The most recent update provides additional guidance regarding the closings of FHA-insured transactions, loan application processing and projects already under construction:

Status of Closings

Potential Closing Delays. HUD may temporarily pause initial endorsement of new construction and substantial rehab loans that involve tenant-in-place rehab work or tenant relocation, or in areas that have shelter-in-place orders. For projects that have time-sensitive restrictions or contractual obligations that will expire if closing is delayed, HUD may proceed with closing but will require evidence that mitigants are in place to offset construction delays.

Electronic/Mail Closings. HUD closing attorneys will rely on electronic transmission of closing documents in lieu of hard copies in performing their closing review. Closings will be conducted either by mail or through the use of electronic transmission of documents, however, there are various logistical challenges which the parties should build in extra time to address, such as notarization. While some jurisdictions have authorized remote notarization, many have not, and even in those jurisdictions where remote notarization is permissible there are frequently issues involving title companies and recording offices.

Loan Application Processing

No Processing Delays. HUD staff are equipped to perform underwriting functions and all other duties remotely and HUD does not anticipate issues or delays in processing loans.

Electronic Submissions. HUD will permit applications and related documents to be submitted electronically. Plans and specifications should be sent directly to the processing construction analyst identified at the concept meeting to be reviewed remotely.

Relaxed Requirements for Third-Party Inspections.

  • If a third-party capital needs inspector cannot physically inspect the required units due to COVID-19 concerns, HUD may waive the sampling requirements in favor of inspecting only vacant and model units for recently built insured properties (within 10 years) or non-insured properties built within five years. In other cases, to the extent that the contracted appraiser cannot physically inspect the site, the appraiser should contract with a local appraiser.
  • In situations where interior access to a project is limited and the asbestos, lead-based paint and/or radon testing cannot be completed prior to application submittal, HUD will allow the submission of applications without these reports, although they will be required before issuing a Firm Commitment.
  • For Phase I ESAs where the preparer is unable to access the interior of the building due to COVID-19 concerns, HUD will accept the ESA without a visit to the site for projects already in HUD’s portfolio or new to HUD’s portfolio with up to Level 3 repairs. For all new construction and substantial rehabilitation projects and certain 223(f) projects that do not meet the low risk criteria the ESA preparer must conduct an in-person site visit; however, HUD will accept a draft ESA report that includes all information except the physical site visit for purposes of submitting the pre-application or application.

Construction Issues

No Relief from Contractual Obligations. HUD confirmed that there is no impact on the enforceability of contracts among parties to an insured loan except insofar as any provisions in the contracts provide for (e.g., force majeure).

Construction Impediments. All construction parties should stay engaged and provide regular updates to the lender and HUD to the extent possible. If a job site is shut down, the general contractor (or in the absence of the general contractor, the owner) must ensure that the site is properly secured and that all completed work and stored materials are protected. If limited work continues, workplace safety procedures and CDC advisories for “social distancing” should be observed.

P&P Bonds and Builder’s Risk Coverage. The parties should proactively ensure that surety bonds and Builder’s Risk insurance policies will remain in place and will not be impaired by any job slow-down or work stoppage.

Required Monthly Progress Updates. General contractors, owners and supervising architects should report construction work status on a monthly basis in connection with their monthly requests for reimbursement of costs and associated inspection trip report. Monthly reports and requests for reimbursements should continue for soft costs even if little or no work has been completed.

Relief for Repair Escrows for Section 223(f) and Section 223(a)(7) Projects. HUD will consider amending the Escrow Agreement for Non-Critical Repairs, which typically has a 12-month completion deadline for non-critical repairs, in those cases where owners and lenders have documented COVID-19 related delays.

Virtual Inspections.  Reimbursement requests for completed work will be approved even if the supervising architect and/or the HUD Inspector are unable to conduct an onsite inspection based on the supervising architect’s verification of the work completed based on a recorded virtual inspection and virtual site meeting. 

This article was reproduced by permission by Nixon Peabody. Original blogpost by Nixon Peabody published on April 6th, 2020. Original can be found via this URL. 

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