When I encourage buyers in Central Florida to look at HUD homes to find great bargains, I can pretty much interpret the confused look on their face as, "Does she really think I would be interested in a run down hovel in a bad neighborhood?"
Most people, I guess, aren't sure exactly what a HUD home is. Let's start off with what HUD stands for. It's Housing and Urban Development. HUD is the administrative body that oversees a bunch of federal housing agencies and programs including the Federal Housing Administration (FHA) which insures home loans in specific qualifying areas of the country from default.
So think of it this way. We pretty much all know what a bank owned home is, right? That's when a homeowner has stopped paying their mortgage, the bank has foreclosed, and puts the property back up for sale. Well, a HUD home is simply what you get when the home that was foreclosed on had an FHA loan. FHA loans are extremely popular in Central Florida right now. The guidelines change from year to year and are different in different counties, but the upper limit for an FHA loan goes all the way up to about $350,000. So that takes us out of Run Down Hovel and into Pretty Nice House territory. I recently had a closing on a HUD house. The property had sold for $285,000 in 2008. My buyers got it for $79,000.
Now, a caveat. This is not for the nervous buyer. You won't get a seller's disclosure (where the seller might write, "the big stain in the living room is not a roof leak, but it's where my son shook a Coke up before opening it"), but you will get a great condition report prepared by HUD (where it will simply inform you that there's a big brown stain in the living room but it doesn't look like a roof leak. You'll never know about Jr's pop experiment). Of course you won't get that with a bank owned property either.
My main problem is that buying a Central Florida HUD home is almost like an auction. You put in a blind bid on a website, then wait a few weeks until HUD posts the winning amount and brokerage name. You're not going to get a congratulatory email, phone call, or SMS. Forget to check the website the day they post the results? Now you're in real trouble, because they only allot you 48 hours to get their huge contract overnighted to them with original signatures in blue ink. Made a mistake in filling out the documents? HUD says they may contact you for corrections...or they may just skip to the next buyer. Doesn't that put your mind at ease? So if you are going to go for a HUD house, make sure you either have a realtor who's done this before or is willing to curl up in bed one night with the rather long manual on how to fill out the contract.
After that "hurry up and get your contract in immediately or we'll go on to the next buyer" HUD can take several weeks to get back to you and let you know that you filled out the documents correctly. During that time, you basically have no way of reaching anyone. You don't know if they moved on to the next buyer, if they are trying to reach you but your phone number (written in blue ink) got smeared and they can't read it, or they dropped your 45 page offer on the floor and can't figure out what order the pages go in. Don't call the listing agent - s/he has no idea and has nothing to do with the process at this point. Of course, there is an 800 number, with a useless menu like "press one if you know your party's extension, press two to repeat this menu" or something like that. ONE TIME I got someone to answer, and as if coached thoroughly on what to do if she should accidentally answer the phone, she said she would transfer me. Then she hung up on me. Other fun moments included being told our contract was rejected, but they weren't sure why (they weren't sure why because they were actually looking at SOMEONE ELSE'S FILE) and misplacing our escrow check for a few hours (it was in Ohio, and I didn't even bother to ask why or how it got there).
I guess I shouldn't complain too much. In selecting the winning bidder on a Central Florida HUD house, HUD favors the owner-occupants over the investors, so you're not going to be up against too many cash buyers muscling you out of the way. My buyers got the house they wanted, and are delighted. It represents an extraordinary savings and they feel secure in knowing they got a great deal on their new home.
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