Home Buying in Sequim>Question Details

texas7marie, Home Buyer in Sequim, WA

HUD homes..good buys? what are the risks?

Asked by texas7marie, Sequim, WA Wed Feb 6, 2013

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Kary Krismer’s answer
HUD transactions can be great buys because they can be extremely problematic. The process of getting the offer accepted is actually a pretty good process, but after that closing the transaction can be a nightmare. I just heard from one agent today who said he had a HUD transaction with a cash buyer that required two 15 days extensions after the 45 day period expired. Again, that was with a cash buyer! I had one that also required two extensions, the second one being because they can't properly handle the simple task of paying a water bill, and for a time it wasn't clear they could close the transaction after the second extension.

One thing that can totally trip up a HUD transaction is the appraiser calling out a repair. HUD apparently does not make any repairs, and they won't allow you to do it either. They even warned me against plugging in a CO detector! Appraisers calling out repairs is quite common.

I would not recommend any non-cash buyer ever make an offer on a HUD property. Too much risk of too much frustration and even losing your earnest money because your financing may lapse (or lock expire) before they can close.

This really is sad because HUD is just throwing taxpayer dollars down the toilet by having such a horrible process. I've been calling it "unadulterated government."
1 vote Thank Flag Link Wed Feb 6, 2013
HUD foreclosures can be a good deal, but the negative news out there is real. My experience concurs with with Kary Krismer's counsel on this. Want to read a true story? http://www.sequim-real-estate-blog.com/foreclosures/sequim-f…
0 votes Thank Flag Link Sun Feb 10, 2013
HUD can be a challenge I admit, but a buyer can spend money on the appraisal & inspection and still end up losing that investment if the appraisal has a condition that the seller doesn't want to deal with. The Buyer's agent should first determine if the condition of the home is good enough for a USDA or FHA buyer to submit an offer. If not, then move onto something else. The buyer must be counseled on the pros and cons before making an offer on a HUD listing. If the Buyer is going FHA and repairs are needed then maybe the loan can be switched to an FHA 203K. Of course you have to get HUD to approve and extend closing.
0 votes Thank Flag Link Thu Feb 7, 2013
Michaelle, when HUD cannot even properly handle the payment of utilities for a property in the City of Seattle, to allow a sale to close on time, something is terribly wrong. That's very basic.

When they refuse to do any repairs at all, no matter how small the cost, something is terribly wrong. Ordinarily that would be a good thing for buyers, because when that happens HUD might list the house again at a lower price. But in situations where the appraiser calls out a repair, at that point the buyer would typically have almost $1,000 invested into the inspection and appraisal (assuming not an FHA borrower and the FHA appraisal is still good).

I will say Trevor has gone a bit far, being negative on all REO properties. Many REO properties are very good buys, and although they may have problems, that is not the case on every REO. HUD is a special case. No matter how good the property looks, the buyer is not protected from being affected by really poor policies implemented by HUD.
0 votes Thank Flag Link Thu Feb 7, 2013
It's unfortunate that some of the answers you are getting are so negative. It's true that some HUD ttansactions can be troublesome, but then again, so can regular transactions. It's all about working through it. HUD has the home appraised, somewhat inspected (not a full home inspection), and they require that the buyer sign a document stating the buyer will take care of the Carbon Monoxide Detector. I have been assisting Buyers and Sellers for 22 years so I have experienced a lot of difficult transactions. Financing has changed a lot since 1990. I work with many first time home buyers who have purchased HUD and Bank Owned homes. Any transaction can be frustrating, so the agen and buyer need to have patience going in. I could write a novel describing many of the problems that can occur. So if you would like to talk in person, please give me a call.
0 votes Thank Flag Link Thu Feb 7, 2013
Good evening texas7marie,

Unless you're a professional investor paying all cash, please accept my friendly advice based on 23 years helping Home Buyers as a Mortgage Banker: Do NOT buy a foreclosed home.

I did many HUD home purchases back in the '90's. These deals were not pretty for my first time buyer clients. Basically, with a foreclosure, you're inheriting someone else's headache. Deferred maintenance; damage from vandals; unanticipated repairs that cost REAL money. No, don't do it.

Get Prequaliifed by an experienced Local Mortgage Banker; find a great, full-time Realtor. Find the house you want from a regular Seller at the price you're willing to pay. It's not complicated, so why make it so?

All the best!

Trevor Curran
NMLS #40140
Mobile: 516-582-9181
Office: 516-829-2900
Fax: 516-829-2944
PowerHouse Solutions, Inc.
185 Great Neck Rd, Suite 240
Great Neck NY 11021
Licensed Mortgage Banker – NYS Dept. of Financial Services

If you thought my answer was helpful, please give me a "Thumbs Up." Thanks!
0 votes Thank Flag Link Wed Feb 6, 2013
Michaelle wrote: "Work with an agent who has knowledge of HUD transactions and knows how to work with HUD."

I'd state that differently. Work with an agent who has experience with HUD, and is willing to work with HUD despite that experience. ;-)
0 votes Thank Flag Link Wed Feb 6, 2013
HUD homes can be a good buy. I have one under contract right now. My transaction has been going well. Another agent I know also has a HUD home under contract and that transaction has not been doing so well. On that transaction, HUD failed to disclose that the septic system had failed. Work with an agent who has knowledge of HUD transactions and knows how to work with HUD.
0 votes Thank Flag Link Wed Feb 6, 2013
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