FHA/HUD | 2026-10-27

HUD Deferred-Repair Escrows Need More Than the Repair Estimate

HUD-92476.1M layers the repair estimate, a program-specific additional deposit, possible cash-out proceeds, and latent-defects assurance.

HUD's current forms page identifies HUD-92476.1M, Escrow Agreement for Non-critical, Deferred Repairs, for transactions with firm commitments issued on or after April 1, 2026. HUD's closing guidance states that critical repairs required by the Firm Commitment must be completed before endorsement and only noncritical repairs may be deferred. The agreement incorporates the itemized repair cost estimate and repair list as Exhibit A and states the Completion Date as a specified number of months after endorsement of the Note.

For a cash-funded deferred-repair escrow, the form requires a Repair Estimate Amount equal to 100% of the estimated Repair Work cost; a letter of credit may not replace that base amount. It also provides for an Additional Deposit Amount of not less than 20% for a Section 223(f) transaction, 10% for a Section 223(a)(7) transaction, or another percentage permitted by Program Obligations. That additional amount may be cash and/or an eligible unconditional irrevocable letter of credit. A cash-out Section 223(f) refinancing may also require 50% of the cash-out proceeds to be withheld in the escrow.

The borrower must complete the Repair Work free of liens by the Completion Date. Disbursements for completed Exhibit A work require prior written HUD approval, except as provided by an approved Lender Self-Administration Rider. Subject to the agreement, a remaining balance may be released only after HUD determines the work is satisfactorily complete, HUD receives evidence of clear title, and any required latent-defects assurance has been provided.

When the Firm Commitment requires it, the form describes a Latent Defects Deposit equal to 2.5% of the total critical and noncritical repair estimate; the remaining deposit is released on the later of 15 months after completion or correction of latent defects to HUD's satisfaction. Borrower-side counsel should reconcile the Firm Commitment, Exhibit A, completion period, base escrow, additional deposit, any cash-out holdback, funding form, disbursement authority, title evidence, and latent-defects amount in one schedule before closing. This note is informational only and is not legal advice for any specific transaction.