How does a lender address a construction complaint from a borrower?

Construction complaints made to a mortgagee involving cases processed under Direct Endorsement are to be initially investigated by the mortgagee. Advise the homeowners that they must first try to resolve the matter with the builder or warranty plan issuer. The homeowner should notify the builder or warranty plan in writing of the complaint in accordance with the terms of the Warranty, keep a copy of the complaint and allow two weeks for a response to the complaint.

If a satisfactory response is not received in such time, the mortgagee should contact the builder or warranty plan in writing. If the mortgagee is unable to resolve the matter, the mortgagee should refer the complaint to HUD for further processing and so advise the homeowner. HUD will determine whether the homeowner is eligible for assistance pursuant to Section 518(a). Paragraph 2-3 of Handbook 4070.1 provides a definition of structural defect for purposes of 518(a) and discusses causes of damage (such as fire) that preclude coverage.

Handbook 4070.1 1-5 and 2-3

Mortgagee Letter 95-14

All policy information contained in this knowledge base article is based upon the referenced HUD policy document. Any lending or insuring decisions should adhere to the specific information contained in that underlying policy document.

Topic Number: KA-03801