The Inspection Process (use right and left mouse button, or right and left arrow buttons to move the slides) Use the left & right arrows to move through these pages We’ll take you through the steps of a 203k project What you will do from the time you get the order How to make the inspection & what to look for How to build a consulting business When you are ready begin please use the right and left arrows to advance the slides or go back a slide. Step 1 in building your business The first step is to let your potential clients know that you are in the business This is the single most important thing you can do. If they don’t know you are out there they can’t order your product. I actually had a consultant nearly give up on this business as he felt he wasn’t dynamic enough to get business. Six months after he took this course he was sitting there and glanced up at our manual sitting on his shelf. He thought “what if it was as easy as that” and called a lender he knew that did 203k loans and got a job. By the time he got to their office to pick up the details they had two more for a total of three, the average fee for three jobs totaled $1,800. He had ignored this phase, dreading the outcome, and today continues to make his living as a 203k consultant. Make the call, send a flyer, go to Real Estate Group or Association meetings and get your cards out there. 203k Procedure (Borrower) 1) Find a lender and get pre-qualified... This is the first step as we need to a certain the loan amount that you may qualify for or the maximum loan amount that keeps you at your comfort level. Your lender should be knowledgeable in the 203k. In this business experience is everything. If they are just doing their first 203k they will love you even more. 203k Procedure 2) Get with one of our 203k real estate professionals to assist you in finding a property suitable to your needs, or as an alternate, you can refinance your existing loan and get the money to rehab it in the same loan. (Borrower) 203k Procedure 3) Call us to set up an appointment for a “Consultation”. We will meet you at the site, go over the contracts and agreements that you will need to sign at the close of escrow (this is the consulting). (Borrower) 203k Procedure (Part 2) 4) Now go back to the office and create a "Job Specification & Bid Request". This is a list of the repair items that we intend to complete. This "specification" is what will allow all of the contractors who bid this project to bid on the same list. Up till now there is no real need for a contractor to have been to the site because we didn't know what work was to be completed. 203k Procedure (Part 2) 5) Once the "Job Specification & Bid Request" has been created a copy will be given to the lender and another copy to the buyer or owner who is refinancing the property. 203k Procedure (Part 2) 6) When the bids come back the home owner will choose the contractor. The lender can close the loan. 7) The contractor is notified that the loan has closed so he/she can schedule the work to begin. Once the work begins the contractor will require continuing inspections to get progress payments for the completed work. The contractor or the home owner can initiate this draw request. 8) This procedure will repeat itself until the project is complete. Make the inspection You have the order. Make the appointment I recommend that you print out the contracts that the buyers will need to sign when they close the loan and provide them to the borrowers at the inspection. Doing so is your “consultation”. Meet the borrower(s) at the site. I also recommend that you go over these contracts with the borrower(s). This will save you headaches later in the process. Consultant Agreement – walk through each line item. I've had people tell me that they never consulted with me so now I let them know that “this is the consulting”. Let them know that “this is the walk through”. I always bring two of these so I can get them both signed and bring one back to the office, for my permanent record. Borrower’s Acceptance of conditions – read the pertinent statements Borrower’s Acknowledgement – read the pertinent statements Home Owner/Contractor Agreement – Let them know that the contractor may have his own contract but they should have this one signed also. HUD had this contract drawn up to protect them so it makes sense for them to use it. If the contractor insists they sign a contract, o ahead but sign the contract too. Borrower’s Acceptance of Conditions These may seem simple to you but remember you are working with many first time home buyers and it may not be apparent to them. No rehab work can begin until the loan closes. Plan approval by HUD is only one step. If permits are needed then the local jurisdiction must provide them prior to the release of the final draw. Many Lenders now want a copy of the permit with 1st draw. A clear pest control report (PCR) is a requirement prior to the release of the final draw payment. All items of work NOT included in the original scope of work must be processed as change orders with additional money being put up to cover the new work. Contingency funds can only be used for items that affect the health, safety, or are of a necessity to the occupant and not apparent before the project started. Lender will make all checks jointly to the borrower and the contractor. Many times I have seen the borrower sit on a check and not give it to the contractor when it came in… let them know that when they get it they are to sign the back and provide it to the contractor. The contractor needs the money to buy more items to finish the job. All draws will be verified by inspection Home Owner/Contractor Agreement Go over each contract item When the sub contractors complete their work and come to the borrower for payment they should direct them back to the general contractor for payment. Point out that there is an arbitration clause. If there is a dispute it will be handled in arbitration. I had a lawyer start a lawsuit in small claims court… that way he had representation and we didn’t. He was allowed to present his case. We pointed out the arbitration clause and the judge kicked us out in favor of the arbitration. Point out the procedure to fire a contractor if that becomes necessary. If they do in incorrectly they may be liable for paying the contractor in addition to the new contractor for the same work. Lets look at some example projects The next group of slides will show you some of the types of projects or situations you may see and the solutions that were provided. This is a pile of concrete that was all that existed the day I went out for the site inspection. This clearly doesn’t fit the requirement of having, as a minimum, the foundation to built upon. We did, however, put this to HUD and they gave us the ‘go ahead’ to work with this Very Rough 203k 1 This was presented as the existing house foundation by a licensed concrete finishing company executive who was the buyer in this case. What the left arrow appears to be pointing at is a drain system for a milking barn. Very Rough 203k 2 Existing Foundation This pile of concrete was all that existed the day I went out for the site inspection. This clearly doesn’t fit the requirement of having, as a minimum, the foundation to built upon. We did, however, put this to HUD and they gave us the ‘go ahead’ to work on this project. HUD will not likely go forward on a project like this today – but let them decide. Very Rough 203k 2 This was the only piece of the original home’s foundation we found. This is the home that now sits on that site. Remember that HUD makes the rules and they can change a rule. Always give them the opportunity to perform… NEVER assume they won’t. The contractor/owner lives here still. The neighborhood is better off for this home being added. Reserved for Dixon finished house Here is another photo of the finished Dixon house. This is the right rear corner of the last owner tried to fill the cracks without correcting the foundation problem that was causing the problem in the first place. Slide 47 Berkley Hills Notice the right rear of the home. Can you see the twist? The top of the home at the rear is a good 6” to the left of plumb. Something is going on here. The fireplace is also note worthy. The typical stack should be higher and away from the roof. Keith photo 1 This is what I saw when we looked down the chimney. The chimney was sealed with concrete but the interior fireplace showed no signs of having been disabled. In fact there was burned papers in the firebox and it appeared functional. Keith Chimney Scene Inspection day, old pieces of foundation concrete left by the last owner had broke weeks after he had installed it… He was sure the home was haunted. Slide 39 I placed the 2X 6 in the opening left by the last shift in the foundation to show it had lifted about 2” off the mud sill. Slide 40 The foundation had cracked after less than six months because the 1st owner never addressed the problem that was carving the movement in the first place he just though concrete at the problem. Slide 41 When I crawled into the next cavity of the sub area I found this scene. I was hoping no earthquake would happen while I was under this one. Slide 42 As the home shifted the original owners solution was to add another set of piers to catch it. These are “patio” piers and were never intended to carry the weight of a house. Slide 44 This is more of the Berkley Hills home. A new furnace was added along with a bolted piece of plywood. This is again an inadequate way to keep the building from twisting. Slide 43 The house had the weight off of it, the foundation removed, and the cracked stucco has been removed. They decided to remove the fireplace as well. This home was purchased for $231,000 if I remember correctly with about $60,000 in rehab costs to be completed. Keith with the weight off the foundation Inside the home doors and windows wouldn’t function properly. Some doors wouldn’t even open. Slide 46 Hardwood floors were separating. It was obvious everywhere that we had to determine the cause in order to correct it. A local engineer was asked to look at the problem. He determined six 18” X 18’ deep piers had to be installed to get below an underground stream and well into the bedrock bellow. Slide 45 Then grade beams would be poured from one side of the home across to the other side and the home would then be set on those grade beams. A new concrete pier was then installed more for looks. Ultimately they put in 18 piers then instead of six. This is a grade beam being installed. Slide 50 Grade beams were finished and the permanent foundation is being installed. The project is nearing completion. Slide 49 The original owner tried to dig out a basement without regard to his foundation being undermined. The weight of the home is being distributed at a 45% angle from the base pf these piers and when you intrude into that space they are no longer able to support the weight of the home. Brick Foundation Piers Undermined 3rd Street Project: When I first arrived at the home the agent unlocked the doors and ran out of the area to other appointments…something didn’t feel right can you see it in this photo Slide 5 Slide 5 Real Concrete 3/8” asbestos hard board I pulled the hardboard back so you could see it more easily. This particular deal was intended to catch us off guard in hopes we would miss it and complete the project. This home didn’t qualify as their budget wasn’t sufficient to complete the required work. 3rd Street Project: Slide 4 Under the home we found earth to wood contact all around the perimeter. Slide 6 Napa Project: Plywood - tar paper - asbestos laden transit setting rag over open drain/sewer line. Kitchen sink merely drains directly to flower bed. The flowers liked it. Slide 8 10” high steps - to install proper steps one would have blocked access to the bathroom door. I contacted HUD engineering and described the problem. The solution was simple. On an existing home when it is feasible to correct a problem like this we can leave it “as is”. HUD has a wonderful engineering department only a phone call away. Use them if you aren’t sure how to handle a problem. Slide 9 This composite shingle roof appeared newer as I drove up for the inspection. Inside the home it looked like this roof leaked everywhere. When I went to look at the roof more closely I found the shingles were bad. Though newer in appearance they had a bad latch that allowed water to erode through. A call to the maker would have corrected the problem. Slide 10 New roof installed at the direction of the VA allowed rolled roofing over 2”X 2” X4’ square grid - not enough to support a full sized person. Slide 11 This would have fell in if you try to climb on it. Slide 12 New Shear wall OBS Slide 13 New addition had to meet current set back requirements Original home ends here This is merely a typical laundry room plumbing scene Slide 14 I recommend taking lots of photos during your inspections. I missed the problem in this scene until I reviewed the photos. Can you find the problem? Slide 15 The jack stud is missing from the from one side of the door. In time it will settle and the door will not open properly. No jack stud Slide 15 Jack Stud This was originally to be a simple floor repair - the cabinets were destroyed when they were removed. Slide 16 This was a fine gutted home in Oakland, CA. It was raining light the day the inspection was made. A small contractor was buying this home as a self-help project. He obviously was qualified to do the work but the consultant must make a recommendation he was the time and knowledge to get this project completed with his normal workload. Though the self help self help project doesn’t allow the contractor to get paid for his personal work he can get paid for work done by others including his employees but he must be able to prove they are being paid for work on this project. Slide 18 The contractor called for a show on the finished roof. When I took the appointment I restated to him that I could only pay for the items that were complete at the time of the draw. He understood and told me to come out. This is what I observed as he asked for $3,000 for the completed roof. He felt that if he got me out to the site he could use his charm and get some money to go buy the materials. Though I couldn’t pay for the roof I was able to provide some help by paying for the demolition & some dump fees. Slide 19 Christmas in April - a non profit company who buys homes & fixes them up. Non profit clients can really add to your bottom line while helping the community as well. This was a finished draw and if you look carefully you will see some unfinished work - once you think you have them all all go to the next slide. Slide 20 Bare board not turned flush Slide 20 Window straps not yet installed. Dishwasher missing Stove missing No TPRV or drain. Temperature pressure relief valve is removed as well as a drain line. In California the drain line must go into the home and2 seismic straps should be installed. Slide 21 Water heater just installed and ready for final inspection. Can you see any problems with this. It took me a while on site but I finally caught what my mid kept telling me “Something is wrong with this picture.” Slide 22 There was no door on the water heater/laundry closet. There were small hooks for the beautiful curtains that was about to go up. The water heater sign box is at the lower portion of the water heater. Picture the curtains in place. The rear door opens and closes causing the curtains to go up against the water heater. Safety and health are hot buttons for HUD - be sure a more rigid big folding door goes here - no curtains. Curtain hangers Slide 22 Update Tile floors, new water heater. Slide 23 Wall furnace - when the guts have been stolen or removed it may be time to replace the entire vent in favor of a more modern, more energy efficient model. Slide 24 Is this a floor furnace or a wall furnace? Both- Is it safe under the FNA minimum property standards? YES- a floor furnace can be okay if it isn’t in a walk way. This one is out of the way enough to be considered safe. Slide 25 Is this furnace safe or a hazard? Slide 26 The rule that we have meets the MPS (Minimum Property Standards). If you can walk down the hallway in a natural walk and not step on the floor furnace it is likely to be safe. Slide 26 What about the floor furnace … is it safe as is or should it be replaced? Lets apply the test. Can you walk through the doorway without stepping on the furnace? Yes, it is clear that this furnace is not in a walkway. Slide 27 What about this furnace? This furnace is a clear cut safety hazard. In a 203k or a 203b this furnace would have to be replaced for health and safety. Slide 28 Now we have a floor furnace that appears about the same size as the earlier one that was approved safe. Does this one need to be replaces? Apply the test - can you walk through the hall in a “Natural walk” Without stepping on the furnace…Not This furnace needs to be replaced. Slide 29 This furnace must be replaced. Slide 30 When, if ever can a free standing stove be used as the sole source of heat for a home? This was the sole source of heat in a remote area of CA where this wood fire stove was the only source of heat in the home. The MPS suggests we have a permanent source of heat that is thermostatically charged and can provide a 70 temperature 3’ off the floor… In this case we found that this type heating was actually typical for this mountain community and HUD said it was Okay to continue using it as the main source of heat. Slide 31 This is a wonderful mantel but is it a fireplace? If you can look closely at the interior of the fireplace you will see the old rack that held the porcelain heat elements. This is a gas fueled radiant heater and not considered safe to use for heating purposes. Slide 32 This is an actual fireplace in the same home as the previous slide. These hardwood floors were the original floors that have been refurbished. Slide 33 This is that mountain property again. Is this slope stable or should it be modified for safety? Remember the slides with the basement dugout? A 45 slope appears stable and this appears to be a 45 slope therefor it appears safe enough that we don’t need to require any corrections to the slope. What we do need to address is the drainage off this slope towards the house. Slide 34 Same as the previous slide. The owners (borrowers) didn’t want me to see this debris but we are required to cure all health and safety items on the entire property. Slide 35 This appeared to be a garage structure and you are looking at the “main” door. The framing on this garage was 2”X3” studs with 4”X4”span posts. Upon closer look it was a carport that had been closed up. There was no proper foundation. Do we have to cure the pest control report…Yes. Do we have to include this out building in the pest report - Yes, the guidelines for the pest report include all the structures on the site. Slide 36 This is the mountain property again - There pier blocks on set footings. We still need to address floor insulation. It is hard to since this house was built without floor insulation since it is above the snow line. Slide 52 This home had been empty for a while and vandals had been removing the sconces. Had they been left alone the knob and tube wiring may have been adequate but now it has been disturbed so we have to take a hard look for damage. It was still safe to use this wiring. Slide 56 This is one solution to add or range hood where no none had ever existed. This isn’t too bad if this cabinet matches the rest of the cabinets. Personally I would have liked to see more cabinets added possibly to come down to the floor. Slide 55 #1 Problem with foundation failure in USA is poor drainage. Here they have built in a device for causing their foundation to fail if it doesn’t get corrected soon. A low area has already formed. Water lays against the foundation - drains out under it and erodes the earth from under it washing out the soil that supports it. Slide 53 10 overhead cabinets to the right used to extend to the wall with less than 20” to the range top. Any type of fire at the rage top would have caught the cabinets on fire. The new cabinets don’t match the existing cabinets at all. Is this professional? No. It turns out that the owner/borrower is a cabinets maker and will be replacing all of the cabinets with matching this new cabinet. I had them sign a disclaimer as the original cabinets were not scheduled for replacement in the work write up. Slide 54 Existing open electrical wiring - must be expanded. Slide 57 Open electrical ZZOV wiring killed the rat and this is considered a safety problem and must be replaced. Slide 58 Ground wires are green and never red. Green tape could be added to remedy this problem but may not be adequate in all areas of the country. Slide 59 Red Green Slide 60 These meter bases were open just like you see them when I made my inspection. 10-15 small children were playing in the street in front of this vacant building the cover or door had been removed - this panel was “hot” Question 10 if you inspect this duplex can you just leave with this hazard open? 2) whose responsibility is it to secure it? Answer 10 I couldn’t leave the hazard then but I also didn’t believe it was my responsibility. 2) Whose responsibility was it? I made 2 calls, one to the electric company and documented who I talked with and the other to the sellers agent who had this property listed and documented the time and date he was notified. Slide 61 This electrical system clearly must be replaced under the 203k loan program. Should be upgraded to at least 100A-220V. Cartridge fuses Slide 62 Penny Fuses Fuse Panel - Penny Fuses also must be updated to a 100A-220V panel with breakers. Slide 63 Knob and tube wiring typical in early America Slide 64 Tubes are typically wired wood members Knobs keep wiring suspended and away from the wood. Knob and tube wiring, left undisturbed is quite often considered adequate only when it is disturbed or is likely to be disturbed creates a situation in which it should or must be replaced. Can we insulate their attic without disturbing the knob and tube wiring? Nearly impossible in the flat but it is possible to leave the after wiring undisturbed - your call. Slide 65 This knob and tube wiring will clearly be disturbed if you attempt to insulate the attic - the wiring should be updated to meet current wiring standards. Slide 66 This electrical panel should be updated to al least a 100A to 220V system with breakers. These hold cartridge fuses each. Slide 67 Penny Fuses More Cartridge fuses. This is a 4-plex with a house meter. Each unit was sewed by 2-15 amp fuses. The tenants had drawers full of penny fuses as they were blowing out daily - not a safe situation. Each unit should have at least 60A with breakers but more likely each unit should have 100A/unit. The way the program is written this needs the amp requirement but falls short of being safe. Slide 68 Another cartridge type disconnect - must be charged/upgraded to 100A/220V with a breaker type panel. Slide 69 This system must be upgraded and moved to a more appropriate location the local jurisdiction. Incoming from pole Wired out to outlets and switches in home Pull the breaker Fuse protector Slide 70 This is what existed at the time of the inspection. By the time the loan closed this box had wires snipped off and the box and breakers were gone. The home had to be re wired if the seller had insurance it is the insurance that should receive the claim. If no insurance and you can’t negotiate a credit back it becomes a continuing item. Slide 71