To whom are 203(k) escrow funds distributed?

The mortgagee will release escrow funds upon completion of the rehabilitation in compliance with the Work Write-Up or work plan, as applicable.  The mortgagee may issue the check directly to the borrower alone if the release is for: 
•     materials for work performed under a self-help agreement; or 
•     materials for items prepaid by the borrower under contract with the supplier.  

For a Standard 203(k) Rehabilitation Mortgage Insurance Program, the mortgagee must issue checks to both the borrower and contractors as co-payees, unless the borrower provides written authorization, at each draw, to issue the check directly to the contractor.  

For a Limited 203(k), the mortgagee may issue checks solely to the contractor, or issue checks to the borrower and the contractor as co-payees.  

For additional information see Handbook 4000.1 II.A.8.a.xviii.(C)(1)(d) 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-04925