2012 – The Year for Streamlined FHA 203K Loans

We are likely to see an onslaught of bank owned properties dumped into the market in early 2012.  Many of these properties will be within the financial reach of new and first time buyers.  However, these homes have also suffered from neglect and need work.  Non-structural improvements may qualify for consideration under the FHA Streamlined FHA 203K Loan program. 

Up to $35,000 may be included in a Streamlined 203K for improvements.  Loans can be fixed or adjustable rate.  And the balance can exceed the purchase price.  Borrowers are not required to hire professional consultants, general contractors, licensed engineers or architects.   An appraiser or home inspector could help the buyer with a list of improvements.  In some cases, the buyer can even perform the work themselves if they have the expertise.

Special note:  Streamlined 203K loans are also available to existing homeowners with FHA mortgages who wish to refinance and take advantage of the home improvement provisions.

Eligible Repairs & Improvements

The list includes mostly items considered as cosmetic repairs.  Professionals selected to provide the improvements must be qualified and have the appropriate licenses for their services.

• Interior and exterior painting
• Stabilizing or removing lead-based paint
• Roofs, gutters and downspouts
• HVAC systems (heating, venting and air conditioning)
• Plumbing and electrical
• Non-structural kitchen and bath remodels
• New carpet, tile or wood flooring
• New windows and doors
• Weather stripping & insulation
• Improvements for persons with disabilities
• Energy efficient improvements
• Decks, patios, porches
• Basement completion and waterproofing
• Septic or well systems
• Purchase of new appliances even a washer / dryer

Special Conditions & Terms

• No minimum loan balance required.
• Properties must be owner occupied.
• No property can be vacant longer than 30 days.
• All projects have to be completed within six months.
• Work must be professional.
• If work requires a permit, borrowers must get a permit and a sign-off.
• Work must start within 30 days of closing on the loan.

Repairs or Project Not Permitted

• Landscaping or yard work
• Major remodeling
• Changing or moving a load-bearing wall
• Room additions or add-ons to the home
• Fixing structural damage

Who Can Perform the Work? 

• Borrowers can select among licensed contractors.
• Lender must review the contractor’s experience, background and referrals.
• Lender will obtain copies of contractors’ estimates and agreements /contracts.
• Some or all of the work may be completed under a “self help” arrangement.
• DIY projects require documentation supporting the borrower’s knowledge, experience and ability to perform the necessary work.

How Payments Work?

• Maximum of two payments to each contractor
• No more than a 50% advance is allowed.
• DIY allowances do not include labor; only materials costs are allowed.
• Final payment made upon evidence of payment to sub-contractors / suppliers or removal of any lien claimants.

Special Provisions Apply for Loans Below $15,000

• Lender inspection of completed work is not required.
• Lender is not required to authorize a third party to inspect the completed work.
• Simple letter from the borrower or copies of contractor receipts may suffice as notice of completion for payment.

Summary 

This program is certainly not for everyone.  But it may be a great solution for 1^st time buyers, returning buyers who have been out of the ownership market for some time and existing owners with FHA mortgages.  A Streamlined 203K gives the buyer more control over projects without the added expenses of hiring a consultant or general contractor.

ProTect Painters of Oviedo ~ Winters Springs is licensed, insured, and bonded.  We also EPA Lead Certified.  We are prepared to help you with your painting and other renovations.  Our circle of connections with other quality professionals, including lenders, can help as well.  Just let us know what you need and we’ll help you indentify sources for home purchase and projects under a Streamlined 203K.

Special Thanks 

A special note of thanks to Kelly Sue Stonebreaker of Exit Realty Results in Winter Springs, Florida for her contribution to this blog update.  “It’s All About You With Kelly Sue!”  For assistance with a purchase of a home with a Streamlined 203K loan, give Kelly Sue a call at 321-228-3974 or visit her web site at http://www.withkellysue.com/.

Gordon R. Boardway
Owner & President
ProTect Painters of Oviedo ~ Winter Springs
407-542-9036

http://www.protectpainters.com/local-house-painting/fl/oviedo-winter-springs

Enforcement or Encouragement? – HOA Exterior Color Standards

Communities with HOA exterior paint color standards are struggling to keep up with color trends, enforcement of neighborhood standards and homeowners who are not maintaining their homes.  Given the current economic environment, paint color selections might seem minor.  Volunteer Boards are stretched to the max dealing with collection of HOA dues and assessments from owners who are in financial distress and homes in foreclosure limbo land.  However, failure to address color standards may result in permanent waiver of the HOA’s ability to manage the look of the community. (Ask your HOA attorney about how the waiver concept is applied at the judicial level – this is much more than just enforcement of paint standards).

It is unlikely that you will find someone painting a Barney Purple or Papa Smurf Blue home in your community.  However is does happen.  And there may be little you can do if this occurs unless your community standards are clearly defined and uniformly applied.  Proactive community management is always better then reactive enforcement.

Approval Process & Myths

HOA exterior paint color approvals are typically submitted to the property manager (if there is one) and are subject to approval by a sub-committee of the Board.  This sub-committee is frequently called an ARC or Architectural Review Committee.

Homeowners do not understand this process.  The vast majority don’t know the process exists, have trouble with determining how to submit a request, and get very frustrated with the entire issue.  Most believe the colors are approved by the property manager and have no idea the approval comes from their neighbors.  In extreme cases, we have heard owners refer to the committee or the property manager as the “Paint Nazis.”  I don’t think this is how you want to be viewed.  And there are ways to avoid the stress.

Enforcement of Community Standards

There are several types of exterior painting issues in your neighborhood.  These typically are – homes that are well kept, homes that need to be painted and will be, homes that were painted improperly and ones that are in financial distress.

Typical HOA actions are mostly punitive, lack substantive direction for the owners and have a legalistic tone.  Reaction by the owner is mostly negative and often causes resentment and further alienation.  This is not what you are trying to accomplish.

Carrots are better than sticks!  There may be a home of the month highlighted, but you need to go further with recognition of the owners that help set the level of excellence for the community.  Help the other owners see what outstanding looks like.  They need examples and education about the proper maintenance of the home.  They also need to understand the future costs associated with failure to protect the home’s exterior.

Unless you are a professional painting contractor, your judgment of when a home needs to be painted is likely poor and driven completely by cosmetic appeal.  Paint is much more than color.   It is protection of the structure and the various substrates on the property.  Consider hiring a professional painting contractor to conduct a basic assessment of the homes in your neighborhood.

Letters and actions of enforcement are mostly terse and threaten punitive results for failure to comply.  They rarely contain informative or helpful instruction for the owner. “You need to repaint, or else. You have 30 days to comply!’ Most don’t even explain the how to submit a request to the ARC.  Scare tactics will work for some. However, in most cases, it will take an owner more than 30 days to get their home painted and or come up with the budget. If the owner feels they cannot comply, they will likely freak out and do nothing.  Again, this is not the result you are seeking.

Shortsighted enforcement letters can also cause some owners to take drastic “Do It Yourself” measures which will result in additional problems.  The vast majority of DIY exterior paint jobs cause more harm than good since consumers do not prep the building properly.  Peeling, improperly applied paint and the use of inferior products will look worse than were you started.  Some owners will even paint just the front of the house.

Litigation on repaints and enforcement when unapproved colors are selected is not something most HOAs are going to pursue except in very extreme cases.  Unless your community standards are buttoned down, your odds of winning here are very slim.  Judges that hear these cases are also hearing cases for criminal offenses.  They are not going to be happy to see this clogging up the courtroom.  In most cases, they will side will the homeowner.  You will pay the legal fees for both the HOA and the homeowner too.

HOA StandardsAre At risk If:

• Paint standards are more than a few years old
• Approved colors no longer available or not in line with contemporary ideas
• You don’t have clearly defined and easy to use application procedures
• Approval process is too complex or takes too long
• Homes have been painted other colors without approval
• Uniform enforcement actions have not been applied to all homes
• Actions are mostly punitive and don’t provide assistance

HOA’s Can Improve Results By:

• Having a clear written and widely communicated policies
• Establishing a simple review and approval process
• Use free color consultant services offered by virtually every paint supplier
• Consider having a series of color selections that do not require submission
• Place neighborhood color selection books in onsite locations & paint stores
• Review colors every paint cycle since consumer tastes change
• Providing education, paint and maintenance information for owners
• Encouraging owners to use only licensed, insured painting professionals
• Helping owners establish repaint cycles and budgets for their properties
• Working with distressed owners to develop realistic compliance plans

Bottom Line

HOA Boards have a lot on their plate.  Budgets and time are both tight.  The one area that can add value to your neighborhood is exterior painting.  With 70-90% of the homes in most neighborhoods past due for repainting, this is going to be a major issue for a while.  You can take proactive steps to improve the results, help your owners understand the issue if more than just color, and set the stage for economic revival.  Take action now to revamp your standards, streamline the approval process and shift compliance from punitive to positive.

As a licensed, insured, and bonded painting professional, ProTect Painters of Oviedo ~ Winter Springs stands for integrity, value and quality.  Our goal is simple.  Keep ourselves educated on the best solutions for our customers, continue to innovate and provide technical paint education for our local community.  Let us know how we can help you and your neighbors.

For additional information, consultation on the homes in your community or help with identifying resources, please give me us a call at 407-542-9036.  ProTect Painters: Central Florida’s 1^st Choice for both exterior and interior painting services.

Special Note of Thanks

This blog update was prompted by attending an expert panel discussion with a local HOA management company – Premier Community Managers.  If your HOA is considering professional management or changing your existing manager, please contact Premier (premiercommunitymgrs.com) at 407-696-5700.

Voyage of Starship ProTect

Painting: The Final Frontier.  These are the voyages of ProTect Painters of Oviedo ~ Winter Springs.  Its New Year mission: to explore glorious new colors; to seek out new life for properties within the local civilization; and to boldly go where no painter has gone before.  As we ramp up to warp speed for 2011, challenge your preconceptions, or they will challenge you.  Introduce us to homeowners, business owners, brokers, realtors, and those who “Kling-on” to the love of property improvement. It is purely logical and right to do.  Live long and prosper!

Call ProTect Painters, that’s our name!  Quality That Lasts, that’s our claim to fame.  For examples of our work, please visit our Facebook Fan Page at http://on.fb.me/eYngXA  or call us to set up a time for an estimate at 888-497-2468.

Home Owners Insurance Can be Cancelled Due to Cracks – Take Action Now!

It does not take a genius to determine property insurance risk management in Florida is in a state of relative crisis.  Insurers are still reeling from the damages in the 2004 storm season.  Some new providers have come into the area but like health insurance, the rules for insuring your property are far from clear.

On a recent exterior painting estimate, I discovered a new twist.  Insurance companies are becoming more diligent with conducting onsite reviews of both new and existing policy holders.  The obvious items checked are diving boards and slides on pools, sinkholes and trampolines in the yard.  Seems these will get you denied or eliminate your renewal for many insurers.

The next comment may shock you.  Insurers apparently can deny coverage for lack of coating/paint and most certainly for visible cracks.  The homeowner above had their policy cancelled and renewal was denied due to these issues.  Yes, their house is overdue for paint and they have some settling and stucco cracks.  Bad news?   Their house is far from the worst we have seen.

I would estimate that at least 70% of the homes in Central Florida are overdue for painting.  And … virtually all masonry/stucco body homes we see have visible cracks in the stucco.  Insurers are not willing to take the risk for water intrusion through the exterior of the home.  If they cite your home during an annual onsite review, some may give you the opportunity to correct the issue.  Others will just cancel your policy.  Failure to prep, patch and paint the exterior, once noted, will likely be considered negligence and any damage post inspection will not be covered.

Water finds a home!  Don’t let it be your home.  Water intrusion can cause obvious damage.  It’s expensive to replace drywall, flooring and even furniture.  Worst yet… prolonged exposure creates mold.  Mold remediation requires a specialist and they are very expensive.  Live in a pre-1978 home?  Add even more costs requiring an EPA Lead Certified Renovator to conduct the repairs.

Bottom line?  Properly prep, seal and paint your home.  DIY patches on the cracks may not help you at all.  Most homeowners do not complete the process correctly.  The insurance inspector may fail your work and drop you if the work is not completed correctly.  Spend a few thousand now or pay many thousands later.  Your choice? 

PS – I would bet good money on the mortgage companies looking at this issue soon.  They have to protect their risk as well. 

Lead-Based Paint Renovation, Repair and Painting (RRP)

After many months/years of delay, the Lead-Based Paint Renovation, Repair and Painting (RRP) rules were placed into full effect as of October 1, 2010.  Opt out provisions have been eliminated.  There are still a lot of questions about compliance and enforcement.  There is little doubt this regulation will create additional costs for homeowners, property managers, rental property managers and selected businesses.  We continue to be amazed at how many consumers and professionals are completely unaware of these requirements.   The majority of the information in this update is taken directly from the EPA web site http://www.epa.gov/lead/index.html.  Please visit the site for additional information and details. 

Who is affected?

Here is summary information taken from the EPA web site:  “The Lead-Based Paint Renovation, Repair and Painting Program is a federal regulatory program affecting contractors, property managers, and others who disturb painted surfaces.  It applies to residential houses, apartments, and child-occupied facilities such as schools and day-care centers built before 1978.

Contractors, property managers, and others who perform renovations for compensation in residential houses, apartments, and child-occupied facilities built before 1978 are required to distribute a lead pamphlet before starting renovation work.

Firms are required to be certified, their employees must be trained (either as a certified renovator or on-the- job by a certified renovator) in use of lead-safe work practices, and lead-safe work practices that minimize occupants’ exposure to lead hazards must be followed.

Renovation is broadly defined as any activity that disturbs painted surfaces and includes most repair, remodeling, and maintenance activities, including window replacement.”

Who or what is excluded?

• Housing built in 1978 or later.
• Housing for elderly (age 62 or older) or disabled persons, unless children under 6 reside or are expected to reside there.
• Zero-bedroom dwellings (studio apartments, dormitories, etc.).
• Housing or components that have been declared lead-free. Such a declaration can be made by a certified inspector or risk assessor. Also, a certified renovator may declare specific components lead-free using an EPA recognized test kit.
• Minor repair and maintenance activities that disturb 6 square feet or less of paint per room inside, or 20 square feet or less on the exterior of a home or building. Minor repair and maintenance activities do not include window replacement and projects involving demolition or prohibited practices.

Planning to buy or rent a home built before 1978?

Many houses and apartments built before 1978 have paint that contains lead (called lead-based paint). Lead from paint, chips, and dust can pose serious health hazards if not taken care of properly. Federal law requires that individuals receive certain information before renting or buying a pre-1978 housing:

• LANDLORDS must disclose known information on lead-based paint and lead-based paint hazards before leases take effect. Leases must include a disclosure form about lead-based paint.
• SELLERS must disclose known information on lead-based paint and lead-based paint hazards before selling a house. Sales contracts must include a disclosure form about lead-based paint. Buyers have up to ten days to check for lead hazards.

 “Landlords receive rental payments and maintenance personnel in rental property or child-occupied facilities receive wages or salaries derived from rent payments. This is considered compensation under the RRP rule. Therefore, renovation and repair activities performed by landlords or employees of landlords are covered by the rule. Work performed by landlords or their employees in pre-1978 housing and child-occupied facilities must be performed using lead safe work practices, if lead-based paint or presumed lead-based paint is disturbed.”

What’s your probability for lead?

According to the American Healthy Homes Survey (October 2008), about half of homes built before 1978 have lead-based paint. The likelihood of finding lead-based paint increases with the age of the home:

• 25% – One of four built between 1960 and 1977 have lead-based paint.
• 66% – Two of three of homes built between 1940 and 1960 have lead-based paint.
• 86% – Almost nine of ten homes built before 1940 have lead-based paint.

There Are Few Choices – Must Assume Lead or Conduct Lead Testing

If a home was built before 1978, you must either assume that lead-based paint is present or have the work area tested for lead-based paint before starting the job. There are two options for testing paint in a home under the Renovation, Repair and Painting Rule:

1. Testing by a certified lead-based paint inspector or lead-based paint risk assessor—using laboratory analysis or a machine called an X-Ray Fluorescence Analyzer (XRF) which measures the amount of lead in the paint.  (This is the only acceptable method for HUD properties.)
2. Testing by a Certified Renovator—Certified Renovators can use EPA-recognized chemical spot test kits to test all painted surfaces affected by the renovation. 

 What lead safe practices are required?

 Interiors

•  “Work areas must be protected by plastic sheeting that extends a minimum of 6 feet or “far enough” in all directions from the location where paint will be disturbed so that all dust or debris generated by the work remains within the area protected by the plastic.
• Unauthorized persons and pets must be prevented from entering the work area. This can be accomplished by posting warning signs and by establishing barriers around the work area such as barrier tape, fencing, plastic barriers in doorways, etc.”

 ProTect comments:  There is a strong preference for residents to vacate the property during the renovation activities.  This is not always feasible.  Owners with children under 6 or with residents which are pregnant may find it difficult to obtain services.

Exteriors

• “Keep non-workers away from the work area by marking it off with signs, tape and/or cones.”  

ProTect comment: Looks something like a crime scene with cones and tape marking off the area. This will cause some neighborhood concerns and will draw attention. 

• “Cover the ground and plants with heavy plastic sheeting to catch debris. The covering should extend at least 10 feet out from the building. Secure the covering to the exterior wall with a wood strip and staples, or tape.”

ProTect comment: Often precludes traditional pressure wash prep on buildings with heavy peeling.  These properties will need to be wet hand scraped to avoid wide dissemination of chips/debris.  This may add significant labor costs to your project.

• “Close windows and doors within 20 feet of the work area to keep dust and debris from getting into the home.”

ProTect comment: Homes are close to each other in many areas.  This may have impact on your neighbors as well. You need to inform them of the project and request they keep their windows closed and children away from the area.

• “Move or cover any play areas that are within 20 feet of the work area.”

ProTect comment:  Children are especially sensitive to lead poisoning.  You need to evaluate the impact on play areas on your property and areas close to the home.

• “When working on the 2nd story or above, extend the sheeting farther out from the base of the home and to each side of the area where paint is being disturbed. “ 

ProTect comment:  This may result in the entire yard and portion of the neighbor’s yard being covered in plastic or landscaping fabric.  Be prepared to possibly replace sod and landscaping which may die as a result of this procedure.

• “Vertical shrouding on scaffolding should be used if work is close to a sidewalk, street, or property boundary, or the building is more than three stories high.”

ProTect comment:  May have to shroud the entire area to avoid impact on areas beyond your property line.  This could include hanging plastic sheeting around the entire perimeter of the building.  This can get expensive on a larger home.

• “Avoid working in high winds if possible.”

ProTect comment:  Job production is likely to be stopped here as sea breezes kick in during our afternoons.  Any wind above 10-15 mph will carry lead dust to areas beyond the protection zone.  Expect additional costs due to impact on crew schedules.

Worker’s Protection during Site Preparation Phase

It is going to look a little like a hazmat site during the preparation of the job for painting and other services which result in disturbance of paint.  Painting crews are required to be protected from prolonged exposure to lead paint.  Until the surface preparation is completed and the dust/chips have been removed, the painters in your home will be clothed in the following items:

• Protective eye wear
• Painter’s hat
• Disposable coveralls
• Disposable N-100 rated respirator
• Disposable latex/rubber gloves
• Disposable shoe covers

The Bottom Line – What’s this going to Cost?

The question of cost is a difficult one to answer.  The realistic answer is we really don’t know the full impact of this regulation.  Costs for services are based on time, materials and risk.  These will vary greatly based on the condition of the home, work that must be provided, methods used and proximity to other properties.

As a result, the best answer for cost is: it depends.  Until the market has a better solution here is what we do know:

The cost of additional materials (plastic, protection gear, etc) adds at least $500 to $1000 on every job.  Larger and multi-story projects will require more. 

• Additional labor is required for set up and clean up beyond the traditional painting services.  You can expect at least an additional ½ to full day on most jobs. Again, larger projects will see more.  Clean up is required on exterior jobs daily and this adds additional costs as well.
• Some traditional methods of preparation may not be feasible.  Where a house could have been pressure washed to remove paint, it may need to be wet scraped by hand.  This is very labor intensive and could add several days of labor cost to the painting process.  It could take 2-3 full days to complete this process on a 1500 sq ft house in poor condition.
• There are a very limited number of painting companies who are lead certified renovators.  These firms will be in great demand as property owners discover the true nature of this regulatory change.  Prices rise with demand.  In addition to price increases, expect delays for scheduling and completing your project.
• Fines for non-compliance are large.  Expect to see enforcement activities growing with a solid emphasis on HUD, multi-family and rental properties. 
• Window installations (assume doors as well) are specifically highlighted in the regulation.   Data on the Internet shows this may add $400 – $600 per window replaced.  Don’t forget, this rule applies to virtually anyone that touches the house.  Six square feet of interior disturbance is not much.  Expect kitchen and bath remodeling to rise significantly as well.
• The downside is homeowners may be forced into DIY mode or electing to let the property run down further.  Fixing DIY mistakes or recovering from neglect will be very costly.  Consider the longer term ramifications before attempting a DIY approach.
• Investors with rental properties may be the hardest hit.  You are required to hire a lead certified renovator for all work performed on a pre-1978 residential property.  As far as we can see at this point, there is no DIY provision.  There does not seem to be any qualifiers.  The rule applies even if you own one property.
• So far, commercial property (with the exception of those providing medical or child related services) is exempt from these actions.  We fully expect to see commercial added to this at a later date.  Commercial property owners should consider making repairs and renovations now to avoid this issue down the road.

 Conclusion

 This may be one of those regulations which heads in the right direction and turns into a national disaster.  The idea is certainly correct.  We need to protect ourselves from years of lead pollution.  The United States was one of the last places in the world to remove lead from paint.  We have paid a large price for this over time.  Many of the health issues like ADHD and worse have been attributed to the use of lead.  We applaud the goals of this regulation but have a lot of concerns about the impact.

We hope that consumers will not take actions which further complicate the maintenance of these homes.  There are a lot of pre-1978 properties which need work due to neglect promulgated by our weak economy.  Investors and buyers may also shy away from purchasing these properties.  The costs may very well exceed the economic value of the rents which can be produced.  Historical properties have an even greater concern.  The cost of maintaining these beautiful homes was an issue before this added layer of cost.  We may see a decline and loss of many of these homes. 

In summary Lead-Based Paint Renovation, Repair and Painting (RRP) is a right idea with awful economic timing.  There are still quite a few unknowns.  This regulation will likely come result is negative backlash and deterioration of some properties.  Those who do want to maintain their homes will definitely see an increase in painting and other renovation costs.