5.9.2 Pre-Application

A. The Lender’s exhibits for pre-application are the same as those for new construction with these additional items or considerations:

1. Due diligence and draft scope of work summary. The Lender should submit a draft Scope of Work Summary prepared by the Project Architect in developing detailed plans, specifications and cost estimates based on conclusions from the Concept Meeting, the Project Architect’s own detailed inspection and due diligence of the property.

   • The draft Scope of Work Summary should describe the overall anticipated scope of work and identify other due diligence professionals engaged and describe their qualifications.

• The composition of the due diligence team should be based on the condition of the property and address foreseeable issues based on the Borrower’s objectives and the proposed improvements (scope of work).

• The results of any more advanced due diligence agreed upon at the Concept Meeting (e.g., a joint inspection by the design team) should inform the pre-application.

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• The summary descriptions of the proposed improvements should include sketch plans. The final Scope of Work Summary should be submitted at the Firm Commitment Application per Section 5.9.3.A.3 below.

2. Joint inspection and report. The purpose and the requirements of the joint inspection are as follows:

   • To establish a common understanding of the existing physical condition of the property and the necessary improvements to be addressed in the scope of work. All involved parties should agree on the methods and procedures necessary to adequately evaluate the physical needs, such as intrusive testing and various professionals to be employed for further assessments and developing the scope of work.

• The Lender is responsible for arranging the joint inspection and reporting the findings.

  • 1. At a minimum, the Borrower, the Lender’s Underwriter or a representative, the lender’s Construction Analyst and the Project Architect must attend.
  • 2. HUD staff may attend depending on the availability and the complexity anticipated.
  • 3. The local Building Code Official should be encouraged to attend, particularly for the older properties that were built in compliance with outdated building code. The official should be asked to provide guidance on any improvements required to meet the current code and safety standards particular to the jurisdiction.
• 4. The Lender is responsible for documenting the inspection with notes, annotated photographs and summary of conclusions in writing and distributed to all involved parties.

• The joint inspection should be scheduled as early as feasible and may follow the concept meeting. If not scheduled prior to the pre-application, it must be scheduled promptly following the preapplication and before the execution of further due diligence or design work.

  • Except for LIHTC projects, a decision on any request for streamlined processing should be made only after the joint inspection, or subject to the completion of the joint inspection.

3. Requests for streamlined processing. Given the more contingent and variable circumstances typical of work with existing buildings (by contrast with new construction), any Borrower or lender request for streamlined processing for substantial rehabilitation (other than LIHTC projects) must include documentation demonstrating prior experience and capacity in properties of similar scale, condition, and building technologies employed. This demonstration should be made for each participant: Sponsor, Project Architect and design consultants, Needs Assessor and any due diligence consultants, General Contractor, and the Lender’s Construction Analyst.

4. Sketch plans of existing building(s). The Project Architect should provide “as-is” sketch plans of existing buildings with the pre-application.

5. Year built. The Lender should determine the year built for each building and whether each building was built for residential first occupancy after March 13, 1991, using dates of occupancy permits and building permits when any doubt exists. (If a CNA is prepared as part of due diligence, the CNA e-Tool will require the Needs Assessor to obtain and supply this information.) If first occupied after March 13, 1991, each such building must conform to the design and construction requirements of the Fair Housing Act (42 USC 3604(f)(3)(C), and 24 CFR 100.205). See Appendix 5, Section A.5.2.

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6. Federal Assistance. The Lender must determine whether the property is proposed to be or ever has been Federally assisted. The CNA e-Tool requires this information. If so, the property must conform to the Uniform Federal Accessibility Standards and the requirements of 24 CFR 8.23, 8.26, 8.31, and 8.32. See Appendix 5, Section A.5.2.

7. Lead Based Paint. The Lender should provide lead-based paint (LBP) test reports for projects constructed prior to January 1, 1978, and asbestos report. Delivery of these due diligence items may be deferred until Firm Application if consistent with and scheduled as part of an agreed work plan for due diligence.

8. Environmental Review. See Chapter 9 for environmental review requirements.