This information applies to SL and Full FHA 203(k) files and HomeStyle files. General Repair Escrow files are not required to have Movement Mortgage verified contractors.
In the event of a disagreement between a borrower and a contractor Movement Mortgage’s Draw Department may engage in a limited attempt to reconcile the two parties. No legal advice is ever offered by the Draw Department as they are not, nor do they profess to be, legal representatives. Should the borrower and the contractor fail to reconcile the, contractor may be released from or leave the project. First it must be determined if the contractor has been paid for all of the work that they have completed:
o SL 203(k)’s: For SL 203(k)’s an appraiser is engaged to visit the property and issue a status inspection indicating what has been completed by the outgoing contractor while the contractor submits an invoice listing the completed items and the amount owed for each item. The Draw Administrator compares the contractor’s invoice, the original bid and the appraiser’s report to insure that all completed items are being adequately paid for. The appropriate draw paperwork and lien waivers must be submitted conjunction with the release.
o Full 203(k)’s: For Full 203(k)’s the FHA Consultant visits and issues a draw inspection and the draw inspection is utilized to determine what items need to be paid for. Any holdback money that is owed to the outgoing contractor is also calculated into the total amount being released. The appropriate draw paperwork and lien waivers must be submitted conjunction with the release.
o HomeStyle’s: For HomeStyle’s with a Consultant the Consultant visits and issues a draw
inspection and the draw inspection is utilized to determine what items need to be paid for. Any holdback money that is owed to the outgoing contractor is also calculated into the total amount being released. If no Consultant has been engaged the process for determining what work needs to be paid for is the same as the SL 203(k) process. The appropriate draw paperwork and lien waivers must be submitted conjunction with the release.
At this time, regardless of the loan program type, the Draw Administrator also orders a title update with the title/settlement agent and follows up in a timely manner until an all clear title update is received. In the event that a title update comes back with relevant negative judgments or mechanical liens the borrower is responsible to have those items removed. Once the Draw Administrator receives an all clear title update this portion of the contractor removal process has been satisfied. Any fees that the
title/settlement agent charge are paid at this time (see FHA Streamline Final Draw, Title Update section for further information on ordering a title update and requesting a title update check).
Based on the inspection conducted by the appraiser or the Consultant the contractor is reimbursed for the work that they have completed to date. Prior to issuing reimbursement for the work that was completed the outgoing contractor must complete and submit a signed Contractor Lien Waiver
61 indicating the amount that they are owed. The reason for their removal from the project is also
indicated on the lien waiver. The borrower also submits a letter to the Draw Department and the outgoing contractor indicating that the contractor is being removed from the project and the reason for the removal.
If no work has been completed by the contractor an inspection is not necessary. A title update must still be conducted to show an all clear title and the borrower must still issue the letter of explanation to the contractor and Movement Mortgage. The Draw Administrator must also attempt to receive a signed Contractor Lien Waiver showing zero dollars in the amount owed portion, with the appropriate reason for removal listed. If the contractor is not responsive the Draw Administrator must send a certified demand letter requesting that the contractor complete and return the lien waiver within 10 business days from the date of the letter. The letter of explanation for removal from the project provided by the borrower should also be included in this communication as well as the lien waiver itself. The certified letter should explain to the contractor that if they do not respond within the 10 business day period they accept that they are being removed from the project and are not owed any money in relation to the project. The Draw Administrator will document the sending of the certified letter and will submit a brief letter of explanation if the contractor does not respond. If the contractor does not respond within the appropriate time period the project can move forward.
Once the outgoing contractor has been fully reimbursed and the necessary paperwork submitted a new contractor may be engaged. The pre-closing documents required for contractor verification are required for the incoming contractor and there is a new contractor checklist available for each renovation loan program. Each particular loan type varies slightly in its requirements – Draw Administrators will utilize the appropriate checklist and will consult the Disbursement Coordinator if necessary regarding what current paperwork is required for the incoming contractor. In addition the incoming contractor must agree to perform all the remaining work at the same cost that the previous contractor had indicated. No work may be changed and no money may be added to the project post-closing. If the borrower is unable to locate a contractor who can meet the monetary limitations they can pay the difference out of pocket. If they choose to proceed with a contractor whose bid is higher than the remain repair amount they must write and sign their statement of agreement and acknowledgement that they will be paying the difference out of pocket on a Change Order form.
No work may be completed on the project until the outgoing contractor has been formally removed from the project and the incoming contractor has been formally assigned. This includes any legal action that the borrower and former contractor may engage in regarding the construction project. The project must be put on hold until all legal or informal disputes are settled satisfactorily.
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