The contingency reserve may be released only if required, necessary, and unforeseen repairs or deficiencies are discovered during the renovation.

Note Rehabbing - Buy notes and work to enhance the return (incentivize early payoff, take non-performing to re-performing, cure paperwork deficiencies, hardest hit funds, etc) for higher returns. 4.

Otherwise about  a year or two into your loan you will get hit with a big bill and/or increased payments to account for the escrow account deficiency.   

What kind of evidence will I get for completion of rehab and addressing inspection deficiencies?  

Under the new default audit regime, the IRS generally will conduct audits and make any resulting adjustments at the partnership level, and if the IRS finds a deficiency, it will impose tax on the partnership itself (rather than on the partners) at the highest individual or corporate tax rate in effect for the year under examination.The Act replaces the “tax matters partner” with a partnership representative, who need not be a partner but must have a substantial presence in the United States, to assume sole authority to act for the partnership in an audit.Partnerships composed of 100 or fewer partners and whose partners do not include any partnerships or trusts may elect out of the new regime.

I know for limited capital investors or limited credit investors its a tool they like.. but its really bad for a seller unless the sellers' credit is already trashed and their is no equity and they were walking anyway.. and its a purchase money 1st were no deficiency judgment could be obtained by the lender

However, if forced to, they will do so leaving the seller with a larger deficiency.2.

@Benjamin Cowles @Rich Hupper   Rich this Is not correct.Purchase money mortgage relates to a first position mortgage or Deed of trust that is used to buy a primary residence.. and the salient fact is there is NO DEFICIANCY judgment available to the lender in this case. now this is true in about 12 states.. in the other states a deficancy is allowed in purchase money.. what Rich is describing is a seller carry back..Purchase money is a third party lender providing he financing or debt for the sale.

If you want something above and beyond what is laid out in your property management agreement then obviously they will not accommodate, but if the services detailed in your property management agreement are not meet you need to let them know and have them correct the deficiencies.  

@H Mann - The servicer will determine if the homeowner qualifies for HAFA@Cheryl - The coop program is similar to HAFA only there are some key differences that mainly affect the seller such as the investor may retain rights for deficiency, they will allow jumbo loans and NOO properties to qualify.