CHAPTER 5: PROPERTY REQUIREMENTS

HB-1-3550

5.1

INTRODUCTION

Ensuring that the quality and the value of the property meet certain minimum thresholds is

as important as ensuring that the applicant is willing and able to repay a loan. The Agency

imposes quality and value requirements to protect the borrower’s interest and, in the event of

liquidation, the Agency’s interest.

Overview of Property Requirements

Ensuring Quality

Four sections of this chapter deal with quality assurance. Section 1 describes the

requirements for approving a site -- its location, its size and amenities, and the adequacy of

available utility systems. Section 2 describes requirements for the dwelling itself, which

must be modest, but also decent, safe, and sanitary. The standards that apply differ somewhat

depending upon whether the dwelling will be newly constructed or is an existing home.

Section 3 describes the Agency’s requirements for the protection of environmental resources

and the due diligence required with regard to hazardous substances. Section 6 provides

guidance for monitoring construction activities to ensure that any construction or repair work

is appropriately conducted and completed.

Ensuring Adequate Value

Before the Agency makes a loan, the Loan Originator must ensure that the applicant

will have an appropriate form of ownership and that the Agency’s interest in the property is

adequately secured by the value of the real estate and the Agency’s lien position.

Section 4 specifies Agency security requirements and Section 5 provides guidance on

conducting appraisals of the property’s value.

Key Processing Steps Related to Property Requirements

When applicants locate properties, they must provide the Loan Originator with the basic

information needed to initiate the Agency’s review of the property. Applicants who do not

currently own the property must submit an option or sales contract. Applicants who already own

the property must submit evidence of ownership, a legal description, and a property survey showing

all structures on the site. Within 3 business days of the applicant identifying the property, the Loan

Originator must send the applicant the items listed in Paragraph 3.8 A.

The Loan Originator will use the USDA Address Verification website

(https://eligibility.sc.egov.usda.gov/eligibility/addressVerification) to verify the property address. If

the resulting code is 1 or 2, the Loan Originator should enter the address as indicated into UniFi. If

5-1

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

HB-1-3550

Paragraph 5.1 Introduction

the resulting code is not 1 or 2, the Loan Originator must verify the address with the appropriate

local entities (such as the local post office or the local tax/property recording office), document

how a reliable address for the property was established in the running record, enter that address

into UniFi, re-verify the address using the address website prior to closing and update the address

in UniFi if appropriate.

Appraisal

In general, appraisals are ordered under the nationwide contract with Appraisal

Management Companies (AMCs). Field Staff request an appraisal through the Procurement

Management Office’s (PMO) Procurement Requests SharePoint site using the current SFH

Appraisal Request form (which can be found in the Direct Training Hub in SharePoint along

with other appraisal training materials) and uploads all applicable supporting documents.

The AMC Administration Team (consisting of PMO and National Office staff) then orders

the appraisal through the applicable AMC portal.

Under the nationwide contract, the AMCs are generally required to follow Attachment

5- A (though contract terms may differ). The AMC Administration Team monitors the

AMCs’ contract performance, reconciles invoices, handles payments, and handles all

communications with the AMCs. Field Staff are not to communicate with the AMCs or

their subcontracted appraisers; Field Staff must direct their general appraisal

communications to [email protected] or to the Regional Appraisal Services

SharePoint site for requesting a technical review. If the communication is time sensitive (e.g.

request for a correction or revision), use “Urgent” in the subject line.

Review of Property and Site for Compliance with Agency Standards

Before loan approval, the Loan Originator must confirm that the property meets, or will

meet with any planned constructions or repairs, all applicable Agency requirements. This is

accomplished through a review of opinions or determinations made by qualified third parties

(such as appraisers, local building officials, architectural and engineering professionals, and

trades professionals).

Identification and Correction of Deficiencies

If at any point during the review process, deficiencies are identified that jeopardize the

Agency’s ability to approve a loan, the Loan Originator must notify the applicant and give

the applicant at least 15 days to resolve the deficiency. For example, if an inspection

reveals a structural deficiency that can be corrected, the applicant could negotiate with the

seller to reduce the sales price so that funds to correct the deficiency could be included in

the loan, or to correct the deficiency before the property is transferred.

If a deficiency cannot be satisfactorily corrected, the Loan Originator notifies the

applicant and provides a new Form RD 1944-59, Certificate of Eligibility, which is

signed by the Loan Approval Official.

5-2

HB-1-3550

Paragraph 5.1 Introduction

5-3

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

Documenting the Acceptability of Seller Completed Repairs

As part of the contract negotiations, a seller often agrees to complete repairs

identified by the buyer at the time of signing the sales contract or later identified by the

buyer’s inspectors (refer to Paragraph 5.7 A.) and agreed to through an addendum to the

contract. The Field Office should ensure that the repair conditions in the contract or

addendum provide the specifics necessary for the seller to properly address the repair.

Ideally, the contract or addendum will detail the existing problem, how the repair will be

completed, who will perform the work (a licensed contractor should perform work that

demands technical expertise), and how the repairs will be verified. If the repair

conditions are vague or ambiguous, the Field Office should encourage the buyer to seek

an addendum that better defines the repair conditions.

Before loan closing can occur, receipts for the repair work and any associated

permit/contract documents must be obtained from the seller and reviewed by the Field

Office. Documentation on all agreed to repairs must be provided. In addition, the buyer

must be instructed to inspect the completed work and provide the Field Office with a

written statement of acceptance or a written statement outlining deficiencies in the seller

completed repairs. If deficiencies are noted, the buyer and seller must work to address the

deficiencies before loan closing can occur.

Special care should be given if completion of repair work cannot take place until after

the loan closing to ensure there are adequate funds. Closing agents should be instructed

to release the funds to the contractor only after receiving written instructions from the

Loan Approval Official. The Loan Approval Official may authorize the release of funds

once the work, as indicated in the contract, is completed. The case file should be

documented with invoices and the borrower’s acceptance that the work has been

completed to their satisfaction.

HB-1-3550

SECTION 1: SITE REQUIREMENTS [7 CFR 3550.56]

5.2

OVERVIEW

Once the applicant has found a property, the Agency needs to ensure that it fits program

guidelines regarding sites. The site must be developed according to the development standards

imposed by State or local government. These standards are often contained in zoning ordinances,

building codes, subdivision regulations, and/or construction standards. In addition, the site must be

located in a rural area; be modest; meet minimum standards regarding water and wastewater

systems; and meet the Agency’s street and access requirements of being on an all-weather road that

is maintained by a public body or homeowner’s association. This section addresses these site

requirements.

5.3

RURAL AREADESIGNATION

Rural Area Definition

Rural areas are defined as:

• Open country or any town, village, city, or place, including the immediate adjacent

densely settled area, which is not part of or associated with an urban area and

which:

Has a population not in excess of 2,500 inhabitants; or

Has a population in excess of 2,500 but not in excess of 10,000 if it is rural in

character; or

Has a population in excess of 10,000 but not in excess of 20,000, and-

 Is not contained within a Metropolitan Statistical Area (MSA); and

 Has a serious lack of mortgage credit for lower and moderate-income families as

determined by the Secretary of Agriculture and the Secretary of Housing and

Urban Development.

• Any area classified as ‘‘rural’’ or a ‘‘rural area’’ prior to October 1, 1990, and

determined not to be ‘‘rural’’ or a ‘‘rural area’’ as a result of data received from or after

the 1990, 2000, 2010, or 2020 decennial census, and any area deemed to be a ‘‘rural

area’’ at any time during the period beginning January 1, 2000, and ending December

31, 2020, shall continue to be so classified until the receipt of data from the decennial

census in the year 2030, if such area has a population in excess of 10,000 but not in

excess of 35,000, is rural in character, and has a serious lack of mortgage credit for

lower and moderate- income families.

5-4

HB-1-3550

Paragraph 5.3 Rural Area Designation

5-5

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

Assessing “Open Country”

A site that is in “open country not part of or associated with an urban area” is one that is

separated by open space from any adjacent densely populated urban area. Open space

includes undeveloped land, agricultural land, or sparsely settled areas. Open space does not

include physical barriers (such as rivers or canals), public parks, commercial and industrial

developments, small areas reserved for recreational purposes, and open space set aside for

future development.

In order to determine if a property is in open country, the Loan Originator should review

recent maps, aerial photographs, and/or conduct a site visit. In particular, the Loan Originator

should look for significant new development in parts of rural areas that adjoin non-rural

areas, and investigate the likelihood that local authorities may re- designate the area’s

corporate limits.

Assessing “Population”

In order to find the population figures for a locality, the Loan Originator should use

the decennial U.S. Census of Population, or population updates published by the U.S.

Bureau of the Census. In calculating population figures for a locality, any incarcerated

prison population must be excluded from the total area population.

Assessing “Serious Lack of Mortgage Credit”

This determination is made jointly by the Secretary of Agriculture and the

Secretary of Housing and Urban Development (HUD).

Assessing “Rural in Character”

A rural in character (RIC) analysis must be completed for areas meeting “Special

Considerations” as outlined in Paragraph 5.3 B. 1. and 2.

However, an area is automatically considered to be RIC when the population density is

less than or equal to 1,000 persons per square mile. When the population density is greater

than 1,000 persons per square mile, a RIC analysis must be completed. When conducting a

RIC analysis, the State Director should also account for other factors affecting population

density that include, but are not limited to the following:

• Economic Vitality: The local economy may be adversely affected by industry

or market conditions such as high unemployment, recent loss of a large

employer, or similar factors. If so, the area may be currently or imminently

subject to out-migration that affects the RIC analysis.

HB-1-3550

Paragraph 5.3 Rural Area Designation

• Colleges and Universities: In contrast to prison populations, college populations

cannot be excluded from the total area population. However, the college

population may be considered when determining the population density as part

of the RIC determination. However, only the portion of the college population

living on campus may be excluded from population density calculations.

Special Considerations

Exception for Rural Areas Designated Prior to October 1990

If an area was classified as rural prior to October 1, 1990, even if it is within an MSA, it

may be still considered rural as long as it: (1) has a population between 10,000 and 35,000,

(2)

is rural in character, and (3) has a serious lack of mortgage credit. This designation can

remain effective through receipt of census data for the year 2030. Or;

Exception for Rural Areas Designated Between January 1, 2000 and

December 31, 2020.

If an area was classified as rural or deemed eligible any time between January 1, 2000

and December 31, 2020, even if it is within an MSA, it may be still considered rural as long

as it: (1) has a population between 10,000 and 35,000, (2) is rural in character and

(3)

has a serious lack of mortgage credit. This designation can remain effective through

receipt of census data for the year 2030.

Contiguous Areas

Two or more towns, villages, cities, or places that are contiguous may be considered

separately for a rural designation if they are not otherwise associated with each other, and

their densely settled areas are not contiguous.

When determining the population count for an area, the Loan Originator also should

consider developed areas in contiguous counties or states. In cases involving contiguous

counties, the appropriate population figure to be used for the area in question should be

determined after consultation with the State Director. In an area involving contiguous states,

the applicable population figure should be determined through an agreement between the

two State Directors. The Loan Approval Official should contact both State Directors to help

make this determination.

Reviewing Rural Area Designations

An area’s rural designation may be changed as a result of a periodic review or after

the decennial census of population. Both types of review are discussed below. In all

cases, the local office should maintain a perpetual master file to document all rural area

decisions and include documentation of all public notification actions taken.

5-6

HB-1-3550

Paragraph 5.3 Rural Area Designation

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN

Periodic Reviews

Each Field Office must review all areas under its jurisdiction every 5 years to identify

areas that no longer qualify as rural. In areas experiencing rapid growth and in eligible

communities within MSAs, the review should take place every 3 years. Field Office files

must contain documentation that local planning boards, where available, were contacted at

the time of each review to verify that areas considered open spaces are not scheduled for

development in the next 5 years.

Field Staff must prepare a rural area review report that includes a recommendation on

those areas that should be re-designated. An acceptable form for this report is a map

showing an outline of the area recommended to be re-designated, and a cover letter

explaining the reasons for the recommendation. The review report must be signed by the

Loan Approval Official, and submitted to the State Director on or before February 28 of the

review year.

Census Reviews

In addition to periodic reviews, the State Director is responsible for implementing re-

designations based on the decennial U.S. Census of Population and any biannual updates.

Immediately after receiving the population information from the Census Bureau, the

State Director must make appropriate changes in designation for areas with populations

under 10,000.

Public Notice

90-Day Public Notice: State or Field Office must publish a 90-day notice

informing the public that analysis is being conducted to determine the area’s eligibility

designation. The 90-day public notice must specify the area that is being studied and invite

comments from the public. The notice should be publicized and targeted to partners,

groups, and organizations that are engaged in community and/or housing activities.

The notice may be published via the State Office ListServ notice or GovDelivery

email service (if available), RD State Office Home page, or in a newspaper of general

circulation within the area to be studied. When publishing via newspaper, the notice must

be in easily readable type in the non-legal section of the newspaper(s) and must be

bilingual if the affected area is largely non-English speaking or bilingual. The notice

should appear for at least three consecutive days if published in a daily newspaper, or in

two consecutive publications if published in a weekly newspaper.

30-Day Public Inspection Period: Prior to making the final rural area decision,

the State Director must provide the public an opportunity to review any comments that

were received in response to the 90-day public notice. The notice must describe the

proposed revisions to the boundary lines, and provide a link to the map eligibility site that

will reflect the proposed revisions.

5-7

HB-1-3550

Paragraph 5.3 Rural Area Designation

30-Day Final Notice: If the State Director determines that the rural area

designation will change from rural to non-rural, a one-time 30-day notice must be

published. The notice must describe the revised boundary lines, the effective date of the re-

designation, and provide a link to the map eligibility site that will reflect the change. The

notice must be disseminated using the methods described above.

Final Determination

The State Director will make a final determination on designations based on the

review report and public comments and notify the Field Office of the final decision.

Designation of Eligible and Ineligible Area Boundary Lines

By September 30th of each review year, or after the census review is complete, the State

Director will develop, clear and distribute a State Supplement that updates, establishes, lists,

and maps all ineligible areas in accordance with RD Instruction 2006-B. The State

Supplement will include county maps showing all ineligible areas in each county.

Designation of eligible and ineligible areas will be updated to the public website:

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.

Once the State has completed the review, a visual presentation of those areas designated

as ineligible will be documented through the RD GIS Portal.

Boundary lines must meet the following criteria:

• If the boundary line is a road, the boundary between eligible area and ineligible area

will be represented as the middle of the road. With this type of boundary line, one side

of a road may be eligible, while the remaining side is ineligible.

• Artificial buffer zones, such as an imaginary line 100 feet from a road will not be

used.

• Boundary lines that are defined as city or town limits must be defined and labeled as of

a specific date. Example – Ineligible area is the Claremore, Oklahoma limits as of

January 1, 2009. Changes to the city limits such as annexation subsequent to the defined

date will require review, public notification, preparation of a revised State Supplement,

and update to the public eligibility website prior to implementation of the revised city

limit boundary.

5-8

HB-1-3550

Paragraph 5.3 Rural Area Designation

5-9

(01-23-03) SPECIAL PN

Revised (07-22-19) SPECIAL PN

In this example, the re-designated area becomes ineligible when the process for the

change is complete. The update of the State Supplement and the website should be

implemented at the same time to the extent feasible.

Submitting Ineligible Area changes:

Requests for re-designation of ineligible area on the public website will be forwarded by

the State Director together with the required State Supplement, in accordance with the

instructions in Attachment 5-D. Please see Attachment 5-E, Eligibility System Modification

Request Process, for detailed instructions and Attachment 5-F, Eligibility System

Modification Workflow, is provided for visual purposes.

Making Loans in Areas Changed to Non-Rural

If an area’s designation changes from rural to non-rural, the Loan Approval Official

may approve loans in that area only under the circumstances listed below.

• If an application is received before an area’s designation changed and the applicant

selects a property in the newly designated non-rural area, a loan may be made for that

property if it meets all other eligibility requirements.

• New conditional commitments may be issued in non-rural areas if a purchaser is

found whose loan application was complete before the area’s designation

changed.

• Existing conditional commitments will be honored.

• Real Estate Owned (REO) property sales and transfers with assumption may be

processed in areas that have changed to non-rural.

• Section 504 Loan and Grant assistance may be provided on a property that already

has an Agency loan.

• Subsequent loans may be made on a property that already has an Agency loan to: (1)

make necessary repairs; (2) pay equity in connection with an assumption of the Agency

loan; or (3) to pay equity to a departing co-borrower or (4) refinance a direct or

guaranteed borrower's loan with a new direct or guaranteed loan if it meets all other

eligibility requirements.

HB-1-3550

5.4

MODEST SITES

A qualified property must be predominately residential in use, character, and design (as

opposed to commercial, industrial, or agricultural). Modest sites are defined by their size,

value, income production use, and the presence of prohibited outbuildings outlined in

Paragraph 5.6. The Loan Originator must verify that the requirements listed below are met.

• Size. There is no specific limitation to the size/acreage of the site, provided it is

not large enough to be subdivided under local subdivision regulations.

• Value. The value of the site should not exceed 30 percent of the as-improved market

value of the property. The 30 percent limitation may be exceeded if the site cannot be

subdivided into two or more sites and the value of the site is typical for the area, as

evidenced by the appraisal and the practices of other lenders.

• Income-Producing Land. The site must not have income-producing land that will be

used principally for income producing purposes. Vacant land or properties used

primarily for agricultural, farming or commercial enterprise are ineligible.

• Zoning. The property must comply with applicable zoning and restrictions. If

an existing property does not comply with all current zoning ordinances, but it is

accepted by the local zoning authority, the appraiser must report the property as

legal non-conforming. The appraisal must reflect any adverse effect of the legal

non-conforming use on the value and marketability of the property.

5.5

ADEQUATE SITE ACCESS, WATER, AND WASTEWATER SYSTEMS

The site must be accessible from an all-weather road maintained by either a public body or

a homeowner’s association. When the road is privately maintained by an association, there must

be a legally enforceable arrangement for the ongoing maintenance needs of the roads.

The site must also have water and wastewater disposal systems, whether individual, central,

or privately-owned and operated, that meet the applicable water and wastewater disposal system

requirements of RD Instruction 1924-C. There must be assurance of continuous service at

reasonable rates for central water and wastewater disposal systems. A system owned or operated by

a private party must have a legally irrevocable agreement which allows interested third parties to

enforce the obligation.

Private companies usually inspect individual wells and septic system and provide written

results of the inspection. In addition, the responsible local or State regulatory agency must

verify, in writing, that the privately-owned water and wastewater disposal systems, that serve

multiple households, comply with the Safe Drinking Water Act (42 U.S.C. 300h) and the Clean

Water Act (33 U.S.C. 1341), respectively. Inspections are not required on public water and

wastewater disposal systems.

5-10

HB-1-3550

5-11

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

SECTION 2: DWELLING REQUIREMENTS [7 CFR 3550.63(a)]

5.6

MODEST HOUSING

To be considered “modest”, the property must be one that is considered modest

for the area, must not have a market value in excess of the applicable area loan limit, meet the

standard square footage consideration, and must not have certain prohibited features.

Establishing Area Loan Limits Within a State

The standard area loan limit is 80% of the local HUD 203(b) limit in effect unless

otherwise approved by the Deputy Administrator, Single Family Housing. The Agency website

will be updated shortly after the annual updates to HUD’s 203(b) limits are published.

Loan Limit Requests to Exceed the Standard

Exceptions for Counties States are not authorized to alter their limits throughout the

year without prior approval from the Deputy Administrator, Single Family Housing.

State Directors who have counties they believe merit loan limits exceeding the standard,

may submit a request to the National Office by completing Form RD 2006-3,

“Instruction and Form Justification.” The request should be accompanied by a narrative

and supporting data. The analysis should include local values for both existing homes in

program-acceptable condition and the total costs to acquire or construct new dwellings.

Exceptions for Individuals An exception to an established area loan limit may be

granted to accommodate the specific needs of an applicant, for example, to serve an

exceptionally large household or to provide reasonable accommodation for a household

member with a disability. Requests for exceptions may be approved by the State

Director if the cost of the property will exceed the limit by $5,000 or less. To request an

exception, the Loan Originator must fully document the need for the exception.

• For accommodations for household members with disabilities, the Loan Originator

must provide the cost of accommodations that demonstrates that these costs cannot

be accommodated within the area’s modest housing limit; and

• If exceptions are granted, the Loan Originator will follow UniFi procedures for

overriding the maximum loan limits.

Notification

States should encourage stakeholders; such as certified loan packagers, intermediaries, real

estate agents, brokers, building contractors, lenders, partners, etc. to sign up for GovDelivery to

ensure they are informed of updates to the area loan limits as they occur.

HB-1-3550

Paragraph 5.6 Modest Housing

Square Footage Consideration Standards

Maximum

Agency financed properties should generally not exceed 2,000 square feet living

area, above grade as a general guideline, but not a firm limitation. The square

footage consideration may be waived by the Loan Approval Official’s next-level

supervisor when the Field Office determines:

•

The subject property is modest;

•

The property is typical for the area and/or the applicant has special

needs due to an exceptionally large household or a household

member with a disability; and

•

The property’s anticipated utilities and maintenance costs are reasonable

for the area and will not place a strain on the applicant’s budget.

The maximum standard square footage consideration is based on gross living area that is

above grade. An attached garage and a basement (including a basement that is partially

above grade or is a walk- out) should not be included in the square footage calculation.

This approximate calculation must be made at the time the Agency receives a purchase

agreement or construction contract. Concerns regarding the size of the house must be

immediately communicated in writing to the applicant.

Minimum

Agency financed dwellings are generally not less than 400 square feet to ensure they are

designed and constructed for permanent occupancy and contain permanent areas for

cooking, eating, sleeping and sanitary needs. Water and wastewater systems must be

permanently connected. This square footage consideration may be waived by the Loan

Approval Official’s next-level supervisor when the Field Office determines a smaller

dwelling or “tiny home” otherwise meets the same property standards as other Agency

financed dwellings.

Prohibited Features

Swimming Pools

Properties that include in-ground pools will not be financed. It is not acceptable to

remove a pool after closing to meet this requirement.

5-12

HB-1-3550

Par

agraph 5.6 Modest Housing

Farm Service Buildings and Income-Producing Structures

The property must not include buildings principally used for income-

producing purposes.

• Farm service buildings such as barns, silos, commercial greenhouses, or

livestock facilities used primarily for the production of agricultural,

farming or commercial enterprises are ineligible. However, barns,

silos, livestock facilities or greenhouses no longer in use for a

commercial operation, which will be used for storage, do not render

the property ineligible.

• Outbuildings such as storage sheds and non-commercial workshops are

permitted if they are not used primarily for an income producing

agricultural, farming or commercial enterprise.

• A minimal income-producing activity, such as maintaining a garden that

generates a small amount of additional income does not violate this

requirement. Home-based operations such as childcare, product sales,

or craft production that do not require specific commercial real estate

features are not restricted.

5.7

DECENT, SAFE AND SANITARY DWELLINGS

To help ensure that dwellings are decent, safe, and sanitary (DSS) the Agency has

established minimum standards for existing and new dwellings.

Existing Dwellings

Existing dwellings must be structurally sound and functionally adequate, and be in good

repair or be placed in good repair with loan funds.

For an initial Section 502 direct loan to purchase or refinance a non-Agency loan on an

existing dwelling, the applicant must engage the services of a State-licensed inspector to perform a

whole house inspection and provide a statement that the dwelling appears to meet the Agency’s DSS

standards with respect to: (1) termites and other pests (this may be separate from the whole house

inspection); (2) plumbing, water and sewage; (3) heating and cooling; (4) electrical systems; and (5)

structural soundness. The inspection report must be a comprehensive document that meets the

minimum standards of the professional home inspector associations. When a State does not license

inspectors, a qualified, independent, third party inspector may perform the inspection and provide

the necessary certifications.

The Loan Originator should inform the applicant that if their loan application request

falls through for whatever reason, they will remain responsible for paying their inspectors

(unless the seller agreed to cover the inspection fees).

5-13

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

HB-1-3550

Paragraph 5.7 Decent, Safe and Sanitary Dwellings

Once a report(s) covering all five items noted above is received by the Agency, the Loan

Originator must identify any noted deficiencies that may make the home not decent, safe, and

sanitary. If these deficiencies are not already addressed in the option or sales contract, the Loan

Originator must inform the applicant that they must be addressed either through the seller

assuming responsibility for the repair prior to closing or the repairs being required post-closing.

Special Considerations:

Low risk of termite infestation: A State Director may issue a state supplement waiving the

termite inspection requirement provided the state’s probability of termite infestation is slight to none

and state law does not require one. The supplement, which must receive prior approval through the

National Office, can remove the need for a termite inspection provided a dwelling shows no signs of

active infestation.

Section 502 loan balance less than $7,500 and the repayment schedule does not

exceed 10 years: If the Section 502 loan balance is less than $7,500 and the repayment schedule

does not exceed 10 years, a whole house inspection is not needed and the dwelling may lack some

equipment or features after repairs such as a complete bath, kitchen cabinets, closets, or

completed finished interior in some rooms. These dwellings must otherwise meet the housing

needs of the applicant and provide decent, safe, and sanitary living conditions when the

improvements financed with the loan are completed.

Initial Section 502 loans for necessary repairs-only: An initial Section 502 loan can

be made to an existing homeowner for necessary repairs provided any existing loan against the

property is an affordable non-RHS loan. While a whole house inspection is not needed, the

dwelling must otherwise meet the housing needs of the applicant and provide decent, safe, and

sanitary living conditions when the improvements financed with the loan are completed.

New Dwellings

All construction must meet the standards contained in RD Instruction 1924-A. New

dwellings include homes to be built, currently under construction, or those that are less than 12

months old and never occupied. When applicants enter into a contract to purchase a new

dwelling, the Loan Approval Official must consider how the construction quality will be

documented. The process for ensuring that the Agency’s construction standards are met is

described in Section 6 of this chapter and in Paragraph 6.7.

Survey Requirements

A survey is not required for any financed property unless the title insurance commitment

specifically excludes coverage for the property and improvements in the loan policy. The

currently adopted 2006 American Land Title Association (ALTA) lender’s policy provides

explicit “survey” (or boundary and encroachment) coverage without issuance of a special

endorsement. A survey is usually required by the title insurance company to remove the

exclusions from coverage related to boundaries, encroachments, easements and other

5-14

HB-1-3550

Paragraph 5.7 Decent, Safe and Sanitary Dwellings

matters when issuing an owner’s title policy. Although an owner’s policy is not required by the

Agency, the borrower may choose to have this coverage and use loan funds to pay for it provided

the loan does not exceed the appraised value.

When a new survey is needed, it must contain boundary lines, any improvements,

encroachments on the subject or adjacent property, above-ground easements, set-backs imposed

by either restrictive covenant or zoning, and any additional requirements needed to obtain title

insurance. For new construction, the boundary corners must also be clearly marked. An existing

survey may be used if it meets the requirements of the title insurance.

Flood-Related Requirements

Flood insurance is required for all dwellings located within the 100-year flood plain, unless FEMA has

granted an exception, and flood insurance is available as part of the community’s flood plain

management regulations.

For all new construction, substantial improvements, and existing dwellings the lowest

floor (including basement) must be elevated to or above the 100-year flood level.

In addition, for newly constructed and substantially rehabilitated dwellings, the

construction materials and methods used must be for the purpose of making the structure resistant

to flood damage, and minimizing any damage that may occur. RD Instruction 426.2 contains

further guidance on the National Flood Insurance Program and flood-related requirements.

All dwellings within the 100-year floodplain must be served by public utilities that are

located and constructed to minimize or eliminate flood damage, or have an on-site water supply

and waste disposal system located and constructed to avoid contamination of the water supply by

the septic system due to flooding.

For all new construction, substantial improvements, and existing dwellings in a floodplain,

the Agency must perform the eight step decision making process for alternative consideration in

order to determine if a reasonable alternative to committing federal funding to a property in a

floodplain exists. This process is outlined in detail in RD Instruction 1970-F, section 1970.256.

5-15

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

SECTION 3: ENVIRONMENTAL REQUIREMENTS

[7 CFR 3550.5]

•

5.8

PROTECTION OF ENVIRONMENTAL RESOURCES

Environmental Library

At a minimum, each Field Office should

maintain the following information in order to

facilitate completion of environmental reviews.

The State Environmental Coordinator can provide

assistance in obtaining or understanding this

information.

The Environmental Resource Directory;

Federal Emergency Management Agency

(FEMA) floodplain maps;

Natural Resources Conservation Service (NRCS)

Soil Surveys and Important Farmland Soils; and

U.S. Fish and Wildlife Service (USFWS)

Coastal Barrier Resource System maps (as

applicable).

The Agency considers environmental

quality equally with economic, social, and other

factors in its program development and decision-

making processes. The environmental review

process is intended to help Agency officials make

decisions that are based on an understanding of the

environmental consequences of a proposed action,

and to take those actions that protect, restore, and

enhance the environment.

This paragraph contains a general

discussion of basic environmental requirements.

Detailed environmental policies and procedures

can be found in 7 CFR Part 1970 and the

corresponding staff instructions in RD

Instruction 1970 series, which contains compliance

requirements for the National Environmental Policy Act

(NEPA), as well as numerous other laws, Executive Orders,

and Departmental Regulations on a variety of other

environmental issues.

In accordance with 7 CFR 1970.11, the environmental review must be concluded before

the obligation of funds, therefore in no case will loan or grant funds be obligated without the

completion of the environmental review. In addition, in accordance with 7 CFR 1970.5 (a) (5),

mitigation measures described in the environmental review and decision documents must be

included as conditions in Agency financial commitment documents, such as a conditional

commitment letter or funding commitment.

While funds may be obligated subject to an appraisal, if the appraiser determines that there

are environmental hazards on site, further environmental due diligence investigations may be

required to determine the nature and extent of the contamination, and to determine the estimated

cost of remediation. This information should be used by the Agency to make a decision related to

property eligibility.

5-16

HB-1-3550

Paragraph 5.8 Protection of Environmental Resources

Types of Environmental Reviews

NEPA requires that Agency actions be classified into 3 basic categories of actions: those that are

categorically excluded from NEPA review; those for which more information is needed to determine

if the project will significantly impact the environment, and therefore preparation of an

Environmental Assessment (EA) will be required; and those that have been determined to

significantly impact the environment, and therefore require preparation of an Environmental Impact

Statement (EIS). The Agency has been allowed to establish 2 categories of Categorical Exclusions:

those that involve no or minimal alterations in the physical environment and typically occur on

previously disturbed land, and therefore require no or limited environmental documentation to be

submitted by the applicant (RD Instruction 1970-B, section 1970.53), and those that will cause more

alteration of the environment and therefore require the submission of an Environmental Report (a

brief report on the current environment of the project area and the expected environmental impacts

of the proposed project) (RD Instruction 1970-B, section 1970.54). This classification of actions

provides the Agency with a starting point for beginning its environmental review process. Most

single family housing activities do not adversely affect environmental resources and have no

cumulative effect, and therefore will qualify as a Categorical Exclusion without an Environmental

Report; those which affect resources or have a cumulative effect may require an Environmental

Review or an Environmental Assessment. For a complete list of housing actions and their

classifications, refer to RD Instruction 1970-B, sections 1970.53 and 1970.54.

Categorical Exclusions

In accordance with RD Instruction 1970-A, a Categorical Exclusion is an action that

does not individually or cumulatively have a significant impact on the quality of the human

environment.

The following are routine financial actions related to single family housing

transactions that are classified as Categorical Exclusions without an Environmental Report:

• Financial assistance for the purchase, transfer, lease, or other acquisition of real

property when no or minimal change in use is reasonably foreseeable.

• Financial assistance for the purchase, transfer, or lease of personal property or

fixtures where no or minimal change in operations is reasonably foreseeable.

• Sale or lease of Agency-owned real property, if the sale or lease will have no or

minimal construction or change in current operations in the foreseeable future.

• The provision of additional financial assistance for cost overruns where the

purpose, operation, location and design of the proposal as originally approved has

not been substantially changed.

5-17

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

Paragraph 5.8 Protection of Environmental Resource

• Minor construction proposals such as:

Minor amendments or revisions to previously approved projects provided

such activities do not alter the purpose, operation, geographic scope, or

design of the project as originally approved;

Repair, upgrade, or replacement of equipment in existing structures for such

purposes as improving habitability, energy efficiency (including heat rate

efficiency), replacement or conversion to enable use of renewable fuels,

pollution prevention, or pollution control;

Any internal modification or minimal external modification, restoration,

renovation, maintenance, and replacement in-kind to an existing facility or

structure;

Construction of or substantial improvement to a single-family dwelling, or a

Rural Housing Site Loan project serving up to four families and affecting less

than 10 acres of land;

Siting, construction, and operation of new or additional water supply wells for

residential, farm, or livestock use;

Replacement of existing water and sewer lines within the existing right-of-way and

as long as the size of pipe is either no larger than the inner diameter of the existing

pipe or is an increased diameter as required by Federal or state requirements. If a

larger pipe size is required, applicants must provide a copy of written administrative

requirements mandating a minimum pipe diameter from the regulatory agency with

jurisdiction; and

New utility service connections to individual users or construction of utility lines or

associated components where the applicant has no control over the placement of the

utility facilities.

For each proposed action, RD Instruction 1970-B, Exhibit D, “Environmental Checklist for

Categorical Exclusions,” is prepared by the Agency to ensure that the specific proposal under

consideration qualifies as a Categorical Exclusion, and that there are no extraordinary

circumstances (RD Instruction1970-B, section 1970.52) or cumulative impacts related to the

proposal, that the proposal is not connected to other actions with potentially significant impacts (see

40 CFR 1508.25(a)(1)), and that it is not considered a cumulative action (see 40 CFR

1508.25(a)(2)).

In general, extraordinary circumstances (RD Instruction 1970-B, section 1970.52) are

unique situations presented by specific proposals, such as characteristics of the geographic area

affected by the proposal, scientific controversy about the environmental effects of the proposal,

uncertain effects or effects involving unique or unknown risks, and unresolved conflicts

concerning alternate uses of available resources within the meaning of section 102(2) (E) of

NEPA. Exhibit 5-2 provides a listing of the most common extraordinary circumstances.

5-18

HB-1-3550

Paragraph 5.8 Protection of Environmental Resource

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

Exhibit 5-2

Extraordinary Circumstances

• Any violation of applicable Federal, state, or local statutory, regulatory, or permit requirements for

environment, safety, and health.

• Any proposal that is likely to cause uncontrolled or unpermitted releases of hazardous substances, pollutants,

contaminants, or petroleum and natural gas products.

• An adverse effect on the following environmental resources:

o Historic properties;

o Federally listed threatened or endangered species, critical habitat, Federally proposed or candidate species;

o Wetlands;

o Floodplains;

o Areas having formal Federal or state designations such as wilderness areas, parks, or wildlife refuges;

wild and scenic rivers; or marine sanctuaries;

o Special sources of water (such as sole source aquifers, wellhead protection areas, and other water sources

that are vital in a region);

o Coastal barrier resources or, unless exempt, coastal zone management areas; and

o Coral reefs.

• The existence of controversy based on effects to the human environment brought to the Agency’s attention

by a Federal, tribal, state, or local government agency.

RD Instruction 1970-B contains detailed information on the proper implementation of

requirements affecting Categorical Exclusions.

It is important to note that development on tribal land or dependent Indian communities may

require additional coordination with the tribe to determine if the proposal has an adverse impact on

environmental or cultural resources. In accordance with RD Instruction 1970-H, Exhibit B, “When

an applicant’s proposal is located on tribal lands, defined in 36 CFR § 800.16(x) as all lands within

the exterior boundary of any Indian reservation and all dependent Indian communities, and that tribe

has designated a Tribal Historic Preservation Officer (THPO) in accordance with Section 101(d)(2)

of [National Historic Preservation Act (NHPA)], the SHPO participates only under the conditions

specified in 36 CFR § 800.2(c)(1)(ii). If the Indian tribe has not designated a THPO, then the SHPO

participates in Section 106 review pursuant to 36 CFR § 800.2(c)(2)(i)(B).” Exhibit D of RD

Instruction 1970-H provides guidance on working with Indian tribes in the NHPA Section 106

review.

Environmental Reports and Environmental Assessments

If it appears that extraordinary circumstances and/or cumulative impacts may be involved, an

Environmental Report (ER) or an Environmental Assessment (EA) may be required in

accordance with RD Instruction 1970-B, section 1970.54 and RD Instruction 1970-C. Through

these review processes, the Agency will acquire the necessary documentation to: (1) demonstrate

compliance with requirements for protection of environmental resources, including the

development of practical alternatives to either avoid or lessen any adverse environmental

impacts; and (2) demonstrate why the potential impact on resources is not considered to be

significant and, therefore, an EIS is not required.

5-19

HB-1-3550

Paragraph 5.8 Protection of Environmental Resource

Flood Hazard Determination

FEMA’s Standard Flood Hazard Determination Form (SFHDF) determines if the home is

located in a Special Flood Hazard Area (SFHA) and states the availability of flood insurance

based on if the community participates in the National Flood Insurance Program (NFIP). Flood

insurance is required when any form of federal financial assistance is intended in whole or in part

for acquisition, construction, reconstruction, or substantial improvement of any building located

in a SFHA. The flood insurance can be through NFIP or under NFIP’s “write your own” program

where the policy is through private insurance that meets the requirements of 42 USC 4012a

(b)(1)(A). Flood insurance must be obtained and maintained throughout the life of the loan when

any portion of the home is located in a SFHA, including attached garages, decks and carports, etc.

Flood insurance is not required for any additional structure that is located on the property but is

detached from the home (such as detached shed, garage, or other ancillary structure). Flood

insurance is also not required if the financial assistance is less than the substantial improvement

threshold discussed in HB-1-3550, Chapter 7.

The information on the SFHDF will assist in the preparation of the environmental review

documentation, which must examine whether there is a reasonable alternative to a proposed

purchase or construction in a floodplain. The Loan Originator will be responsible for acquiring

the SFHDF from CoreLogic Flood Services at: https://www.floodcert.com/. CoreLogic provides

“Life of Loan Determination” in which the Agency will be notified should the site’s floodplain

designation change. The SFHDF must be acquired prior to the completion of the environmental

review.

If the dwelling is located within a SFHA, the lowest floor (including basements) must be

elevated above the base flood elevation (BFE). Proof that this requirement has been met is usually

in the form of a FEMA Elevation Certificate, however other forms of documentation may be

accepted (see RD Instruction 1970-F).

Additionally, for applications to purchase, construct, or substantially rehabilitate a dwelling

in a floodplain, utilities should be flood-proofed or located above the BFE. If the dwelling does not

use public utilities, the domestic well must be a minimum of 50 feet from the septic drain field (or

more, depending on local or state codes). For minor repairs, these requirements are not applicable

if the dwelling existed prior to the publication of the first FEMA flood map for that location. In

accordance with RD Instruction 1970-F, section 1970.256 (b) and 1970.261(b), if the property is

within a floodplain, the Agency approval official is responsible for notifying the applicant about

the hazards associated with occupancy of locations within a floodplain at the earliest possible point

in the Agency’s decision-making process. A template notice can be found in RD Instruction 1970-

F, Exhibit B, Attachment 2.

Responsibility for Environmental Reviews

The Loan Originator is responsible for ensuring that the appropriate level of environmental review has

been completed prior to the commitment of federal funds. This includes the assembly and analysis of

relevant material, the development and analysis of practical alternatives and mitigation measures (as

appropriate), and the development of recommendations regarding environmental impacts and

5-20

HB-1-3550

Paragraph 5.8 Protection of Environmental Resource

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

environmental compliance. Applicants may be requested to provide information needed for the

analysis.

If the appraiser marks “No” to the question, “Are there any adverse site conditions or

external factors (easements, encroachments, environmental conditions, land uses, etc.)?” under

the site portion of the Uniform Residential Appraisal Report, the Field Office is not required to

conduct a site inspection in order to complete the environment review. If the appraiser answers in

the affirmative, a qualified Rural Development official must conduct a site inspection as part of

the environmental review process.

The Loan Approval Official will use the environmental review documents and, as

appropriate, the recommendations of the State Environmental Coordinator (SEC), to make the

Agency’s final decision regarding an environmental impact determination and compliance with

environmental requirements, as well as flood insurance requirements. For Categorical Exclusions

without an ER, this decision is evidenced by the completion of RD Instruction 1970- B, Exhibit

D, which will be signed by the form’s preparer and the Loan Approval Official (if these are the

same person, both applicable signatory lines should be signed). For Categorical Exclusions with

an ER, the SEC must review the environmental documentation and sign the Exhibit D in addition

to the preparer and Loan Approval Official. The Agency’s decision for EAs is documented by

the signing of the Finding of No Significant Impact (FONSI) by the Loan Approval Official;

after reviewing the EA, the SEC will assist with the FONSI’s preparation.

SECs are available to provide technical assistance and guidance. They also are available

to assist in problem resolution on environmental issues. Environmental questions or problems

should be referred promptly to the SEC. Furthermore, SECs will review and sign off on all

Categorical Exclusions with an ER and EAs.

Noise Abatement

If a site is located near a major source of noise, the appraiser should consider this in their

appraisal report. The information should be made available to the applicant, who may not be

aware of the problem. The applicant, once informed, may wish to look for a different site or to

consider some method of noise reduction. The Loan Approval Official should consult with the

State Architect and the SEC on any proposals for noise reduction.

5.9

MANAGEMENT OF HAZARDOUS SUBSTANCES

The Agency must consider the management of hazardous substances, including

hazardous wastes and petroleum products, from two perspectives: liability under hazardous

substance and hazardous waste laws, and the economic risks posed by the presence of

hazardous substances. Both of these issues are addressed through due diligence. Due diligence

is the process of inquiring into the environmental condition of real estate, in the context of a,

5-21

HB-1-3550

Paragraph 5.9 Management of Hazardous Substance

real estate transaction, to determine the presence of contamination from hazardous substances including

hazardous wastes and petroleum products, and to determine what impact such contamination may have on the

market value of the property.

Appraisers are required to notify the Agency if they observe contamination from hazardous

substances, or if information from research or interviews with individuals knowledgeable about the

property indicates that the property might contain hazardous substances.

If an appraiser notices that a property may contain hazardous substances, or if the Agency

has any other reason to suspect that a property is contaminated, the Loan Approval Official must

initiate a due diligence review by completing Attachment 5-B, Single Family Housing Site

Checklist. If the completed Attachment 5-B raises any concerns, it must be sent to the SEC for

further evaluation and guidance. The SEC will contact a National Office Program Support Staff

Environmental Protection Specialist to determine what further steps will need to be taken.

5-22

HB-1-3550

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

SECTION 4: SECURITY REQUIREMENTS

5.10

ACCEPTABLE MORTGAGE

Generally, there should be no non-Agency liens on the property at the time of or

immediately after closing, unless they are part of a formal leveraging strategy, or the Agency

loan is for essential repairs and a senior lien secures an affordable non-Agency loan. However,

the Loan Originator may accept prior or junior liens as long as: (1) the lien will not interfere with

the purpose or repayment of the Agency loan; (2) the total value of all liens on the property is

less than or equal to the property’s market value; and (3) the prior lien does not contain

provisions that may jeopardize the Agency’s security position or the applicant’s ability to repay

the loan.

5.11

OWNERSHIP REQUIREMENTS [7 CFR 3550.58]

If the applicant defaults on the loan, the Agency must be able to foreclose on the property

to settle the debt. Therefore, after the loan is closed, the applicant must have an ownership

interest in the property that is acceptable to the Agency.

Responsibilities

In preparation for closing, the closing agent selected by the applicant must review the

ownership interest the applicant will have to ensure that it meets the requirements established by

the Agency in RD Instruction 1927-B. The closing agent must also ensure that the form of

ownership conforms with the requirements of relevant State laws. After closing, the Loan

Originator should compare the deed of trust or mortgage with the title opinion to assess lien

priority, to verify recordation of the date and time, and to ensure that the loan closing instructions

have been followed.

Acceptable Forms of Ownership

Several forms of ownership are acceptable to the Agency, but in all cases the

applicant’s ownership interest must be carefully documented.

Fee-Simple Ownership

The most common form of ownership

is fee-simple ownership, under which the

borrower holds a fully marketable title to

the property. This title is evidenced by a

deed that vests full interest in the property

to the borrower.

Land Purchase Contracts

When the ownership interest is by virtue of a land

purchase contract, the ownership interest must be

converted to a deed/mortgage interest prior to closing

the loan.

5-23

HB-1-3550

Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

5-24

Secure Leasehold Interest

Although fee-simple ownership is preferable, the borrower may have a secure leasehold

interest in the property. Leasehold interests are acceptable only when all of the following

conditions apply.

• The applicant must be unable to obtain fee-simple title to the property, and the rent

charged for the lease must not exceed the rate being paid for comparable leases.

• The lessor must own the fee-simple title (this provision does not apply to a lessor who

is an American Indian possessing a leasehold interest on tribal allotted or trust land).

• Neither the leasehold nor the fee-simple title may be subject to a prior lien unless the

Agency authorizes acceptance of the prior lien before loan approval. The amount of

the Agency’s loan, plus any prior liens, must not exceed the market value of the

property including the value of the leasehold.

• The lease must be in writing, and must contain all of the following provisions:

◊

The lessor’s consent to allow the Agency’s mortgage;

◊

The right of the Agency to foreclose and sell the property without restrictions that

adversely affect the market value of the property;

◊

The right of the Agency to bid at a foreclosure sale or to accept voluntary

conveyance of the property in lieu of foreclosure;

◊

The right of the Agency to occupy, sublet, or sell the property should the

leasehold be acquired through foreclosure, voluntary conveyance, or

abandonment;

◊

The right of the applicant to transfer the leasehold and Agency mortgage to an

eligible transferee who will assume the Agency’s debt, if the borrower defaults or is

unable to continue with the lease;

◊

Advance written notice of at least 90 days to the Agency of the lessor’s intention to

cancel or terminate the lease;

◊

Provisions are negotiated with the lessor before the leasehold interest is approved

regarding the Agency’s obligation to satisfy unpaid rent or other charges accrued

before or during the time the Agency has possession of or title to the leasehold.

During negotiations, the Loan Originator should consider the length of time it will

take to foreclose, how much the Agency would be responsible for, and when the

Agency would have to pay;

HB-1-3550

Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

◊

Provisions to ensure fair compensation to the borrower for any part of the

property taken by condemnation; and

◊

The unexpired term of the lease must be at least 150 percent of the term of the

mortgage, unless the loan is guaranteed by a public authority, Indian Tribe, or

Indian Housing Authority. For guaranteed loans, the unexpired term of the lease

must be at least 2 years longer than the mortgage term. In no case may the

unexpired term of the lease be less than 25 years.

• The language, specified in Attachment 5-C, must be inserted in the mortgage.

Life Estate Interest

The applicant may hold a life estate interest with the rights of present possession,

control, and beneficial use of the property. All persons with any remainder interests in the

property must be signatories to the mortgage, except as described in Paragraph 5.11 B. 4.

Undivided Interest

To be eligible for a loan if an applicant only has an undivided interest in the land, co-

owners must also be unable to provide or obtain the financing for the improvements, either

individually or jointly with the applicant. Generally, all legally competent co-owners must

sign the mortgage. However, when one or more of the co-owners cannot be located, are not

legally competent (and there is no legal representative who can sign the mortgage), or if the

ownership interests are divided among so many co-owners that it is not practical to

mortgage all of their interests, their interests may be excluded from the security

requirements, as long as their interests do not exceed 50 percent of the property’s value.

The loan amount shall be limited based on the percentage of the market value that is

proportional to the percentage of the property interest owned by all persons signing the

mortgage. The determination of market value should take into account any adverse effects

that might result from selling mortgaged interests separately from nonmortgaged interests.

Only the State Director may approve the exclusion of co-owners’ interests. The Loan

Originator or the Loan Approval Official should prepare a recommendation for the State

Director’s review. The memo should include a full statement of ownership and the reasons

for the proposed exclusion.

5-25

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

Paragraph 5.11 Ownership Requirements [7 CFR 3550.58]

5-26

Possessory Rights

Possessory rights on an American Indian reservation or State-owned land, and the

interest of an American Indian in land held in trust or deeds containing restrictions

against alienation are acceptable forms of interest as long as the trust or restricted land

will remain in trust or restricted status.

Tribal allotted or trust land must remain in trust or restricted status. In these cases,

the mortgage, deed of trust, leasehold interest or other security interest must be

approved by the Secretary of the Interior. Each State should issue a supplement to give

guidance about making loans under these circumstances.

5.12

EXCEPTIONS TO THE AGENCY’S SECURITY REQUIREMENTS

Exceptions may be made under the circumstances described below.

Unsecured (Note Only) Section 502 Loans

A loan of less than $7,500 that is scheduled for repayment within 10 years from the date

of the loan may be secured by a promissory note alone as long as the applicant:

• Has a credit history that indicates an ability and willingness to pay the debt when due;

and,

• Has principal, interest, taxes, and insurance (PITI) and total debt (TD) ratios that

indicate that the applicant will have sufficient income to meet all obligations.

In order to verify the above conditions, the Loan Originator should review the applicant’s

credit history as described in Section 3 of Chapter 4. The applicant cannot receive payment

subsidy on an unsecured loan.

Best Mortgage Obtainable

Except for unsecured loans described in Paragraph 5.12 A., loans must be secured by a

mortgage. In addition, title clearance and the use of legal services as required by RD Instruction

1927-B are necessary, unless the total RHS indebtedness is less than $7,500 or the loan is a

subsequent loan made for minimal essential repairs necessary to protect the Government’s

interest.

HB-1-3550

5-27

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

SECTION 5: APPRAISALS [7 CFR 3550.62]

5.13

OVERVIEW

High-quality appraisals are key to ensuring that the Agency obtains adequate security for its

loans. This section provides guidance about the types of appraisals that may be needed, when

appraisals are required, how they are ordered, and how they must be reviewed.

5.14

REQUIREMENTS FOR APPRAISALS

Appraisals must meet the following requirements:

• Qualified Appraiser: In nearly all cases, Direct Single Family Housing appraisal

assignments will be completed by a State–certified or licensed appraiser using nationwide

contracts with Appraisal Management Companies (AMCs). Contract appraisers must be

certified or licensed (or hold a “Temporary Practice Permit” issued by the respective

State for a specific period of time and for a specific property), in the State in which the

subject property is located. When using a contract appraiser, the Agency will contract

with qualified appraisers that are active on the Appraisal Subcommittee website

(www.asc.gov). However, when a contract appraiser is not available at an acceptable cost

or is unable to complete an appraisal timely, a qualified Agency appraiser may conduct

the appraisal. For credit transactions that are $100,000 or greater, Agency appraiser must

possess the same qualifications as those required for contract appraisers, except that an

Agency appraiser is only required to be certified in one State or Territory to perform real

property appraisal duties as a Federal employee in all States and territories.

• Standards: All appraisals must be consistent with the current edition of the Uniform

Standards of Professional Appraisal Practice (USPAP) available at

www.appraisalfoundation.org and comply with Agency appraisal requirements, as

described in this chapter and in 7 CFR 3550.62(a).

• Timelines: In general, appraisals are ordered under the nationwide contracts with

Appraisal Management Companies (AMCs) and are generally completed within 15

business days. In-house appraisals are to be completed within 7 calendar days of

receiving the appraisal order.

• Nondiscrimination: The appraiser may not use factors that are discriminatory on the

basis of race, color, religion, sex, disability, familial status, or national origin in

conducting the appraisal and valuing the property.

• Use of a Third Party Appraisal: The Agency may only use an appraisal for which it did

not contract for when the appraisal was obtained from a leveraged lender involved in the

transaction and that lender is financing at least 20 percent of the transaction with loan funds

or 15 percent if entirely a grant, forgivable loan or deferred loan except when the lender is

also a party to the transaction such as seller, builder, developer, or contractor.

HB-1-3550

Paragraph 5.14 Requirements for Appraisals

The Agency reviewer should be especially diligent in reviewing these appraisals to ensure

they meet USPAP and Agency appraisal requirements and the expected intended use is

the same as the intended use reported in the appraisal. The Agency is not required to use

any appraisal that it did not contract for directly.

5.15

TYPES OF VALUES

Depending on the type and purpose of the appraisal needed, an appraiser will be asked to

provide an estimated value of the property based on one of the following:

• As Is. For existing dwellings that require no repairs/alterations or require

repairs/alterations that typically add no value (e.g. general maintenance to the home’s

infrastructure and machinery); newly constructed dwellings; and to support a loan

servicing action or to determine a disposition plan for a REO property.

• Cost Approach Only. See Paragraph 5.16 for a description.

• Subject to Completion of Plans & Specs. For newly constructed dwellings to be built.

• Subject to Repairs/Alterations. For existing dwellings that require repairs/alterations

that typically add value (e.g. window replacement, siding replacement, and bathroom

remodel).

5.16

APPRAISAL METHODOLOGY

Real estate appraisers make judgments about a property’s value based on many factors,

including location, market conditions, construction quality, and amenities. Single Family

Housing Appraisals require one, two, or three approaches to value, as described below,

depending on the specific assignment.

• Sales comparison approach. Under this method, the appraiser uses the recent sales data of

properties that are comparable in location and characteristics to the security property in

order to estimate a market value for the property.

• Cost approach. Under this method, the appraiser derives an estimate of value using

replacement cost estimates for the improvements, less depreciation and an estimate of the

site value. If applicable, the appraiser will identify the source of cost estimates, such as

Marshall and Swift, used in the cost approach.

The methodology used to estimate depreciation and an analysis may be stated in the report.

This method is required for a dwelling to be constructed, or a dwelling that is less than one

year old. The remaining economic life must be stated for all properties.

• Income Approach. Under this method the appraiser derives a value indication for an

income-producing property by converting its anticipated benefits (cash flows and

reversion) into property value. This conversion can be accomplished in two ways, direct

capitalization or yield capitalization. This method may only be used for Agency non-

program REO properties.

5-28

HB-1-3550

5-29

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

Paragraph 5.16 Appraisal Methodology

The appraisal must be completed using Fannie Mae Form 1004/Freddie Mac Form 70,

“Uniform Residential Appraisal Report,” for all one-unit, single family dwellings; Fannie Mae

Form 1004C/Freddie Mac Form 70B, “Manufactured Home Appraisal Report,” for all

manufactured homes; or Fannie Mae Form 1073/Freddie Mac Form 465, “Individual

Condominium Unit Appraisal Report” for all individual condominium units.

5.17

ORDERING APPRAISALS

When Appraisals Are Needed

An appraisal is always required if the RHS loan is $7,500 or more and the Agency’s debt

plus prior liens against the property will exceed $15,000. (Another lender’s appraisal is acceptable

when the loan is part of a leveraging strategy under certain circumstances as described in Chapter

10.) If the total indebtedness against the property is less than or equal to $15,000, an appraisal is

not required if the Loan Originator is confident that the property has sufficient value to serve as

adequate security. Total indebtedness includes any prior liens on the property. The Loan Originator

should include a statement of the property’s value in the case file whenever an appraisal is not

completed.

For subsequent loans, no appraisal is required if the loan is less than $7,500 and is for

minimal essential repairs needed to ensure that the dwelling is decent, safe, and sanitary. An

appraisal is not required when a subsequent loan is made to protect the Government’s interest,

regardless of the amount. The Loan Originator must include a statement of the estimated

property value in the case file. If the subsequent loan is for $7,500 or more, no appraisal is

needed unless the property will be taken as security and at least 1 of the following conditions

exists:

• The latest appraisal report of the real estate is over 2 years old;

• The physical characteristics of the property have changed significantly;

• The economic characteristics of the market have changed significantly;

• The Loan Originator is uncertain of the adequacy of the security; or

• The subsequent loan is in connection with a transfer of an existing loan.

Program Responsibilities

In accordance with RD Instruction 2024-A, contract services shall not involve decision

making or other inherently governmental functions. Accordingly, prior to ordering an appraisal on

the subject property, the Field Office will ensure that the property is located in an eligible area

(which should be accomplished by entering the property’s address in the Agency’s property

eligibility website); and review the sales contract and related materials (such as the property’s

Multiple Listing Service sheet, tax bills, etc.) to confirm that the dwelling and/or site appear to

comply with the Agency’s regulations and guidance.

HB-1-3550

Paragraph 5.17 Ordering Appraisals

If appropriate, the Field Office will also prepare a list of detailed repairs with estimated costs,

or provide copies of bids from the applicant’s contractor needed to ensure the property meets the

Agency’s regulations and guidance. This list of repairs, which is based upon the inspection reports

prepared by State-licensed inspectors or qualified, third party inspectors hired by the applicant (refer

to Paragraph 5.7 A.), will be provided to the appraiser for the purpose of obtaining a subject to

repairs/alterations value provided those repairs/alterations typically add value and are not routine

maintenance items (e.g. check smoke detectors, pest or septic inspection, add GFCI protection to

exterior, kitchen, or bathroom electrical outlets, etc.).

Required Information

When the Loan Originator or Staff Appraiser requests an appraisal through the PMO’s

Procurement Requests SharePoint site using the current SFH Appraisal Request form (which can

be found in the Direct Training Hub in SharePoint along with other appraisal training materials),

the following information will be uploaded (as applicable): Cost Breakdown, Legal

Description/Deed, Plan & Specs (New Construction), Plat of Property, Prior Appraisal (1004D

only), Property Inspection Report, Proposed Repairs – Est. Cost $, Purchase Agreement &

Amendments, and Survey (if available).

The applicant has until the expiration of their Certificate of Eligibility, as described in

Paragraph 4.25, to present this information to the Loan Originator. Originals of this information

should be kept in the case file, with copies provided to the appraiser.

Appraisal Disputes

In situations where the market value of the security is inadequate to support the loan

request, the Loan Originator will send Handbook Letter 17 (3550), Adverse Decision Involving an

Appraisal. Handbook Letter 17 informs the applicant of their right to request a meeting with the

Local Office to review the appraisal report and present new, objective information or evidence for

the Agency’s consideration. The Loan Approval Official will then request a technical review by an

RD staff appraiser, and must attach the additional data provided by the applicant. New information

or evidence may include, but is not limited to, incorrect number of bedrooms, bathrooms, garage

bays, finished percentage of basement, repaired or renovated conditions not captured in the report,

etc. However, consideration of additional (or alternate) comparable sales are not part of the

Agency’s technical appraisal review process.

If the RD staff appraiser’s technical review concurs with the original appraisal, or if after

revisions are coordinated and the market value still does not support the loan amount, then

the Loan Originator will send the applicant Handbook Letter 18 (3550), Unfavorable

Decision after Technical Review of an Appraisal, with appeal rights (Attachment 1-B). The

appeal will consider the Agency’s underwriting decision regarding inadequate security

(market value) to support the loan request. Once an appraisal has been accepted by the

Agency the market value reported within the appraisal is not appealable.

5-30

HB-1-3550

5-31

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

5.18

APPRAISER RESPONSIBILITIES

The appraiser must provide the required estimates of value on the appropriate form. The

appraiser may also be asked to provide a list of repairs deemed essential for the property to be made

decent, safe, and sanitary.

If an appraiser observes potential contamination from hazardous substances, hazardous

wastes, or petroleum products on the property, or obtains other information about such

contamination, that information should be provided to the Agency together with an indication of

its potential impact on the value of the property. The Loan Originator must initiate the due

diligence process by completing Attachment 5-B. The completed Attachment 5-B must be sent

promptly to the SEC for further evaluation and guidance.

5.19

REVIEWINGAPPRAISALS

Appraisals will be reviewed through a combination of administrative reviews and technical

reviews. Administrative reviews can be completed by Agency staff trained to do so while technical

reviews must be completed by certified Agency appraisers. A technical review for loan origination

is an inherently governmental function and must be completed by an Agency appraiser. If an

appraisal is found to be unacceptable by any review, other than a post review, the original AMC

can make corrections or a new appraisal can be requested. The appraisal report must be acceptable

before the loan-making process can continue.

Administrative Review

Administrative reviews are performed by the Loan Approval Official using Form RD

1922- 15, Administrative Appraisal Review for Single Family Housing, and should be completed

as soon as possible (but not later than 7 days from receipt of the appraisal). Reviews are performed

on all contract appraisals and the contract appraiser’s invoice cannot be paid until the appraisal

review is complete. This review determines if there are inconsistencies in the appraisal report that

warrant a secondary review of the property and the sales contract prior to loan approval, or if a

technical review should be conducted by the staff appraiser prior to paying the appraiser’s invoice.

Indicators that a technical review may be required consist of the following: (1) Photos and

maps are not consistent with the information provided in the appraisal; (2) Large variances in

actual and effective age are not supported; (3) Comparables are located outside of the subject’s

market area or they are superior/inferior to the subject warranting excessive adjustments that are

not supported; (4) Sales and Financing concessions are not reported or comparables are not

properly adjusted when they are reported; (5) History of the subject property was omitted or not

analyzed; and (6) Inconsistent information in the appraisal.

HB-1-3550

Paragraph 5.19 Reviewing Appraisals

If the appraisal is acceptable, Field Staff must promptly forward (within 7 days) the email

received from the appraiser or AMC to [email protected] with “Appraisal Reviewed &

Accepted” in the subject line. If the appraisal is not acceptable, Field Staff must forward the

appraisal and Form RD 1922-15 to the Agency’s Regional Appraisal Services for a technical

review. The request for the technical review must be through the Regional Appraisal Services

SharePoint site.

Technical Review

A technical review can be either a field review or a desk review and is performed to

determine whether the appraisal is credible within the intended use, was clearly reasoned,

followed accepted appraisal techniques and RD requirements and had adequate support for the

conclusion of value. Technical reviews are an inherently governmental function and must be

performed by Agency certified appraisers. Technical reviews completed by Agency appraisers

should be consistent with current USPAP requirements which can be found at

www.appraisalfoundation.org.

Field reviews involve on-site visits to the subject property and the comparables while desk

reviews are performed in the office. Technical reviews must be completed for the first appraisal

conducted by any contract appraiser and for each appraiser that does multiple appraisals in a 12-

month period. Additionally, each contract appraiser must be reviewed at least once in a three-year

period. At the discretion of the Regional Appraisal Staff, additional technical reviews may be

ordered if concerns were encountered on the first technical review. In addition to the initial review,

technical desk or field reviews will be done in a random, spot- check method established by the

State Director for contract appraisals but should be completed on a minimum of 5 percent of the

contract appraisals received.

A technical review also may be requested by the Loan Approval Official when concerns are

detected by the administrative review. The concerns will be documented on Form RD 1922-15.

The Regional Appraisal Staff must determine if the concerns merit a technical review before the

vendor’s invoice can be paid or the loan closed.

5.20

PAYING FOR APPRAISALS

The Agency will charge a standard fee for each loan application that requires an appraisal.

This fee is updated periodically, along with TRID related implementation instructions, through

an Unnumbered Letter (UL) posted to the Agency’s Directives website. The UL will generally be

posted 30 days prior to the effective date of the fee change. Within 3 business days of receiving a

completed application, the Loan Originator will provide the applicant with CFPB’s standard

Loan Estimate, which includes the amount of the appraisal fee listed in the current UL.

The Agency may waive the fee for appraisals done for subsequent loans needed to make

minimal, essential repairs necessary to protect the Government’s interest, or for leveraged loans

if a participating lender is obtaining an appraisal that is acceptable to the Agency.

If there is a conditional commitment, the appraisal fee should be paid to the contractor at

closing as reimbursement for the cost of the appraisal that was included in the conditional

commitment fee.

5-32

HB-1-3550

(01-23-03) SPECIAL PN

Rev

ised (04-15-21) PN 549

5-33

5.21

APPRAISALS IN REMOTE RURAL AREAS, ON TRIBAL LANDS, OR WHERE

THERE IS A LACK OF CONVENTIONAL MARKET ACTIVITY

In remote rural areas, on Tribal lands, or areas with a lack of conventional lending market

activity it may be difficult to obtain adequate comparable sales to appraise a property. In these

areas, the sales comparison approach is not required. Instead, Form 1007, Marshall and Swift

Square Foot Appraisal Form must be used. These appraisals may be conducted by Agency staff

appraisers or by contract appraisers.

Remote rural areas are identified by the State Director and are defined as areas with these

types of characteristics:

• Scattered population;

• Low density of residences;

• Lack of basic shopping facilities;

• Lack of community and public services and facilities; and

• Lack of comparable sales data.

The results of the cost analysis completed using Form 1007 should be documented on the

Uniform Residential Appraisal Report and efforts to obtain comparable market data must be

documented in lieu of the sales comparison approach. External depreciation based on the

remoteness of the site must not be considered; however, factors that impact the site such as

immediate proximity to a feedlot, factory, or other similar considerations should be included.

When a market is established in these areas, the Agency will again require complete appraisals.

HB-1-3550

SECTION 6: MANAGING CONSTRUCTION

This section generally refers to when the Agency is advancing funds through draws for new

construction or substantial rehabilitation to a dwelling and when the funds are secured by a deed of

trust or mortgage. Typically this work will involve a general contractor who is responsible for

supervising and directly paying their subcontractors. Work described in this section is more

complex and would commonly take more than 30 days to complete.

When applicants enter into contracts with builders who own the site and are self-funding

the construction process, the Loan Originator will enter the dwelling type in LoanServ as

“Purchase New” rather than “Build”. The Loan Approval Official should communicate with the

applicant and builder on how acceptable construction quality will be documented in accordance

with Paragraph 6.7 B. and the standards in RD Instruction 1924-A.

5.22

DESIGN

Disseminating the Standards

The applicant needs to know the standards the dwelling must meet before the design process

begins. The Loan Originator should advise the applicant of the Agency’s rehabilitation or

construction standards.

The applicant and/or designer should also be provided with Form RD 1924-2, Description of

Materials, prior to loan approval. This form may be used by the designer as a basis for preparing

specifications. When other suitable specifications are available which will adequately describe the

materials, equipment, and fixtures to be used on the job, this form need not be used.

Review and Approve the Drawings and Specifications

Once the drawings and specifications are finished, the Loan Originator should review them

to ensure that they have been certified as meeting the Agency’s minimum standards contained in RD

Instruction 1924-A. The plans, specifications, calculations, and any modifications should be

certified by the design professional on Form RD 1924-25, Plan Certification, to ensure that the

appropriate codes and standards are met. If all applicable requirements are met, the Loan Originator

may accept the documents. If they do not meet the applicable requirements, the Loan Originator

should inform the applicant and designer, in writing, of the deficiencies or discrepancies. Once

these issues are resolved, the Loan Originator should review the drawings and specifications again.

5.23

PREPARING FORCONSTRUCTION

Selecting the Contractor

The applicant should select the contractor who will build or rehabilitate the dwelling. The

contractor must have a valid State contractor’s license if required in the State, and such license must

be documented by the Loan Originator. The Loan Originator must also verify the validity of the

license with the appropriate State entity and document the applicant’s file. For new construction,

5-34

HB-1-3550

Paragraph 5.23 Preparing for Construction

the applicant will usually have a contractor in mind. For rehabilitation, the applicant will provide an

adequate number of bid(s) from a qualified contractor(s).

The local office must review the bid(s) obtained to ensure costs are reasonable for the area

serviced, the number of bid(s) are sufficient, and clearly identify the work and materials to be

furnished. Bids should be solicited based on the developed set of specifications. Detailed

specifications must include a complete breakdown on materials and labor and describe the

quantity, quality, grades, styles, model numbers, etc.

The development budget may include an amount for contingencies not to exceed five

percent of the construction cost for unusual and unforeseen circumstances beyond the contractor’s

or borrower’s control (e.g. a major disaster in the region that causes an increase in materials and

subcontracted labor costs). The contractor and borrower must submit a signed change order to the

Loan Approval Official for concurrence to use the contingency funds. Contingency funds may

also be used for other eligible loan purposes when approved by the Loan Approval Official. If

not used, contingency funds will be deobligated or applied as a principal curtailment before or

after the construction loan is converted to a permanent loan.

With the exception of approved manufactured dealer-contractors, the Agency should not

maintain a list of approved contractors and an in-depth investigation of a contractor by the Agency

is not required unless the surety requirements are triggered and an exception by the State Director is

being considered. The need for an in-depth investigation should be rare; refer to RD Instruction

1924-A for further guidance. While a list of approved contractors should not be maintained, the

Agency should give the applicant general advice on selecting a contractor (e.g. the benefits of

“shopping around”, ask for and check references, check the contractor’s record with the Better

Business Bureau, etc.).

Pre-Construction Conference

Once the contractor has been selected and the funds have been obligated, the Agency, the

applicant, the designer (if applicable), and the contractor should hold a pre-construction conference.

The purpose of the conference is to ensure that each party understands their respective roles and

responsibilities. The parties should review the drawings and specifications to make sure everyone

understands the scope of work, construction/thermal standards, environmental mitigation

requirements, materials, inspection, change orders, and payment procedures. In addition, the

contractor must be advised that should human remains, historic or cultural resources be uncovered

during excavation or site development, all work must be stopped until an additional environmental

analysis is completed.

For new construction or rehabilitation, the Loan Originator should provide Exhibits F and

G of RD Instruction 1924-A to the contractor at or before the preconstruction conference. These

exhibits give details on the completion assurance (surety) that the contractor can elect to obtain.

The Loan Originator also should provide the “Equal Employment Is The Law” poster, which

explains the requirements of applicable fair labor standard laws to the contractor to post at the

work site.

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

5-35

HB-1-3550

Paragraph 5.23 Preparing for Construction

The Loan Originator should prepare an agenda before the meeting and take minutes during

the meeting. All parties should review and sign these minutes to indicate their approval. The Loan

Originator may use Form RD 1924-16, Record of Pre-Construction Conference, or Attachment

12-F as a basis for preparing the agenda and recording the minutes.

To prepare for loan closing, the contractor and applicant should undertake any pre-

construction activities necessary to ensure that construction can begin shortly after closing. This

might include getting building permits and lining up material suppliers.

Construction Contract

For new construction, a written construction contract is always required. Written contracts

are strongly recommended for all rehabilitation-related construction, and are required if there is

construction work involved that would affect the dwelling’s structural integrity (otherwise, a

rehabilitation plan with cost estimates and bid specifications may be used). The applicant and

contractor must sign the construction contract no later than at the pre-construction conference.

The Agency is not a party to this contract; however, the Agency provides many forms

that should be used, including:

• Form RD 1924-6, Construction Contract;

• Form RD 400-1, Equal Opportunity Agreement;

• Form RD 400-3, Notice to Contractors and Applicants; and

• Form RD 400-6, Compliance Statement.

Department of Labor Notification

For contracts greater than $10,000, the Loan Originator must prepare a letter within 10 days

after the contract is signed to notify the U.S. Department of Labor (DOL) of the execution. The letter

notifies the U.S. Department of Labor of the contract period and amount, and the contractor’s name,

address, and employer identification number. Exhibit C of RD Instruction 1901-E provides a format

for the Loan Originator to use. To obtain the most current DOL address, visit the DOL website

https://www.dol.gov/ofccp/contacts/regkeyp.htm

5.24

CONSTRUCTION PERIOD

Once the construction contract is in place, construction can begin. All construction work

should be inspected periodically in accordance with RD Instruction 1924-A to ensure that the work

is done properly. When Agency staff perform an inspection, Form RD 1924-12 Inspection Report

should be retained in the borrower’s case file. The borrower should attend all inspections and be

available to sign checks if payment is approved for the completed work.

5-36

HB-1-3550

5-37

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

aragraph 5.24 Construction Period

Qualified Inspector

The borrower will be responsible for

making inspections necessary to protect their

interest. Agency inspections are to protect the

Agency’s interest and to ensure the

completion of construction or rehabilitation without implication of duty or obligation to the

borrower. The final inspection can be conducted by the Loan Approval Official/Originator, or by a

qualified third party. Inspections fees from third parties, like building permits, are eligible loan

purposes. The inspector must be qualified to perform a construction inspection. A qualified third

party includes, a local building official, an inspector certified by a nationally recognized home

inspection entity, or a State-licensed inspector who inspects property according to the International

Code Council (ICC). The ICC publishes the International Building Codes used by most of the

jurisdictions within the United States. An appraiser may perform a completion valuation inspection

but this report is not sufficient for the Agency’s purpose without other supporting documentation

such as a certificate of occupancy, or a final inspection from a local building official or other

qualified third party.

A qualified third party inspector should be able to execute each of the following, as

applicable:

• Inspecting for conformity with development plans and building codes, with written

reports, at footing, framing, and final project phases.

• Preparation of additional inspection reports to include an analysis of the project’s

progress and quality of workmanship. Reports may include notes from

teleconferences, inspection reports, video and/or photos.

• Issue specific and critical activity reports, video or photos of apparent errors or

problems with workmanship.

• Document and evaluate any expressed opinion, fact, and observation by the owner,

third party inspector, or building/code official.

• Document discussions with the owner, inspector(s) and contractor.

Periodic Inspections

If inspections are conducted by a third party, the inspector should submit periodic

inspection reports to the Agency. The number and timing of inspections varies by the type and

extent of work performed. When concerns are raised by the inspector, contractor, borrower, or

Agency staff, clear communication between the parties is critical to successful completion of the

work.

Borrower’s Responsibility

for Inspection

The borrower is responsible for making

inspections to protect his or her interest. The

Agency’s inspections are not intended to assure

the borrower that the house is built according to

the approved plans and specifications.

HB-1-3550

Paragraph 5.24 Construction Period

• New construction. Inspections may be conducted as necessary, but a minimum of 3

generally are required: (1) footings while under construction; (2) after the dwelling

is framed-in; and (3) a final inspection once all work is complete.

• Substantial rehabilitation. A new addition, remodeling, moving walls, changing the

foundation, or structural integrity of the home are examples of substantial

rehabilitation. It is more complex than simple repairs and oftentimes affects multiple

major components of the dwelling. This type of work generally requires permits and

inspections by the local building department. All rehabilitation work must be

inspected, but the Agency does not prescribe specific guidelines for inspecting

rehabilitation work that does not involve new construction. A qualified third party

inspector may be used and should inspect at intervals that are appropriate for the

complexity of the work. The Loan Originator may also rely on current media (photos,

video) and third party inspection reports, which are quickly and easily transmitted, to

render an effective remote assessment for compliance determinations.

• Final Inspection: The following documents should be submitted prior to final

payment and the Loan Originator should address the acceptability of the

documentation and the completed repairs in the running record:

◊

The forms listed in Paragraph 5.27.

◊

Borrower’s written acceptance of the completed work.

◊

Photos of the completed work as provided by the borrower and/or contractor.

◊

A copy of a third party inspection (if applicable).

• Environmental requirements. If environmental mitigation measures are required,

the Agency’s inspector should follow up on the implementation of such measures and

document compliance on Form RD 1924-12. Noncompliance with environmental

mitigation measures must be reported promptly to the Loan Originator and the SEC.

5-38

HB-1-3550

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

Paragraph 5.24 Construction Period

Partial Payments

Partial payments for work completed

can be issued after each inspection. The

contractor and Loan Originator establish a

draw schedule before loan closing. This

schedule identifies when partial payments

Example - Partial Payments

A contractor submits a payment request for $25,000

for work completed. The loan official prepares a

payment for $15,000 (60 percent of the request), and

withholds $10,000 (40 percent).

may be made, based on the amount of work completed. The amount of the payment is typically

based on the value of the work, according to Exhibit A of RD Instruction 1924-A, or the

Marshall and Swift guidelines. To ensure that all work will be satisfactorily completed, 40

percent (or a lesser percent if required by state law) of each payment request is typically

withheld until all of the work items established in the draw schedule are complete and final

payment is made, as described in Paragraph 5.27. The amount withheld can be reduced to 10

percent if the contractor obtains a Surety Bond, Performance Bond, or Payment Bond, but this

is extremely rare.

Changes During Construction

If changes to the approved drawings and specifications are required during construction,

the applicant and contractor must sign Form RD 1924-7, Contract Change Order. All

modifications must be certified on Form RD 1924-25, Plan Certification, if the modification is

regulated by the applicable development standard. Before signing it, the Loan Approval Official

must review and sign the change order to ensure that the change fits within the approved loan

amount and the funds are being used for an eligible loan purpose.

If the change order does not fit within the approved loan amount, several courses of action

are possible:

• If the change is necessary and the borrower has repayment ability, the Agency may

make a subsequent loan for the amount required to pay for the change;

• The scope of work may be scaled back to accommodate the change;

• The Agency may increase the loan amount if it can be supported by the appraisal, the

cost of the property remains below the applicable area loan limit, and the borrower

has repayment ability; or

• The borrower may be required to provide additional cash.

The environmental review for the project must be amended if there are changes to plan

and specifications during construction (with or without the provision of additional financial

assistance), which will alter the purpose, operation, location, or design of the project as originally

approved.

5-39

HB-1-3550

5.25

CONSTRUCTION CLOSEOUT

Once construction or rehabilitation work is satisfactorily completed, the Agency will

make final payment to the contractor. Before that can occur, the Loan Originator must ensure

that the work has been done properly and that no one will make any claims against the property

(such as dissatisfied subcontractors). The Agency provides several forms to help the Loan

Originator close out the construction process, as listed below.

• Certificate of Contractor’s Release. Form RD 1924-9, Certificate of Contractor’s

Release must be signed by the contractor; it certifies that the work has been

completed according to the drawings and specifications and the Agency’s standards.

• Release by Claimants. The contractor must have each subcontractor used

during construction sign Form RD 1924-10, Release by Claimants. It certifies

that the contractor has paid each subcontractor and that there are no outstanding

claims against the property for work performed.

• Builder’s warranty. A warranty is a guarantee of the quality of work or materials.

The Agency must have a copy of 1 of the 2 acceptable forms of builder’s warranties

as listed below (the applicant keeps the original).

◊

Form RD 1924-19, Builder’s Warranty is a 1-year warranty provided to the

borrower by the contractor after the construction work has been accepted by the

borrower and the Agency. A builder’s warranty is issued for new construction (or

rehabilitation involving construction) that has had appropriate periodic inspections

conducted by the Agency (or third party). The warranty guarantees that the builder

will repair or replace any defects in materials or construction that occur within 1

year from the date of acceptance. The Servicing and Asset Management Office

(Servicing Office) will be responsible for notifying the borrower of the expiration

of the builder’s warranty within eleven months of acceptance of the final

inspection

◊

An insured 10-year warranty, as described in Exhibit L of RD Instruction 1924-A,

is an insurance policy issued by a third party. It is purchased by the builder and insures

the borrower against builder defaults and/or major structural defects. This policy i

typically used when the borrower is purchasing an existing, newly constructed dwelling

and the Agency does not have acceptable documentation of construction quality.

• Other documentation. The Agency should maintain the following documentation,

if applicable:

◊

Certificate of Occupancy (in some localities, a certificate of occupancy from

the local authority is required before a new or renovated structure may be

occupied);

◊

Copies of building permits;

5-40

HB-1-3550

Paragraph 5.25 Construction Closeout

◊

Form RD 1924-25, Plan Certification;

◊

Certifications regarding the adequacy of all systems, as described in Paragraph

5.7 A.; and

◊

Additional certifications and warranties, including insulation, carpet, major

equipment and appliances.

◊

Thirty days after the final inspection and issuance of the Builder’s Warranty, the

Loan Originator will send Guide Letter 1924-1 of RD Instruction 1924-F

informing the borrower that financial assistance may be available to them under

the Compensation for Construction Defects Program.

5.26

SPECIAL SITUATIONS

Funds Remaining After Completion

When all planned construction or rehabilitation work has been completed, remaining loan

funds may be used for any additional authorized loan purposes agreed upon by the applicant and

the Agency. The Loan Originator must document the purposes for which the funds disbursed to

the borrower will be used. The Loan Originator should adjust the development plan accordingly.

Once the work is complete, the Loan Originator should maintain documentation of the work

performed, such as invoices and receipts for materials, equipment or supplies. If no agreement

can be reached, the Agency should apply the funds to the borrower’s outstanding principal

balance.

Construction Work that Cannot be Completed

If construction or rehabilitation work cannot be completed because the contractor is unable

or unwilling to do so, and the applicant is unable to obtain another contractor (even with the

Agency’s assistance), funds should be applied to reduce the borrower’s principal balance.

Deceased Borrowers

If a borrower dies before funds are disbursed for completed construction or rehabilitation

work, the Loan Originator may authorize payment for work completed when there is written

evidence (such as a letter) that the work was accepted as complete and satisfactory by the borrower

or an authorized representative, and an authorized Agency representative has inspected the work and

found it satisfactory. The authorized representative can endorse the check on behalf of the deceased

borrower. If there is no authorized representative or the contractor files a mechanics lien, advice

from the Office of the General Counsel (OGC) should be sought to ensure the Agency’s interests are

protected.

5-41

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

Paragraph 5.26 Special Situations

Compensation for Construction Defects

RD Instruction 1924-F defines a newly constructed dwelling. The Government may pay

for major defects in dwelling construction that are not repaired adequately by the builder (such

defects are usually the result of poor workmanship and the contractor refuses to repair the defect

or the repairs are inadequate) only in dwellings that meet the eligibility requirements. To be

eligible, the borrower must submit a claim to the Field Office within 18 months after the date the

borrower signs the final inspection report. Guidance on how to notify borrowers of this policy, as

well as instructions on how to implement the policy, can be found in RD Instruction 1924-F. This

option should only be used as a last resort after all other actions to correct the defects have failed.

5-42

HB-1-3550

Attachment 5-

Page 1 of

ATTACHMENT 5-A

STATEMENT OF WORK (SOW) FOR APPRAISAL SERVICES AND

APPRAISAL INSTRUCTIONS SINGLE FAMILY HOUSING

RESIDENTIAL PROPERTY

BACKGROUND: USDA Rural Development (RD) provides direct loans to eligible applicants

for single family housing (SFH) residential property. To support this program, RD requires

qualified appraisers to provide appraisal services, in accordance with 7 Code of Federal

Regulations (CFR) Part 3550, at https://www.rd.usda.gov/files/3550appendix01.pdf.

OBJECTIVE: High quality appraisals to determine market value of SFH residential properties

are key to ensuring the Agency obtains adequate security for its loans.

REQUIREMENTS FORAPPRAISALS:

The appraiser(s) signing the appraisal must be currently licensed in the state where the

subject property is located as a Certified General, Certified Residential, or Licensed

Appraiser. The appraiser shall be identified as active on the Appraisal Subcommittee

website (www.asc.gov) at time of award and maintain professional errors and omissions

insurance coverage in accordance with local and state government requirements. The

appraiser shall have the specialized knowledge and experience necessary to be competent

to appraise single-family housing.

A trainee may sign the report. If a trainee signs the report, the trainee’s registration shall be

provided to RD and the qualified appraiser shall sign as Supervisory Appraiser and

personally inspect the subject property.

If an appraisal assignment is awarded to a contractor not holding an appraisal license, the

awarded contractor may subcontract the appraisal assignment (or any part of it) to a

qualified appraiser as outlined above with prior written consent of the RD Contracting

Officer (CO). In the event of subcontracting the assignment, the contractor must also

adhere to any licensure requirements imposed by any entity having jurisdiction in the state

where the property is located.

If required by RD, the appraiser(s) signing the report shall defend the appraisal in court or

in the RD appeals process. Cost associated with the defense of the appraisal, when

necessary, will be negotiated under a separate purchase order/contract.

Except where noted herein, the contractor or appraiser shall provide all facilities, materials, supplies,

tools, equipment, personnel, and travel to accomplish the performance of the requirements of this

agreement.

(01-23-03) SPECIAL PN

Revised (04-15-21) PN 549

HB-1-3550

Attachment 5-A

Page

2 of 12

The appraisal must comply with the current edition of the Uniform Standards of

Professional Practice (USPAP) and agency requirements as described in Handbook-1-

3550 https://www.rd.usd .gov/files/hb-1-3550.pdf , Handbook-2-3550, Chapter 2,

https://www.rd.usda.gov/files/3550-2chapter02.pdf , together with 7 CFR 3550 as

applicable to all additional appraisal requirements

https://www.rd.usda.gov/files/3550appendix01.pdf, and Rural Development Instruction

1922-A, https://www.rd.usda.gov/files/1922a.pdf.

All appraisals for RD will provide market value based on the following market value

definition used by federally insured financial institutions; Title XI of the Financial

Institutions Reform and Recovery Enforcement Act of 1989; Definition of Market Value

(12 U.S.C. 1818,1819):

Definition of Market Value:

Market value means the most probable price which a property should bring in a

competitive and open market under all conditions requisite to a fair sale, the buyer and

seller each acting prudently and knowledgeably, and assuming the price is not affected by

undue stimulus. Implicit in this definition is the consummation of a sale as of a specified

date and the passing of title from seller to buyer under conditions whereby:

(1)

Buyer and seller are typically motivated;

(2)

Both parties are well informed or well advised, and acting in what they consider their

own best interests;

(3)

A reasonable time is allowed for exposure in the open market;

(4)

Payment is made in terms of cash in U.S. dollars or in terms of financial

arrangements comparable thereto; and

(5)

The price represents the normal consideration for the property sold unaffected by

special or creative financing or sales concessions granted by anyone associated with

the sale.

The appraisal must be completed using the most recent version one of the following forms:

Fannie Mae Form 1004/Freddie Mac Form 70, "Uniform Residential Appraisal Report," for

all one-unit, single family dwellings; Fannie Mae Form 1004C/Freddie Mac Form 70B,

“Manufactured Home Appraisal Report,” for all manufactured homes; Fannie Mae Form

1073/Freddie Mac Form 465, “Individual Condominium Unit Appraisal Report” for all

individual condominium units; Fannie Mae Form 2055/Freddie Mac Form 2055, "Exterior-

Only Inspection Residential Appraisal Report," for all one-unit, single family dwellings for

all properties when there is no visual inspection of the interior required or requested by RD;

or Fannie Mae Form 1004D/Freddie Mac Form 442, “Appraisal Update and/or Completion

Report”.

HB-1-3550

Attachment 5-A

Page 3 of 12

(01-23-03) SPECIAL PN

Revised (06-21-18) SPECIAL PN

TYPES OFVALUES:

Depending on the purpose of the appraisal, an appraiser will either determine the estimated

market value of the property in its current condition (the “as-is” value) or; determine the

estimated market value of the property, based on completion of construction in accordance

with plans and specifications, or completion of rehabilitation based on a list of repairs to be

considered (the “as-improved” value). https://www.rd.usda.gov/files/3550-1chapter05.pdf

(Handbook-1-3550, Chapter 5 (5.15))

As-Improved value (Value Subject to Completion) - Loans for planned new construction

or rehabilitation require an estimate of the “as-improved” value considering all

construction / repairs / rehabilitation are complete.

As-Is value – Loans for existing dwellings (including a new construction dwelling that

has been completed at the time of appraisal) involving no repairs require an as-is value.

As-is value appraisals may also be needed to support loan servicing actions or to

determine a disposition plan for real estate owned (REO) properties.

Liquidation Value – Liquidation appraisals may be needed to support loan foreclosure

actions or to determine a disposition plan for real estate owned (REO) properties.

Liquidation Value, is defined as:

The most probable price that a specified interest in property which a property should

bring under the following conditions:

1. Consummation of a sale within a short time period;

2. The property is subjected to market conditions prevailing as of the date of

valuation ;

3. Both buyer and seller are acting prudently and knowledgably;

4. The seller is under extreme compulsion to sell;

5. The buyer is typically motivated;

6. Both parties are acting in what they consider to be their best interests;

7. A normal marketing effort is not possible due to the brief exposure time;

8. Payment will be made in cash in US dollars (or the local currency) or in terms of

financing arrangements comparable thereto;

9. The price represents the normal consideration for the property sold unaffected by

special or creative financing or sales concessions granted by anyone associated

with the sale.

Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 6

Ed., (Chicago:

Appraisal Institute, 2015):

HB-1-3550

Attachment 5-

Page

of 12

SPECIALINSTRUCTIONS:

Loan Servicing Appraisal - In the event the appraiser is requested to complete an

appraisal for a servicing action such as foreclosure, short sale, deed-in-lieu, etc., an

appraisal reflecting the market value of the property in its “as-is” condition is necessary

for RD use.

Additionally, the appraiser shall provide under the same cover within the addenda, a

liquidation value estimate for the subject property, as defined in Item 2, considering a

prescribed marketing period of 30 days.

Typically, when a property in foreclosure is occupied, the appraiser will not be required to

gain access for a visual inspection of the interior of the subject property. In this case, the

appraiser must complete the appraisal report on the Fannie Mae Form 2055/Freddie Mac

Form 2055, “Exterior-Only Inspection Residential Appraisal Report” unless specifically

instructed otherwise by RD. The report must include an extraordinary assumption that

there was no visual inspection to the interior and details of the sources being used for the

interior components and the assumed condition of the interior.

https://www.rd.usda.gov/files/3550-1chapter13.pdf (Handbook-1-3550, Chapter 13

(13.17) (C) (3).

Subsidy Recapture Appraisal – The appraiser must complete an as-is market value

appraisal.

The appraiser must provide the estimated contributory value of all capital improvements

added to the subject property from original date of purchase as specified / indicated by the

owner. In the event the appraiser cannot determine from local records what capital

improvements may have been added, the appraiser may contact the Authorized Government

Representative (AGR) to determine if original loan records detail historic property

conditions. Each capital improvement must be noted individually. The appraiser must

provide the estimated contributory amount of market value, if any, for each capital

improvement item. Items considered to be general maintenance are not considered to be

capital improvements. Values shall be supported by market evidence or other valuation

methods deemed appropriate by the appraiser. https://www.rd.usda.gov/files/3550-

2chapter02.pdf (Handbook-2-3550, Chapter2 (2.23) (8)

HB-1-3550

Attachment 5-A

Page

5 of 12

(01-23-03) SPECIAL PN

Revised (02-15-19) PN 521

APPRAISALMETHODOLOGY

RD requires appraisers to use the following appraisal methods to arrive at a final estimate of

value.

Sales Comparison Approach: Under this method, the appraiser uses the recent sales prices

of properties that are comparable in location and characteristics to the subject property in

order to estimate a market value for the property. The appraiser must use at a minimum

three (3) comparable closed sales of single family residential properties that sold in the

previous 12 month period unless the appraiser provides documentation that such

comparable transactions are not available in the area. Comparable sales should be located

as close as possible to the subject dwelling, from within the competitive market area, and

should be the most comparable available for purposes of valuation.

Cost Approach: This method is specified in Handbook 1-3550, Chapter 5, found at this

web address, http://www.rd.usda.gov/files/3550-1chapter05.pdf. For all proposed

construction or all homes having an age of one year or less, RD requires that the

appraiser develop, report and reconcile the cost approach to value. On homes over one

year of age, the appraiser should determine whether the cost approach is relevant or

necessary to determine a valid opinion of market value. This determination must be

developed and reported in accordance with the USPAP.

Under this method, the appraiser derives an estimate of value using replacement cost

estimates for the improvements, less depreciation of all forms, and then adding an

estimate of the site value.

The appraiser will identify the source of cost estimates, such as Marshall and Swift

Residential Cost service, local builder’s cost data or other national

publication for residential costs, used in the cost approach. The methodology used to

estimate depreciation must be stated in the report.

Properties in remote rural areas, on tribal lands (American Native and Alaskan Native), areas

with a lack of market activity, or those representing a leasehold interest, where it may be

difficult to obtain adequate comparable sales to be used for comparative purposes in order to

appraise a property. In these areas, the sales comparison approach is not required. Instead,

Marshall & Swift Form 1007, Square Foot Appraisal Form, must be used.

Remote rural areas are identified by RD and are defined as areas lacking sufficient

market activity and having the following characteristics:

• Scattered population;

• Low density of residences

HB-1-3550

Attachment 5-

Page 6 of 12

Income Approach: Under this method, the appraiser derives a value indication for an

income-producing property by converting its anticipated benefits (cash flows and

reversion) into property value. This conversion can be accomplished in two ways. One

year’s income expectancy can be capitalized at a market-derived capitalization rate or at a

capitalization rate that reflects a specified income pattern, return on investment, and change

in the value of the investment. Alternatively, the annual cash flows for the holding period

and the reversion can be discounted at a specified yield rate.

The Income Approach method of valuation may only be used for Agency Non-

Program Properties such as Real Estate Owned (REO) or Non-Program Loan

Assumptions.

USPAP Standards Rule 2-2 (a) (viii) require the appraisal report to summarize the

information analyzed, the appraisal methods and techniques employed, and reasoning

that supports the analyses, opinions, and conclusions; and also, exclusion of the sales

comparison approach, cost approach, or income approach must be explained.

APPRAISALREQUIREMENTS:

The appraiser signing the appraisal report must understand and agree that RD is the client,

and all reports must be addressed to USDA – Rural Development. The intended user of the

report will be RD and any other intended user specified by the agency. Any questions

relating to agency requirements of the appraisal assignment should be directed to the AGR

and will not be directed to the property owner, real estate agent, builder/contractor, or any

other party to the transaction. Communication relating to the assignment, directed

to the AGR, can come from the appraiser signing the appraisal report or the contractor

selected for the assignment and in all instances RD staff will be granted permission to

directly communicate with the appraiser signing the report.

The appraisal report must be Uniform Appraisal Dataset (UAD) compliant.

A property contact person will be provided by the AGR and ensure the appraiser has access

to the subject property for inspection, unless the property is occupied and the appraisal is

for foreclosure purposes. In this situation, a drive-by / exterior only appraisal shall be

conducted utilizing the extraordinary assumption the condition of the exterior of the

dwelling indicates a similar condition for the interior.

HB-1-3550

Attachment 5-

Page

(01-23-03) SPECIAL PN

Revised (02-15-19) PN 521

Appraisal fees or turnaround times must not be discussed with the property contact, the

property owner or the borrower. The appraiser must notify the AGR immediately if any of

the following occurs:

(1)

The appraiser cannot gain adequate access to the property;

(2)

The appraiser does not receive essential property information in a timely manner;

(3)

The appraiser has previously appraised or is in the process of appraising the property

for another client; or

(4)

The appraiser has any other potential conflict of interest with respect to the

assignment.

If appropriate, the RD Field Office will prepare a list of repairs needed to insure the

property meets the Agency regulations and guidance. The list of repairs, which is based on

the inspection reports prepared by State-licensed inspectors or qualified third party

inspectors hired by the applicant will be provided to the appraiser for the purpose of

obtaining an “as-improved” value. The list of repairs shall be provided by the RD Office

processing the loan application. The appraiser is responsible to take into account the RD

required repairs and must include the list of repairs in the addendum of the appraisal

report.

The appraiser must provide an opinion of site value supported by a narrative of

comparable land sales or other methods used for estimating site value. If support is not

included in the appraisal report, a statement by the appraiser that such information is

available for review upon request and in the appraiser’s work file should be made. The

land must be valued as though vacant and ready for development.

• The appraiser must specify whether the site is or can be subdivided into more

than one site under existing local zoning ordinances.

• The appraiser shall discuss the site size and the concluded site value and

whether they are typical for the subject market.

• Any land area of the subject property that is determined by the appraiser as

either excess land or surplus land must be addressed and valued accordingly

together with documentation and support within the appraisal report for the

appraiser’s conclusions.

In addition, the appraisal report for a manufactured home must also meet the following

requirements:

(1)

Cost Approach: Manufactured Home Appraisal Reports will require a published

cost data service such as the Marshall and Swift Residential Cost Guide or the

N.A.D.A. Manufactured Housing Appraisal Guide calculations to be included. The

appraiser must take at least one of those values into consideration in arriving at a

value conclusion.

HB-1-3550

Attachment 5-

Page 8 of 12

(2)

Sales Comparison Approach: The appraisal report must contain at least two

comparable manufactured home sales of similar configuration and quality. The

appraiser may use either site-built housing or a different type of factory built housing as

the third comparable sale if the appraiser explains the reason for selecting the

comparable and support the appropriate adjustments in the appraisal report.

All extraordinary assumptions, hypothetical conditions, and limiting conditions must be

clearly and prominently described in a single location near the beginning of the report

and in appropriate sections of the appraisal. General assumptions and limiting conditions

that reduce the normal scope of appraisal due diligence are not allowed.

The appraiser must keep all information and materials furnished by Rural Development, the

owner, and/or property contact regarding the subject property confidential, as required by

USPAP and the Gramm-Leach-Bliley Act (also known as the Financial Services

Modernization Act of 1999). Any information obtained through public sources is not

considered confidential information. Disregard of this privacy requirement will be cause

for immediate debarment as a contractor for the federal government.

All appraisals must comply with the Fair Housing Amendments Act of 1988.

According to the Act, it is unlawful for an appraiser to use factors that are

discriminatory on the basis of race, color, religion, sex, disability, familial status, or

national origin in the sale, rental, leasing, or financing of housing.

Each appraisal will be submitted electronically, using the industry standard Extensible

Markup Language (XML) appraisal data formats Mortgage Industry Standard

Maintenance Organization (MISMO), with embedded PDF. Electronic submissions, in

the above formats, must be emailed to the AGR as indicated on the confirmed Single

Family Appraisal Order Form, Purchase Order, or Task Order (SF 1449).

OBSERVEDCONDITIONS:

The appraiser is required to make a property inspection to gather data to support the

determination of value. Readily observable conditions shall be noted.

The appraiser(s) signing the appraisal report must make at a minimum a personal inspection

of the subject (interior and exterior) unless the appraisal is for foreclosure purposed of an

occupied dwelling, then an exterior only inspection is required. Also, inspection of all

comparable sales (exterior) at a minimum from the street. The appraiser must indicate that

the subject’s interior and exterior and all comparable sales were personally inspected /

observed within the appraisal report. Readily observable conditions must be noted for the

following: attic space, crawl space, floors and walls for significant structural failure,

moisture damage, or evidence of past fire damage; the roof condition for remaining life; the

mechanical systems for operability; and all surfaces for defective paint.

HB-1-3550

Attachment 5-

Page 9 of 12

B. In the event that access to the subject interior and/or exterior cannot be obtained, the

appraiser must obtain prior authorization to continue the assignment without inspection. In

the event RD authorizes valuation without an inspection, the appraiser must comply with

USPAP Standard Rule 1-2 (F) which requires the appraiser to identify any extraordinary

assumptions necessary in the assignment. The extraordinary assumption must include

detailed disclosure of the assumed condition, the source(s) the extraordinary assumption is

based upon and must be clearly labeled as such within the appraisal.

The appraiser must note any suspected environmental hazards, including issues external to

the property that could adversely impact the property's value. Examples of environmental

hazards would include damaged asbestos-containing building materials, underground

storage tanks, chemical leaks, spills, staining of ground surfaces, or on-site waste disposal

such as sludge, oil, paints, or chemical residues. If the appraiser observes any suspected

environmental hazards, he/she must notify the AGR immediately and refrain from

finalizing aspects of the appraisal that could be impacted until resolution of the issue or

until instructed otherwise.

The appraiser must notify the AGR. In the event the appraiser observes a deficiency in

the property that does not meet minimum property requirements, of decent, safe and

sanitary as outlined in HB-1-3550, Paragraph 5.7. (http://www.rd.usda.gov/files/3550-

1chapter05.pdf).

For uninhabited dwellings where utilities are temporarily disconnected, the appraiser will

inspect all mechanical systems (heating, plumbing, electrical) for observable conditions,

but will not be responsible for reporting operability of these systems. Unless otherwise

notified, the appraiser may assume operability for valuation purposes and this must be

mentioned as an “extraordinary assumption” in the appraisal report.

Where applicable, appraisers should be familiar with the general provisions of “green

properties” in single-family housing. The appraiser shall consider what impact (if any)

such factors have on the value of the subject property. Any impact on value should be

supported by market evidence.

The Mutual Self-Help Program, is a housing program utilizing supervised labor

performed by borrowers as part of the construction process. Construction conducted

under the program is supervised by technical experts to assure the quality of its

completion.

Appraisal of properties constructed under the Mutual Self-Help Program should consider

construction, materials and finish will be completed in a workmanlike and professional

manner.

(01-23-03) SPECIAL PN

Revised (02-15-19) PN 521

HB-1-3550

Attachment 5-A

Page 10 of 12

DOCUMENTATION:

All approaches to value and the value opinion must be in accordance with acceptable

appraisal methodology.

All reports must include a location map (should include proximity to applicable

road/highway), flood plain map when the property is located in a designated flood plain,

land sales map, sales comparable map, rent comparable map (if applicable), plat map, and

building sketch (indicating interior building layout, garages and all external buildings).

For new construction, the appraisal report must include clear original color photographs of

the subject’s front, rear, street and street easement (private access), if applicable. In all other

appraisals colored photographs showing at a minimum the front, rear, and both sides to the

exterior. Interior photographs should be included showing each room type, attic and crawl

spaces, other non-gross living area (sun rooms, patio/deck/porch/fences) and any noted

structural, safety and/or sanitary deficiencies. Additionally, photographs of improvement

components that have been upgraded shall be included to document and support the

appraiser’s determination of the subject’s effective age if different than its actual age. A

current original photograph of each comparable sale and listing used in the completion of

the appraisal is required. If the comparable sale and listing photographs are not available

the appraiser should provide, at a minimum, multiple listing service photographs, whenever

possible, along with the cited source from which the photographs were obtained.

The bedroom shall meet legal requirements (building code, zoning ordinance, etc.) as

mandated by the local county/state government enforcement agency and applicable agency

regulations where subject property is located, if any such legal requirements exist.

Verification from third party sources should be noted within the appraisal and maintained as

part of the appraisers work file.

The appraisal shall include photographs of all external buildings as well as interior photos

of the external buildings (if possible). The external dimensions for each of the external

buildings must be included, preferably in the building sketch or identified in the addendum

of the appraisal report.

The appraiser must estimate the remaining economic life of the subject's improvements, (the remaining

number of years that the subject's improvements will contribute value to the land) and report this

estimate in the cost approach section. An explanation is required if the remaining economic life is less

than 30 years (the explanation is used to justify reducing the term of the mortgage to less than 30 years).

HB-1-3550

Attachment 5-

Page 11 of 12

All appraisals of existing properties must include a discussion of deferred maintenance

for the subject property. Items of deferred maintenance must be listed, and cost to cure

for each item must be estimated with support provided.

All reports must include a written explanation and documentation to support individual line

item adjustments. Total net adjustment percentages and gross adjustment percentages when

compared with the comparable sale unadjusted sale price shall be discussed.

COMPLETIONCERTIFICATION:

If determined by Rural Development (RD), the appraiser may be requested to re-inspect

properties to determine if repairs to the home or construction of home were completed.

RD shall determine the need for an appraiser to re-inspect a property. Re-inspection

services may also be ordered on a separate contract if required. A list of additional repairs

will be provided to the appraiser. Not all “subject to” appraisals will require re- inspection

services.

The appraiser shall submit their findings using the Fannie Mae Form 1004D/Freddie Mac

Form 442 “Appraisal Update and/or Completion Report.” The completed report shall be

delivered to the AGR within 7 business days from the date the order was received. The

report shall include pictures of completed work.

Re-inspection reports are due within 7 business days after notification is received from

the AGR.

APPRAISAL REPORT DELIVERYDEADLINES:

The appraiser shall complete and deliver appraisals to the AGR within 10 business/working

days or specified noted delivery time after date of order, or upon receipt of the appraisal

information from AGR unless a different deadline is set by written mutual agreement at the

time of order. If corrections and/or amendments to the appraisal are requested by the AGR, the

corrections and/or amendments are to be delivered as soon as possible, but not later than 4

business days following the request unless, by written mutual agreement, other arrangements

are made. If, for any reason the timely delivery of the appraisal report is delayed for reasons

beyond the appraiser's control, the appraiser must contact the AGR and convey the reasons for

the delay.

If, for any reason the timely delivery of the appraisal report is delayed for reasons beyond the

appraiser's control, the appraiser must contact the AGR and convey the reasons for the delay.

(01-23-03) SPECIAL PN

Revised (06-21-18) SPECIAL PN

HB-1-3550

Attachment 5-

Page 12 of 12

10.

REVIEW OF THE APPRAISALREPORT:

All appraisals prepared for RD are subject to technical review by the agency. Appraisers

must be prepared to discuss their analyses, reasoning, opinions, and conclusions.

Additionally, if requested, they must provide additional written support, clarification, and/or

corrected appraisal pages or report. If requested by the AGR or RD’s Regional Agency

Appraiser, they will provide assistance to monitor the progress and quality of the appraiser’s

performance and in all instances RD Regional Agency Appraisers will be granted permission

to directly communicate with the appraiser signing the report as part of the review process.

11.

ATTACHMENTS:

The Agency will provide the appraiser all necessary support information available at the time

of appraisal engagement.

12.

COMPLIANCE WITH STATEMENT OFWORK:

The appraiser must follow all provisions and instructions contained in this Statement of

Work. When, in the opinion of the appraiser, the Regional Agency Appraiser or the AGR

request effort(s) falling outside this Statement of Work, the appraiser shall promptly notify

the AGR, in writing.

The Regional Agency Appraiser or the AGR has the authority to direct the accomplishment

of any effort which goes beyond the Statement of Work, however, any changes resulting in

additional charges must be approved by the contracting officer prior to commencement of

work.

If the appraiser is unable to fully comply with this Statement of Work, the appraiser must

decline the appraisal assignment in accordance with the USPAP.

13.

SPECIFIC STATEREQUIREMENTS:

None

*PLEASE NOTE: FAILURE TO FOLLOW THE STATEMENT OF WORK AND

APPRAISAL INSTRUCTIONS CAN RESULT IN DENIAL OF FUTURE

ASSIGNMENTS.*

HB-1-3550

Attachment 5-

Page 1 of

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505

ATTACHMENT 5-B

SINGLE FAMILY HOUSING SITE CHECKLIST

Buyer/Owner Name Property Address

Name of Subdivision:

Year Built:

Property is currently ( ) occupied ( ) unoccupied. Was interior accessible? ( ) Yes ( ) No

1. SITE SUITABILITY, ACCESS, AND COMPATIBILITY WITH SURROUNDING

DEVELOPMENT

Has the site been used as a dump, sanitary landfill, or mine waste disposal area? ( ) Yes ( ) No If

no, is the site in proximity to any such uses? ( ) Yes ( ) No

Is there indication of:

Yes No Yes No

distressed vegetation ( ) ( ) oil/chemical spills ( ) ( )

waste material/containers ( ) ( ) abandoned machinery, cars,

soil staining, pools of liquid ( ) ( ) refrigerators, batteries, tires, etc. ( ) ( )

loose/empty drums, barrels ( ) ( ) transformers, fill/ventpipes,

foul odor ( ) ( ) pipelines, drainage structures ( ) ( )

underground or above ground

storage tanks ( ) ( )

Are there property easements for high-t

ension power lines or gas lines? ( ) Yes ( ) No

Are there other unusual conditions on site which might indicate pot

ential for contamination from hazardous

waste, hazardous substances, or petroleum products? ( ) Yes ( ) No

Is the site adjacent or in proximity to industrial areas, refineries, dry cleaners, chemical storage areas, recycling

facilities, oil or gas wells, fueling stations, etc.? ( ) Yes ( ) No

Note: Complete a Transaction Screen Questionnaire (TSQ) for any “YES” answer in item 1 before proceeding

further. Contact the State Environmental Coordinator with any questions.

HB-1-3550

Attachment 5-

Page 2 of 5

Are any of the following conditions present? Check if observed and explain on page 5 of 5:

( ) mold/mildew ( ) peeling paint(interior)

( ) insect infestation ( ) peeling paint (exterior)

( ) asbestos (interior) ( ) ponding/standing water

( ) asbestos (exterior) ( ) evidence of water runoff from adjacent properties

( ) knowledge of past or current use for production of methamphetamine

Is the site compatible with surrounding area in terms of:

Yes No

Land use ( ) ( ) Building type ( ) ( )

Height, bulk, mass ( ) ( ) Building density ( ) ( )

Will the site be unduly influenced by:

Yes No

Building deterioration ( ) ( ) Transition of land uses ( ) ( )

Postponed maintenance ( ) ( ) Incompatible land uses ( ) ( )

Obsolete public facilities ( ) ( ) Inadequate off-street parking ( ) ( )

2. SOIL STABILITY, EROSION, AND DRAINAGE

Slopes: ( ) Not applicable ( ) Steep ( ) Moderate ( ) Slight

Is there evidence of slope erosion or unstable slope conditions on or near the site? ( ) Yes ( ) No

Is there evidence of ground subsidence, high water table, or other unusual conditions on the site?

( ) Yes ( ) No

Is t

here any visible evidence of soil problems (foundations cracking or settling, basement flooding, etc.) in the

neighborhood of this site? ( ) Yes ( ) No

ave soil studies or boring been made for the site or the area? ( ) Yes ( ) No ( ) Unknown

Do the soil studies or boring indicate marginal or unsatisfactory soil conditions? ( ) Yes ( ) No

Is there indication of cross-l

ot runoff, swales, drainage flows on the property? ( ) Yes ( ) No

Are there visual indications of filled ground? ( ) Yes ( ) No

Are there active rills and gullies on site? ( ) Yes ( ) No

If the site is not to be served by a municipal waste water disposal system, has a report of the soil conditions

suitable for on-site septic systems been submitted?( ) Yes ( ) No ( ) Not Applicable

HB-1-3550

Attachment 5-

Page 3 of

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505

3. NUISANCES ANDHAZARDS

Will the site be affected by natural hazards:

Yes No

Faults, fracture ( ) ( ) Fire hazard materials ( ) ( )

Cliffs, bluffs, crevices ( ) ( ) Wind/sand storm concerns ( ) ( )

Slope-failure from rains ( ) ( ) Poisonous plants, insects, animals ( ) ( )

Unprotected bodies of water ( ) ( ) Hazardous terrain features ( ) ( )

Will the site be affected by built hazards and nuisances:

Yes No Yes No

Hazardous street ( ) ( ) Railroad crossing ( ) ( )

Dangerous intersection

( ) ( )

Inadequate screened

Through traffic ( ) ( ) drainage catchments ( ) ( )

Inadequate separation Hazards in vacant lots ( ) ( )

of pedestrian/vehicle traffic ( ) ( ) Chemical tank-carterminals ( ) ( )

Traffic way ( ) ( ) Other hazardous chemical storage ( ) ( )

Inadequate street lighting ( ) ( ) High-pressure gas or liquid

Quarries petroleum transmission

or other excavations ( ) ( ) lines on site ( ) ( )

Dumps/sanitary landfills or Overhead transmission lines ( ) ( )

mining ( ) ( ) Hazardous cargo

Heavy industry ( ) ( ) transportation routes ( ) ( )

Incinerators ( ) ( ) Oil or gas wells ( ) ( )

Power generating plants ( ) ( ) Industrial operations ( ) ( )

Oil refineries ( ) ( ) Cement plants ( ) ( )

Will the site be affected by nuisances:

Yes No

Gas, smoke, fumes ( ) ( ) Unsightly land uses ( ) ( )

Odors ( ) ( ) Abandoned vehicle ( ) ( )

Vibration ( ) ( ) Vermin infestation ( ) ( )

Vacant/boarded-up

Industrial nuisances ( ) ( )

buildings ( ) ( ) Other ( ) ( )

HB-1-3550

Attachment 5-B

Page

4 of 5

4. WATER SUPPLY, SANITARY SEWERS, AND SOLID WASTE DISPOSAL

Is the site served by an adequate and acceptable:

water supply ( ) Yes ( ) No ( ) Municipal ( ) Private;

sanitary sewers and waste disposal systems

( ) Yes

( ) No

( ) Municipal

( ) Private; and

trash collection and solid waste disposal

( ) Yes

( ) No

( ) Municipal

( ) Private.

If the water supply is non-municipal, has an acceptable “system” been approved by appropriate authorities and

agencies?

( ) Yes ( ) No

If the sanitary sewers and waste water disposal systems are non-mu

nicipal, has an acceptable “system” been

approved by appropriate authorities and agencies?

( ) Yes ( ) No

5. NOISE ABATEMENT

s the site located near a major noise source, i.e., civil airports (within 5 miles), military airfields (15 miles),

major highways or busy roads (within 1000 feet), or railroads (within 3000 feet)? ( ) Yes ( ) No

6. AIRPORTHAZARDS

Is the project within 3,000 feet from the end of a runway at a civil airport? ( ) Yes ( ) No

the project within 2-1/2 miles from the end of a runway at a military airfield? ( ) Yes ( ) No

7. OTHERCONDITIONS

Are there any field conditions not specified above that would adversely affect the acceptability of the

lots/sites? ( ) Yes ( ) No

Prepared By D

ate

ITEM NUMBER ADDITIONAL COMMENTS

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505

HB-1-3550

Attachment 5-B

Page

5 of 5

ATTACHMENT 5-C

HB1-3550

Attachment 5-C

Page 1 of 1

AMENDMENTS TO MORTGAGES WITH LEASEHOLD INTEREST

The following paragraphs must be inserted in the mortgage. The first paragraph should be placed

directly before the legal description of the real estate.

“All Borrower’s right, title, and interest in and to the leasehold estate for a term of

years beginning on , 20 , created, executed and established by

certain Lease dated , 20 , by , Page of

Records of said County and State, and any renewals and extensions thereof, and all

Borrower’s right, title, and interest in and to said Lease, covering the following real

estate.”

“Borrower will pay when due all rents and any and all other charges required by said

Lease, will comply with all other requirements of said Lease, and will not surrender or

relinquish, without the Government’s written consent, any of Borrower’s right, title, or

interest in or to said leasehold estate or under said Lease while this instrument remains in

effect.”

(01-23-03) SPECIAL PN

Revised (11-03-17) PN 505

ATTACHMENT 5-D

HB1-3550

Attachment 5-D

Page 1 of 1

TRANSMITTAL COVER SHEET FOR MAPPING SYSTEM MODIFICATION

Utilize this as a coversheet to transmit your request for ineligible area re-designations or errors identified

to the present public website mapping system. Complete all fields to avoid delays in your request.

Request: Re-designation of rural areas

Correction of Error to existing mapping system

State:

Telephone #:

Applicable Counties:

Submitters Name -

Point of Contact:

Email Address:

Form RD 2006-3, Instruction and Form Justification has been completed

and a copy of the State Supplement to the HB-1-3550

has been a

pproved or is included with this submission.

Documentation Submittal:

Send to: RA.dcwashing3.SFHGLD(SFHG[email protected])

AND

RA.dcwashing2.RDSFHDP(SFHDIRECTPROGRA[email protected])

(When an email copy is not feasible, contact the SFH Direct Loan Division for instructions.)

Comments: Include additional information regarding errors to the present mapping system or re- designation

comments.

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

Attachment 5-E

Page 1 of 6

ATTACHMENT 5-E

ELIGIBILITY SYSTEM MODIFICATION REQUESTPROCESS

Instructions for Eligibility Map Changes

No map changes will be processed without an approved Form RD 2006-3 showing the rural

area changes as adopted by the State.

The preferred method of delivery is electronic. Refer to Attachment 5-E regarding the

level of detail and process flow that occur once modified maps and text is submitted. There are

three types of modification requests. The level of complexity (the number of modifications

requested) determines the length of time to production implementation.

Allow ample time prior to implementation of revised ineligible areas. The RD GIS Portal is the

preferred method for maps as they are digitized and facilitate changes to the mapping system.

Maps that require digitizing to enable posting to the public eligibility website will require

additional time, as will substantial changes to the existing mapping system.

Occasionally States identify actual errors to the public website mapping system (i.e. a

correction to an incorrectly coded map). This type of modification falls under Type 1 identified

in Attachment 5-F.

Attachment 5-F is provided for visual purposes.

The following information discusses the process of requesting changes to the public

eligibility website. It also discusses what the State Offices need to do in order to test and

approve requested modifications. Finally, it will provide an idea of what is involved in the

request approval process that must go through the Configuration Management & Standards

Compliance Branch in the St. Louis DCIO office. The level of detail is provided to keep States

abreast of the processes that must take place in order to modify the public eligibility website.

Modification Request Types, Request Instructions and Examples

There are 3 types of modification requests. Their descriptions are below, along with the procedure

to complete a request. The differences are (1) the number of modifications within a request and

(2) the length of time it will take for making the modifications and their eventual deployment to

the Production environment.

The RD GIS Portal will be used to collaborate with and convey map changes to the RD GIS

Specialist. For further guidance, please refer to the RD GIS Portal Collaboration Guide which is

published on the Single Family Housing SharePoint site under the Rural Areas folder.

(01-23-03) SPECIAL PN

Revised (06-21-18) SPECIAL PN

HB-1-3550

Attachment 5-

Page 2 of 6

* Type 1 – Basic Modification\Correction Request:

A basic modification request is a request that requires modification to the text description and/or a

State’s eligibility map (mapping to be based at a county level). A basic modification has no more

than 2 ineligible areas within the request. This request should include a map with an outline of the

new or modified ineligible area. Type 1 requests (including changes to boundary lines or

corrections to erroneous maps) take approximately one to two weeks for modifications. When

modification is complete, the requestor will be contacted for testing. Once the maps are tested and

approved by the requester, the implementation process will begin. The timeline for modification

and implementation is typically 3 to 5 weeks.

Type 2 - Moderate Modification\New Eligibility Area Request:

A moderate modification or new eligibility area request is a request that requires significant

modifications to more than 2 ineligible areas on a State’s eligibility map (mappings being based at

a county level), or is a newly defined ineligible area. This request should include a map with an

outline of the new or modified ineligible area. Type 2 requests take approximately two to four

weeks for modifications. When modification is complete, the requestor will be contacted for

testing. Once the maps are tested and approved by the requester, the implementation process will

begin. The timeline for modification and implementation is typically 4 to 7 weeks.

Type 3 – Text Description Modification Request:

A text description modification request is only for text changes. Type 3 requests should contain the

exact text the Field Office requires to be placed on the site. The text description will be utilized to

prepare the boundary lines and will be compared to the map submitted. It is important that the text

version clearly defines the boundaries submitted. When modification is complete, the requestor

will be contacted for testing. Once the text version is tested and approved by the requester, the

implementation process will begin. The timeline for modification and implementation is typically 2

to 3 weeks.

HB-1-3550

Attachment 5-E

Page 3 of 6

* How to request a modification, addition or correction:

The State Office should request changes through utilization of a transmittal similar to Attachment

5-D. The Program Director is the State point of contact and communication regarding

modifications, additions or corrections must be transmitted through the Program Director.

Requests will not be accepted from Field Offices. Electronic requests will be forwarded to the

National Office at: RA.dcwashing3.SFHGLD ([email protected]) and RA.dcwashing2.RD-

SFHDP (SFHDIRECTPROGRAM@usda.gov). Accompanying each request, the State must

clearly indicate the type of request to be performed. The request should have detailed listings

of all changes required by county and\or city.

The transmittal should also clearly reference what should be changed on the public eligibility map.

Clearly referencing the changes to occur are recommended as follows: 1) If the State or Field

Offices have access to Microsoft Word (place a copy of a map of the area to be modified into a

Microsoft Word document. Utilize the drawing tools within Microsoft Word for highlighting

changes that are needed. 2) If the State or Field Offices have access to Adobe Acrobat, use the

tools to draw on an existing map. 3) Scan a hand-written modification on a printed map. The

examples provided are suggestions to a timelier more accurate implementation of boundary line

changes. If the State or Field Office cannot provide a detailed mapping, a text description only will

be accepted. Insure the text version clearly defines the ineligible boundaries. Personnel from the

Enterprise Technologies Branch in the St. Louis DCIO office will contact the requestor with any

questions.

(01-23-03) SPECIAL PN

Revised (03-19-20) PN 534

HB-1-3550

Attachment 5-

Page 4 of 6

II.

Testing Requested Changes

Once the modifications have been made, they are implemented into the Test environment. Upon

these changes being made in the Test environment, the requestors will be contacted and asked to

review the requested modifications for approval.

The State or Field Office representatives that made the initial request should then review the

requested changes in the Test environment. An email notification will be sent to the requestor

notifying them of modifications implemented into the Test environment. The Test environment

can be found at the following link:

Eligibility Test Site: https://eligibility.test.sc.egov.usda.gov/eligibility/welcomeAction.do

The user’s e-authentication identification will be utilized to access the site.

Log into the test environment and review the changes on both the map and the text description. If

there are any issues with what has been changed, or questions, refer those issues/questions to

whom the email request was received from.

HB-1-3550

Attachment 5-E

Page 5 of 6

III.

Approving Requested Changes and the Implementation Process

Once the requestor has reviewed and approved the changes necessary for their ineligible area

map, respond to the email requestor stating that the changes made fit the business needs of the

State and Field Offices. The following information lists specific detail that must accompany your

response and confirmation. The items are required by the Configuration Management process in

order to get the changes implemented to the Certification and deployed to the Production

environments. The items that need to be listed in the email response are:

• What county and State have been reviewed

• State that all changes made have been tested and are acceptable

• State that all changes made should be moved to the Certification and Production

Environments

• In the email, please refer to RFA number “A-11012” and RFC number “RFC-11108”

The above listed items are a requirement for the User Acceptance letters used in the

Configuration Management implementation process.

Once received, the Enterprise Technologies Branch (ETB) in the St. Louis DCIO office will

create a request package for the implementation of the changes to be placed into both the

Certification and Production environments.

There are many types of configuration implementation process. Updates to the public eligibility

website will utilize the CERT\HOLD\PROD request type for Configuration Management

implementation. This request type indicates changes will be implemented into the Certification

(CERT) environment first, followed by Production (PROD) in either of the next 2 regularly

scheduled Production releases. The implementation into the Certification environment can take up

to one week. Additionally, a one or two week gap between implementation to the Certification and

Production environment could occur.

Once the changes are placed into the Certification environment, the Enterprise Technologies Branch

will be responsible for reviewing/confirming the changes in the Certification environment match

those within the Test environment that was approved. These can be viewed at the following link:

http://eligibility.cert.sc.egov.usda.gov

The user’s e-authentication identification will be utilized to access the site.

After review of the Certification environment has been completed and approved, the Production

implementation will take place. The implementation will be completed during the next available,

normal Production release (typically the following Wednesday, depending on the length of time it

takes the requestor to reply to the email notification). If the Certification environment review fails,

the Enterprise Technologies Branch will acquire the correct file structure from the approved Test

environment and request the local Configuration Management team re-deploy the correctly

modified files.

(01-23-03) SPECIAL PN

Revised (06-21-18) SPECIAL PN

HB-1-3550

Attachment 5-

Page 6 of 6

The Production environment link is as follows:

http://eligibility.sc.egov.usda.gov

*Extraordinary Circumstances/Special Request Process

In the event that there are extenuating circumstances that require the updates be placed to the

Production environment more timely than the typical flow, a special request process can be

utilized. This request must be justified based on Field Office\State Office need. To submit a special

request for an expedited implementation, the State Director must provide a justification as to the

circumstances requiring an implementation timeline that requires attention over the typical flow of

timelines outlined in Type 1, 2 and 3 above. The justification must indicate specific reasons for an

expedited implementation and must confirm the need is beyond the control of the State and is not

due to the lack of planning the change or otherwise an error on the part of the State. This

justification will accompany the transmittal and modifications request.

HB-1-3550

ATTACHMENT 5-F

ttachment 5-F

Page 1 of 1

ELIGIBILITY SYSTEM MODIFICATION WORKFLOW

(01-23-03) SPECIAL PN

Revised (08-21-13) PN 465