12.17.2 Inspection

A. Unless HUD waives or delegates the non-critical repair escrow administration to Federal Housing Administration (FHA)-approved Multifamily Lenders and Servicers, inspections of completed repairs are performed by the HUD Inspector based upon the level of repairs and alterations set forth in this section.

B. The following are the requirements for inspection:

1. Projects insured under Section 223(a)(7) are limited to repairs which are routine maintenance. Accordingly, 223(a)(7) transactions and projects insured under 223(f) where work is limited to Repairs and Level 1 Alterations (as defined in Chapter 5 of the MAP Guide) will not require inspections and the owners may self-certify for the Lender’s and HUD’s review.

2. Those projects with Level 2 Alterations will require periodic inspections unless explicitly waived by the HUD CA based on the limited type and complexity of improvements. The waiver of HUD inspection must be clearly stated in the Firm Commitment.

3. Those projects with a level of work requiring a Project Architect (costs exceeding $15,000 per dwelling and/or Level 2 and 3 Alterations) will require inspections at repair completion stages of

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35%, 65% and 100%. The requests for release of funds from the Repair Escrow at these stages must be signed by the Project Architect and HUD Inspector prior to being reviewed and approved by the owner, Lender and HUD. (See Section 12.17.1.2.C.2, above.)

4. The owner may request inspections based on a schedule for projects where milestones based on completion of specific repairs and alterations or on time intervals is more appropriate than the percentage of completion (e.g., 4 months, 8 months and 12 months rather than 35%, 65% and 100%) for HUD CA’s approval.

5. The agreed number and occasions for inspection should be reflected in the Escrow Agreement (form HUD-92476.1-M, as part of Exhibit “A” to the form) in alignment with the estimated amounts to be released at the established intervals.

6. For projects with no new tax credits, determine the monetary value of repairs and alterations satisfactorily completed based on full or partial completion of each work item appearing on the CNA e-Tool lists of repairs and alterations. Partial completion may be recognized only when the extent of completion is explicitly determinable by measurement or count, e.g. 3 of 8 similar buildings are reroofed, therefore a quantity of 3 times the price per each may be reimbursed from the Repair Escrow.

7. For new LIHTC projects, the inspection must determine the percentage of completion of construction based on the Project Architect’s plans and specifications and the General Contractor’s approved form HUD-2328.

C. Inspections may be attended by the owner, Architect, General Contractor, consultants, and any other parties deemed necessary by HUD. HUD may also determine that construction progress meetings as described in Section 12.3.5 be held in conjunction with the inspections. The inspection showing that all repairs covered by the repair escrow are completed shall be considered the 100% final inspection. Inspection Reports are filed on form HUD-95379, HUD Representative’s Trip Report (Trip Report), for each monitoring visit. The following are included in the Trip Report:

1. Non-compliance with provisions of the commitment or closing, e.g. work write-up, drawings, specifications, etc., including changes made to the work without prior approval;

2. Adverse conditions e.g. slow work completion, destruction of work, new municipal requirements, disputes, etc.;

3. Borrower’s performance of any applicable relocation plan;

4. Availability for use of facilities listed on the schedule of delayed or interrupted occupancy, when applicable;

5. Municipal authorizations. Permissions to occupy or use permits, etc. Where applicable, these must be issued before closing, unless related to work deferred until after closing;

6. Items to be completed within twelve months from initial/final endorsement. The HUD inspector must include the following in the Trip Reports:

   • A detailed list of the status of all required repair work with photos;

• Escrow amount requested on the form HUD-92464M; and

• For the final 100% Trip Report, the date of the completion of all the repairs.

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D. The HUD CA should assemble the following documents, which are required for HUD Construction Inspection and Monitoring, to monitor repairs and recommend payments during construction:

1. Firm Commitment;

2. Escrow agreement;

3. Survey, surveyor’s report and legal description;

4. List of required repairs (work write-up with clear and accurate scope cost and schedule of the work items);

5. Drawings and specifications (where required);

6. Schedule of Values;

7. Progress schedule;

8. Construction schedule (where required);

9. Schedule of delayed or interrupted occupancy or income (required only for projects with repairs delayed after closing);

10. Tenant relocation plan (where required);

11. Construction contracts and Owner-Architect Agreement (where required); and

12. Agreement and Certification.