Buying a HUD home

A client of mine contacted me a couple months ago and asked if I could help her find a home. She and her family were looking for at least a three bedroom house with a yard for around $100,000. Normally, this would have been a nearly impossible task, but I knew that with the amount of foreclosures on the market these days and in a completely buyer’s market, we had a good chance of finding a diamond in the rough.

It turned out to be quite a process and we weeded through through A LOT of homes to find a few decent ones, but that is the nature of bank owned properties. Most of them – and I mean about 95%, from my personal experience – are total renovation projects. However, there are a few out there that you can find, with a little bit of luck and a lot of research, in a ready to move in condition.
As I searched through numerous bank owned properties, I came across a few homes owned by the Department of Housing and Urban Development, or HUD. This was a new experience for me as an agent, and as it turns out, buying a HUD home is quite a bit different from your standard buying process.

HUD homes are foreclosed properties, which were financed through FHA loans. Upon foreclosure, HUD becomes the owner and tries to sell them at market price to cover the losses from the foreclosure. The homes vary in size, price, and condition.

The one we found was a 2300 square foot home, 5 bedrooms, 2.5 bathrooms with a price tag just under 110K. It seemed like the perfect property for my client, and we submitted a bid online. Seems fairly straightforward so far right? Well here is where the process gets different; there is a priority period where all owner occupants, charities, and nonprofit organizations can place their bids before any investors can get to it. We won the bid (we’ve submitted the highest net to the seller; asking price minus the commissions and closing cost), and sent all the required paperwork within 48 hours as required. Everything was going according to the plan… that is until the home inspector walked in and started uncovering major flaws.

You can check the condition report of all the properties listed by HUD, which can be found on HUD’s website. However, a word of advice – my personal experience revealed that those reports don’t even scratch the surface. It turned out this property had major issues such as a leaking roof, missing AC unit, missing water heater, missing heat pump, and a lot of moisture damage. To top it off, there was a $500 lean on the property (because the last owner didn’t pay their water bill). As a result, the city removed the water meter. The total repairs would have amounted to about $25,000 and that would just bring the property up to meet basic living conditions. Due to flaws the inspector uncovered, we were forced to retract our offer, which became a challenge.

Because there is no agent to deal with, you are left at the mercy of answering machines, unanswered voicemail, and emails. Under the HUD process, a bidder is only allowed to back out if the home inspection reveals major plumbing and electrical issues not previously mentioned in the property report. Luckily, we were successfully able to cancel the deal and allow my client to look for a more suitable home.

In the end, I was able to find a Fannie Mae owned property for my client. This was a beautiful home with not only a lot of “old house charm” such as woodwork and hard wood floors, but also modern amenities such as a new AC unit, heater, carpets, bathrooms, and other recent updates! This turned out to be THE perfect house for my client to call home.

As for the HUD homes out there, from what I’ve seen, there are some beautiful ones out there, but if you’re interested in one, don’t get your heart set on it until you know the results of the home inspection. If you are an investor with some cash on your hands to do some updating, then a HUD home can be a golden opportunity for you as long as you are diligent in finding out the problems and fixing them up to increase the re-sale value.