But don't assume these foreclosures are instant bargains.  Of the roughly 8,800 HUD homes sold nationally in 1996, HUD reported that 2/3 were sold for more than their appraised value with about 1/2 selling for more than 10% of the appraised value.  HUD even encouraged this by offering full price mortgage insurance regardless of the appraised value. This policy inflated some markets and allowed them to get out of control.  Late in 1998 however, HUD changed it's policy and will no longer insure loans for more than appraised value.

Questions & Answers

• What is a "HUD Home"?   A HUD home is a foreclosed property taken back from a HUD insured lender when the owner can't meet the payments.  HUD pays the lender what is owed (the "insured" loan balance) and HUD then takes ownership and sells it at market value.

• How do you buy a HUD foreclosed property?  Placing an offer on a HUD foreclosure differs from a traditional offer made on a home. HUD and VA require a written bid and unless the foreclosure is offered through an exclusive listing contract, HUD will only sell the home through sealed offers. Most any HUD or VA approved real estate agent can help you submit an offer and anyone may buy a HUD home. 

• What if the bank is selling?  For bank foreclosures, the auction will usually advertise how much deposit will be required by the bank to secure the bid on the day of the auction. Be aware of differences in state laws since these procedures can vary.

• Can the buyer make multiple offers? Yes, but only the offer producing the highest net return to HUD will be considered. If a potential owner/occupant submits offers on multiple properties, the first offer producing the highest net return will be accepted. HUD Homes are sold in an "offer period." After the offer period, all offers are opened and the highest bid accepted.  Bids may be submitted any day of the week including weekends and holidays. 

• Is it true you can buy a HUD Home for a dollar?  No. HUD homes are sold at market value i.e., their "appraised value" based on prices of similar homes sold in the area.

• If repairs are needed, will HUD make them?  No. HUD Homes are sold "as-is," and without warranty.  HUD might offer special incentives such as allowances to [1] upgrade the property, [2] pay moving expenses, [3] a bonus for closing the sale early, and/or [4] pay all or a portion of the financing and closing costs depending on the state you live in. You are encouraged to get the home professionally inspected before you submit your bid.

• What is a Public Sales Offer Opening? Anyone may attend a public opening of offers received on HUD homes. New listings are open to offers for 10 days and are accepted up to the date and time shown in the newspaper ad. HUD usually opens the offers at the local HUD office and announces the terms of each offer.  All offers are reviewed and a final decision is usually given within 24 to 48 hours.

• How do I close on a HUD home?  If you have the highest net bid, you will be notified by phone that your offer has been accepted.  Shortly thereafter, you will be mailed a copy of the accepted contract and an acceptance letter at which time you will have 30 to 60 days to complete the necessary details for closing. When ready, you must provide HUD with a closing date and the closing will usually be held at the local HUD office.

• Will HUD pay for any closing costs or expenses? HUD will usually pay customary seller closing costs such as delinquent utility bills, prorated taxes, and delinquent home ownership association dues. HUD may pay certain financing/closing costs for the buyer including loan origination fees, discount points, appraisals, surveys, updated title evidence, and credit reports. When you buy a HUD Home, the selling agent's commissions are usually paid by HUD. HUD will pay a total sales commission of up to 6%.

• How do I remit payment to HUD?  Only certified funds will be accepted at closing. If closing funds are wired from a bank, they must be in the closing agent's account prior to closing.

• Will HUD assists renters in purchasing properties?  If qualified, HUD will grant some owner/occupants a credit in an amount equal to two monthly rental payments but not to exceed $1,000. To obtain, the buyer must include a copy of their current rental agreement with the submission of the sales contract.

• Can I buy a HUD Home as an investment? HUD Homes are usually offered first to owner occupant purchasers.  If no offers are made during an initial offer period, unsold properties are then available to investors.

• Will HUD make me a loan to buy the property?  No. HUD doesn't make loans directly but only insures the loan made by a HUD approved lender. 

Related Topics:  Understanding Foreclosure   How To Buy Foreclosures At Auction

Call the HUD national office at (202) 708-2720 for a list of foreclosed properties.