HUD Homes…

The Real Story…

News and commentary about the real estate market and related topics.

Dave Parrish, ABR®, CSP, GRI, ePRO®,REALTOR ®, RE/MAX MarketPlace

The opinions expressed here are my own and don’t necessarily represent those of RE/MAX International.

HUD Homes…

Foreclosures will remain a big part of the market in 2011. There are many classes of foreclosures, but one that  most have at least heard mentioned is that of HUD Homes. HUD stands for the United States Department of Housing and Urban Development. This department is a government agency that works under federal regulations and oversees government foreclosures. HUD homes are acquired by HUD only after a home enters the foreclosure process.

But not every foreclosed home falls into the category of government foreclosures or HUD foreclosures. HUD homes were properties with FHA insured mortgages from the Federal Housing Administration. Because the mortgage was insured by the government, control of the property reverts back to HUD if an owner defaults on their loan.

HUD homes are different from resale homes that are on the market in a number of ways. So if you’ve bought a resale home expect to see changes in the home buying process including:

• Price
• Negotiations
• Inspections
• Entering into a Contract

It is important to note that the seller is a government agency that has strict guidelines that must be followed. During any step in the buying process if the terms and timelines of the contract are not followed exactly you can lose the HUD home you’ve got under contract. Therefore, it is very important that you work with a knowledgeable real estate agent. Not every agent is allowed to submit a bid on a HUD Home or experienced and trained in the process, so be sure to make sure your agent is a registered with HUD and is in fact familiar with the process.

Government Foreclosures – Opportunity for Equity

HUD usually tries to sell the properties that they acquire as fast as they possibly can because every month that the mortgage is not paid, they end up losing money. The entire process is built around the attempt to recoup as much money as they can from the foreclosed properties. This equates to real opportunities for those who understand the foreclosure market.

After HUD takes ownership of the home that has entered foreclosure, they have an appraiser come out and appraise the property. Based on this appraisal and the balance owed on the defaulted mortgage, HUD will decide how much to list the home for. This information is then released the public so that they can begin bidding on the foreclosed property.

The HUD homes are typically priced below market value, which makes for a great option for investors, low-income families and those who are just looking for a good real estate deal.

Government foreclosures are listed below market value for two reasons: foreclosed homes have frequently already had their mortgages paid down by the original owners, and because HUD wants to sell the home quickly they will usually take the remainder of what is left on the mortgage or in other words the debt they’ve acquired from the foreclosed home. Even so, they aren’t in the habit of giving homes away or pricing substantially below market value adjusted for property condition and a sale within 90 days. But, as with all bargains … the really good ones go quick and near asking price.

Anyone can buy a government foreclosure. However, priority is given to Owner-Occupants: evacuees, some professions such as police officers and teachers, as well as buyers that are looking for a permanent residence. This is generally accomplished by allowing owner-occupants to bid on the property during an initial bidding period (typically the first 10-14 days). Once a property has been offered to these buyers, the properties are then made available to investor (non-occupants) bidders.

HUD lists government foreclosures for sale by posting listings on its Internet site: HUDHomeStore.com.

Once you’ve found a property that you would like to make an offer on, you must submit your formal offer through a qualified real estate agent. Only qualified and registered real estate agents can get you into the property to see it firsthand and actually put in an offer on a HUD home.

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