Hoosier Lender Indiana Mortgage Blog

This Map Is a great one stop shop if you are looking for Indiana County health codes on well and septic systems.
Our office is trying to compile all of the health codes on well and septic systems in the state for reference and to identify what could be problem areas for us so we can take appropriate steps before hand and have needed documentation at the ready for appraisers and underwriters.

Why might I be so interested in poop tanks and county codes these days?

Well we have a lot of clients in Indiana that live in rural communities who are buying or refinancing. And…..

there is a little thing called MORTGAGEE LETTER 2002-25
Which I believe is going to be a big thing in the very near future for rural lenders, appraisers, realtors and communities that do not understand it or conform to it.

Although all lenders may not require well and septic inspections; USDA and FHA loans should subscribe to the HUD handbook rules on well and septic systems and we are likely to see conventional lenders via the GSEs adapt these same guidelines just as they have other basic health and safety measures HUD has passed.
Many mortgage companies do not ask for septic inspections (we really only do if the house is vacant) Some do not really care to see the distances between well points and septic systems on appraisals which is something we do ask for if it is not stated. Perhaps the reason others don’t is because they do not want the truth to be known or just basic ignorance. Most appraisers either claim a lack of expertise in the area or cater to lenders and make the extraordinary assumption that a well and septic meets the HUD handbook when in fact they have no idea. Appraisers are right; something like that is a bit beyond the scope of their training and licensure. But when they do claim some knowledge beyond standard verbiage they should expect more questions to come up from underwriting.
Septic fields, after all, are underground
covered in grass and the exact location of a well point is usually only determined when it is dug up or if there are accurate records at the county, which most frequently there are not.
But all of that may not exempt them from liability if it is discovered that the property in fact did not meet the handbook and its mortgagee letters. USPAP requires appraisers to seek professional expert opinions, disclose the lack of expertise or not take on projects that are beyond their range of knowledge and experience. If they do and it becomes an issue they could find themselves suspended by HUD or on GSE or lender exclusionary lists or be in trouble with the Appraisal Standards Board depending on how they handle themselves with this issue if ever their statements are called in to question.
Those lenders that are not doing the due diligence by asking the question about distances are risking loan buy backs and their appraisers licenses if they are asking them to simply state something meets the guideline when in fact it may not.
I have told most of our appraisers that they may be in trouble catering to little mortgage companies who sell all of their loans to Chase Bank or others if they are ignoring this issue. Big banks like Chase or Wells Fargo could give two craps about little correspondent lenders and even less about the appraiser who is selected by their appraisal management company. The fact that we really want to know if something is compliant and are willing to pass on it if it is not does not add liability to the appraiser; in fact it is the exact opposite! We don’t want them to say something they can not back up 100%
We may end up keeping that loan for the next 30 years and we actually do care about our appraisers because we need local partners and we plan on staying in business so we want them in business too.

As HUD falls under more political pressure due to public scrutiny and experiences financial shortages it will be looking for ways to reclaim funds. And as it has in the past it will go after lenders who have violated or defrauded the system.
And to save face and try to get money, lenders will go after appraisers or realtors who failed to disclose information or disclosed as fact that which is subject to debate and that can be verified as false.

Our company has elected specifically to ask the question about the distances between well and septic systems. We also follow HUDs requirement for well and septic inspections on FHA loans when the property is vacant.
They basically just want to see the water test and know that the septic works but there is no standard form and they only want to be sure it meets local health standards. Most home inspectors know what is needed when you order a system to be tested and will write a simple report that says everything is in working order to include along with lab results. If a local inspectors says a system should be pumped every three years we want to know that it has been even though a working system should not really need to have a tank pumped at all. In one case we even paid to pump a tank where that exact comment was added to a local health inspectors report.
So it is important to find an inspector who is going to keep it simple and just address the essentials.
All USDA RD homes on wells require water tests vacant or not but FHA only requires it if the property is vacant.

Why this level of detail?
Well yes; we like being in business, we like our underwriters keeping their designations and we don’t want to have HUD not insure loans because we accepted anything less than due diligence. We also don’t want them coming after us 10 years from now for every loan that was securitized or sold off that did not meet the requirement.
But more than that we want to have long term business relationships with our appraisers and realtors and protect them from HUDs wrath as well as protect our borrowers who could be buying homes they may not be able to easily sell; or worse yet, that could be be a risk to their family’s health or future financial well being.

So what do we do?
Well if we can get professional opinions that reassure us that the distance requirements are in compliance then there is nothing we have to do and everyone is protected.
Most well and septic professionals do not have to worry about HUD pulling their licenses. They also usually carry Errors and Omission insurance and or liability insurance if they do make a mistake.
This offsets liability for everyone in the transaction and the reality is that it would be very difficult to win a claim against someone for giving an expert opinion that later was found to be in error so licensed professionals often seek expert opinion and for a price they can usually get one.

But what if the expert opinion or septic inspection reviled that the domestic well is not within the local governing code or that it is not located a minimum of 100 feet from the septic tank’s drain field or a minimum of 10 feet from any property line?
Well HUD grants some exceptions if the local code is at least 75ft so if the appraiser or other local inspector states the property meets the local code and the code is provided it can be deferred to the governing authority.
But what if the governing authority has a distance under 75 feet in their code?
Is it not conceivable that entire counties may be blacklisted? In spite of laws against red lining if lenders know most of the properties in a given county are non compliant they may not be able to legitimately offer HUD insured programs in those areas unless something is done.
So HUD offers Well and Septic waivers.
There may be cases where nothing can be done and they do not want to be accused of redlining so they want to make every effort to help if it is justifiable. I have not been through the waiver process before but if I do I’ll keep my readers posted. (A summary of how to request a waiver is listed below)

You also could pay to have the well point moved. That is far less expensive than moving a septic system and may be less of a pain in the but than getting a waiver.
When I was a kid we had well water and had to replace a few well points. It is no fun but not outside of the realm of possibility.
I now strongly recommend that my clients get a septic inspection. I would rather not get the deal than put them in a bad situation that could jeopardize their ability to pay back the loan.
If the septic is inoperable buyers can request fixes as conditions of sale. We also offer the FHA 203k loan that could be used for a wide range of home improvements including replacing a septic system, hooking into city water or re-tapping a well.

I recently had a client who’s real estate
agent discouraged him from getting an FHA loan because she had knowledge of a septic discrepancy and questions about it’s functionality. (As if a conventional loan underwriter would be ok with it not working if it was known lol)
When he approached me about changing the pre-approval letter and told me why I simply asked him what he was going to do if the septic failed after he moved in. I also asked him if getting the house with out a septic inspection was worth risking his families safety. He thought about what I said and later wrote in to his offer a request to have a new septic installed as a condition of sale. He understood that this was going to be an added expense to the seller so he increased his offer by enough to cover the new septic system.

What happened was fantastic.
1. The real estate agent was able to get a higher commission and was relieved that she was not putting someone in to a bad situation. She also was able to make a referral to a family member who installs septic systems. $$ so any animosity toward me for directly addressing the issue was quickly resolved I think.
2. The seller was also relieved because he had concerns himself about the system and was worried about liability and a buyers ability to obtain financing.
3. For about $25 more a month (due to the increased loan amount) the buyer knows that he will have a septic system that will last him a life time that will be safe and he will not have to worry about future costs or his toilet not going down.
4. I get a bigger loan to do and am viewed as a trusted advisor by my client who will refer his friends and family to me in the future. I also don’t have to worry about a train wreck of a loan that could fall apart if the septic became an issue. I may gain another real estate agent referral partner when all is said and done because of my sound judgment. Win Win Win Win…

It is always better to just get this kind of stuff out in the open from the get go.
That gives us plenty of time to figure out the correct solution. It is what I learned in the Marine Corps. 7 Ps of success. Proper Prior Planning Prevents Piss Poor Performance.

For most questions on HUD valuation including questions about well and septic test they have published a nice frequently asked questions document.

James C Werner
Branch Manger
Platinum Home Mortgage Corp
NMLS #137331
jwerner@ephmc.com
http://www.indianapltinum.com

References :
​MORTGAGEE LETTER 2002-25

For existing properties, FHA requires that a Should state or local regulations require greater distances, those distances must be met.

If, however, the locality permits distance requirements less than those prescribed by FHA, the property may be considered eligible for a mortgage insured by FHA provided that the lender submits evidence in the case binder that the subject property is in compliance with the applicable local or state distance requirements and meets the conditions stated below. Therefore, waivers from the Homeownership Centers (HOCs) will no longer be necessary for properties meeting these distance requirements:

· Domestic Well from Septic Tank Drain Field: FHA will recognize state/local distance requirements provided they do not allow for less than 75 feet of separation.

· Domestic Well from Property Line: FHA will recognize state/local distance requirements provided that the well is not within 10 feet of any roadway or the property line of other than a single-family residential property, i.e., the well cannot be within 10 feet of a commercial, industrial, or multifamily building.

Evidence of compliance includes, but is not limited to, an appraisal clearly showing the location of private wells and septic systems on the site sketch and the distance between the two. If unable to determine the distance between the well and the drainfield, or if the well is within 10 feet of any property line, a condition requirement should be made on the Valuation Conditions (VC) form. The underwriter can clear the condition by obtaining satisfactory evidence from a qualified party that the distance requirements (between the two systems, and from the well to the property line) have been met.

CHECKLIST FOR WELL/SEPTIC WAIVERS
FHA CASE NUMBER: __________________

___1. Documentation from the local authority that the subject property is unable to connect to a public or community water/sewer system. If connection is available and the costs to the public or community systems are reasonable (3% or less of the property value), connection must be made.

___2. Professional sketch (Surveyor) showing the location of the well, septic tank, and drainfield with relation to the subject property and property line. The sketch must specify the actual distances separating the well and septic system components: well to property line, well to septic, and well to drainfield. HUD distance requirements: Well to Property Line 10 Ft, Well to Septic Tank ? 50 Ft, and Well to drainfield 100 Ft.

___3. Well test in accordance with Mortgagee Letter 95-34. This includes testing for Led, Nitrate (as Nitrogen), Nitrite (as Nitrogen), Total Nitrate/Nitrite, Total Coli forms, and Fecal Coli forms or E. coli. When coli form is present, how was the Coli form corrected?

___4. Evidence of the Local Authority’s approval that the well and separation distances between the well, property line, septic tank, and drainfield are in compliance with the local codes for the subject property. If the subject property does not meet the Local Authority’s requirements, a waiver granted by the Local Authority must also be submitted. When applicable, evidence that a well in the foundation, is acceptable and common to the area.

___5. Evidence that the system is working properly. And there is sufficient space for repair/maintenance.

___6. Holds Harmless agreement, a signed letter from the borrower acknowledging that the property does not meet current FHA/HUD regulations, and a waiver must be granted to obtain FHA insurance.

___7. Cover letter requesting waiver, FHA Case number, borrower’s name, property address, reason for request; underwriter’s name, address, phone number, fax number, and email address.

Please be aware, the reviewer of your file may require additional documents to make a final determination.

Please tab the documents in the above order, to assist with the processing. The mailing address is:

U.S. Dept of HUD
P&U Div – Technical Br
The Wanamaker Building
100 Penn Square East
Philadelphia, PA 19107-3389

You may contact HUD the same day your package is to arrive on at 215-861-7511, to be assured it arrived to the office. It generally takes 1-2 days to be assigned to an underwriter. Once assigned, the underwriter has 2 weeks to process your request.

If you have additional questions you can submit them via email to info@fhaoutreach.com or contact us at 1-800-225-5342.

FAQ : Are properties having a well acceptable for FHA financing?

Solution Details: Individual water supply systems (wells) may be acceptable when connection to a public or community water system is not available and there is assurance of a continuing adequate supply of safe potable water for domestic needs. A water test or inspection is required if it is mandated by the State or local jurisdiction;