FHA position on homes impacted by Meth use or labs

One of the many great benefits of working for Crestline Mortgage Bankers, a division of Universal Lending Corporation, based in Denver, Colorado, is the information put out by the underwriting department to help avoid problems on the front end, so the deal does not blow up before closing when it could have been avoided.

“After confirming with two separate sources at the Denver HOC office, we have learned any home, including HUD Repos, which have any evidence of the use of meth or creation of meth or even if a police report has been issued stating meth was in use in a home is ineligible for FHA insurance. Even if remediation has been done, they will not accept the property. The appraiser is to reject the property if they have knowledge of meth use or creation in the home or if they have been informed of remediation. It is important to know that HUD Washington has not issued anything in writing but has left this particular issue up to the individual Homeownership Centers. The Denver HOC has decided they will NOT accept properties impacted by meth until further notice, although this is not in writing either but is an internal order. Please keep in mind the Denver HOC has authority over 17 western states and this order applies to all the states reporting to the Denver HOC. Please make sure your Real Estate agents are aware of this as well. We have not received any notification from any of our investors regarding this issue, but if the loans cannot be insured, they will not be purchased.”

The scourge of meth is an equal opportunity plague that can impact any property, no matter what price range or location. A retired fire department captain remarked that he had seen meth labs in uber-expensive lofts in one of the trendier areas of Denver. One source of information is the National Clandestine Laboratory Register, published by the U.S. Drug Enforcement Agency, at www.justice.gov/dea/seizures. It is also is worth the time to contact local law enforcement agencies as they may have information that has not been shared with the DEA.

Listing agents will want to address this so that they do not waste time and money on a property that has limited mortgage options. I expect VA and conventional mortgages to adopt these guidelines in the future. Selling agents need to address this so they do not waste their time, and the borrowers’ money for an inspection, appraisal, etc., on a deal that will not close. While no one wants more research to do, I feel this is another justification for the real estate agent’s commission and another reason for buyers to avoid For Sale By Owner properties. A number of years ago I saw an investor who only looked at FSBO properties because he thought he would be saving money if real estate agents were not involved. Turns out the property he purchased had been used as a meth lab and it took close to $ 40,000 to mediate. Ever notice how stupid and greedy are a bad combination?

CHarles A. “Chip” Allen

Crestline Mortgage Bankers

A Division of Universal Lending Corp                                     

Direct: 303.947.2109 

Fax: 303.987.0676

Loanchip@hotmail.com

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NMLS# 378621

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