HUD HOC Reference Guide
Appraisal & Property Requirements
A. Community Sewer Systems: HUD no longer maintains list of approved systems. It is helpful if the appraiser notes the name of the community system(s) on the appraisal report. The lender is responsible to ensure the community system(s) is licensed and capacity is adequate to service the property. The appraiser must note if public sewer is available to the subject site.
B. Individual Sewage Systems:
- Individual sewage systems may be acceptable when the cost to connect to a public or community sewage system is not reasonable as defined by the lender.
a) 3% or less of the estimated value of the property is the suggested benchmark.
b) The lender is responsible for determining if connection is feasible.
- If the property cannot be connected to a public system, FHA will accept individual sewage systems that are acceptable to the local health authorities. This includes numerous types of sewage systems including cesspools, individual pit privies, and mound systems.
- Inspection and/or testing is not automatically required, but is required when such actions are customary in the area, when the appraiser suspects a problem with the system, or problems are common in the area. In these instances, the appraiser is to condition for a certification by a professional such as the local health authority, a licensed sanitarian or an individual determined to be qualified by the DE Underwriter.
a) FHA does not require the lender to submit evidence or documentation in the case binder that the state or local jurisdiction requires a test or inspection.
- For distances between water sources and sewage, required for new construction, please see HUD Handbook 4150.2 Section 3-6 and CFR 200.926d.
References: 4905.1 Rev-1, 4150.2 Section 3-6 and Mortgagee Letter 2005-48.