Everything about HUD foreclosures

buying a HUD foreclosure


How to buy a HUD: Part 1

1999 brought us many changes to the way HUD sells homes as HUD has moved toward privatizing its effort to sell its foreclosed homes in inventory. As a result, you can now find a list of HUD Homes on the internet, pick one out that you like and buy it … right? Well not exactly, but we will give you some specific pointers to getting through the maze and the myths.

First of all, you should know that a home becomes a HUD Home because someone that had an FHA Insured loan, defaulted on that loan and was foreclosed by their lender. The lender in turn collects from FHA (Federal Housing Administration) any losses they incurred from foreclosing. FHA is part of HUD (Housing and Urban Development). HUD in turn eventually gets the deed to the property and offers it for sale to the general public.

The reason lenders can recover their losses is that everyone, yes everyone who gets an FHA Insured loan pays what is called “mortgage insurance”. These insurance premiums show up on your settlement sheet as an initial premium, which is usually added to your loan amount and then an additional monthly premium is added as part of your mortgage payment. These premiums go into a fund to payoff lenders.

Now that you know how a home becomes a HUD Home, you need to know that it takes 6-12 months for HUD to get the deed, so it can try to evaluate and sell the home. It takes the lender 3-6 months to complete the foreclosure process and another 3-6 months to get reimbursed by HUD so HUD can get the home, inspect, appraise the property and put it on the market. All the while the home is usually vacant; this total timeframe could easily be 12-18 months from the date of foreclosure, but 8-12 months is probably the norm. All these and more are reasons that HUD sells homes strictly on an “AS-IS” basis.

HUD Homes typically have been vacant for an extended period of time often without any utilities turned on. HUD is working with its private Marketing and Management contractors (M&M’s) trying to come up with an efficient way of keeping things like sump pumps running and getting utilities turned on before the appraisal is completed. Until recently, appraisers did not necessarily have the benefit of having gas and electric service. How could they give a reasonable determination of value without knowing if the plumbing, electric, heating and air conditioning works? These procedures have been changing and result in better appraisals. However, home
inspections should be conducted to see for yourself exactly what the condition is so that you go to the settlement knowing what to expect from the home and what repairs will be needed.

Remember, HUD Homes are sold in As-Is condition. If the repairs needed exceed $5,000 HUD has a program to lend you the money called its FHA 203k rehab loan program (we will cover details of that program in a future article).

HUD requires you to use an approved real estate agent to help you use their contracts and forms to submit contracts if your bid is accepted. You can find the HUD property list online at Southwest alliance.

512 developing provides vital real estate foreclosure data. You will also find need to find a qualified mortgage professionals to facilitated your next real estate transaction.

There is a FAQ section at
Southwest alliance that helps you to understand the difference between Insured (IN), Uninsured (UI) and Insured with an escrow (IE). Briefly, Insured means that the property meets HUD’s minimum property standards and has been appraised for the stated value and your lender will not need a new appraisal (which saves you $400.00 on a new FHA appraisal!).

Insured with an escrow means that HUD’s inspections and appraisals indicate that there is less than $5,000 in repairs needed for the property to meet HUD’s minimum property standards. This is important because you need to know that the minimum property standards are in fact very minimum. Do not give up on your right to a home inspection just yet. First, take a look at the HUD minimum property standards. You need to know that HUD expects you to complete the repairs and then get your lender to inspect and approve the repairs before you can get the funds from the repair escrow. This means that you need to get someone to do the repairs who will wait to get paid when you do or you must lay out the money and get reimbursed by your lender.

Uninsured properties require you to pay cash or get some kind of rehab loan. These homes need more than $5,000 in repairs and often need $10,000 to $20,000 or more. HUD offers the FHA 203k rehab loan, which I have done many times for clients and works very well. An experienced real estate agent as well as a lender experienced in the processing of FHA 203k loans will help save you time and money. The interest rates and the amount of loan discount points is usually a little higher than a standard FHA loan, but you can often buy these properties at significant below market prices if you are willing to put up with the higher fees and the time of fixing them up.



How to buy a HUD: Part 2

Once you've understand how a home becomes a HUD Home, you then need to know what obstacles you must overcome to make your purchase and how to manage the "risks" of buying foreclosure real estate.

Anytime you sign on the dotted line to purchase a property "as-is" without even a financing contingency, you had better know what you are doing. This sounds scary, and it should, but there are clear steps you can take that will help make this a better experience for you and make it the best single investment you will ever make in your life!

There some clear differences you and us must understand when dealing with HUD. The contract is very different and you must use the HUD contract and HUD Addendums. This is critical because you just cannot buy the home without these forms and your agent should be sure to explain both sides of the contract. The back side of a HUD contract contains all the fine print. HUD also has a fairly new online bidding system and you want an agent familiar with this system.

We are registered with HUD, only HUD registered agents can even submit bids.  Bids can be submitted until midnight each day Monday through Friday (you can submit bids on the weekend, but they count as if done on Monday). In most states new listings are posted each Friday, usually by mid-day, with bids due the following Tuesday for full price Owner-Occupants only. We will explain this to you, but remember, the exact days are different in many areas.

The New Listings are made available to Owner-Occupant bidders who are prepared during the initial bid period. If the property is not sold during the first bid period, it will be made available to All Purchasers (including investors). The exact number of days between each change can differ which is yet another reason to be sure and deal with us who have experience with HUD. HUD has also been known to change the rules often, particularly in the last year as they have different M&M Contractors handling sales in various states.

In addition to a good agent it is a good idea to speak to a lender familiar with HUD Homes and in particular, find a lender who is knowledgeable about FHA 203k loans. These loans will help you get the money to make the home purchase AND get the funds you will need to fix up the property. It is this program which helps you get the maximum benefit and the maximum "sweat equity" when buying a HUD foreclosure or any foreclosure. Part of the American Dream is to buy a home and fix it up so that it is worth more than you paid for it - the FHA 203k is one of the best ways to achieve this.

The FHA 203k loan helps to protect you from yourself. It requires a HUD approved inspector to thoroughly review the property pointing out the required repairs and discussing with you the repairs you would like to have completed. This is sort of a "wish list" because they will lend you all the money as long as you qualify for the loan amount. The minimum, however, is $5,000.00, but these loans include paint, carpeting, kitchens, baths, windows and even draperies and a whole lot more.

The best part of these loans is that the person who inspects the home for you in the beginning is the same person who inspects the home as the work is completed in order to approve draw requests. You have to complete some work before the repair money is released to you, therefore you have to be prepared to lay out the money or get a contractor willing to wait for the draw inspection.

While you are not required to get a FHA 203k loan and there are many properties that do not need extensive repairs, the program is very helpful in making you think about what you are getting into and providing independent inspectors to try a make sure the work is done properly and that the home is in overall good condition.

If you are purchasing an Insured property (IN), no repairs are required, no appraisal is required, but you should absolutely, positively get a home inspection from a certified home inspection company. Your agent should be able to tell you the procedure for turning utilities on before the inspection; HUD doesn't always get the condition of major systems right. Your agent must make the request to turn on the utilities after HUD accepts your contract. You will then have 15 days in which to conduct the inspection. There is a separate HUD Addendum that covers many specifics regarding this process and why you should get a Home Inspection. A good agent will know this and be very helpful explaining and coordinating the process.

You cannot delegate the responsibility for making a smart home buying decision. A knowledgeable real estate agent can assist you, be sure to get a Home Inspection or a good HUD Inspector for a FHA 203k loan and you will have managed the risks and increased the rewards of buying a HUD Foreclosure property.



How to buy a HUD: Part 3

HOW DO I ACTUALLY BUY A HUD HOME? Now that you know how a home becomes a HUD Home and what an FHA 203k rehab loan can do for you, we need to understand how to actually buy the property. A review of previous articles will give you good background, but the process is straightforward.

Unless you are a Teacher or a Police Officer, you need to to call us. 512 developing real estate professionals have the knowledge and experience in HUD and FHA procedures and guidelines. I suggest that even Teachers and Police Officers should seek out the assistance of our company. Teachers and Police Officers are eligible for special programs, the Officer/Teacher Next Door Programs, which will be covered in future articles. Everyone needs a real estate agent to submit a bid to HUD on his or her behalf.

Looking over the HUD List is something you can do on your own, as well.

If we do not find you a HUD Home within your criteria on the current list (which happens a lot due to little inventory), there are tools you can use to find the home yourself on this website. You will still need us that is registered with HUD to bid on these properties. It is helpful to know this in advance because there are bidding deadlines to be concerned about. You do not want to find a home only to find out that the bid is due at midnight tonight and your agent is not registered with HUD!

All bids are due at midnight on the bid deadline published on the HUD List. Since the bids are submitted through the Internet, your agent can submit up until midnight. Be sure to ask us to PRINT the Bid Confirmation that HUD presents on the computer screen. This is the only way to "find" your bid if it gets "lost".

Most Texas markets list the NEW LISTINGS on Fridays and have a bid deadline the following Sunday. Bids for these properties are available only to Owner-Occupant bidders. HUD tries to give new homeowners a short period of time to bid against other new homeowners (as opposed to experienced investors). If the property is not sold to an Owner-Occupant, the property is made available for bids on a DAILY basis, allowing investors to bid.

The daily bid properties are sometimes allocated to Owner-Occupants again for a short period of time before they move to the final category, daily bids by All Purchasers. Anyone can bid on these properties and you can bid any price; it does not mean that HUD will take the highest offer. After all, this is not an auction; it is a sealed bid process. Each market does have slightly different timeframes for these categories, but now that you know about them, you will be able to determine the rules in your area. Check with your local real estate professional to get the HUD's latest changes.

Let’s review:
Owner-Occupants Only – Any Price, within midnight deadline:
Daily, All Purchasers – Any buyer, any price acceptable to HUD.

There has always been talk of HUD’s "magic number" in terms of how low they will go. Don’t let anyone tell you they know this bottom line number because the HUD Management and Marketing Contractors (M&M’s) who sell the houses for HUD don’t know and if they did, they certainly are not going to broadcast the information. It's based on a number of factors. I have seen HUD reject one offer on one day and take a slightly higher OR lower offer on another day.

The real point is to do your homework. Before you look for a home you will determine how much house you can afford to buy. This is absolutely critical to do BEFORE you start looking. It’s just too easy to fall in love with a house you cannot afford to buy. Find the house you think you like and determine what the houses sell for in that immediate area. You will find that HUD Homes can be great values, sometimes even great bargains, but they can also sell for market value if they are in condition and in a desirable area.

Once you determined the right home, then you determine how much you want to pay for the property. Anytime you bid real low you risk losing the bid to someone else who really wants the property. My suggestion is to pay what you can afford to pay for the house you will call home. If you only want it if it is a "super bargain", then take your chances and bid whatever you want. However, a word of caution, good HUD Homes in desirable areas come and go very fast. Be prepared to be decisive, but do not rush into anything.

If you do your homework up front you will be better prepared to take advantage of that "great deal" that comes your way and requires you to move quickly in order to get it.

Steps You Should Take:
Get yourself pre-qualified before looking ;
Look for houses in your price range and in your area of interest;
Check the HUD List yourself on a regular basis;
Find a knowledgeable real estate agent to work with.

Don’t be afraid to bid on what you like;
Make sure you get a Home Inspection if you are the successful bidder;

There is no substitute for knowledge and common sense regardless of what you are trying to do, but they are necessary ingredients for you to make the largest single purchase you will ever make.


Just Foreclosures has assembled a network of real estate agents, lenders, home inspectors, title companies and other industry professionals as well, but your real estate agent must be registered with HUD and your bid must be submitted online at HUD’s web site. If your bid is accepted you must get your original HUD contract and forms to HUD within 48 hours of being posted to HUD’s Bi Results section of HUD’s web site.








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