Home Apart

How does HUD get REO single family homes?

Reading through the HUD web site I see that HUD homes sold through realtors don't necessarily qualify for FHA loans, so presumably the buyer shops around for a loan through the usual sources. So how does HUD end up owning these homes after a foreclosure? As an investor rather than an owner/occupier, can I still bid on single family homes for rental income?

Public Comments

1. HUD properties are homes that were financed with an FHA guarantee backing the loan. When someone defaults on the loan, it goes back to HUD and the bank is payed off. Now these houses are usually in bad shape and they don't meet the FHA minimum requirements for an FHA insurable house. For instance, one of the requirements for an FHA loan is that the house have a working plumbing system, When they buy the house the plumbing works,but now they have moved and let the gas go off and the plumbing lines might be frozen and broken. It once passed FHA guidelines but now it doesn't. As far as HUD homes, an investor can make an offer after it has been on the market after the owner occupied period,10 days.After 10 days, they open it up to everyone but HUD likes to give homeowners a first chance to buy these homes.Hope this helps. Email me if this isn't clear lumberman57@yahoo.com
2. The HUD REO trail goes like this; Buyer gets a real estate loan through an approved HUD lender. Lender receives an insurance policy from HUD to protect his/her interest. Once the loan has been made, the lender has the right of foreclosure when the borrower/home owner defaults. After the foreclosure process has ended, the lender submits the insurance policy to HUD, together with the foreclosure costs, interest and legal fees, for reimbursement. HUD reimburses the lender and takes title to the property. With single family foreclosed homes the Property Disposition Dept of HUD decides whether the home will be sold directly or through authorised agents. Recent changes to HUD policy means investors in these homes (single family) can bid immediately the property is released for sale, but the owner/occupier bid will always get preference.