowable amount) is eligible for endorsement by HUD as soon as the mortgage proceeds are disbursed and a rehabilitation escrow account is established. At this point, the lender has a fully-insured mortgage loan.
 
Eligible Property

To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year. The number of units on the site must be acceptable according to the provisions of local zoning requirements. All newly constructed units must be attached to the existing dwelling. Cooperative units are not eligible. Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible, provided some of the existing foundation system remains in place. In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit. An existing house (or modular unit) on another site can be moved onto the mortgaged property. However, release of loan proceeds for the existing structure on the non-mortgaged property is not allowed until the new foundation has been properly inspected, and the dwelling has been properly placed and secured to the new foundation. A 203(k) mortgage may be originated on a mixed-use residential property, provided the property has no greater than 25% (for a one-story building), 33% (for a three-story building), and 49% (for a two-story building) of its floor area used for commercial (storefront) purposes. The commercial use also must not affect the health or safety of the occupants of the residential property, and the rehabilitation funds may be used only for the residential functions of the dwelling and areas used to access the residential part of the property.
 
Condominium Unit

HUD also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by the FHA, the Department of Veterans Affairs, or are acceptable to FNMA under the guidelines listed below. The 203(k) Program was not intended to be a project-mortgage insurance program, as large-scale development has considerably more risk than individual single-family mortgage insurance. Therefore, condominium rehabilitation is subject to the following conditions: 
  • Borrowers can be owner-occupants and qualified non-profits only -- no investors.
  • Rehabilitation is limited only to the interior of the unit. Mortgage proceeds are not to be used for the rehabilitation of exteriors or other areas which are the responsibility of the condominium association, except for the installation of firewalls in the attic for the unit.
  • Only the lesser of five units per condominium association, or 25% of the total number of units, can be undergoing rehabilitation at any one time.
  • The maximum mortgage amount cannot exceed 100% of after-improved value. 
  • After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. 
By law, Section 203(k) can only be used to rehabilitate units in one- to four-unit structures. However, this does not mean that the condominium project, as a whole, can only have four units or that all individual structures must be detached.  For example, a project might consist of six buildings each containing four units, for a total of 24 units in the project, and, thus, be eligible for Section 203(k). Likewise, a project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1-1/2-hour firewall (from foundation up to the roof). Similar to a project with a condominium unit with a mortgage insured under Section 234(c) of the National Housing Act, the condominium project must be approved by HUD prior to the closing of any individual mortgages on the condominium units.

How the Program Can Be Used
  
This program can be used to accomplish rehabilitation and/or improvement of an existing one- to four-unit dwelling in one of three ways: 
  1. to purchase a dwelling and the land on which the dwelling is located and rehabilitate it;
  2. to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property, and rehabilitate it; or 
  3. to refinance existing indebtedness and rehabilitate such a dwelling.
To purchase a dwelling and the land on which the dwelling is located and rehabilitate it, and to refinance existing indebtedness and rehabilitate such a dwelling, the mortgage must be a first lien on the property and the loan proceeds (other than rehabilitation funds) must be available before the rehabilitation begins. To purchase a dwelling on another site, move it onto a new foundation and rehabilitate it, the mortgage must be a first lien on the property; however, loan proceeds for the moving of the house cannot be made available until the unit is attached to the new foundation.
 
Eligible Improvements

Mortgage proceeds must be used in part for rehabilitation and/or improvements to a property. There is a minimum $5,000 requirement for the eligible improvements on the existing structure(s) on the property. Rehabilitation or improvements to a detached garage, a new detached garage, or the addition of an attached unit (if allowed by the local zoning ordinances) can also be included in this first $5,000. Properties with separate detached units are acceptable; however, a newly constructed unit must be attached to an existing unit to be eligible under 203(k). Any repair is acceptable in the first $5,000 requirement that may affect the health and safety of the occupants. Minor or cosmetic repairs by themselves cannot be included in the first $5,000, but may be added after the $5,000 threshold is reached. Examples of eligible improvements are listed below (this list is not all-inclusive): 
  • structural alterations and reconstruction (e.g., repair or replacement of structural damage, chimney repair, additions to the structure, installation of an additional bath(s), skylights, finished attics and/or basements, repair of termite damage and the treatment against termites or other insect infestation, etc.);
  • changes for improved functions and modernization (e.g., remodeled bathrooms and kitchens, including permanently installed appliances, such as a built-in range and/or oven, range hood, microwave, dishwasher);
  • elimination of health and safety hazards (including the resolution of defective paint surfaces or lead-based paint problems on homes built prior to 1978); 
  • changes for aesthetic appeal and elimination of obsolescence (e.g., new exterior siding, adding a second story to the home, covered porch, stair railings, attached carport); 
  • reconditioning or replacement of plumbing (including connecting to public water and/or sewer system), heating, air conditioning and electrical systems. Installation of new plumbing fixtures is acceptable, including interior whirlpool bathtubs; 
  • installation of a well and/or septic system.  The well or septic system must be installed or repaired prior to beginning any other repairs to the property;
  • roofing, gutters and downspouts;
  • flooring, tiling and carpeting;
  • energy-conservation improvements (e.g., new double-pane windows, steel insulated exterior doors, insulation, solar domestic hot water systems, caulking and weatherstripping, etc.);
  • major landscape work and site improvement (e.g., patios, decks and terraces that improve the value of the property equal to the dollar amount spent on the improvements, or required to preserve the property from erosion);
  • the correction of grading and drainage problems;
  • tree removal is acceptable if the tree is a safety hazard to the property;
  • repair of existing walks and driveway if it may affect the safety of the property; and
  • improvements for accessibility for a disabled person (e.g., remodeling kitchens and baths for wheelchair access, lowering kitchen cabinets, installing wider doors and exterior ramps, etc.).
When basic improvements are involved, the following costs can be included in addition to the minimum $5,000 requirement: 
  • new, free-standing range, refrigerator, washer and dryer, trash compactor and other appurtenances (used appliances are not eligible);
  • interior and exterior painting; and
  • the repair of a swimming pool, not to exceed $1,500.  
Luxury items and improvements that do not become a permanent part of the real property are not eligible as a cost of rehabilitation. The items listed below (though not limited to this list) are not acceptable under the 203(k) program, including the repair of any of the following: barbecue pit; bathhouse; dumbwaiter; exterior hot tub; sauna, spa and whirlpool bath; outdoor fireplace or hearth; photo mural; installation of a new swimming pool; gazebo; television antenna; satellite dish; tennis court; or tree surgery. Additions or alterations to provide for commercial use are not eligible. 
 
Required Improvements

All rehabilitation construction and/or additions financed with Section 203(k) mortgage proceeds must comply with the following:
 
A. cost-effective energy conservation standards: 
(1) addition to existing structure:  new construction must conform with local codes and HUD;s Minimum Property Standards;
(2) rehabilitation of existing structure:  to improve the thermal efficiency of the dwelling, the following are required:
  • weather-strip all doors and windows to reduce infiltration of air when existing weatherstripping is inadequate or nonexistent;
  • caulk and seal all openings, cracks and joints in the building envelope to reduce air infiltration; 
  • insulate all openings in exterior walls where the cavity has been exposed as a result of the rehabilitation, and insulate ceiling areas where necessary; and 
  • adequately ventilate attic and crawlspace areas. For additional information and requirements, refer to 24 CFR Part 39. 
(3) replacement of systems:
  • heating, ventilating, and air-conditioning system supply and return pipes and ducts must be insulated whenever they run through unconditioned spaces; and
  • heating systems, burners, and air-conditioning systems must be carefully sized to be no greater than 15% oversized for the critical design, heating or cooling, except to satisfy the manufacturer's next closest nominal size. 
B. smoke detectors:  each sleeping area must be provided with a minimum of one:
(1) approved, listed and labeled smoke detector installed adjacent to the sleeping area.

 
Required Appraisals

In order to determine the maximum mortgage amount, the 203(k) valuation analysis consists of two separate determinations of value. 
A. as-is value:  A separate appraisal (Uniform Residential Appraisal Report) may be required to determine the as-is value. However, the lender may determine that an as-is appraisal is not feasible or necessary. In this instance, the lender may use the contract sales price on a purchase transaction, or the existing debt on a refinance transaction, as the as-is value, when this does not exceed a reasonable estimate of value.
Further, on a refinance transaction, when a large amount of existing debt (i.e., first and second mortgages) suggests that the borrower has little or no equity in the property, the lender must obtain a current as-is appraisal on which to base the estimated as-is value. On a refinance, the borrower may have substantial equity in the property to assure that no further down payment is required on the new loan amount. In some cases, the borrower will not have an existing mortgage on the property. In this case, the lender should obtain some comparables from a real estate agent/ broker to estimate an approximate as-is value of the property. Another way of establishing the as-is value is to obtain a copy of the local jurisdiction tax valuation on the property. 
B. value after rehabilitation: The expected market value of the property is determined upon completion of the proposed rehabilitation and/or improvements.
For a HUD-owned property, an as-is appraisal is not required, and a DE lender may request the HUD Field Office to release the outstanding HUD Property Disposition Appraisal to the lender to establish the maximum mortgage for the property. The HUD appraisal will be considered acceptable for use by the lender if it is not over one year old prior to bid acceptance from HUD, and the sales contract price plus the cost of rehabilitation does not exceed 110% of the "As Repaired Value" shown on the HUD appraisal. If the HUD appraisal is insufficient, the DE lender may order another appraisal to assure the market value of the property will be adequate to make the purchase of the property feasible. For a HUD-property, down payment for an owner-occupant or non-profit organization is 3% of the accepted bid price of the property, and 100% financing on all other costs.
 
Recently Acquired Properties
  
Home buyers who purchase a property with cash can refinance the property using 203(k) within six months of purchase, the same as if the buyer purchased the property with a 203(k)-insured loan to begin with. Evidence of interim financing is not required. The mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation, less any down payment and closing cost requirement for the 203(k) loan. A copy of the Sales Contract and the HUD-1 Settlement Statement must be submitted to verify the accepted bid price (as-is value) of the property and the closing date.
 
Architectural Exhibits

The improvements must comply with HUD's Minimum Property Standards and all local codes and ordinances. The home buyer may decide to employ an architect or a consultant to prepare the proposal. The home buyer must provide the lender with the appropriate architectural exhibits that clearly show the scope of work to be accomplished. The following list of exhibits are recommended, but may be modified by the local HUD Field Office as required.
  • A "Plot Plan of the Site" is required only if a new addition is being made to the existing structure. Show the location of the structure(s), walks, drives, streets, and other relevant details. Include finished grade elevations at the property corners and building corners. Show the required flood elevation.
  • "Proposed Interior Plan of the Dwelling: shows where structural or planning changes are contemplated, including an addition to the dwelling.
  • "Work Write-up and Cost Estimate":  Any format may be used for these documents; however, quantity and the cost of each item must be shown. Also include a complete description of the work for each item. 
Cost estimates must include labor and materials sufficient to complete the work by a contractor. Home buyers doing their own work cannot eliminate the cost estimate for labor because if they cannot complete the work, there must be sufficient money in the escrow account to get a subcontractor to do the work. The work write-up does not need to reflect the color or specific model numbers of appliances, bathroom fixtures, carpeting, etc., unless they are non-standard units. The consultant who prepares the work write-up and cost estimate (or an architect, or engineering or InterNACHI inspector) needs to inspect the property to assure:
(1) there are no rodents, dry rot, termites or other infestation;
(2) there are no defects that will affect the health or safety of the occupants;
(3) the adequacy of the existing structural, heating, plumbing, electrical and roofing systems; and
(4) the up-grading of thermal protection (where necessary).

 
Definitions for Use in the 203(k) Program

A. Insurance of Advances: 
This refers to insurance of the 203(k) mortgage prior to the rehabilitation period. A mortgage that is a first lien on the property is eligible to be endorsed for insurance following mortgage loan closing, disbursement of the mortgage proceeds, and establishment of the Rehabilitation Escrow Account. The mortgage amount may include funds for the purchase of the property or the refinance of existing indebtedness, the costs incidental to closing the transaction, and the completion of the proposed rehabilitation.
 
The mortgage proceeds allocated for the rehabilitation will be escrowed at closing in a Rehabilitation Escrow Account.
 
B. Rehabilitation Escrow Account:
When the loan is closed, the proceeds designated for the rehabilitation or improvement, including the contingency reserve, are to be placed in an interest-bearing escrow account insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). This account is not an escrow for paying real estate taxes, insurance premiums, delinquent notes, ground rents or assessments, and is not to be treated as such. The net income earned by the Rehabilitation Escrow Account must be paid to the mortgagor. The method of such payment is subject to agreement between mortgagor and mortgagee. The lender (or its agent) will release escrowed funds upon completion of the proposed rehabilitation in accordance with the Work Write-Up and the Draw Request (Form HUD-9746,A).
 
C. Inspections:
Inspections must be performed by HUD-approved fee inspectors or on the HUD-accepted staff of the DE lender. The fee inspector is to use the architectural exhibits in order to make a determination of compliance or non-compliance. When the inspection is scheduled with a payment, the inspector is to indicate whether or not the work has been completed. Also, the inspector is to use the Draw Request Form (Form HUD-9746-A). The first draw must not be scheduled until the lender has determined that the applicable building permits have been issued.
 
D. Holdback:
A 10% holdback is required on each release from the Rehabilitation Escrow Account. The total of all holdbacks may be released only after a final inspection of the rehabilitation and issuance of the Final Release Notice. The lender (or its agent) may retain the holdback for a maximum of 35 calendar days, or the time period required by law to file a lien (whichever is longer) to ensure that no liens are placed on the property.
 
E. Contingency Reserve:
At the discretion of the HUD Field Office, the cost estimate may include a contingency reserve if the existing construction is less than 30 years old, or the nature of the work is complex or extensive. For properties older than 30 years, the cost estimate must include a contingency reserve of a minimum of 10% of the cost of rehabilitation. The contingency reserve may not exceed 20% where major remodeling is contemplated. If the utilities were not turned on for inspection, a minimum 15% is required. If the scope of work is well-defined and uncomplicated, and the rehabilitation cost is less then $7,500, the lender may waive the requirement for a contingency reserve. The contingency reserve account can be used by the borrower to make additional improvements to the dwelling. A Request for Change Letter must be submitted with the applicable cost estimates. The change can only be accepted when the lender determines it is unlikely that any deficiency that may affect the health and safety of the property will be discovered and the mortgage will not exceed the appraised value of the property less the statutory investment requirement. If the mortgage exceeds the appraised value less the statutory investment, then the contingency reserve must be paid down on the mortgage principal. If a borrower feels that the contingency reserve will not be used and he wishes to avoid having the reserve applied to reduce the mortgage balance after issuance of the Final Release Notice, the borrower may place his own funds into the contingency reserve account. In this case, if money is remaining in the account after the Final Release Notice is issued, it may be released back to the borrower. If the mortgage is at the maximum mortgage limit for the area, or for the particular type of transaction, but a contingency reserve is necessary, the contingency reserve must be placed into an escrow account from other funds of the borrower at closing. Under these circumstances, if the contingency reserve is not used, the remaining funds in the escrow account will be released to the borrower after the Final Release Notice has been issued.
 
F. Mortgage Payment Reserve:
Funds not to exceed the amount of six mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor (whether a principal residence or an investment property) when the property is not occupied during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement. The lender must make the monthly mortgage payments directly from the interest-bearing reserve account. Money remaining in the reserve account after the Final Release Notice must be applied to the mortgage principal.
 
G. Approval of Non-Profit Agencies:
A non-profit agency, before it can be approved as an eligible mortgagor and obtain the same mortgage amount as available to owner-occupants on Section 203(k) mortgages, must demonstrate its experience as a housing provider to HUD and meet all other requirements described in the HUD Handbook. It must also be able to provide satisfactory evidence that it has the financial capacity to purchase the properties.
 
 
Before and After