The Appraiser must require an inspection to ensure that the system is in proper working order if there are readily observable signs of system failure. If additional inspections, repairs or certifications are noted by the appraisal or are required to demonstrate compliance with Property Acceptability Criteria, the Mortgagee must obtain evidence of completion of such inspections, repairs or certifications.
The Mortgagee must confirm that a connection is made to a public or community sewage disposal system whenever feasible and available at a reasonable cost. If connection costs to the public or community system are not reasonable, the existing onsite sewage disposal systems are acceptable provided they are functioning properly and meet the requirements of the local health department. When the onsite sewage disposal system is not sufficient and an off-site system is available, the Mortgagee must confirm connection to an off-site sewage system. When the onsite sewage disposal system is not sufficient and an off-site system is not available, the lender must reject the property unless the onsite sewage disposal system is repaired or replaced and complies with local health department standards.
For additional information see Handbook 4000.1 II.A.3.a.ii.(Q); II.D.3.q. and II.A.3.b. at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh