What are the Mortgagee’s requirements when a property has a contaminated public water supply system?

If a Property does not have access to a continuous supply of safe and potable water without the use of a water purification system, the Mortgagee must ensure that :

  • The Property has an individual residential water purification system approved by a nationally recognized testing laboratory acceptable to the local or state health authority;
  • The borrower is provided with written notification that the property has a hazardous water supply that requires treatment in order to remain safe and acceptable for human consumption. The notification to the Borrower must identify specific contaminants in the water supply serving the Property, and the related health hazard arising from the presence of those contaminants;
  • The borrower has entered into a service contract with an organization or individual specifically approved by the local or state health authority for the servicing, maintenance, repair, and replacement of the water purification system;
  • A plan approved by the local or state health authority is in place which sets out conditions that must be met and sets forth the responsibilities of the Borrower, Mortgagee, and any other entity that will implement the plan; and
  • An escrow account is established to ensure proper servicing, maintenance, repair and replacement of the water purification equipment.

The Mortgagee must comply with the requirements in:

  • Handbook 4000.1 Section II.A.3.a.ii(P)  Individual Residential Water Purification Systems; and  
  • Regulation 24 CFR §203.52 Acceptance of individual residential water purification equipment

Handbook 4000.1 is available at https://www.hud.gov/program_offices/administration/hudclips/handbooks/hsgh
Regulation 24 CFR §203.52 is available at www.ecfr.gov.

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-05139