By: Mia J. Johnson
Whether I’m at the grocery store or taking my dogs for a walk, the most common question I get from friends and clients is what exactly is a HUD foreclosure? Confusion on this topic is understandable, so this post will shed some light on this topic and I’ll explain what my role is as a broad listing agent.
The most important difference between a HUD foreclosure and a bank foreclosure is that the individual that was foreclosed on had an FHA loan. As such, the government has backed or secured that loan. The bank foreclose on the property on the courthouse steps since the property is backed by the government the bank will receive a portion of the defaulted loan back. In turn, the bank turns the property over to the government. At this point, the government has the property appraised and decides if the property can still qualify for another FHA loan. The property is cleaned up and run through a series of inspections including the compilation of a property condition report (PCR) and a lead based paint inspection(LBP) (if built prior to 1978). These inspections utilize a generator to check the functionality of the mechanical systems and plumbing. All of these reports contribute to the property’s qualification for a future FHA loan. Again, it’s important to remember that the government does not loan money, that’s the bank’s role. However, in FHA loans the government backs the loan. Many people confuse HUD properties and Section 8-eligible homes—these are actually very different (stay tuned for a post on Section 8!).
You might be wondering what my role is and how I learned so much about HUD. Realty Executives Bristol is the broad listing broker for PEMCO, one of HUD’s asset managers located in Atlanta. This means that I ensure that the property is secure, clean, and ready to list. Before the property is listed, I provide a broker price opinion to support the property’s appraised value. An FHA-certified appraiser performs the appraisal. Once it’s listed, I list the property in the MLS and advertise it. From there, I visit properties bi-monthly and perform routine inspections until the home is sold. Any REALTOR whose company is registered with a valid NAIDS number can sell you a HUD property. Your managing broker can provide you with this information and guidance on the bidding process. A HUD property is not sold in a traditional manner—an agent must submit a bid online on their client’s behalf. These bids are sealed and opened at a designated time and the buyer with the highest acceptable offer will be awarded the property. After a bid has been accepted, the agent has just 48 hours to turn in all the required paperwork to HUD. This is the most important part of the HUD buying process. Because of the strict time constraints, it’s important to be pre-approved or have proof of cash funds. Your lender can provide you with a pre-approval letter and having this before submitting a bid simplifies the process. HUD also requires a cashier check for earnest money- so make sure you are able to meet this requirement at the time.
Buying a HUD home can be confusing and somewhat frustrating process because of the many differences from a typical real estate sale, but it’s my goal to make it as transparent as possible. Comment with questions below!