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.
Sold As Is… What this really means… You will often see this term associated with foreclosures and other distressed properties… In many cases this is simply the statement of the hope made by the Seller and is sometimes negotiable… But not with a HUD Home… HUD has gone into these homes and has gotten them to a level that they will pass FHA financing standards and their Sold As Is policy is firm. As a matter of fact, even their home inspection policy is more restrictive than normal. As a part of getting its properties ready for market, HUD has the property pre-inspected and provides a PCR (Property Condition Report) available to bidders. The prospective purchaser (bid winner) is encouraged to get a home inspection; however, unlike other inspection contingencies, the HUD Inspection policy disallows rejection of a property post bid award based on a condition documented in the PCR.
As with any other foreclosed property (but especially so with a HUD Property), repairs cannot be made prior to closing. Although, there may be pre-approved Repair Escrow funds available, be aware that repairs must be performed by an approved, qualified and licensed contractor to receive the escrow amount stated for the repairs by HUD. Other repairs may be financed via an FHA 203K loan. These are often used to replace missing utilities and to perform other desirable repairs after the closing. Again such repairs will have to be performed by an approved, qualified and licensed contractor.
There are a lot of ins and outs when dealing with buying a government foreclosure but the reward of an affordable home is well worth it. Before entering into a contract its best to arm yourself with as much info as possible about the foreclosure bidding process, getting inspections on foreclosures, HUD programs that offer additional savings and more here.
One of the exceptional opportunities afforded by HUD properties is the special incentive to certain purchasers through its Good Neighbor Next Door Program… Buying a home through HUD’s Good Neighbor Next Door initiative is designed to encourage renewal of revitalization areas by providing an opportunity for law enforcement officers, firefighters, emergency medical technicians and teachers to purchase homes in these communities. HUD provides a substantial incentive in the form of a 50% discount off the list price of eligible properties. More information on that program next week… Until then…
May the market be with you.
does not require a down payment (actually provides up to 103% of the purchase price so that the funding fee may also be included). To qualify the home must be in a zone approved by the USDA for these loans. These zones are subject to change based on Census results. For example portions of northern Shelby County are currently approved for USDA Financing. Following application of the 2010 Census results, it is very likely that many of these areas (Chelsea and Calera for example) may no longer qualify. USDA Financing also has additional requirements concerning income limits and credit limits that will eliminate this as an option for many.
HUD $100 Down Homes: The Department of Housing and Urban Development (HUD) who re-sells government owned FHA foreclosures, provides owner/occupants with the ability to purchase some of it’s homes for $100 Down. The $100 down payment incentive is only for Owner/Occupant (Non-Investor) purchasers of 
