You may recently have heard that HUD has a new policy regarding the inclusion of repairs in Section 232/223(f) insured loans.
This is a new, but actually, it’s a restoration, of an old policy. Wut? In the words of Ricky Ricardo, let us ‘splain.
HUD always allowed the inclusion of “non-critical” and “critical” repairs in Section 232/223(f) acquisition/refinancing loans since the program’s start in 1992.
Critical repairs are generally limited to items that are necessary to protect the life and safety of residents. They typically must be completed before loan closing.
Non-critical repairs include a wide array of owner-elected, optional repairs, renovations and improvements, or replacement/upgrading of equipment and furnishings. HUD allows the cost of this work to be included in the loan sizing. Non-critical repairs usually must be completed no later than 12 months after closing.
The ability to include non-critical repairs in an acquisition or refinancing loan is one of the major selling features of the Section 232/223(f) program, especially since the repairs do not require the payment of prevailing wages.
Then last year, out of left field, HUD’s Office of General Counsel issued an internal memorandum that the 1992 statute authorizing the loan program only allowed for critical repairs to be included in the loan!
Repairs considered non-critical now could not be included in the loan sizing.
That change, effective last November, eliminated one of the major benefits of the Section 232/223(f) program.
It also created the need for cumbersome and complicated workarounds that could have added to the review time for applications and loan closings.
However, at the end of April, HUD decided to restore the longstanding, earlier policy that had been in effect from 1992 until last year.
Once again, we can now include critical and non-critical repairs in Section 232/223(f) loans.
Order has been restored in that corner of HUD world!
