HUD-92700-A 203 (k) Borrower's Acknowledgement

203 (k) Borrower's
Acknowledgement

U.S. Department of Housing
and Urban Development
Office of Housing
Federal Housing Commissioner

Condition of Property: I understand that the property I am purchasing is not
HUD approved and HUD does not warrant the condition or the value of the
property. I understand the HUD plan review (where performed) and the
appraisal are performed to determine compliance with the required architectural

exhibits and to estimate the value of the property, but neither guarantees the house
is free of defects. I understand I was responsible to have an independent consultant
and/or a professional home inspection service perform an inspection of the property
and the cost of the inspection was (or could be ) included in the mortgage.

Loan Requirements
• I understand at the time of the loan closing of an FHA-insured 203(k)
Rehabilitation Loan, for which I have applied to my lender, the proceeds
designated for the rehabilitation or improvement (including a contingency
reserve, mortgage payments and any other fees, where applicable) are to be
placed in an interest bearing escrow account. The Rehabilitation Escrow
Account is not, nor will it be treated as an escrow for the paying of real estate
taxes, insurance premiums, delinquent notes, ground rents or assessments.
I hereby request the lender, after the Final Release Notice is issued, to:
Pay the net interest income directly to me/us.
Apply the net interest income directly to the mortgage principal balance
for an equal amount of principal reduction.
Other: _________________________________________________
• I understand that the Rehabilitation Escrow Account will cease paying
interest to me if (1) the loan payments are delinquent for more than 30 days;
or (2) the completion date (or an approved extension) has expired. During
this period, the interest will be paid down on the mortgage principal. I
understand if I clear up the delinquent or default status and/or the completion date has not expired or an extension has been approved, then the interest
on the escrow account will begin again to be paid according to the request
above.
• I understand no draws on the escrow account can be made until all permits
have been issued by the local or state building departments, where required.
I further understand I can only request monies for the actual cost of
rehabilitation. If any cost savings result on any line item of the Draw
Request, form HUD-9746-A, the amount saved must be used to: (1) Make
further improvements to the property; (2) Pay for cost overruns in other line
items of the Draw Request; or (3) Prepay the mortgage principal.
• I understand the contractor(s) is responsible to complete the work described
in the architectural exhibits in a workmanlike manner. If I agree the work
has been properly completed, I will sign the Draw Request, form HUD9746-A, thereby accepting the responsibility that the completed work is
acceptable and payment is justified. I understand there is a 10 percent
holdback on each Draw Request to assure the work is properly completed
and for lien protection.
• I understand I am responsible to negotiate any and all agreements with the
contractor(s) I select and that HUD suggests that the Agreement with the
contractor should include a provision for binding arbitration with the
American Arbitration Association on any dispute.
• I understand if I am using the Escrow Commitment Procedure, I must sign
form HUD-314. The funds deposited in an escrow, trust or special account
will not be released until an assumption of the loan occurs by a creditworthy
buyer or until the time allowed for such assumption has expired, thereby
requiring the funds to be paid down on the mortgage principal.

• I understand if I change a contractor for any reason, I may be obligated under
the terms of the original contractor’s agreement and I should seek legal
advice before taking such action. If I disagree with the contractor regarding
the acceptable completion of the work, I can request an inspection by the
fee inspector to determine if the work has been properly completed. If an
agreement cannot be made with the contractor, the lender may hold the
money until such time as an agreement is reached or an arbitrator’s decision
is rendered.
• I understand the lender or HUD does not provide a one-year warranty on the
completed work on the property. I am responsible to obtain such
warranty(s) from the contractor(s) and the warranty should be stated in the
Homeowner-Contractor Agreement.
• I understand I am responsible to make the mortgage payments during the
term of the loan, including the rehabilitation period, to ensure the property
will not go into default. The construction on the home must start within 30
days; if the construction ceases for more than 30 days, the lender may
consider the loan in default or the lender can use the escrow money to have
the work completed. If the work stops or is not progressing as it should, or
if the work does not comply with the accepted architectural exhibits, the
lender may require additional compliance inspections to protect the security of the loan and I will be responsible to pay for the inspections and the
cost of the inspection may be withheld at the next draw request.
• I understand no changes to the architectural exhibits can be made without
the acceptance of the lender (or HUD) on form HUD-92577. The contingency fund is set up for changes that affect the health, safety, or items of
necessity of the occupants of the property. If the contingency reserve is
insufficient, I must place additional monies into the account for payment
upon acceptance of the change. Additional improvements can be made after
it is determined no further health and safety items exist. A change order will
be made to assure the monies are available to the contractor upon completion of the changed work.
• I understand if there are unused contingency funds, mortgage payments,
inspection fees or other monies in the Rehabilitation Escrow Account after
the Final Release is processed, the lender, in compliance with HUD
regulations, must apply those funds to prepay the mortgage principal,
provided those items are a part of the mortgage.
• I understand the lender may retain the 10 percent holdback, for a period not
to exceed 35 days (or the time period required by law to file a lien,
whichever is longer), to ensure compliance with state lien waiver laws or
other state requirements. Upon completion of the work, I understand I will
be provided: (1) The Final Draw Request; (2) The Final Release Notice;
and (3) An accounting of the final distribution of all funds.

This statement must be delivered to you prior to closing the loan. Return one copy to your lender as proof you have read the entire document. Keep
one copy for your records. You, the borrower(s), must be certain that you understand this information. Sign here only after you have read this entire
document. Seek professional advice if you are uncertain.
Borrower’s Signature & Date:

Co-Borrower’s Signature & Date:

X
X
I, the lender, certify this information was delivered to the borrower(s) prior to the time of loan closing.
Lender’s Signature & Date:

X
ref. Handbook 4240.4

form HUD-92700-A (8/95)