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Buying a "HUD Home"

There are great deals to be had for investors and regular home-buyers alike, but the process of purchasing a HUD Home can be complicated and drawn out. Here are a few tips on making it to closing.

The United States Department of Housing and Urban Development ("HUD") owns many, many residential properties across the United States as a result of the foreclosure crisis of 2008-2009. Slowly but surely, HUD is selling these properties off. Both investors and normal home-buyers are drawn to these properties because they can represent a phenomenal deal! However, the process of actually completing the purchase can be long and complicated. In short, these are not normal real estate transactions.  

Here are a few things to be aware of when considering the purchase of a HUD Home:

1. Names - Be very careful about who is listed as the buyer on the purchase contract and make sure all spellings are correct! For example, "John Doe" on the contract means that only John Doe can take title to the property. Not "John R. Doe," not "Johnathan Doe," and certainly not "John Doe and Lisa Doe." This is also of importance for investors who use a business entity to buy a HUD Home - the name of the business, such as "ABC, LLC" must be perfect. If a mistake is made, you will have to submit a contract amendment to correct the names which could lead to delays in closing.

2. Timing - HUD purchases have many timing requirements that normal purchases do not. For instance, the asset managers (the contractors that HUD has hired to manage the properties) require the final settlement statement to be submitted to them for approval no later than 5 business days prior to closing. What does this mean? The transaction must be completely ready to close 5 whole business days before the closing date! This is no easy feat considering that all figures from attorneys, realtors, banks, title companies, utility companies, etc.  must be given to the closing agent well in advance to meet this one HUD requirement. There are many more timing requirements in addition to this one.

3. Title Insurance - The vagaries of title insurance go well beyond the scope of this post. However, what the purchaser of a HUD Home needs to know is that these are properties that have "troubled pasts" in that they've been foreclosed upon. Ordering an "Owners Title Insurance Policy" will allow you to discover and fix potentially costly title problems before you buy the property!

4. Utilities - A common issue with HUD Homes is that there are past-due utility bills from either a municipality or a power company. Under the current rules, HUD will generaly not pay for them unless the bills are submitted to HUD at least 10 days prior to closing (see? another timing requirement!). The solution? Enlist your realtor's help to track down the utility bills immediately upon HUD's acceptance of your offer.

These are just a few of the issues that arise when purchasing a HUD Home. Perhaps the best piece of advice I can provide is this: if you're interested in buying a HUD Home, choose a realtor and closing agent with actual experience navigating through HUD transactions!

To see what HUD has available for sale, go to www.hudhomestore.com.

For assistance with HUD homes or any other real estate matter, please get in touch with us! Contact Brent Bogen, Frank Nowinski, or Matt Hays.

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