How to purchase a HUD home in Atlanta
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/
Clear Summit Realty