www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 July 11, 1988 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 88-22 TO: ALL APPROVED MORTGAGEES SUBJECT: Annual Inspection of Insured Projects BACKGROUND. Regulations for HUD mortgage insurance programs require mortgagees to annually inspect each insured project and to give HUD and the project owner a report on that inspection. The inspection and reporting requirement is also included in the Mortgagee Certificates that were signed at loan closing. While some of you have annually submitted effective reports, other mortgagees have either not reported or have made only cursory inspections and submitted reports that are of little use. PURPOSE OF THIS LETTER. This letter: 1. Establishes standards that all mortgagees must comply with when conducting annual inspections and reporting the results of those inspections. 2. Puts all mortgagees on notice that the Department will aggressively monitor and enforce mortgagees' compliance with these annual inspection requirements. These reports are valuable as they enable our field staff to detect developing problems. APPLICABILITY. This letter applies to fully insured multifamily mortgages. For coinsured multifamily mortgages, mortgagees must follow the narrative procedures in Chapter 6 of Handbook 4566.2, Management, Servicing and Disposition Requirements for Projects with 223(f) Coinsured Loans. Appendix 20 of that Handbook will be revised to substitute the attached Form-9822 for the Form HUD-9822 now shown there. INSPECTION REQUIREMENTS 1. You must inspect each insured property at least once in each calendar year. Generally, you should schedule inspections so that each property is visited every 12-15 months. We suggest that you consult, by phone or in person, with the local HUD Field Office in developing your inspection schedule for each year. The Field Office's Housing Managment staff can inform you of any repairs they have required and any on-site visits they have scheduled. You may wish to schedule your inspections around those activities. 2. You should ask the owner or management agent to accompany you on the inspection. If neither the owner/agent can do so, you should require the agent to arrange for the resident manager or maintenance supervisor to accompany you. 3. Before conducting your inspection, you should: a. Ask the HUD Field Office if there are any outstanding maintenance progems or repair schedules you should check on. b. Check your files to determine if: 1) Past inspections or recent correspondence reported maintenance problems. 2) Recent insurance loss drafts or replacement reserve withdrawals should have been used to make repairs. 3) Responses were made to previous inspections, where necessary. 4) During the inspection, you must: a) Walk through the project's grounds, common areas, office and maintenance work areas. b) Determine if any maintenance or repairs required by you or HUD have been acceptably completed or are underway and progressing on schedule. c) Inspect at least two vacant units - preferably ones that have not been cleaned or repaired and ones that are considered ready for occupancy. These units should be randomly selected from the list of vacancies. d) Ask the project representative accompanying you about: 1. Major Physical Improvements or Repairs. Have any been completed recently? Are any planned or needed? What funds were or will be used to pay for the repairs/improvements? 2. Maintenance Systems and Procedures. How does management process work orders? Has a preventive maintenance schedule been established and is it being followed? Is there a schedule for inspecting and decorating units? Is tenant damage to units excessive? 3. Cause of Any Maintenance Problems at the Project. e) Assess the condition of the items listed in Part B of form HUD-9822, Physical Inspection Report. (A copy of the report is attached to this Letter.) f) Either provide a narrative which will provide HUD with a general feel for the condition of the project or provide pictures that will provide the same information. 5) At the end of the inspection, verbally summarize for project management the observations and conclusions you will include in your report. REPORTING REQUIREMENTS 1. Within 30 days after the inspection, you must send the HUD Field Office and the project owner a written report on your inspection. The report must be prepared on Form HUD-9822, Physical Inspection Report. The cost estimates box on the form is not to be filled in by the mortgagee. This box will be used by HUD to estimate cost projections. 2. In the Comments Section (Part E) of the Report, you must discuss the topics listed below. All comments should be cross- referenced to a particular line item in Parts B, C or D of the Report. a. Any maintenance needs noted in Part B of the Report. If the maintenance is urgently needed, you should suggest a target completion date. b. Any problems noted in Part C of the Report. c. Mortgagees opinion as to reasons for any below average or unsatisfactory rating given in Part D of the Report. 3. The cover letter transmitting the report must require the owner to: a. Give you a written statement as to how and when the project will correct any deficiencies noted in the mortgagee's report. b. Send the HUD Field Office a copy of his/her response. c. Complete actions (a) and (b) within 30 days of the date of your transmittal letter. 4. If a response is not received within the prescribed time period, follow-up action should be undertaken i.e., written request to mortgagor to comply with previous letter with a carbon copy to the Field Office. Forms Distribution. You may obtain a supply of Form HUD-9822, Physical Inspection Report, from any HUD Field Office. Effective Date. This Mortgagee Letter applies to all inspections made on or after September 11, 1988. If you have any questions regarding this Mortgagee Letter, please contact James J. Tahash at (202)426-3944. Sincerely yours, Thomas T. Demery Assistant Secretary Attachment