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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000

July 26, 1990
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 90-26
       TO:  ALL APPROVED MORTGAGEES
       SUBJECT:  Single Family Production - Providing Property Condition
                   Disclosure Statements to Appraisers
 
            As you know, the condition of an existing single family
       dwelling is examined at the time of the appraisal to determine
       whether repairs, alterations, or additions are necessary to make
       the dwelling eligible for FHA mortgage insurance.
 
            It has come to our attention that some states have mandatory
       property condition disclosure laws that require sellers of
       property to disclose to buyers defects in the property known to
       the seller.  It is HUD's view that appraisers should be able to
       review any property condition disclosure statement or report
       already in existence or which will be required prior to completion
       of a sales transaction and that appraisers should use this
       information to ensure that repair requirements are not missed or
       defects already identified by others are examined.
 
            Accordingly, effective January 1, 1991, in those states where
       property condition disclosures are mandatory, the lender must
       provide HUD Fee and Direct Endorsement Staff Appraisers with a
       copy of any property condition disclosure statement that is
       available along with the application for appraisal.
 
            Direct Endorsement (DE) lenders should advise their
       personnel, as well as any loan correspondents, of these new
       requirements so they can inform the appropriate parties to the
       sale transaction that the mandatory property condition disclosure
       statement will be required to be made available to the HUD Fee or
       DE Staff Appraiser.
 
            Fee or Staff Appraisers are not to use the disclosure
       statement in lieu of performing the inspection and appraisal
       required by HUD Handbook 4150.1.  Appraisers should attach the
       disclosure statement to the URAR and retain a copy of each in
       their files as back-up documentation to their appraisal report.
 
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         The Department feels that appraisal quality will benefit
    significantly and the chance for omission of important information
    relating to property condition will be reduced by this action.  If
    you have any questions concerning this letter, please contact the
    local HUD Field Office or the Single Family Development Division
    in Headquarters at (202) 780-2720.
 
                                   Very sincerely
 
                                   C. Austin Fitts
                                   Assistant Secretary for
                                     Housing-Federal Housing Commissioner