I just finished my very first HUD transaction. What a learning experience. Your only method of education is a government issued handbook which addresses about half of what you need to know. I am hoping that this might help others eliminate some of the problems, nightmares really, that I have experienced. I haven't even closed yet!
The listing agent is paid a set dollar amount to list the house in the MLS & have the locks changed. This is ALL they do. They don't have any knowledge of the transaction. They are unable to provide any guidance as well. In order to show a HUD home, you need to purchase keys from a HUD authorized agent.
The purchase process is conducted via an online auction. You receive no communication if your bid is declined. There is one entity that sets the price and there is another one that reviews the bids. As an example, you may bid $100,000 on Friday and be declined. The price on the listing can be lowered to $100,000 on Monday. You will not be notified of the change.
The Handbook does tell you to have all documents completed before you bid. This is good advice. If your bid is accepted, you have just 48 hours to submit the data to HUD's third party. You are required to send a copy of the earnest money check in the form of certified funds. It takes about a week to have HUD sign off on the contract.
The most expensive lesson I learned was that HUD does not pay seller closing costs to include title insurance. Even on all cash deals you need to ask for the cost of the title policy and endorsements.
Once the contract is approved, you receive notice from HUD's title company. You have 3 business days to get them the earnest money. I would recommend you send it so that you can track it or someone has to sign for it.
Another challenge is a request to turn on utilities. It takes about 5 days to get this form signed by HUD's third party. You are only allowed to keep the utilities on for 72 hours. It took me 3 attempts to get the form processed. Our local utility department didn't know what to do with the form because it was written by the government!
The biggest challenge by far is coordinating the home inspection, which must be completed within 15 days, especially if the property has been winterized. Different utility companies have different policies. Here in Colorado Springs, if the utilities are off for more than 6 months, a pressure check must be conducted prior to turning the utilities back on. A plumber needs to pull a permit and run the test. The following day to the building department needs to inspect. This is the financial responsibility of the buyer and it costs between $225 & $350. If there are leaks in the gas line, the buyer is responsible for the cost to fix. This process takes about 24 - 48 hours.
So, the timing is essential. After a contract is approved it takes a week to get the request to turn on utilities authorized. Most utility companies need 24 notice to turn on the utilities. Then the next week, the work gets completed. As an example:
Monday - Meet plumber at property to have pressure check completed. They need to bring their own electric source for this. Fax request to turn on utilities to local company.
Tuesday - Building Department inspection is completed (agent need not be present). Meet plumber to de-winterize property.
Wednesday - Meet utility company at property to have utilities turned on, buyer is responsible for this expense. This takes about one hour. They will not assist with filling the hot water heater or turning on the pilot.
Thursday - Meet the home inspector and buyer at the property which takes about 2 - 4 hours.
Friday - Have utilities turned off and property re-winterized.
The buyer is then responsible for reconnect fees and de-winterization fees upon closing.
My main purpose is to help others escape some of this stress I have suffered. Be sure to warn buyers that there are quite a few out of pocket costs involved (around $1,200 with title and plumber & utilities). We closed without a hitch.
Comments(1)