Is a repair escrow holdback allowed at closing for incomplete construction, alterations or repairs?

The Mortgagee may establish a repair escrow for incomplete construction, or for alterations and repairs that cannot be completed prior to loan closing, provided the housing is habitable and safe for occupancy at the time of loan closing. 

The Mortgagee must establish the escrow account in accordance with the regulatory requirements in 24 CFR 203.550 and the Real Estate Settlement Procedures Act (RESPA).
 
Repair escrow funds must be sufficient to cover the cost of the repairs or improvements. The cost for Borrower labor may not be included in the repair escrow account.
 
The Mortgagee must execute form HUD-92300, Mortgageeā€™s Assurance of Completion, to indicate that the repair escrow has been established.
 
The Mortgagee must certify on form HUD-92051, Compliance Inspection Report (CIR), that the incomplete construction, alterations and repairs have been satisfactory completed.

HUD Forms are available at:  https://www.hud.gov/program_offices/administration/hudclips/forms/hud9
 
For additional information see Handbook 4000.1 II.A.6.a.viii(B) at: https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh

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-04691