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Remodel/Renovation Draw Request Procedure
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. 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.
Request for Draw. The borrower and the contractor jointly submit a request for the inspection with an accompanying detailed invoice of services provided by the contractor
Inspections. Performed by HUD-approved consultants/inspectors, the consultant 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.
Holdback. A ten (10) percent 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.
Funds. Funds will be paid in the form of a check and will be made out to both the borrower and the contractor.
Streamline Remodel/Renovation: Completion of Renovation and Payments
Payments in advance of construction:
LeaderOne at its discretion—may provide the contractor with up to 50 percent of the estimated cost of any work item prior to beginning construction. Such payments should only be made where the mortgagee is satisfied with the reputation of the contractor(s) and the contractor is not willing or able to defer receipt of payment until completion of the work or the payment represents the cost of materials incurred prior to construction.
Payments for Inspections:
For repair costs not exceeding $15,000, the mortgagee is not required to perform, or have others perform, inspections of the completed work. However, LeaderOne may choose to obtain or perform inspections if it believes such actions are necessary for program compliance and/or risk mitigation. LeaderOne may also ensure that the repairs and/or improvements have been completed by obtaining contractor’s receipts or by a signed Mortgagor’s Letter of Completion. If LeaderOne determines that an inspection(s) by a third party is necessary to ensure proper completion of the proposed repair or improvement item, LeaderOne may charge the borrower for the costs of no more than two inspections per each contractor.
For repairs in excess of $15,000, the mortgagee must perform or obtain an inspection of the completed work by a third party, normally the appraiser.
When permits are required from a local or State building authority, permit fees will be reimbursed to the contractor at closing if they are included in the contractor’s estimate.
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