Buying a HUD owned home in OregonPosted by Dylan Darling on Tuesday, March 5th, 2013 at 10:05am.
Buying a HUD home in Bend
I'm currently representing a buyer in a transaction on a HUD owned home in Bend, and the process has changed a lot over the past couple of years. So I thought a blog post on the subject was necessary.
HUD stands for the US Department of Housing and Urban Development. FHA (Federal Housing Administration) has been a part of HUD since 1965. FHA insures lenders against losses due to borrowers defaulting on their home loans. When a FHA backed loan is foreclosed on, usually HUD ends up owning the property. They then put the HUD owned home on the market to the public.
Online Bid Process
When HUD puts a home that they own on the market, they will list it with a local real estate broker and the property will be put on the MLS. Buyers can use a broker of their choice to view properties and place bids, (but the broker must have a NAID number in order to place a bid on behalf of a buyer). They require that all offers be placed on their online home store at www.hudhomestore.com. Buyers can also browse all listings for sale on the site.
The online bid process is fairly simple. HUD usually lists properties under an Exclusive Listing Period, which means that they will only accept bids from owner occupants, government agencies, and non profits for a certain length of time. Investors have to wait until this Exclusive Listing Period is over to make a bid. Once the property is available on the site, they will accept bids from eligible buyers for 10 days. They will open the bids on the 11th day. If no bids are received, they will open bids daily after.
If you bid over the asking price, HUD will require that the offer not be subject to an appraisal above the asking price. Buyers will have to sign a document stating that they will pay cash for the overage, and it can't be included in the FHA insured loan.
Once your bid is accepted, you will need to send the contract and earnest money to HUD. They must receive the contract and earnest money within 48 hours, and the contract must have original signatures of both the broker and the buyer. This can be difficult if the buyer is not located in the same area as the broker. This means no scanning or faxing of the document. In most cases the contract will have to be overnighted to Sacremento CA, and the earnest money overnighted to Eugene OR. The broker and/or buyer is responsible for the overnighting fees. Make sure that the contract is filled out correctly with the appropriate signatures. Otherwise they will send it back and require corrections within 48 hours.
In Oregon, HUD now requires the buyer to pick the escrow company. This sounds great... but with this new requirement comes additional fees for the buyer. HUD will not pay for the title insurance or escrow fees. So the buyer will be responsible for all title insurance and escrow fees. In a traditional sale, the seller will pay for title insurance and half of the escrow fee.
HUD may approve the property for FHA financing (IE or Insured Escrow). If the buyer chooses to use FHA financing, the property and appraisal are already approved by FHA. The buyer can use the appraisal already in place, but many lenders will need their own appraisal. This is where it gets tricky. Just because one appraiser has qualified the home for FHA financing, doesn't mean the next appraiser will. Buyer beware... if your lender requires a new appraisal, there is no guarantee that it will come back without FHA required repairs prior to closing. If this is the case, HUD will not repair the property and will not let the buyer repair the property.
If the buyer is using FHA financing, HUDwill automatically pay for a lead based paint inspection and usually repair any needed lead based paint items. In most states, they will also pay for a termite inspection and treatment if necessary. But if the buyer changes financing from FHA to another type of financing, HUD will require the buyer to pay for the lead based paint and termite inspections and treatments already performed.
Buyers have a 15 day inspection period. The inspection period is basically for the buyer's knowledge, as HUD will not make any repairs. I highly recommend the buyer paying for a professional home inspection. If the buyer chooses to perform a inspection, the buyer will be responsible for turning on the utilities for inspections. If the home is winterized, the buyer will have to pay for the home to be re-winterized. HUD will only allow the utilites to be on for 72 hours. If a new appraisal is required, the utilities will need to be on for it as well. This can be a headache if the buyer's agent doesn't know the process for turning on utilities.
Closing will take place at the buyer's preferred escrow company. The buyer will receive a Special Warranty Deed, which is typical on foreclosures. If closing doesn't take place on time, HUD can charge a per diem to the buyer for an extension (but usually they don't on the first extension).
You can certainly get a great deal on a HUD home, but you need an agent that knows the process. Call me if you have any questions regarding buying a HUD owned home in Bend or surrounding areas.
Written by Dylan Darling
377 SW Century Dr Ste 102
Bend, OR 97702
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