HUDS, Bank Owned & Short Sales, Oh My!

Real Estate Agent with Keller Williams Consultants Realty 2003013006

First & Foremost you need to know as a home buyer that buying one of these repossessed homes take a great deal of PATIENCE.  Unfortunately, banks are not in  the "instant gratification" business.  We are so used to things happening fast. When an offer is made on one of these homes, it has to pass through MANY hands.  The banks are overwhelmed with work with so many foreclosures available for sale.  Because they are NOT in the real estate business, many systems have not been streamlined to provide timely answers to home buyers. 

 If you are right for it and do not have a deadline that you must make your move in, you can get great deals but it will take patience on your part, and tenacity on mine.  There is risk involved for you financially and a lot of work to be done when offering on a property such as this, and you need to be fully committed to your decision to buy and provide all documentation and sign all waivers needed.  It is risky, many of these homes are sold as is with no warranty and no disclosures.   Buyers for these homes sign many rights away.

 Defining the Difference for you:

A short sale is when the lender is willing to accept less for a home than what is currently owed by the homeowner.  Across the country most real estate markets are feeling the pinch. Most sellers who find themselves in this scary position often think their only option is giving the property back to the bank and going into foreclosure. The Short Sale is a far better option for many sellers, but may take a longer time for the bank to make their decisions on what kind of losses they are willing to take.  If the home owner has a first and a second mortgage, both have to be negotiated.  BUT in most cases, these homes will be in much better condition than the other challenged properties we will visit.  SO THEY CAN REALLY BE WORTH THE WAIT FOR A BUYER, and can take as long as 90 days to negotiate and close.

A bank owned home is when the home has been through the foreclosure process completely, it was financed with a conventional loan by the former owners.  Chances are this home has sat vacant for some time with no utilities before the bank bought back the home, cleared the title and listed it (most likely from the local Sheriff's auction).  Sometimes as long as 12-18 months. Many times they need cleaning and repair.  Contrary to popular belief, the banks rarely negotiate a low offer on a home.  They list them at what they feel is an aggressive price and will allow them to sit on the market for months before reducing the price.  They rarely accept much less than full list price and may or may not pay some of your closing costs.

A VA owned home is when the home has been financed by and repossessed by the Veteran's Administration.  VA loans have more lienient guidelines for credit and no private mortgage insurance.  They charge an up front fee for insurance on the mortgage when the home is originally sold.  This home too typically has sat vacant for many months with no utilities and chances are it is in disrepair.  The process of purchase involves a lot of special paperwork that I can acquire for you and response times from VA seems to be less in negotiations.  There is some room for price negotiation with VA owned homes. If you are a Veteran, you should ask your lender to compare your VA loan option with others available to see what works best for you.

A HUD owned home is simply a home that was financed with an FHA loan thru the Federal Housing Administration.  FHA insured the mortgage and has repossessed the home.  It too may have sat for many months with no utilities and be in disrepair.  There is an on line bidding process with a formula for successful offers generally below the price listed (unless there are multiple competing bids - however, it is essentially an on line silent auction).  You must work with an agent who is registered to do HUD bidding who has a key to let you tour the property. You cannot go on-line and bid on the property yourself, an agent must help you. For FHA buyers there is currently a loan program that offers $100 down payment and up to 3% closing costs paid for the Buyer. However, earnest money as a certified check is required with paperwork that MUST be received by HUD within 48 hours of an accepted bid or the bid is canceled.  The sale requirements for obtaining a loan or having cash to buy apply for HUD properties. They may offer escrow money for repairs to those who want to occupy the property and finance thru FHA. HUD homes are not Section 8 housing or offered to those who cannot quality for a mortgage loan.  Inspections should be done, HUD however will not pay for repairs as a result of those inspections and the potential buyer must pay for utilities to be turned on for inspections as well as pay for all inspections. 

Corporate owned homes are generally homes that an employer has bought from one of their associates so that they could relocate to another area.  A relocation company is most likely involved.  Many times relo will pay for customary closing costs and repairs needed after inspections for buyers.  Utilities are generally left on, the homes for the most part are in good condition and have been inspected and may have had repairs or improvements completed.  A "lowball" offer will be considered and generally a response will be received within 10 days or less of the offer.  There is also a host of paperwork including liability waivers and property disclosures required stating that the owning company has no legal liability for the home. 

Again, buying a home for sale like these can be a GREAT buy for you, but is risky.  You should ask your agent about a third party home warranty and be sure to have good home inspectors in for a look.   When you apply for a mortgage with your lender, you should ask about how any possible repair escrows would be handled if needed and if they are willing to finance any of this with specific programs.  Some homes may be eligible for USDA financing and you should ask your mortgage lender about this type of loan and the property and income requirements as it is one of the few zero down payment options available now heading into 2009.

  Copyright 12/2008 by Vicki Owens, ABR, CRS, GRI, Andy & Associates, Realtors.  Operating in the Central Ohio real estate market within a 30 mile radius of Marysville (In Union, Frankin, Delaware, Madison, Champaign and Logan counties) Contact Direct: 614-440-5174 website This information is provided from the views of a Realtor and is not in any way indicating legal advise to the public.  An attorney should be consulted about contracts and legal obligations.

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