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Changes to Lead Based Paint Stabilization Procedures on HUD owned properties

HUD will be implementing significant changes to the LBP stabilization guidelines. An overview of the changes is presented below.

Current Procedure

  1. All properties built before 1960 have a LBP assessment performed. If LBP is found and stabilization is required, a stabilization plan is obtained. The assessment and stabilization plan are displayed on the website and the LBP addendum that the buyer and broker sign reflect their knowledge of the magnitude of work to be completed. If the property is purchased by an owner occupant buyer using FHA financing, HUD spends the money to clear the LBP; or in the case of a 203(k) loan, the buyer receives a credit from HUD to stabilize the paint.
  2. Properties built between 1960 and 1977 have a LBP assessment completed only if the buyer is an owner occupant buyer using FHA financing. (The assessment is not completed automatically like it would have been for a property built before 1960.) If stabilization is required, HUD spends the money or the credit is issued.

It both cases, there is no cap on the amount of money HUD will spend to stabilize LBP. Nor is there a cap on the amount of the credit to be issued in the case of a 203(k) loan.

New Procedure

  1. The automatic assessment completed on properties built before 1960 will no longer be completed.
  2. All properties built before 1978 will have the LBP assessment completed ONLY if the buyer is an owner occupant buyer, using FHA financing. (This did not change from the current procedure, but the are limits as to how much money HUD will spend on LBP stabilization.)

HUD has set a $4000 cap on the amount of money they will spend to stabilize LBP. If 203(k) financing is being used, the maximum credit HUD will issue the buyer is $4,000 to stabilize the LBP and obtain the clearance exam.

  • If the cost to stabilize the LBP exceeds $4000, the buyer's options are-
    • Convert to conventional financing; in which case HUD will not stabilize the LBP.
    • Convert the financing type to 203(k) - if the LBP falls under $5,000; this may not be an option. Work with your underwriters on this approach.
  • If the buyer fails to exercise either of these options, HUD WILL EXERCISE THEIR OPTION TO CANCEL THE CONTRACT. If HUD cancels the contract, 100% of the buyer's earnest money deposit will be refunded.
    • If we cancel escrow (on behalf of HUD) and relist the property, we will relist it as Uninsurable.
  • The buyer does NOT have the option of paying for the difference between the $4000 cap and the estimate to stabilize the LBP.
  • In the case of a 203(k) loan, the buyer WILL be responsible for the difference between the $4000 cap and the actual cost to stabilize the LBP and obtain the clearance exam.