What Is A HUD Home?
The United States Department of Housing and Urban
Development (HUD) oversees the Federal Housing Administration (FHA), which
provides federal insurance against default on home mortgages. If the paymen=
ts are
not made on an insured FHA loan, the mortgagee forecloses, or accepts a
deed-in-lieu, then files an FHA insurance claim for the unpaid loan balance,
and conveys title to the property to HUD. At this point, the house becomes a
HUD owned home. HUD did not foreclose or repossess the property, but acts as
receiver when the conveyance occurs. The Management and Marketing (M&M)
Contractor then begins the process of working to maintain and sell the
properties according to HUD guidelines. The M&M Contractor for
Who Can Buy A HUD Home?
Any qualified purchaser can offer to buy a HUD home,
regardless of race, color, religion, sex, national origin, handicap, or
familial status. M&M Contractors, real estate brokers and agents all are
required to abide by all U.S. Fair Housing standards and guidelines. Before making an offer, prospective buyers must have a
letter, written on the stationary of a mortgage lender, stating that they h=
ave
been pre-qualified (with Credit Report performed, reviewed, and approved by=
the
lender) for the loan amount needed. Buyers paying cash must provide proof of
available funds.
Who Can Sell A HUD Home?
Currently licensed HUD registered real estate brokers,= and the agents associated with them, may show, advertise, and submit offers on = HUD owned properties. Choose y= our broker carefully! Your br= oker must get all the appropriate paperwork completed properly and timely to save you the risk of any obstacle preventing successful bidding.
Listing and Electronic Bidding
All HUD homes are sold by electronic bid. The M&M Contractor acknowledges the bid that presents the highest acceptable net of= fer to HUD, subject to certain restrictions. Selling agents may submit bids on homes as soon as they are listed in the Internet. Only licensed brokers/age= nts that are registered with HUD and have an active valid NAID number may place= an offer on behalf of their buyers.
Financing the Purchase of a HUD Home
The Federal Housing Administration (FHA) is often the = best source for financing. Depending upon the condition of the house, an FHA 203= (b) loan or an FHA 203(k) loan may be used. The “as-is” value for l= oan purposes is determined by the appraisal ordered by the M&M Contractor, which is valid for six (6) months. Overbidding the appraised value requires= the buyer to add the difference to the FHA down payment amount needed at closin= g. Of course, any HUD property may also be purchased for cash, or with conventional or other financing, subject to the lender’s requirements= for that type of loan. For details about different options for FHA and non-FHA financing, contact any local lender. See www.hud.gov for listings of lenders and www.hudclips.org for instructions to FHA lenders.
Listing Codes and Financing Categories<= o:p>
An independent FHA-approved appraisal and an inspection are generally completed within two weeks of acquisition of the property, and the reports are sent to the Regional Office. A Property Condition Report (P= CR) is then listed and available in the bidding system for buyers and brokers to download. Important: The PCR = should not be used in place of an inspection performed by a licensed inspector. A Disposition Plan is determined, and the house is initially listed at the appraised value, according= to the FHA financing category that is appropriate, given the current condition= of the property. It is important to understand the listing codes and how finan= cing is affected.
1. =
Insurable
(IN)
Properties listed in this category appear to meet FHA 203(b) financing requirements. No obvious repairs are necessary for HUD to insure an FHA loan to a qualified Purchaser.
2. &n=
bsp; Insurable
with Repair Escrow (IE)
Properties listed in this category are eligible for a 203(b) FHA loan with required “minimum property standard” (MPS) repairs totaling less than $5,000 to be made by the Purchaser, financed by = the FHA lender. If a 203(b) FHA loan is the financing, the repair escrow must be used for the needed work specified in the listing. In completing the Sales Contract (HUD-9548), the escrow amount is NOT deducted from the net to HUD to derive the amount that will be entered on line #7, NOR is it added to line #3, the purchase price. There i= s a separate line in Item #4 for the repair escrow amount to be noted.
The lender making the new FHA 203(b) loan establishes = an escrow account for the amount of the repairs. The amount given with the lis= ting includes a 10% contingency. After close of escrow, the lender will inspect = work as it is completed on the house and distribute the repair monies as appropr= iate within ninety (90) days. The costs of repairs are included in the loan amou= nt and repaid by the borrower as part of the house payment. Any funds in the escrow account not used for the repairs will reduce the unpaid principal balance of the loan.
Note that the repair escrow only applies= to FHA 203(b) financing. If non-FHA financing is used, or if a cash purchase is made for an IE property, the repair escrow does not apply.
3. Uninsurable (UI)
Properties listed UI, uninsurable, need more extensive repairs after close of escrow and are deemed not eligible for FHA 203B mortgage insurance= in their “as-is” condition; however, many are eligible for FHA 203K financing. Cash or conventional financing is often used to purchase UI properties. Note on FHA 203(k) Financing: UI properties are generally eligible for the FHA 203(k) loan program, (most condominiums are excluded, unless specifically noted otherwi= se.) Also, any IN or IE prop= erty may be purchased subject to 203(k) financing, instead of 203(b), if the hou= se and the owner-occupant purchaser’s credit justify making improvements= in excess of $5,000. Through this program, a lender can provide funds for rehabilitation along with the purch= ase mortgage. Ask your FHA lender for details.
Listing Time Line
Days 1 <=
/b>—
10 (Owner-Occupants Only, First Bid=
Opening)
• Priority will be given to Purchasers who are o= wner-occupants and non-profit organizations (NPO) for the first ten (10) calendar days aft= er a new listing is posted. (Owner-occupants must live in the house as their pri= mary residence for at least one year and may not purchase another HUD home for t= wo years. Anyone else is considered an investor.)
• All owner-occupant and NPO offers received dur= ing the first ten (10) day period are considered as though they were received simultaneously.
• During the next business day, after the initial ten (10) day period, the M&M Contractor will review the owner-occupant = and NPO bids received electronically. From these, the bid that offers the highe= st net amount is acknowledged as acceptable, if it meets HUD’s requireme= nts.
• If there are no owner/occupant or non-profit b= ids received that have met HUD’s requirements, Investor bids will be reviewed. From these, the bid that offers the highest net amount will be acknowledged as acceptable, if it meets HUD’s requirements.
Bids are not opened on weekends or Federal holidays and will be opened and reviewed the following business day.
Days 11
—30 (All Bidders, Daily Bid Openings)
• &= nbsp; If there are no acceptable owner-occupant or NPO bids during day 1- 10, the oc= cupancy status is no longer considered. Bids are reviewed daily, with all bids rece= ived on the same day being deemed as received simultaneous. At each daily review, the highest net bid is selected, if it meets HUD’s requirements. Bids= are not opened on weekends or Federal holidays, but accumulate as though receiv= ed simultaneously and opened the following business day.
Days 31 and Beyond (All Bidders, 5-day Bid, and then Daily Bid Openings)<= o:p>
• &= nbsp; If a property remains unsold, the M&M Contractor will re-analyze the case = and may reduce the price and re-list the property. For five days after the prop= erty is re-listed, all bids are considered simultaneous, with owner-occupants gi= ven priority, although investors may bid. If the property remains unsold in the five-day initial re-list period, then bids are reviewed daily and the bid t= hat offers the highest net value to HUD (regardless of occupancy) is acknowledg= ed as the successful bid, if it meets HUD’s requirements.
Posting Bids and Deadline for Contract =
Package
Delivery
The bid deadline is 11:59 PM for all regions/states. Bids are opened and the results post= ed to “Bid Results” within the NHMSI system. To view and access th= e bid results, you may search using specific criteria, such as case number, bid confirmation number or lottery number.&nbs= p; Typically bids are posted by noon the next business day after the bidding has closed. When bids are posted, the 48-hour clock starts for the agent to deliver the contract package to the appropriate Regional Office. <= /p>
PLEASE NOTE:<= /b> Owner Occupant buyers and Investors purchasing individually should use their social security numbers when placi= ng bids. Investors or business entity’s purchasing as a business should = bid using their Federal Identification number (FIN) No bid acknowledgment is fi= nal, nor is the offer “accepted” until all required documentation is received by the Regional Office AND the Sales Contract has been signed (rat= ified) on behalf of HUD. Late or incomplete contract packages are always subject to rejection. Occasionally a property may be withdrawn from the market before = the Contract is ratified, canceling or voiding the bid. HUD and/or the M&M Contractor reserve the right to cancel bid acknowledgment prior to Contract ratification for any reason.
If you are the acknowledged bidder on a HUD home, you = have a maximum of 48 hours (weekends and holidays excluded) to deliver your complete and correct= contract package to the appropriate Regional Office that services your state. = THERE ARE NO EXCEPTIONS TO THIS DEADLINE. Do NOT send the package to the Listing Broker, to HUD, or to any other office location. Use any overnight = delivery service that offers a receipt and tracking number. Simply postmarking withi= n 48 hours is not acceptable; deliv= ery within 48 hours is required.
Make every effort to complete and submit the contra= ct package correctly and on time. Mistakes and delays may result in the cancellation of the bid.
If the Regional Office receives a contract package o= n time that contains errors or omissions, you may receive an electronic mail or fax notification explaining the items needing correction. You then have a 48-ho= ur time period to submit corrections. This may require writing a completely new Sales Contract and having the Purchasers sign again. Faxed copies of change= s to the HUD-9548 are not allowed. Do not use liquid paper “white-out̶= 1; on any legal document. Re-sub= mitted contract packages containing errors or omissions will be rejected and the preliminary bid acknowledgment canceled, voiding the offer. The next highest bidder may be contacted, or the property may be returned to the market on t= he Internet.
HUD Sales Procedures and Requirements
“AS-IS” POLICY
All HUD homes are sold strictly “AS-IS.” H= UD does not make any repairs. There are no representations or warranties, expr= essed or implied, on the houses. HUD does not guarantee the condition of any hous= e, listed FHA-insurable or not, or whether it meets local codes or zoning requirements. Purchasers must make sure the home is in a condition they are willing to accept. The HUD-92564-CN addendum “For Your Protection: Ge= t a Home Inspection” must be signed at the same time as the Sales Contrac= t. See Paragraph B in the Conditions of Sale on the HUD-9548 Sales Contract, a= nd make certain it is reviewed with the Purchasers.
The Purchaser has fifteen (15) days after the ratifica=
tion
date on the Sales Contract to have all inspections made. The “Home
Inspection Policy” and a request form are included on the web site and
must be submitted to the
The selling agent must accompany prospective buyers and inspectors at the property AT ALL TIMES prior to closing. Please carefully read, and make certain your Purchasers understand and accept all the provis= ions of the Conditions of Sale on the second page of the Contract, notably Parag= raph B.
“PRE-OUALIFICATION” of the
PURCHASER
Brokers are responsible for ensuring that prospective buyers have been pre-qualified for a loan by a le= nder who has issued a letter on the lender’s letterhead to the Purchaser. = The pre-qualification letter must be included in the contract package. For purp= oses of this program, “pre-qualification” means a loan application h= as been made, and a preliminary loan commitment has been obtained from a recognized mortgage lender who states that a preliminary Credit Report has been performed, reviewed, and approved. Furthermore, the letter must st= ate that on the basis of this review, the mortgage financing for a specified do= llar amount sufficient to purchase the property should be available to this Purchaser. Pre-qualification letters must be dated and signed within 30 day= s or less prior of the bid date.
There is a required addendum that the Purchasers mus= t sign and include in the contract package that reflects HUD’s policy regard= ing extending the closing date. Ex= tensions may be granted at the sole discretion of the M&M Contractor based on the facts of each case. The Extension Request Form and appropriate fee must be = made payable to HUD and submitted to the HUD Closing Agent at least five (5) business days prior to the expiration of the Contract. The M&M Contract= or, not the Closing Agent, determines if an extension will be granted. No reque= st will be considered unless the Closing Agent has the form and the fee on dep= osit at the time the request is made.
NOTE: Cancellation of the Contract will= be automatic on the date of Contract expiration if no approved extension to the closing date is set beforehand. Extensions, if granted, are for 15-day increments only. If the extension is approved and the sale fails to close f= or any reason, the extension fee is forfeited, even if a portion or all of the earnest money is refunded. The fee (see chart below) may be waived for 203(= k) loan processing in some cases, or when the cause of delay of closing is due= to the process of resolving title issues.
&nbs=
p; &=
nbsp; Sales Price &=
nbsp; &nbs=
p; &=
nbsp; &nbs=
p; Extension Fee
&=
nbsp; &nbs=
p; $25,001
to $50,000 =
; &n=
bsp; =
; &n=
bsp; $225.00
($15.00 per day)
&=
nbsp; &nbs=
p; Over $50,000 =
&nb=
sp; =
&nb=
sp; $375.00 ($25.00 per day)
Important Management and Marketi=
ng
Information
BROKERAGE COMMISSIONS
The successful selling broker may be paid a commission not to exceed = 5% of the sales price as detailed on line 6A of the 9548-sales contract.
All HUD registered brokers and their agents are invited and encourage= d to advertise HUD homes as long as they strictly adhere to the following rules:=
1. Properties may not be advertised until the M&a= mp;M Contractor on behalf of HUD officially lists them for sale to the general public on the Internet, and only then at the listed price.
2. Brokers may not design or word advertisements = in such a manner as to give the appearance that they are the sole source of property information or that they have an exclusive or favored sales listin= g or sales advantage.
3. Brokers may not design or word advertisements = in such a manner as to indicate that the sales of HUD homes are distressed sal= es. “HUD Owned” and “HUD Acquired” are proper terms, but not “HUD Foreclosed.” The term “repo” is not acceptable.
4. All space advertising of HUD homes (including = all ads appearing in print or in electronic media such as newspapers, magazines, flyers, or Websites) must contain an Equal Housing Opportunity logotype, statement or slogan.
5. All= ads must comply with the Truth-in-Lending Act.
6. If applicable, the ad must include a flood pla= in notation, or other warning information as it appears on the Internet listing for the property.
KEYS FOR NEW OWNERS AFTER CLOSING
On the day the transaction closes (the funding date)=
, the
selling broker is to contact the Listing Broker and the
Please note: Purchasers are responsible after closing to have the locks re-keyed for their own security purposes, and to ensure that they have a unique key to their home. This is not a HUD or M&am= p;M Contractor expense.
Everyone working with HUD in any capacity has an
obligation to preserve and protect these houses until they are sold and clo=
sed.
Please immediately contact the Regional Office and the
In most cases, a termite inspection will be ordered and active infestation will be treated. A copy of the termite inspection report will be sent to the selling agent with a copy of the ratified sales contrac= t. The selling agent may then supply a copy of the report to the lender as required. If an inspection and/or a treatment have been done, a termite clearance or treatment certification will be provided, if requested, prior = to the close of escrow.
Purchasers may NOT make repairs to the home prior to closing and funding. Purchasers may NOT occupy or move any personal items i= nto the home prior to closing and funding. The broker or agent must accompany t= he buyer during any entry into the house prior to closing, and make certain to secure the house upon departure. Any violation of this prohibition constitutes a breach of the HUD-9548 Sales Contract. Charges of trespassing as well as the cancellation of the sale, forfeiture of earnest money, and loss of personal property found on the premises are among the possible consequences. Brokers= are also subject to possible disciplinary action by HUD. Each broker should take compliance with this policy seriously and monitor the actions of their Purchasers prior to closing. Notify the M&M Contractor immediately if t= here is a violation.