Clear Summit Realty

How to purchase a HUD home in Atlanta

CSRealty — Wed, 09 Nov 2011 09:37:32 +0000

Over the last three years our real estate industry has changes dramatically. Before the market turned down, the decision for most purchasers were to buy a new or resale home. Today the choices are different. Our new market has added short sales and foreclosures. Today, we will focus on Housing and Urban Development (HUD) homes. There are basic questions we need to discuss. What is a HUD home? Are there good investment opportunities when purchasing HUD homes? What are the procedures for purchasing HUD homes? What are the common mistakes that purchasers make? Why use a Realtor to find and purchase HUD homes? I’m sure there are more questions that could be asked. I will attempt to inform you based on my current experiences. Before answering these questions I must add my disclaimer: Please understand that the information I have provided is believed to be accurate, but not warranted.

What is a HUD home? Homes purchased that were originally insured by HUD. A Federal Housing Authority (FHA) home loan is insured by HUD. For an example; when a bank gives the purchaser an FHA loan, the government is insuring the mortgage. When an FHA home is foreclosed on, HUD gets the home. How all this is works with the banks that own the mortgage is somewhat of a mystery. My guess is HUD pays off the mortgage. Then, HUD inherits the property.

Now is an excellent time to purchase a home. Typically, HUD properties are going to be 10 to 15 percent lower that a resale. Please be careful… these houses may not have been lived in for as long as a year and will require repairs to make them meet or exceed market value. Just like any other property, there will be good and bad ones. After 12 years as a Realtor, I think the best house is the one you can get at the lowest price, and in the best condition.

What are the common mistakes that purchasers make when buying a HUD home? First, understand that the left hand does not know what the right hand is doing. I will explain. There are four additional organizations that work for HUD, either directly or indirectly. They are; the real estate company, the asset management company, the field service management company, and the closing attorney. Now, we are getting to the meat and potatoes of how all this stuff works. Let us spend some time on the organizations involved in the process.

The real estate companies who submit their request to become HUD real estate representatives start the sales process. In most cases neither the agent nor the broker has ever visited the property. They send their assistants to the houses to put on a lockbox and put up the signs. The last property I was involved with, the listing agent/broker’s office was 50 miles away from the property. The agent/broker had never been to the property. He asked me what city it was in. My first thought was, “Oh no!” It would have been nice if the agent/broker had posted basic instructions on the MLS listing. Every time I had a question, he referred me to the asset manager. Here’s an important note. The listing agent’s assistant might put a master lock on the garage door that requires a special HUD key. Make sure you find the key before having the home inspector show up. If not, the inspector will not be able to check the garage door for damages.

What are the procedures to purchasing HUD homes? It all starts off looking so easy. You go to the HUD web site and attempt to place a bid on a house. The system will ask questions that you are unsure of. Then you will find out that you are better off having a real estate agent help you. Has the real estate agent you selected been down this road before? Do they know what they are doing? Let’s say you got lucky and found a Realtor who has the experience and wanted to help you. You and the agent will submit the offer on line. In about 3 business days your agent will get an email response, maybe. To avoid giving away all my secrets, you have to know the correct bidding formula for HUD or your offer will get rejected.

If and when you get an accepted offer on the property, you will be given two days to get your written contract to the asset manager. Then wait a week before the asset manager sends you the HUD addendums to fill out. Yes, you guessed correctly… you have two days to get the documents signed and back to the asset manager, plus get a your certified earnest money (deposit) check to the asset manager’s closing attorney. Wait! You are still not under contract until HUD reviews the addendums and forwards them back to you, via the asset manager. You are correct again… another week before you get the officially signed contract, which was signed two days after your agent sent the addendums back to the assist manager. But your contract sat on somebody’s desk for five days before it was sent to you. Okay! Finally, you are under contract.

Everyone has warned you to get a home inspection, even your real estate agent. Not a problem? The house has been winterized by the field management services company. You are required to fill out a form; along with $150 (this could vary) to have them tell you it is okay for you to turn on the utilities. This will take 5 days for them to respond. Then, you call the utility companies and have the electricity, water and gas (if needed) turned on. Yes, you pay the utility companies to come out and connect service. HUD gives you ten days to conduct your inspection and file a request, if needed, for repairs. Please keep in mind that HUD homes are advertised “as is” on the listing. Here is a BECAREFULL moment. If you are getting a loan, the lender will want the house to be livable. Meaning, the basics need to work on the house… heating, a/c, plumbing, electric, roof, etc. Please read this next statement twice! If the house is not livable the lender will NOT give you the loan! Some people will tell you that the repairs can be rolled into the loan. The only loan I know where you can do this is with an FHA 203K. A good Realtor will be able to advise you. Once you complete the inspection, you will need to submit an email to the field management services company to let them know you have completed the inspection, so they can re-winterized the property.

If you are getting a loan, your loan officer will need to get title information from the closing attorney. The closing attorneys that are assigned by the asset managers have hundreds of properties they are involved with. Rarely will you ever talk with a human being. Everything is done by email. When HUD takes over a property from the bank, it supposed to be the banks responsibility to make sure the title was signed and filed correctly at the county records office. Guess what? More times than not, there is an issue with the title. Usually, it is a missing signature or chain of custody. In all states, the lender providing the loan will require the house to have title insurance on it. If the title has not been correctly filed with the county records office, the insurance company will not insure the property. Let’s say you got lucky and there are no title issues. Hey!!! Well… wait! Remember the closing attorney assigned by the asset managers have hundreds of properties that they are working with. I was amazed at the last HUD closing I had. There were literally stacks of files setting next to the processors desks. Are you starting to get the picture? Your lender will be required to get the loan package to the closing attorney three business days before the closing date. The attorney will work up the settlement statement and send it to HUD for final approval. Once this happens, you can close the transaction. My advice is to use an outside attorney to close the transaction. Have your Realtor recommend a good closing attorney.

What is the responsibility of a Realtor? A good Realtor is a good communicator! The Realtor should advise the buyer of the value of a property. They should do a visual inspection of the property before the buyer makes an offer. They should explain to the buyer the pros and cons of the procedure before the offer is made. The Realtor needs to build rapport with the different organizations so the process will go smoother. The Realtor needs to be patient and handle themselves in a professional manner.

I’m sure you’ve picked up on my attitude for working with HUD properties. If the organizations involved with HUD would be more caring and responsible, helping buyer purchase HUD homes would be fairly easy and painless. Unfortunately, that’s not the case. I feel that a good Realtor is worth their weight in gold. I hope the information I have provided will help you make the best decision possible. If you live in the Atlanta area, please call me anytime for foreclosure information. Even if you live outside the Atlanta area, call me and I will answer your question and supply you with a list of Realtors who have experience with foreclosure properties.

To search for foreclosures and bank owner properties, go to my web site at: http://www.clearsummitrealty.com/

Best regards,
Ken Jones
Broker/Co-owner
Clear Summit Realty
770-842-4531
kenwjones@aol.com

How to purchase a home in Atlanta Georgia

CSRealty — Wed, 09 Nov 2011 09:35:09 +0000

Four or five years ago this would have been an easy question to answer for a Realtor; even a novice Realtor. Today, it is more difficult to answer this question. Why? Today we have three basic categories of houses to purchase, with a fourth on its way back. What are they? Regular sales, short sales, foreclosures and the rebounding new home market. Let’s discuss each one of these a little.
First, we have the regular sales. Believe it or not, two thirds of the homes being marketed are regular homes for sale. As a Buyer, these homes are the best home to purchase. The distressed properties have caused the values to go down on all homes, not just the distressed properties. The issue we are dealing with now is the appraisal. Oh! I forgot about the appraisal. Most Buyers I work with have to get a loan from a bank. The bank will require an appraisal. With all the distressed properties that have sold in the last two and a half years, the banks have put more requirements on the appraisals. Here are some examples of what the appraisers have to use in the research: Houses within the same neighborhood, houses within one mile of the subject property, houses that sold within the last three months, etc. Please understand that there are additional requirements the banks may impose on the appraiser.
Second, we have the short sales. Very simple, the sellers and buyers are asking the banks to take less for the property than what is owed. Georgia is a non-judicial foreclosure state so it is easier for the banks to foreclosure on a property. I will ask you to read my blog on short sales to get the full picture.
Third, we have foreclosures. These are the properties that have completely foreclosed. Either the banks, Freddie Mac, Fannie Mae or HUD are selling these properties. I have found a few “diamonds in the rough” for a few of my clients, but they are far, and few between. The biggest thing that concerns me with foreclosures is the condition: Have the heating and air conditioning systems been turned off or abused for the last year and a half while the property is being foreclosed on? Please go to my HUD blog for a few more details.
Lastly, we have new construction homes. I’ve noticed this spring and summer that there have been some new homes being built. With a good builder, I would surely show my clients these homes. The obvious concern would be the quality of construction and if the builder is in good standings with their lender. I would hate to be half way through the construction of my new home and have the builder go bankrupt. Be careful!
I’m not trying to paint a picture of doom and gloom! I’m trying to protect you. If you are reading this blog, you are trying to educate yourself on the does and don’ts of buying a home. I comment you for your efforts!
Here are some basic pointers that every buyer should follow:
1. Fine a Realtor with experience in the area you are looking in. See how long the agent has been in business, if they have their own web site (not their companies?), and if they are in tune to your needs.
2. Fine a reliable lender. In most cases the agent you select will have a history with several lenders. I strongly recommend you take their advice and use a lender they know. Otherwise, your new agent will not have any pull with the other lenders.
3. Know the estimated amount of money needed to close the transaction. Your lender and agent should be able to estimate the amount needed. The two major items will be your down payment amount and the cost for closing cost. Depending upon how you structure the offer, you may want to negotiate the closing cost.
4. Risk factory money. Rarely talked about, even with real estate agents! Once you are under contract to purchase a home, there are expenses that will not be reimbursed back to you: Home inspections, termite inspections, the appraisal, and if you pass your due diligence period, you’ll lose your earnest money.
5. Start the home search. I like to send my clients a ton of properties within their criteria and have them email me the mls numbers of the ones they like. Note: The key here is to protect my clients and help them purchase the home they want, not what I want. Then, I will set up an itinerary and make the appointments to see the properties my clients have requested to see.
6. What not to purchase. Here is where the “protect your client” phase comes into play. Here are my favorite issues to protect my clients against: Steep lots or driveways, power lines in the back yard, poor construction and tired or run down properties. There are others I’d mention, but that would be giving away my secrets!!!
7. After finding the right home, submit the offer. Here is where the rubber hits the road. As a representative of my client, it’s important to know how to negotiate. I’ve need negotiating contracts, some much larger that real estate, for over 28 years. I will do a complete market analysis of the property so I will have a better idea of the appraised value. Most of my clients will get a loan from a bank. The banks will ask for an appraisal. Why let my clients spend time and money on a property that will not appraise? Yet, I see agents do this all the time… Makes me wonder!
8. Get the accepted contract in writing. Please… and I will restate this. Please make sure everything you do is in writing, especially the initial offer. You may go back and forth with some easy verbal changes. But, when you have completed the negotiations, make sure you have everything finalized – in writing!
9. Get the contract to your lender and closing attorney as soon as possible. In your contract, you should have requested a due diligence period to get your inspections and financial items in order. I forward the contracts for my clients to their lender and closing attorney as soon as possible so they can do their jobs.
10. Get your due diligence items done. Now is the time to get your inspections completed. Get your financial documents to the lender immediately. Get a survey so you will know if there are any encumbrances on the property. (Talk with your agent about this one).
11. Shop around for the right home owner’s insurance policy. If you have car insurance or purchasing another house, I’d get a quote from my current insurance company. It’s always a good idea to shop around. Once you have decided on the company, get the insurance policy to your lender. They will need it for the underwriters.
12. Prior to closing, make sure you have the correct amount of funds to close. Your lender should be able to get very close to the amount of money you need to closing. Most, if not all, closing attorneys will require a cashier’s check from your bank or have your bank wire the funds to the closing attorney’s bank account. Some clients don’t feel comfortable with this, but this is the new way of transferring money.
13. Do a final walk through of the property prior to the closing. Over 12 years of being a Realtor, I’ve never missed doing a walk through. Anything could have happened to the house between the inspection and closing date. Though I’ve only had two issues on a walk through, one of them was a deal killer. Better safe than sorry!
14. The closing. The three documents that are most important at a closing are: the settlement statement, the lender’s promissory note and the warranty deed. All the other documents are standard and everyone signs the same thing.
I hope you have enjoyed my notes on how to purchase a home. I support the following areas: Atlanta, Marietta, Kennesaw, Acworth, Powder Springs, Smyrna, Dallas, Hiram, Woodstock, Canton, Roswell and Alpharetta. Please call me anytime! I’d be glad to discuss my favorite hobby – real estate! Go to my web site at: http://www.clearsummitrealty.com/ for a free search of homes in Atlanta.