What is the general process for reviewing draw requests and releasing escrowed funds on a 203(k)?

The mortgagee must obtain an executed form HUD-9746-A, Draw Request Section 203(k), from the 203(k) Consultant, or from the Borrower when there is no 203(k) Consultant, requesting the release of escrow funds for completed work items.   The mortgagee must review and approve each draw request to ensure that the work for which funds are being requested has been completed satisfactorily and that the form has been properly executed by the borrower, contractor and Consultant, if any.   The mortgagee may not approve a draw request for work that is not yet complete.  The mortgagee may not approve draw requests for materials for work that is not completed, except for: 

•    materials costs for items prepaid by the Borrower in cash or by the contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date; and 
•    up to 50 percent of materials costs for items, not yet paid for by the borrower or contractor, where a contract is established with the supplier and an order is placed with the manufacturer for delivery at a later date.  

The mortgagee must hold back 10 percent of each draw request prior to release of funds from the rehabilitation escrow account except when a subcontractor is 100 percent complete with a work item, the work completed is acceptable to the inspector, and the contractor and subcontractor provide the necessary lien waivers, or equivalent.  The mortgagee has discretion to hold back funds if not required.   The mortgagee must release funds within five business days after receipt of a properly executed draw request and title update when necessary. 

For additional information see Handbook 4000.1 II.A.8.a.xviii(C)(1)(a) 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-04967