When must the Amendatory Clause be included in the sales contract?

If the Borrower does not receive form HUD-92800.5B, Conditional Commitment Direct Endorsement Statement of Appraised Value, before signing the sales contract, the sales contract must be amended before closing to include an amendatory clause that contains the following language:
“It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise, unless the purchaser has been given, in accordance with HUD/FHA or VA requirements, a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $___________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.”
 
 Mortgagees must ensure the actual dollar amount of the sales price stated in the contract has been inserted in the amendatory clause. Increases to the sale price require a revised amendatory clause.
 
An amendatory clause is not required in connection with:
  • HUD REO sales;
  • FHA’s 203(k) mortgage program;
  • sales in which the seller is: 
    • Fannie Mae;
    • Freddie Mac;
    • U.S. Department of Veterans Affairs (VA);
    • United States Department of Agriculture (USDA) Rural Housing Services;
    • other federal, state, and local government agencies;
    • a Mortgagee disposing of REO assets; or
    • a seller at a foreclosure sale; or 
  • sales in which the Borrower will not be an owner-occupant (for example, sales to nonprofit agencies).
 
For additional information see Handbook 4000.1 II.A.1.a.i(E)(1)(a)(i) 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-04703