Buying HUD/Foreclosure Real Estate
When someone with a Federal Housing Administration (FHA) insured mortgage can't meet the payments, the lender forecloses on the home; FHA pays the lender what is owed; and then the United States Department of Housing and Urban Development (HUD) takes ownership of the home. Then HUD sells it at market value as quickly as possible.
Michaelson, Connor & Boul, Inc. (MCB) is a Marketing and Management contractor for HUD-1 to 4 unit residential properties. MCB maintains and sells these properties in accordance with HUD guidelines. We know you may have several questions regarding the purchase of a HUD property. We want to provide you with as much information as possible to assist you with your purchase.
Who can Purchase a HUD Home?
Any individual who can qualify for a mortgage or who can pay cash may purchase a HUD home. Purchasers must use a broker or agent who is registered with HUD to place a bid on a property. Purchasers must also have a pre-qualification letter from a lender or proof of cash funds in the amount of or greater than the property they are purchasing.
How are HUD Homes Sold?
All HUD Homes are listed on our website at their "AS-IS" fair market value. Purchasers (with the exception of special program purchasers) must obtain the services of a HUD Registered Real Estate Agent. Agents may submit bids on HUD properties on behalf of their buyers. The bid that meets the acceptable threshold and has the highest net to HUD receives a provisional bid acceptance subject to receipt of all required documents. Once a bid is accepted an original Sales Contract Package must be submitted to MCB with 48 hours.
How is Fair Market Value determined?
Fair Market Value is determined by a licensed FHA appraiser. Copies of the FHA appraisal are available to the lender by request after a property is under contract. If a property is exposed to the market without any acceptable offers then a reduction of the listed price may occur.
Does HUD make any repairs to the property?
No. All HUD properties are sold in their "AS-IS" condition. There are no representations or warranties, expressed or implied, on any HUD property. HUD does not guarantee the condition of any property, FHA-insurable or not, nor whether it meets local codes or zoning requirements. Purchasers are advised that there may be code and/or zoning violations on these properties and that it is the responsibility of the purchaser to identify these violations. Buyers are very strongly encouraged to have homes inspected by a qualified home inspection company to satisfy themselves as to the condition of the property at the time of sale.
Access to the Property
Owner Occupant and Investor purchasers MUST be accompanied by a broker or agent when viewing any HUD home listed for sale. Buyers may not enter a house without their broker/agent for any reason prior to closing. Brokers and/or agents must accompany any individual performing services such as home inspections, appraisals, or certifications. Brokers and agents may only use their keys for their own legitimate use. Keys are not permitted to be lent to any other individuals associated with any sales transactions.
Repairs, Improvements, or Occupancy Prior to Closing
No work is to be done to ANY HUD property prior to the close of the transaction. An accepted bid is NOT a transfer of ownership. Purchasers do not own the home until it is recorded in their name. Purchasers may not use the home for storage of personal items or occupy the premises under any circumstances. Occupying or working on a HUD home prior to the close will be treated as trespassing. Failure to abide by this policy can result in the cancellation of the sale transaction, forfeiture of the earnest money deposit and may also involve suspension of bidding privileges for the selling agent and brokerage firm.
Bidding On HUD Properties
Submitting a Bid
All HUD Homes that are available for sale are listed on our website and on the MLS. If a property has an accepted bid or is under contract it is removed from the web listings. Only HUD-registered real estate agents can place bids on behalf of their buyers. For a bid to be awarded it must meet the threshold for the property (lowest acceptable amount) and have the highest net to HUD (not purchase price). A sales package should be completed at the time of bid submission. Once a bid is accepted the purchaser and real estate agent have only 48 hours to submit the Sales Contract Package to MCB. If the sales package is not received within the deadline then the bid acceptance may be cancelled. If there are no acceptable bids placed on a property then it remains on the market until an acceptable bid is received.
Owner Occupant Period
During the first 10 days a property is listed it is available for Owner Occupant Purchasers only. All bids placed by Owner Occupants that are submitted from Day 1 through Day 10 are opened on the 11th day and are considered as though they were received simultaneously. If there are no acceptable owner-occupant bids on day 11, then bidding becomes available to all purchasers on a daily basis.
The Bid Review Process
Bids are reviewed for acceptability on the following business day after the deadline of bid submission. Our established time to post bid winners is no later then 4:00 pm Eastern time. It is possible that on the day you submit a bid, we have not yet completed our review of the bids submitted the day before; therefore, it may appear that the property is available and that you have submitted a higher bid.Please do not submit bids until after 4:00 pm EST by which time all bid winners have been posted for that day. All bids are accepted based on HUD's guidelines and followed with no exceptions.All bids submitted for Owner Occupants are displayed on BID STATISTICS which is updated every Friday for bids submitted the previous week. The bids submitted in the current week are not displayed until the following week due to Owner Occupant bid submission deadlines.
Bids submitted for an investor are displayed on BID STATISTICS which is updated every Friday.
The Bid Notification Process
The Results from the bid review process will be posted on our Web Site by 4:00 PM EST.It is the responsibility of the Agent to check the BID RESULTS page on our web site for the accepted bid information and ensure that all the required forms are properly filled out and sent to us by overnight mail. These forms are to reach us within 48 hours from the time of the provisional offer. As a courtesy we also notify the Agent by e-mail and fax using the information entered during the bid submission. Please note that incomplete information will not enable us to notify you. DO NOT WAIT FOR OUR E-MAIL OR FAX TO SEND IN YOUR COMPLETED FORMS
Bid Cancellation Prior to Acceptance
If a bid has been placed on a property with incorrect information or by mistake it is very important that a "Cancellation Request Prior to Acceptance" is submitted to avoid award of the incorrect bid. This can be completed by your real estate agent and the form is available online.
Bid Cancellation After Acceptance
In the event that a purchaser is awarded a bid but does not want to proceed with the sales contract package on the property then a "Cancellation Request After Bid Acceptance" must be submitted immediately. The property will then be cancelled and re-listed the Friday following the completion of the cancellation processing.
Sales Contract Package
If a bid has been accepted the Contract Package must be received within 48 hours following bid acceptance. Due to the HUD timeframe for contract submission the package should be completed at the time the bid is submitted. Then if the bid is posted on the website as a provisional winner the Contract Package can be immediately sent to MCB via over night mail.
Earnest Money Requirements
An earnest money deposit is required for all HUD property purchases with the exception of some HUD Special Programs. The amount required for the earnest money deposit depends on the purchase price of the property:
• Sales price up to $49,999 - earnest money deposit = $500
Elements of the Sales Contract Package
Types Of Purchasers
Anyone can purchase a HUD property. There are two types of general purchasers: Owner Occupants and Investors. There are also several special programs for purchasers who qualify.
Owner Occupant Purchasers
An Owner Occupant Purchaser is a purchaser who will be living in the property that they intend to purchase. The following regulations apply to owner occupant purchasers:
The Owner Occupant Priority Period
All new property listings have an Owner Occupancy priority period in which only owner occupant purchasers will be considered. This period is the first 10 days that the property is listed on the Internet. (Some cities have extended owner occupant periods - this information would be noted on the Property listings on the website). If a contract is cancelled and the full 10 days on the market have not been fulfilled the property will be offered exclusively to Owner Occupants until after this period has been completed. Price reductions are sometimes made on properties and for 5 days after a price reduction preference will be given to Owner Occupant buyers. Bids by investors will not be considered until the final day of the Owner Occupancy Period.
An investor purchaser is a purchaser who does not intend to live in the property being purchased as a primary residence. An investor may purchase a HUD property to re-sell, rent, or lease the property after settlement with HUD has been completed. Investor Purchasers also include a purchaser who is buying a HUD property as a second home and does not intend to occupy the property as their primary residence.
Officer Next Door Participants
You must be a full-time, sworn law enforcement officer who is "employed full-time by a federal, state, county or municipal government; or a public or private college or university." You must be "sworn to uphold, and make arrests for violations of, federal, state, county, or municipal law." Your employer must certify that you are a full-time police officer with the general power of arrest. You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your OND home. You must agree to live in the HUD home as your only residence for 3-years after you move into it. Additional details and rules may be found in the program regulations.
Teacher Next Door Participants
The TND program is open to any person "employed full-time by a public school, private school, or federal, state, county, or municipal educational agency as a state-certified classroom teacher or administrator in grades K-12." Participants must certify that they are employed by an educational agency that serves the school district/jurisdiction in which the home they are purchasing is located.
Teachers wishing to purchase a home under the TND program must be in good standing with their employer. Your employer must certify that you are a full-time teacher or school administrator. You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your TND home. You must agree to live in the HUD home as your only residence for 3-years after you move into it.
Additional details and rules for the Teacher Next Door program may be found in Housing Notice 99-30.
Firefighter Next Door Participants
The FND program is open to any person who, for purposes of this program, is defined as an individual who is employed as a full-time firefighter by a fire department of the federal government, a state, a unit of general local government, or an Indian tribal government serving the area where the home is located.You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your FND home. You must agree to live in the HUD home as your only residence for 3-years after you move into it. Additional details and rules for the Firefighter Next Door program may be found in Housing Notice 05-17674.
Emergency Medical Technician Next Door Participants
The END Program is open to any person who, for purposes of this program, is defined as an individual who is employed as a full-time firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, a unit of general local goverment, or an Indian tribal government serving the area where the home is located.You don't have to be a first-time homebuyer to participate. However, you cannot own any other home at the time you close on your END home. You must agree to live in the HUD home as your only residence for 3-years after you move into it. Additional details and rules for the Emergency Medical Technician Next Door program may be found in Housing Notice 99-30.
Approved Non-Profit Agencies
HUD-approved Non-Profits receive a discount on purchasing HUD properties. This discount is between 10% and 30% off the purchase price of the property and is based on the insurability and location of the property. The non-profit agency MUST be a HUD Registered Non-Profit Agency to qualify for the discount for more information on how to become a HUD approved Non-profit please click the link below.
HUD is offering local governments the opportunity to take advantage of a unique HUD resource - HUD Homes for Sale - at a bargain rate of $1, plus closing costs. The new Dollar Homes Initiative will allow local governments to purchase select HUD Homes for Sale for $1 and use them as part of a community revitalization or neighborhood affordable housing strategy. The HUD Homes available under this new program are those that have been on the market for six months or more. Local governments can partner with local non-profit homeownership organizations or tap into existing local programs to resell the homes to low- and moderate-income residents of the community. In these cases, the local governments will be required to purchase these properties and convey it to the non-profit organizations for rehabilitation and resale to first-time homebuyers. Hundreds of properties are available currently and new houses will be added on a weekly basis.
In an effort to be fair to all purchasers, HUD has created timeframes must be met or a contract may be cancelled. Your real estate agent is responsible for assisting you in meeting each of these deadlines. Below are a list of notable deadlines and timeframes.
Bid Submission Deadline:
All property listings will contain a deadline date and time. Bids are reviewed for acceptability on the following business day after the deadline of bid submission. Our established time to post bid winners is 4:00 pm Eastern time. It is possible that the day you submit a bid, we have not completed our review of the bids submitted the day before; therefore, it may appear that the property is available and that you have submitted a higher bid.
Sales Contract Package Submission Deadline:
It is your responsibility to check our web site in the BID RESULTS page for the accepted bid information and ensure that all the required forms are properly completed and sent to us by overnight mail. These forms are to reach us within 48 hours from the time of provisional acceptance of the offer. If a contract package is not received by this deadline the provisional bid acceptance will be cancelled.
Days to Close:
Once a contract has been ratified you have 45 days from the ratification date to close on the property (unless otherwise stated on line 9 of the sales contract) or to submit an extension request. If the property does not close and an extension (regardless of the reason for extension) is not received then the contract will be cancelled.
Deadline to Complete Home Inspection:
All properties under contract should have a home inspection performed with the utilities activated. You have 10 days from the date of contract ratification to complete this home inspection.
Timeframe for Utility Activation:
Once permission has been granted by MCB the utilities may be activated at the property for a period of 72 hours. After 72 hours the utilities must be turned off.
Deadline for Extension of Time to Close:
Extension requests must be submitted PRIOR to the expiration of the sales contract or any previously granted extension.
In the event that your have to cancel a bid or sales contract a cancellation request should be faxed to MCB immediately. Sales Contract cancellation requests must provide a reason for cancellation and any relevant attachments such as a loan denial letter or a home inspection.
Time is of the essence in any real estate transaction. There may be documents or actions requested by either HUD or MCB which will have certain timeframes such as 48 hours to be completed. If any deadlines for additional information are not met then your bid or sales contract may be cancelled.
Closing HUD Properties
Once a bid is accepted and a contract has been ratified there is a set number of days to close on your HUD property. There are several activities that may need to be completed prior to the closing of a property.
Performing the Home Inspection and a Systems Check
All HUD Properties are sold in their "AS-IS" condition, HUD does not make any repairs to the property. As such, it is extremely important that the purchaser performs a home inspection with the utilities activated. The home inspection will provide the most current condition of the property and inform you of any repairs that may be necessary. The gas, water, and electricity should be activated at the time of the home inspection. To activate the utilities a permission form can be found under HUD Forms on our website, this should be completed by the purchaser and agent then faxed in for approval. Utilities may be activated for a period of 72 hours so the home inspector should be scheduled to complete the inspection during that timeframe.
Obtaining Property Documents
After the contract is ratified there are specific documents that your lender may require to complete the sale. These documents are a copy of the FHA Appraisal and the Termite Inspection and can be obtained by using the "Appraisal and Termite Request Form" available under HUD Forms on our website.
Requests for Additional Time to Close
In the event that the property cannot close within the timeframe provided on the HUD Sales Contract, an extension request must be completed to keep the contract from expiring. This extension request must be submitted regardless of the reason for the delay in closing. The "Extension Request Form" can be obtained on our website under HUD Forms. There may be a fee for the extension depending on the reason for the request.
Any change to the sales contract requires a contract addendum. The following items may not be changed after a contract has been ratified:
• Sales price (line 3)
Purchasers may be added to a sales contract by using the "Addendum to Add Purchaser" form. Purchasers may also be removed from the sales contract using the "Addendum to Remove Purchaser". Also, if the financing being used to purchase the property changes a "Addendum to Change Financing" must be submitted. Financing may change such as from Conventional to FHA, or from one type of FHA loan to another. If the type of FHA loan is changing such as 203b to a 203b repair escrow, then a home inspection report should be submitted with the addendum. All contract addenda will be reviewed by MCB and either approved or denied. Agents are required to submit any addendum requests on behalf of their purchasers.
Scheduling your Closing
Once the contract is ratified a purchaser has 45 days to close the property, however closings may occur in less then 45 days. A closing date must be scheduled with the HUD-designated Closing Agent. HUD has appointed closing agents on a separate contract to act as its representative in the closing. HUD-designated Closing Agents are assigned HUD properties by county.
In the even that a contract must be cancelled by either MCB or the purchaser the property will be re-listed the following Friday after the cancellation processing is completed. If a purchaser must cancel regardless of the reason then a cancellation request form must be submitted along with an explanation of the reason for cancellation. If the cancellation is due to a loan denial from a lender then the denial letter must accompany the cancellation request. If the cancellation is based on a property condition issue then a copy of the Home Inspection Report should be included with the cancellation request. The decision regarding the refund, forfeit, or 50/50 split of the earnest money deposit is based on HUD guidelines as stated in the "Forfeiture and Extension Policy".
Our HUD specialist has the inside track to all HUD properties in the Denver area and has years of experience to help guide you through the process. Lets chat and see what opportunities are there for you!
Please call our office at 303.534.7283 or use our Contact Form and we'll get right back to you!