Real Estate Article: Facts About Foreclosure Homes and Tips on Buying HUD Homes

If you are reading this you may have heard about the good buys on HUD houses….or any other foreclosure house…..is a great deal.  You may have even seen infomercials on TV saying you can buy a house for $1.   In this article we will talk about the realities of buying HUD houses, or any other foreclosure house.

First, let’s define a few terms:

HUD:  The federal department, Housing and Urban Development.

FHA:   Federal Housing Administration, which is under the Housing and Urban Development.

FHA Loan:  A loan that is insured by FHA.  The payment has a little extra included to cover the cost of the FHA insurance.

When the lender forecloses on a home with an FHA loan, the lender buys the home at the Courthouse steps.  The FHA then takes over an sells the home.

Now we’ll go over some of the things you may have heard.

“All foreclosure houses are HUD houses”  Some foreclosure houses are HUD houses, but some are foreclosed on by the VA (Veteran’s Administration) or on homes with conventional lenders.

“HUD houses (or any other foreclosure houses) are a great deal.”  Not always.  One reason a home gets foreclosed on is because the owner has gotten too far in debt.  The house has to be sold to help cover the debt.

“You can buy a HUD house for $1.00.”   I have been in real estate since 1981 and have never seen a home that is for sale for $1.00 or one that has been bought for $1.00.  Many years ago, I remember hearing that they would sell homes that didn’t sell any other way would be sold for $1.00.  Now think about it.  Do you expect that that the homes shown in those TV ads wouldn’t sell for a higher price?  The reality is that a house that would not sell other ways would be in bad condition (costing a lot to repair) or in areas you probably would not want to live in. 

“You can find foreclosure homes by calling lenders”  Lenders rarely work directly with homebuyers.

“If you hear about a home that has been foreclosed on, an agent can help you buy it directly from the lender.”  Lenders rarely work directly with real estate agents either!  Most foreclosure homes are now being handled by asset management companies who then list the homes with real estate agents.  They are then put in the MLS.

“As soon as a home is foreclosed on it should be available for purchase.”   The first step after a home is foreclosed on may be to get the owners out of the house.  That could take up to several months.  The next step is to make sure that the title is clear so the house can be sold.  That can happen quickly….or it could take up to a year.

“You can only find foreclosure homes by looking like for them on websites.”   Yes, there are websites with foreclosure homes on them.  HUD contracts with asset management companies that cover different regions of the country.  There is accurate information there, but buyers can only make a bid through a real estate agent.

But there are others that just get information from other places and are not up to date.  Most foreclosures (including HUD homes) are listed in the MLS and those are often on these “foreclosure” web sites, along with those that have already been sold.

“To buy a HUD house, you can only use one certain real estate company.”   Any real estate agent who’s broker has signed up with HUD can sell a HUD home.

Tips on Buying a HUD House:

1. To bid on a HUD house, you have to write up and sign a special HUD contract (not the regular sales contract for the area) and give your agent a cashier’s check for the earnest money made payable to the Title Company that works with HUD house.  The agent then submits your offer on the website.  The results will be posted on the regional website and will say if it is an accepted or rejected contract.  They will not counter your offer.  If you want to make another offer, you will have to sign another contract.

2. During the initial listing period, HUD will only sell the home to Owner-Occupants.  There are large fines for an investor to purchase a home during that period.

3. A contract on a HUD house does not give you an period for doing inspections as the regular sales contract does.  You can do inspections, but HUD will not make repairs or let you out of the contract.  Most lenders have the same policy.

4. You should expect that there will be repairs needed on HUD (or other foreclosure) homes.

Linda Grissette, GRI, e-PRO Certified

The Best Seller GMAC Real Estate, 3829 Veterans Memorial, St. Peters, MO 63376 

Licensed in the state of Missouri.

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