Is a HUD residential foreclosure a straightforward buy?
The foreclosure market is full of acronyms and HUD is only one of many. HUD residential foreclosures are properties on which the previous mortgage was insured either by the Department of Housing and Urban Development (HUD) or by the Federal Housing Administration (FHA). The previous owner would have defaulted on his or her mortgage payments to the lender. Under the terms of the mortgage, the lender has the right to seize security to the value of the loan. Usually the only property available to this value is the house.
The house will then be put up for sale in a Trustee Sale and HUD make it their business to pay the lender what they are owed. HUD must then sell the house on the open market through registered real-estate brokers to recoup their money.
Almost anyone can buy a HUD home. If you can pay cash or if you qualify for a mortgage you should be entitled to buy a HUD foreclosure however there are a few exceptions. Buyers who intend to become owner-occupiers are given priority over investors and bidding is open for 10 days. If acceptable bids are made during the first 5 days, HUD will sell to the highest bidder. If no acceptable owner-occupier bids are made during the first five days the bidding process will be reviewed every day for the next 5 days. At the end of each day, if an acceptable owner occupier bid is made, the property will be sold to the highest bidder. If no acceptable owner occupier bids are received after 10 days, then the highest acceptable investor bid received during the preceding 10 days will be selected.
If the property remains unsold after 10 days, the bidding process is opened anew every day and if it remains unsold after the 45th day, HUD may accept a lower bid but this is not always the case.
The bidding process is conducted electronically through registered real-estate brokers who will help bidders with the necessary paperwork. They will also take a deposit of earnest money in the form of a money order or cashiers check which is $500 for properties under $50,000 and $1,000 for properties over this value. The earnest money is returned if your bid is unsuccessful and can also be returned if you have a bid accepted but are unable to continue with the purchase due to illness or a change of circumstances that you notify them about.
If your offer is accepted, you will be notified through your realtor within 48 hours and you have a further 15 days to inspect the property. It is recommended that you have a professional inspection carried out. HUD sells these houses on an “as-is” basis meaning that they do not guarantee that the houses meet any specifications and will not fund any repairs. The only variation to this is a house that is classified as “insurable with repair escrow (IE)”. This designation allows buyers to spread the cost of the repairs over time as part of the mortgage.
The settlement date is normally 30 to 60 days after your offer has been accepted during which time you should finalize your financing arrangements otherwise you may forfeit your earnest money. Thereafter the keys will be in your hands and your renovation project can begin.