12.3.6 Reporting Serious Construction Problems

A. HUD Office. HUD Offices must identify and report, by electronic mail, to the Regional Center Director and Multifamily Asset and Counterparty Oversight Division (COB) all insured multifamily projects under construction or in the guarantee period that have serious construction defects or other serious construction-related problems. This information will be used to reply to inquiries, as an "early warning system" on troubled projects, and to determine if assistance by the HUD Office is necessary. The Production Division Director or designee will work with the Lender, owner, contractor and other related parties to resolve the noncompliance.

B. HUD Inspector. HUD Inspector must identify all construction problems that may delay completion or lead to foreclosure or assignment of the mortgage to HUD by using form HUD-95379, HUD Representative’s Trip Report.

C. HUD Construction Analyst (CA). The CA must prepare a referral memorandum to the Regional Center Director when defects or construction-related problems occur, such as:

1. Work stops for 20 calendar days;

2. There are slow payments or non-payments to the general contractor and/or subcontractors;

3. Contractor abandons the job;

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4. Contractor, owner or Architect changes during construction;

5. Correction of any construction deficiency is not started within 30 days of the first notification to the contractor; or,

6. Contractor cannot or will not correct any construction defect or latent defect.

D. Referral Memorandum. The referral memorandum must include full details of the constructionrelated problem, including:

1. A copy of form HUD-95379, which identifies the problem.

2. The inspector's opinion of the cause and recommendation for correction.

3. A report of action by the CA and/or other HUD Office staff.

4. A report of actions by the owner, Architect, contractor, mortgagee, and bonding company (when appropriate).

5. A plan of action to be undertaken by the HUD Office if the mortgage is assigned to HUD during construction or foreclosure is initiated by the Lender.

D. Only the initial report is required unless the Regional Center Director requests further action or followup by the HUD Office.

E. MAP Lender. It is the Lender’s responsibility to work with the Borrower, General Contractor, and Architect to get projects back on schedule and in compliance with the contract documents. The Lender should take the lead in initiating appropriate measures and coordinate efforts by the development team. The Borrower, Lender, and General Contractor must develop an action plan and submit to HUD to get projects back in compliance when construction is 60 or more days behind schedule and/or the project is at risk of not reaching completion. The MAP Lender shall prepare a written plan when the project is at risk before the project goes into default. This plan should include:

1. A description of the circumstances that led to the project being at risk of default;

2. A listing of the issues needing resolution;

3. An identification of which party has which role in the resolution;

4. Action items needed and the responsible party/parties;

5. A list of resources required and identification of those available for resolution;

6. A timeline of projected deliverables and milestones toward resolution;

F. For complete instructions on handling problems before final closing, see Appendix 12, Section A.12.5 .