Critical repairs are classified as either life safety or accessibility repairs, not both. In cases where an accessibility deficiency is also a life safety condition (e.g. excessive change in grade or trip hazards) then the repair should be classified as a life safety critical repair. Other accessibility repairs which are not immediate risks of harm or accident should be classified as accessibility critical repairs which should be completed as soon as possible but not essentially, or often even possibly, before closing. For example, providing a correct turning radius in a bathroom.

Routine maintenance is work which should rarely appear in a CNA enumerated list of repairs. In essence routine maintenance refers to things owners and property managers should be dealing with on a regular and timely basis (e.g., replacing failed hinges, inoperable door locks, stained or damaged carpet, broken window panes, inoperable window lifts, annual window washing [high rises] or pressure washing [mildew prone locations], or correcting trip hazards, or replacing a faulty electric panel, the last two of this list would be life safety critical repairs when and if observed.) If such items appear on a CNA list of repairs it will be because the owner or property manager has not performed routine maintenance on a timely basis or has deferred such maintenance to a noticed extent, the cure for which may be so extensive as to cease to be routine, but rather a significant repair or replacement. Most life safety critical repairs are actually neglected or improper routine maintenance, i.e., corrections should already have been made, but the owner or property manager has not acted. The MAP Guide specifically references a definition of routine maintenance. By its nature, routine maintenance should be ongoing with or without a pending or submitted application for FHA mortgage insurance and does not require environmental review. If numerous incidents of routine maintenance are noted as repairs then the conclusion a lender and underwriter should consider is whether the owner and/or property manager are adequately performing and whether the property is actually competitive with its claimed peers.

Some owners undertake a broad list of what we would define as non-critical repairs and often do so in advance of recapitalizing the property in order to improve its performance. These owners typically buy underperforming or poorly managed properties with a view to adding value with improved maintenance or upgrades and then refinancing or, they simply realize one of their existing assets needs improvement. This strategy often, but not always, recaptures the cost of such improvements by capitalizing the (sometimes) resulting increased NOI which. Such pre-application upgrades are not mortgageable costs as repairs. Instead they contribute to value recognized in underwriting.

Other applicants may identify a plan of correction of deferred maintenance and upgrades which could entail both critical and non-critical repairs and propose to include these as mortgageable costs. The property will be valued as though all such repairs are completed. But because these costs are mortgageable, they are part of the application for an insured mortgage and subject to all application review requirements including environmental clearance. In this scenario you are correct, routine maintenance and life safety deficiencies should be addressed during the pendency of the application underwriting and environmental review. But all other repairs and alterations should proceed only after environmental review is complete.

Greg Hunter Changed status to publish July 12, 2022
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