FHA Environmental Hazards & Site Conditions 2 — Questions and Answers
Question 1: An FHA appraiser notices visible mold on interior walls and ceilings of a property. What is the required course of action?
- Document the mold but allow the loan to proceed since mold is common
- Note the condition and require professional mold remediation prior to loan closing (Correct answer)
- Recommend the buyer address mold remediation after purchase closes
- Ignore minor mold growth if it covers less than 10 square feet total
Correct answer: Note the condition and require professional mold remediation prior to loan closing
Visible mold is a health and safety hazard under FHA MPRs; the appraiser must note it and condition the appraisal on professional remediation and correction of the underlying moisture source before the loan can close.
Question 2: What is the minimum required separation between a private well and a septic system drain field/leach field under FHA Minimum Property Requirements?
- 50 feet
- 75 feet
- 100 feet (Correct answer)
- 150 feet
Correct answer: 100 feet
FHA MPRs require a minimum 100-foot separation between a private well and the septic drain/leach field—a greater distance than the 50-foot requirement for the septic tank itself—to prevent groundwater contamination.
Question 3: A property has documented evidence of prior use as a methamphetamine lab. What is the FHA appraiser's obligation?
- Note it only if law enforcement has confirmed active contamination at the time of inspection
- Ignore it unless visible chemical staining is present during the inspection
- Note the condition as a significant health and safety concern and require certified decontamination before FHA financing (Correct answer)
- Recommend a price reduction to compensate the buyer for the contamination risk
Correct answer: Note the condition as a significant health and safety concern and require certified decontamination before FHA financing
Meth lab contamination leaves toxic residues that pose serious health risks; FHA requires the appraiser to flag the property and condition financing on certified decontamination and clearance testing by a qualified specialist.
Question 4: Which of the following situations would most likely trigger a requirement for an environmental site assessment (ESA) on an FHA-financed property?
- The property is a commercial-to-residential conversion completed over 20 years ago
- Observable evidence of contamination on the property or its location near a known hazardous waste site (Correct answer)
- Any property built before 1970 in an industrial area
- All properties within one mile of an active railroad line
Correct answer: Observable evidence of contamination on the property or its location near a known hazardous waste site
FHA directs appraisers to flag properties when there is observable evidence of environmental contamination (staining, odors, distressed vegetation) or known proximity to hazardous waste sites, which may trigger a Phase I or Phase II ESA.
Question 5: An FHA appraiser identifies Chinese drywall (imported drywall that emits sulfur compounds and causes corrosion and health concerns) in a home. What is the appropriate appraisal requirement?
- Note it as a minor cosmetic defect with no impact on FHA eligibility
- Require complete replacement of all affected drywall before FHA financing can proceed (Correct answer)
- Recommend a closing cost credit to the buyer to offset future replacement
- Ignore it if the home was built after 2010 since production ceased by then
Correct answer: Require complete replacement of all affected drywall before FHA financing can proceed
Chinese drywall is a known health and safety hazard that causes corrosion of electrical systems and HVAC components and health issues for occupants; FHA requires remediation (replacement) before the loan can close.
Question 6: For which FEMA flood zones does FHA require mandatory flood insurance as a condition of financing?
- All flood zones, including moderate-risk Zone X
- Only Zone V (coastal high hazard areas)
- Special Flood Hazard Areas, including all Zone A and Zone V designations and their sub-designations (Correct answer)
- Only Zone AE and Zone VE
Correct answer: Special Flood Hazard Areas, including all Zone A and Zone V designations and their sub-designations
FHA mandates NFIP flood insurance for all properties in Special Flood Hazard Areas, which include all Zone A designations (A, AE, AH, AO, AR, A99) and Zone V designations (V, VE)—not just individual sub-zones.
Question 7: During an inspection, an FHA appraiser observes obvious oil staining on soil near the foundation and detects a petroleum odor on the property. The correct course of action is to:
- Note it as an aesthetic issue and apply a dollar adjustment in the sales comparison approach
- Complete the appraisal without comment if the contamination appears to be old and inactive
- Note the condition in the report and require further investigation by a qualified environmental specialist before FHA financing can proceed (Correct answer)
- Immediately reject the property as permanently ineligible for FHA insurance
Correct answer: Note the condition in the report and require further investigation by a qualified environmental specialist before FHA financing can proceed
Observable signs of soil contamination are a red flag requiring the appraiser to document the condition and condition FHA financing on investigation and clearance by a qualified environmental professional—not to self-adjudicate eligibility.
FHA Environmental Hazards & Site Conditions 2
An FHA appraiser notices visible mold on interior walls and ceilings of a property.
What is the required course of action?