The Inspection Process
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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
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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.
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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.
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(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).
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(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
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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.
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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.
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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
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Slide 13
New addition had to meet
current set back
requirements
Original home ends here
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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.
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No jack stud
Slide 15
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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
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Slide 20
Window straps not yet installed.
Dishwasher missing
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Stove missing
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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