Need for Fairer Treatment of Homeowners' Claims for Defects in Existing Insured Homes

CED-77-97: Published: Jul 27, 1977. Publicly Released: Jul 27, 1977.

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Homeowners in Chicago who purchased homes with major defects have been treated unfairly and inconsistently by the Department of Housing and Urban Development (HUD) in their efforts to seek compensation. Ambiguous criteria for evaluating claims and only partial reimbursement were the major deficiencies of the compensation program. Findings and recommendations to rectify the situation are applicable throughout the country.

Better criteria are needed to evaluate the validity of claims. A number of rejected claims are similar to claims considered valid. Homeowners were not always informed of the right to appeal rejected claims. Incorrect partial compensation for valid claims was sometimes granted.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: HUD should more clearly define criteria as to what constitutes a serious defect. Guidance given inspectors to determine whether defects existed at the time of insurance commitment should pount out the inappropriateness of relying: (1) solely on a fixed time limit without regard to other factors in each case; or (2) on the original Federal Housing Administration appraisal. HUD should direct the Chicago area office to discontinue using a fixed time-limit criterion to the exclusion of other factors, resolve serious doubts in favor of the homeowner in evaluating claims, and reevaluate all claims rejected on the basis of inappropriate criteria. Procedures for reimbursement should cover total actual costs, including finance charges, and should be implemented in a uniform and consistent manner.

    Agency Affected:


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