For years it has been obvious that both lenders and borrowers benefit when a home is in good physical condition. The buyer gets a property without costly surprises and the lender has stronger security in the event the property must be foreclosed.

The new Homebuyer Protection Plan announced by HUD Secretary Andrew Cuomo is designed to assure the "800,000 families" who use FHA financing each year that the home they buy is not a lemon. Under the program, as much as $300 can be used to finance home inspections, up from the current $200 allowance. As well, HUD will allow the use of local block grant money to pay for home inspections when transactions involving low- and moderate-income homebuyers.

If all HUD did was encourage the use of home inspectors there would certainly be praise. But HUD has gone much further because it would "for the first time require that home defects found by appraisers be disclosed to potential buyers."

Under the HUD plan, appraisers would be obligated to "describe problems they find rather than merely noting problems without explanation; report all health and safety problems they find; turn on the heat and air conditioning to see if they work; see if plumbing fixtures and electrical outlets are operating; and note any visible evidence of problems with a home's roof, water supply and septic system."

To assure that appraisers understand their new obligations, HUD says "a detailed manual will explain the guidelines."

And what about those appraisers who do not meet HUD's detailed new standards? Under the federal False Claims Act, says HUD, there will be "stricter accountability on all appraisers and tougher sanctions on those who act improperly -- ranging from barring them from doing more FHA appraisals to steep fines and potential prisions sentences in the most extreme cases."

Appraisers are hired to determine a home's fair market value. They may certainly consider the general condition of the property as one element of their evaluation, but appraisers are not home inspectors.

Home inspectors examine the physical elements of a property to determine what works, what doesn't, how much longer something should last, and the maintenance and repair costs a buyer might expect. To obtain such information, a home inspector may climb on a roof or open an electrical service box, activities well outside the scope of an appraisal.

Trying to convert appraisers into quasi-home inspectors -- and putting them in jail if they stumble -- is a flawed notion. Appraisers are not trained for such work and adding new responsibilities to their job description will produce instant and unpleasant results.

• FHA appraisals will take longer and represent greater liability, thus appraisers will want -- and deserve -- higher rates.

• Trial lawyers will use HUD's "detailed guidelines" as a checklist and standard to determine if appraisers are doing their job -- whether for FHA loans or not.

• The cost of appraiser liability insurance will soar.

• The use of home inspections will be discouraged. Why? Because many people will see that an appraiser is already "checking" the roof and the electrical system so why hire a home inspector?

This should comfort no one.

At this time the False Claims Act is being used to hunt out cases of Medicare fraud. In practice, according to the American Hospital Association, "hospitals and health systems are unfair targets of an anti-fraud and abuse campaign that assumes they are guilty until proven innocent.

"This issue concerns us all," says AHA to its hospital membership. "Even if you have not received a demand letter from the Justice Department, you could be next! The letters offer hospitals up to two weeks to sign a settlement agreement or face immediate prosecution, including fines up to $10,000 plus triple damages for each disputed claim."

Nowhere in this process is there an opportunity short of a full-blown federal court case to determine if the complaint has merit in the first place. Guilt is assumed. If hospitals challenge federal bureaucrats they may lose in court in which case they owe fines and legal fees. If hospitals "win" in court, they must still pay legal fees. Either way they lose, so why not settle? And, since so many cases are "settled," do not the numbers prove that government officials were right in the first place?

AHA says billing errors do occur. But they also point out that Medicare claims are governed by 1,756 pages of law and 1,257 pages of regulations. In this maze of detailed rules, regulations, and interpretations reasonable people can disagree as to what various guidelines mean, billing situations are often complex, and in any case, as AHA says, "mistakes are not fraud."

How bad is the False Claims Act? More than 180 members of the House of Representative are co-sponsoring legislation to amend the law. In response, the Clinton Administration has just published revised guidelines restricting use of the Act -- but then, perhaps there will be new guidelines next year or the year after.

Rather than criminalizing the appraisal system and publishing more guidelines, HUD would be better off with this approach: Create a common-sense protection plan. Here's how it would work:

• Take the money that would otherwise be used for proposed "protection" plan and use it to underwrite a "common-sense" model.

• Announce that as long as the money lasts, buyers who finance with an FHA mortgage will receive a $300 credit at closing under the "common-sense" program.

• Require qualifying transactions to have a home inspection "satisfactory" to the buyer.

• Require the home inspector to be selected by the purchaser.

• Require a qualifying transaction to provide that if the inspection is not "satisfactory" to the buyer, then the deal is off and the buyer's deposit must be returned in full. If the buyer rejects the inspection and does not close the tranaction, no payment from HUD would be due.

The common-sense program suggested here would cheaply and quickly promote both the idea of home inspections and the use of FHA funding, goals HUD should find desirable -- unless, of course, the real objective of the HUD proposal is to merely expand the bureaucracy.

Question Of The Week

Q We want to buy a single-family home. It is now occupied by tenants. How can we be certain the property is empty by closing?

A There are several issues to consider.

First, do the tenants have a lease? If yes, lease terms must be honored. Be certain to obtain a copy of the lease before making an offer and show it to your broker or attorney.

Second, is the property located in a community with rent control? There are some 200 jurisdictions that still have rent control. If rent control rules apply you must then see what rights, if any, the tenant has to remain on the property.

If the tenant does not have a lease or if the lease is on a month-to-month basis, and if rent control is not an issue, then a good approach works like this: In your purchase offer require the seller to deliver the house vacant for inspection 24 hours before closing. Make the seller responsible for returning the tenant's deposit.

Speak with your broker or attorney, as appropriate, for specific information and contract language.

Weekly Resource

I send e-mail to various people and have a need to maintain both individual addresses as well as specialized mailing lists. There are various mailing programs available for such purposes, but one of the best is the no hassle software from Pegasus. It's free, works wonderfully for my purposes, and may be helpful to you. There is a manual you can buy from the company that will help support the development of new versions.

Mr. Miller welcomes your questions, comments, and news releases. All correspondence shall become the property of Mr. Miller upon receipt. He can be reached by e-mail at OurBroker.

Editorial Notice: Content on this page reflects the opinions of Mr. Miller only and not necessarily the views of any publication, organization or website owner.