It’s a Deep Subject

In recent weeks, I have been involved in several situations surrounding the treatment of private well water and private septic sewage systems within HUD-related appraisal reports. The confusion appears to be fairly widespread among appraisers, loan officers and underwriters, and let’s face it: the tightly tangled web of information and guidelines is often difficult to navigate, even for the sharpest of individuals. Because of this, there are a number of misconceptions related to this topic. However, HUD provides direct and effectual guidance on these matters in Chapter 3 of the Housing Handbook 4150.2: Valuation Analysis for Single Family One- to Four-Unit Dwellings, as well as in the frequently asked questions under Valuation Protocol.

The three basic HUD requirements related to water supply and sewage systems that every property must contain are: domestic hot water, continuous and sufficient supply of potable water, and sanitary facilities with a safe method of sewage disposal. It is from these basic requirements that the web begins to entangle.

There are several requirements surrounding the availability of public or community water and sewer connection. If these public or community services are available and the property is not connected to them, hook-up is required if the connection costs are considered financially feasible (typically 3 percent or less of the estimated value for the subject property). It is the responsibility of the appraiser to verify and report the availability, or lack thereof, of public or community water and sewer services. However, it is the responsibility of the lender to determine whether connection is feasible. If it is, the appraisal report should indicate the situation as “repaired subject to the connection.” There is much confusion on the part of lenders regarding the appraiser’s role in the determination of feasibility.

Presuming that connection to public or community water and sewer facilities is not available or feasible, there is another set of requirements associated with individual (private) water supply, such as well and spring sources, and sewage disposal systems, such as septic and lagoon systems. These individual systems must meet local jurisdictional requirements. In the event that there are no local requirements, the specific requirements established by the Environmental Protection Agency will apply. It is the appraiser’s responsibility to note any obvious or readily observable signs of system failure with these individual systems, such as foul odor or seepage, and to require inspection to ensure that the system is functioning properly if such signs exist. Aside from obvious or readily observable signs of failure, the decision to require inspection, testing or certification is to be made by the lender.

The circumstances that I find cause the greatest confusion are related to the presence of both individual wells and septic sewer systems, in terms of distance requirements and the information the appraiser is required to report. It is important to note that all distance requirements in this scenario are related specifically to the individual well. Individual wells must be located at a minimum distance of 10 feet from any property line. If an individual septic sewer system is also in place, a well must also be at a minimum distance of 50 feet from the septic tank, and at a minimum distance of 100 feet from the septic drain field. The appraiser is responsible for showing the location of both the private well and the septic system on the applicable site sketch. While the exact distances between the well, septic tank and drain field are not required to be reported by the appraiser, he or she should be mindful of the minimum requirements and, if discernible, comment on them. If the location of the well, septic tank or drain field cannot be determined, the appraiser is to request a copy of a survey in order to meet the requirement. Furthermore, there are no specific HUD guidelines related to distances for septic systems alone. This is a regular misconception for appraisers. Such distance requirements related to septic systems alone will fall under local jurisdictional regulations.

There are several related requirements for which HUD provides guidance for dug wells, shared wells, springs and vacant properties. This guidance is available through these HUD sources:

About the Author
John Golden is the National Quality Control Manager for Landmark Network, Inc.  He is a former certified residential and FHA appraiser and is currently on HUD's 203k consultant roster.

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