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Lender Underwriter Training: HUD Lean Section 232 Program Day 3: January 28, 2010 PowerPoint Presentation
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Lender Underwriter Training: HUD Lean Section 232 Program Day 3: January 28, 2010

Lender Underwriter Training: HUD Lean Section 232 Program Day 3: January 28, 2010

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Lender Underwriter Training: HUD Lean Section 232 Program Day 3: January 28, 2010

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  1. Lender Underwriter Training: HUD Lean Section 232 Program Day 3: January 28, 2010

  2. OIHCF Lean Environmental Review Guidance

  3. Emerging Environmental Issues Sue Barton, Appraiser OIHCF – 01/28/10

  4. Agenda Lead Based Paint Asbestos Toxic Chemicals Historic Preservation Floodplain Management Wetlands Protection Noise Issues Explosive/Flammable Hazards Coastal Zone Management Septic Tanks Common Nuisances

  5. Lead Based Paint Not covered specifically in the HUD 4128. May be present in buildings built before 1978. Not applicable to senior or health care facilities (unless children will occupy) – but demolition concerns. OSHA and State regulations must be followed for demolition work.

  6. Asbestos May be present in buildings built prior to 1978. If asbestos is friable, mitigation or removal is required. If not friable, no action. O&M plan required. Demolition concerns.

  7. Toxic Chemicals Where toxic chemicals are suspected, Phase II inspections have taken soil samples from the wrong locations.

  8. Historic Preservation What is historic? Take the subjectivity out of the equation – SHPO. When is a SHPO consultation required? Differences between new construction and refinances. Archaeological survey may be required. Other entities need to be consulted early on in the process such as historic districts and special local government departments.

  9. Floodplain Management If any development (including auxiliary features such as roads, driveways, landscaping, or walkways, etc.) is occurring in a 500-year floodplain the eight-step process outlined in 24 CFR § 55.20 must be completed by HUD. Differences between new construction and a refinance. Note that healthcare facilities are considered critical actions, so 500 year not 100 year floodplains must be considered.

  10. New construction in a Floodplain - Evaluating practicable alternatives Step 3 of the eight step process for new construction states: Identify and evaluate practicable alternatives to locating the proposed action in the 500-year floodplain for a Critical Action. • (1) The consideration of practicable alternatives to the proposed site or method may include: • (i) Locations outside the 500-year floodplain for a Critical Action) -

  11. Evaluating practicable alternatives (ii) Alternative methods to serve the identical project objective; and (iii) A determination not to approve any action. (2) In reviewing practicable alternatives, the Department or a grant recipient subject to 24 CFR part 58 shall consider feasible technological alternatives, hazard reduction methods and related mitigation costs, and environmental impacts.

  12. Floodplain Management– Existing Buildings Existing buildings must carry flood insurance in (a) amount of loan, (b) for the term of the loan and (c) have maximum coverage required/allowed, if located in a special flood hazard area (SFHA). The SFHA includes Zones A, AO, AH, A1-30, AE, A99, AR, AR/A1-30, AR/AE, AR/AO, AR/AH, AR/A, VO, V1-30, VE, and V.

  13. Floodplain Management - Special Conditions Flood insurance. Evacuation plan for Critical Action properties, with identified route outside of the 500 year floodplain. All leases must advise tenant of flood issue and advise on personal property insurance. Owner must certify compliance.

  14. Floodplain Management - Special Conditions In situations where an incidental portion of the site is located in an adjacent floodplain, the site is exempt from the 8 or 5 step requirements provided that the proposed construction and landscaping activities (except for minor grubbing, clearing of debris, pruning, sodding, seeding, etc.) do not occupy or modify the 500-year floodplain.

  15. How to find a flood zone designation

  16. How to find a flood zone designation

  17. Changes to Survey Certification "I hereby certify to the U.S. Department of Housing and Urban Development (HUD), ____________________ (Borrower), ____________________ (Lender), ____________________ (Title Insurance Company), ____________________ (Other, if applicable), and to their successors and assigns, that: (a) I made an on the ground survey per record description of the land shown hereon located in _________________ (city, town, or township; county; state), on__________, 20___ (date) [and updated on _________, 20___ (date)]; and it and this map were made in accordance with the requirements for an ALTA/ACSM Land Title Survey, as defined in the 2005 Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys. (b) To the best of my knowledge, belief and information, except as shown hereon: there are no encroachments either way across property lines; there are no encroachments of any structures over any applicable set back lines or upon any easements; title lines and lines of actual possession are the same; and the premises are [free of any // subject to a 100/500 year return frequency flood hazard, and such [flood free // flood] condition is shown on the Federal Flood Insurance Rate Map, Community Panel No.____________________ (if none, so state)." By: ___________________________________ (Seal) Name:__________________________________  Date:___________________________________

  18. Wetlands Protection Executive Order 11990 – 8 Step Process for new construction. Mitigation of wetlands issues by U.S. Army Corps of Engineers through Permits. Possible local/State review as well. Wetlands delineation survey will be needed. Only in rare cases will rehabilitation, purchase and refinancing proposals involve wetlands impacts.

  19. Noise Issues Third party reports must use HUD Noise Guidebook forms HUD standards found at 24 CFR Part 51. Construction mitigation and consideration of outdoor areas.

  20. Explosive/Flammable Hazards For refinances/acquisitions, HUD will qualitatively evaluate the risks associated with proximity to hazardous facilities. Above ground storage tanks, which are incidental to the operation of a health care facility, are generally exempt provided that they are operating in conformance with governing regulations. Above ground storage tank inside a structure is not permitted. Work with local Fire Department to insure compliance with regulations.

  21. Coastal Zone Management/Barriers In many states, HUD will require a letter from the State Coastal Zone Management Agency confirming consistency with the approved program. Useful link for coastal barrier resources is

  22. Septic tanks Septic tanks are allowed for new construction and refinance/acquisitions. Must comply with HUD Minimum Property Standards and local/State regulations. Increase RFR or annual expense to account for testing and repair work.

  23. Commonly found or Observed Additional Nuisances and Hazards All parts of any structure must be at least 10 feet from the outer boundary of the easement for any high pressure gas or liquid petroleum pipeline. No structure shall be constructed within the easement of any overhead high voltage transmission line. In addition, all structures shall be located outside the engineered fall distance of any support structure for high voltage transmission lines, radio antennae, satellite towers, etc. This does not apply to local service electric lines and poles.

  24. Additional Hazards and Nuisances Mitigation of fall hazards is not automatically required in 223f refinances, where no increase in residential density is proposed. Towers can range in type and size so much that the threat to health and safety can range from minimal to severe. HUD maintains the right to reject actions that pose undue health and safety hazards to the residents. The risks of fall hazards will be analyzed on a case by case basis.

  25. Commonly found or Observed Additional Nuisances and Hazards If any part of a site that would appear to be developed on filled ground, HUD may require that all grading be properly controlled to prevent differential earth movement, sliding, erosion, and/or other occurrences which might damage dwellings, streets or other improvements.

  26. Changes to Chapter 9 of the MAP Guide BEFORE • The original version of Ch. 9: • Required removal of any identified contamination. • Testing for Vapor Intrusion wasnot required. • On-site monitoring wells were not permitted. AFTER • The new version, eff. 12/1/2009: • Allows for managed care of contamination in certain cases, with measured due diligence. • Requires Vapor Analysis. The revised chapter includes a new test that has been developed since the MAP Guide was revised in 2002. • Monitoring Wells are permitted on a case-by-case basis, • To track the progress of remediation • Eventual closeout upon completion of cleanup • Flushing wells must be closed prior to Initial Endorsement

  27. MAP Guide Chapter 9.3 • Contamination AnalysisPhase I & Phase II Environmental Site Assessments (ESA), and Remediation • First step • Identify any manmade contamination on a site (other than in-place building materials; i.e., Asbestos Containing Materials and Lead Based Paint); • Next, • Ensure that any contamination is mitigated to where it does not “affect the health and safety of occupants” as stated in HUD-wide policy at 24 CFR 50.3(i)(1).

  28. Qualifications of Environmental Professionals • The Phase I ESA preparer must meet all qualification requirements of Appendix X2 of ASTM Standard E 1527-05. • Phase II ESA and any Remediation Studies/Plans must be completed by an environmental investigator specifically qualified to meet the responsibilities for the issue(s) of concern. • Such qualifications must be stated in the Phase II report or the remediation studies and plans, respectively.

  29. Phase I Environmental Site Assessment (ESA) • Prepared in accordance with ASTM Standard E-1527-05 • Must use the TOC and format of Appendix X4 of E-1527-05. • Age of ESA • No older than 1-year from the submission date to HUD and • If between 180 days and 1-year old at the time of submission, must be updated pursuant to Section 4.6 of ASTM E 1527-05. • Opinions Section of ESA: Must identify and discuss each Recognized Environmental Condition (REC), and • If the preparer cannot determine whether a condition is or is not a REC, the Opinions Section must state what information or investigation is necessary to make such a determination.

  30. Vapor Intrusion

  31. Vapor Intrusion Screen • The Phase I ESA must include an initial vapor (a.k.a. gas) intrusion screen. • Must be performed using Tier 1 “non-invasive” screening pursuant to ASTM E 2600 - 08, as amended. • Purpose: • To determine if there is a potential for subsurface vapors from volatile organic compounds (VOC), semi-volatile organic compounds (SVOC) and inorganic volatile compounds to occur below existing and proposed structures . • The potential for such vapors to occur shall be deemed to be an REC for the purpose of the Phase I ESA.

  32. Phase II ESA • A Phase II ESA is required if; • The Phase I ESA indicates that there is a REC and corrective action is potentially feasible, or • The Phase I ESA comes to no definite conclusion regarding the presence of a REC, or • HUD requires a Phase II ESA for reasons that must be described to the Lender. • Exception. In some cases, with HUD’s permission, the Phase II ESA may be bypassed for remediation which is described Sections 9.3.C, D, and E of the MAP Guide.

  33. Phase II • Purpose. • To investigate and confirm the existence of suspected contaminants, and/or to quantify the extent of an observed or suspected liability. • Vapors. If the Tier 1 Vapor Screen resulted in an REC then the Phase II ESA shall include either • a Tier 2 Screen pursuant to ASTM E 2600, • a Tier 3 Vapor Intrusion Assessment (VIA) as discussed in ASTM E 2600, or • go directly to Tier 4 “mitigation” as discussed in ASTM E 2600.

  34. De Minimis Levels of Contamination • Remediation Is Not Required when: • The Phase II indicates only low levels of contamination, and • Any contamination that is present is not considered to be a health, safety, or environmental risk, without the need for engineering or institutional controls. • This de minimis level is usually the equivalent of a Statewide, non site-specific level. • May require a determination from the appropriate LSTF (local, state, tribal or federal ) authority.

  35. Remediation Plans - General • Must include complete site characterization - • Determine the total extent of contamination, including vapors, exposure pathways, and potential receptors. • Must comply with the appropriate HUD and/or LSTF procedures. • Must cover all contaminants.

  36. Remediation Plan Submission • Must be presented to HUD at the same time as the Phase I and, if applicable, the Phase II. • Approval by LSTF authority must be submitted with Firm Commitment application.

  37. Remediation Work - Timing • When the Cost and/or Effectiveness of Remediation is uncertain, then prior to issuance of the Firm Commitment • the remedial work must be completed, including clearance testing, and • the remediation itself must be approved, including issuance of any clearance and closure documents, by the LSTF authority. • When the extent of the contamination and the cost of cleanup can be definitively determined, HUD may allow a plan that; • permits the remediation, including site testing, clearance and closure documents, and the receipt of approval by the LSTF, prior to initial endorsement, or • if the applicant can justify why it is impractical to complete remediation prior to initial endorsement, permits the remediation including site testing, any clearance and closure documents, and the approval by the LSTF, prior to both final endorsement and initial occupancy.

  38. Remediation Plans – Two Types • Complete removal of contamination, and • Incomplete removal of contamination (now allowed on a case-by-case basis). • Complete Removal: • Remediation to de minimis levels • Meet non site-specific LSTF authority standards • No active or passive remediation remaining • No need for Engineering Controls, Institutional Controls, or Monitoring Wells

  39. Remediation Plan – Incomplete Removal of Contamination • Justification Will Be Required • Justification for incomplete removal of contamination must be submitted along with the remediation plan, including documentation that: • the cost of the incomplete removal of contamination, including any life cycle costs for O&M, and • the cost of any enforcement requirements of LSTF authorities, are sufficiently below the costs of complete contamination removal.

  40. Remediation of Contamination • Engineering Controls (EC) and Institutional Controls (IC) are now allowed on a case-by-case basis. • Capping. Before: • HUD would not accept property for mortgage insurance where a site contamination problem had been capped or paved over (engineering controls). Now: • The revised Chapter allows the use of engineering controls such as concrete or slurry walls, for risk-based corrective actions (RBCA).

  41. Risk-Based Corrective Action (RBCA) • The corrective action must be an RBCA, which is usually supported by a combination of Engineering and Institutional Controls (EC/IC), such as: • Capping and slurry walls (EC), and • Protective covenants and access restrictions (IC) • Operations and Maintenance (O&M) Plan (IC) • Vapor Barriers (EC). • The LSTF Authority must issue a No Further Action Letter (NFA) or similar approval of the RBCA.

  42. RBCA • Operations and Maintenance Plan: • The applicant must have in place an O&M plan for management of all contamination remaining on the site and any controls thereto. • Vapor Barriers. If there is a potential for hazardous vapors to occur in the subsurface below existing or proposed structures, mitigation is required as discussed in ASTM E 2600-08. • Where feasible, such controls shall consist of a poured-on vapor barrier to be used in conjunction with the active and passive venting systems.

  43. Recurring Expenses Related to Incomplete Remediation • Appraisers and underwriters must recognize the costs related to oversight, maintenance, and repair of Engineering and Institutional Controls (EC/IC). • Costs related to oversight and monitoring (IC) must be included as an operating expense; • Costs for the anticipated repair or replacement of an Engineering Control (i.e., repair of a concrete cap, or anticipated replacement of a component such as a pump), should be included in the replacement reserve account. • The basis for the additional operating expense or replacement reserve will be obtained from a qualified engineer and/or contractor similar to the reserve for replacement requirement, which is based on the PCNA.

  44. HUD’s Environmental Requirements May Exceed Those of Many State Agencies • If a mortgagor defaults on an FHA-insured project, HUD may become the owner. • Under Section 120(h) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) • Federal agencies that own properties are required to take “all remedial action necessary to protect human health and the environment” with respect to known hazardous substances upon disposition of the property. • This requirement is beyond any liability releases under State or Federal law and any due diligence requirements under CERCLA.

  45. ENVIRONMENTAL CASE STUDIES Past and Current Sites with: • Monitoring Wells • Engineering/Institutional Controls • Vapor Intrusion