Investors, How can you avoid roadblocks in buying HUD Homes?

I helped many clients on buying HUD homes in the past and continue to look out for deals even today. Recently things have changed and not many properties are staying long in the market for investors. Reason, many home owners are in the market looking for homes compared to few years ago. Investors are the only people who were buying houses and they get to pick them but not anymore. Nowadays you rarely get the opportunity as an investor to able to make an offer on a HUD property. So you should be very careful in making the right offer to close the deal.

First of all, you better know that Investor buyers will be penalized if they cannot close the deal even though the issue is on the seller(HUD) side. Last year, I have many frustrated buyers whom I help to make offer in Houston area and their contract was terminated either because of difficult and unfriendly process or because of the bad title issues. Buyer only realizes the property title is bad from previous closing by HUD after they spend all their efforts and money to get the property inspected and financed when their file is opened with title company. You might wonder why is HUD putting those homes into market if they don’t know have good title or hope to get one?. Isn’t it disgraceful? 

To avoid all the hiccups, here are list of bottlenecks with HUD properties so you can be aware of them and be an educated buyer when dealing with HUD foreclosed homes.

1. Be clear whether you want to buy as owner occupant or investor if you put the bid after the open period. They want you to sign owner Occupant affidavit to make sure you are bonded by law and can be liable if you found otherwise.
Be aware that as a Buyer(owner occupant or investors) you are responsible to turn on the utilities on the house which you didn’t even own in order to do the inspection. And they don’t make easier. It has several steps to start with, buyer needs to get authorization from the field service company authorized by HUD, pay fees for authorization just to get a letter to turn on the utilities. Next call the utility companies to turn them on. Buyer again needs to pay each utility company their respective deposits and fees to turn it on. Once inspection, you have to turn off all utilities. Buyer is prone to lose their deposits in certain utility companies and also end up paying high fees for expedite service.

2. After inspection if you decide not to continue, your earnest money is reimbursed only if you are owner occupant and you have to show the proof and valid reason. If you are investor, don’t think about getting earnest money back.

3. Title is not guaranteed until file is open and title commitment is ordered from Title company. If there is a problem with the Title, you just have to wait to be cleared and you have to apply for extension for $375 fee or they will waive it sometimes. If you are lucky to get it cleared, you don’t know whether the property is as it when you signed the contract. If a/c is gone and decide to not close, you will your earnest money.So you are taking those chances.

4. Closing has to be completed within 45 days after contract accepted. If financing delays, buyer needs to file for extension which will be for 15 days with $375 charge. You just have to keep extending until you complete the close and keep paying the extension fees every time.

5. For any reasons closing cannot happen which is common these days because financing falling apart. In that situation, whether you are any type of buyer you will lose your earnest money.

When I told my co-realtors that I deal with HUD properties they looked at me like a weird person and stayed 1 mile away from me. Now I know the reason for the damn look. They don’t want to deal with me because I am dealing HUD homes. Many Realtor's don’t deal with HUD homes just because there is only 50% of chance of closing the deals and process really frustrates clients.  Whether you are Buyer or Realtor, please be wary and take the above things into consideration before jumping in buying HUD homes. The deal may be good but organization you are dealing with thinks they are giving away houses for free and act like throwing bone at us. So be cautious and take every step carefully.