When an FHA Mortgage is placed on a home by a buyer the Department of Housing and Urban Development insures the loan to the mortgage company in case the borrower defaults. If the homeowner does not make their payments then the mortgage company is forced to collect the debt by foreclosing on the home. Prior to foreclosure every effort is made to help the previous owner sell the home, renegotiate the loan, and find some type of financial assistance and counseling at no cost to the homeowner. If this is unsuccessful then the lender is forced to proceed with the foreclosure process. This generally takes from 4-7 months from the time the homeowner stops making their monthly mortgage payment. In the case of a bankruptcy this time frame can be extended for several additional months.
When the lender acquires the home thru Foreclosure or a Deed Back in Lieu of Foreclosure then the assign the title to the home to HUD for full payment of the mortgage and any back payments, holding cost, legal cost, preservation cost and all outstanding principal and interest due on the loan. This Foreclosure procedure also acts to "Wipe Out" most other liens and attachments to the home such as 2nd mortgages, home improvement loans, Materialman's liens, and IRS tax liens if the required procedures are followed to the letter of the law. This does not extinguish and back property taxes on the home. These are paid by HUD and when they sell the home all back taxes and assessments are paid up to date by HUD.
HUD uses the services of a licensed real estate appraiser that is approved and trained by HUD to do appraisals for them. They tend to use other foreclosure homes and specifically HUD homes that have sold in the general area. They discount the price of the home for estimated cost of repairs and also generally take a discount off the price for the fact that the home is being sold "As-IS' and on a very short time frame. HUD's goal is to get the home sold as soon as possible and place the money back in the Treasury with the least delay possible. In general these prices are well below the other homes on the market. We often find that the HUD homes are selling for $10,000 to $30,000 below what other comparable homes are priced at in the same neighborhoods.
HUD uses the services of a company that they refer to as their Management on Marketing Contract. They only deal with licensed approved Real Estate Brokers and agents that have been approved to sell the HUD homes such as Brian Burnham of Alton Park Realty. You may not make an offer directly to them if you are buying a home. They require that you submit your offer through an approved agency or broker.
All HUD homes are sold "As-Is". Some are more "As-Is" than others. More and more of the homes that become HUD homes are less than 5 years old and are in great shape except for a little wear and tear on the carpets and a light coat of paint. Most yards need a general clean up and some refreshing of the plants and flower beds. Most homeowners do the same thing when buying any resale home, and since you usually get a substantial discount on the price, most of our clients are thrilled with their HUD homes. In most cases HUD will supply us a copy of their inspection report and we will supply this to you usually when we look at the home.
No! These homes are first offered to Owner Occupant purchasers, then they are offered to investors and second home buyers. Even Bill Gates who is worth over 7 billion dollars could buy a HUD home. These homes range in price from in the $20,000 range to over $170,000. You do need to be pre-qualified or pre-approved on your mortgage before you can participate in the bid process.