Are investors bidding on HUD homes illegally?

18 Replies

Hi everyone,

I'm looking to bid on a HUD property in Columbus, OH. It is a 4-plex that is partially rehabbed. Currently only owner occupants can make offers which is great for me since I am looking to purchase a 2-4 unit and house hack.

My agent mentioned to me that even though only owner occupants can bid right now some investors might say they will move in to get the deal before everyone else can bid on it with no intention of moving it.

Has anyone heard of this happening? I assume this would be considered mortgage fraud. I’m trying to understand if I will be competing with all investors or just those looking to house hack.

Thanks for your input!

@Michael Deter If it's a HUD property most likely you will be competing with both investors and also primary home owners. If I'm not mistaken investors can bid after 15 days of it being offered to primary home owners. If the HUD property does not receive an offer sufficient to them then they will let the 15 days go by and it will be open to investors. I would just make an aggressive offer and lock it In if the numbers make sense. Good luck!

It happens especially on multi-family HUD properties. While technically it is a crime, the reality is there is very little enforcement of the HUD policy

FYI- It would only be mortgage fraud if the investor used owner occupant financing for the purchase

There is no statistics on how many investors bid on HUD homes illegally but they do investigate and catch those doing it It should not be a factor in your bidding Their is all sorts of discussions on how much to bid on HUD homes. Depending on the demand they languish y can go quickly or languish . Personally I bid $10,000 over on a HUD home that fell out of escrow which I use as a primary residence. The HUD process is probably the fairest of all .They do not discriminate cash vs financing and do not bid against you like other auction sites @Greg H. is a great source on the HUD process he has successfully bought over 1000 HUD homes in Texas  . Good luck bidding 

Originally posted by @Michael Deter :

Hi everyone,

I'm looking to bid on a HUD property in Columbus, OH. It is a 4-plex that is partially rehabbed. Currently only owner occupants can make offers which is great for me since I am looking to purchase a 2-4 unit and house hack.

My agent mentioned to me that even though only owner occupants can bid right now some investors might say they will move in to get the deal before everyone else can bid on it with no intention of moving it.

Has anyone heard of this happening? I assume this would be considered mortgage fraud. I’m trying to understand if I will be competing with all investors or just those looking to house hack.

Thanks for your input!

 Are you looking at 1444 Madison Ave in OTE? I still would tell you there will be significant interest from owner occupants. It's priced very low and will sell pretty quick. My guess is it'll go several thousand over asking if not more. Good luck, but there are less than like 10 bank owned multi families in good areas like this that sell each year in columbus 

It happens....but to me not worth the risk for anyone to do. There are plenty of opportunities around that you don't need to lie, cheat, and steal to make it worthwhile. Plus if you are in the "business" you could be fined and banned from bidding on future bidding on HUD properties. Why would you want to mess with the federal government for what in the scheme of things is a small profit. People are watching. Plenty of buyers bidding who might be upset.

Originally posted by @Austin Steed :

@Greg H. Doesn't HUD want to see that you are owner occupying the property, ie living in one of the units?

@Michael Deter Even if investors are lying about living in a unit I don't think it is worth the risk to me. As you can be fined 250k for doing so. See https://www.investopedia.com/terms/o/owner-occupan...

Also just put in a bid on this one for a client. This one is hot in Columbus! 

I was just giving a "real world" answer. The buyer will sign a document stating that they will occupy one of the units for 12 months. There are no deed restrictions or follow up inspections. The reality is that HUD has no enforcement division for this. The way HUD monitors is:

-They track by SS# so a buyer may only by 1 HUD home every 2 years

-They will review loan documents of the buyer prior to closing to determine the loan is indeed an owner occupant loan

Any HUD home that is a "GOOD DEAL" will never make to the investors .So what is left is a house that need a full gut /partial gut ,as long it is in the right location might be worth the hassle .Even the gut jobs are priced high, so many folks looking for a bone drive up prices on gut jobs.

Yes the question sorry, I do think folks pull scams ,so they pull a house hack live there for a year or what ever it takes to make the mark !

@Robert Ellis thanks for the feedback. We checked it out yesterday and there were multiple people there for the hour we were walking around it.

I'm trying today to make my best estimate of it ARV so I can determine my offer price.

Thank you all for the feedback! I appreciate the help!

Originally posted by @Greg H. :
Originally posted by @Austin Steed:

@Greg H. Doesn't HUD want to see that you are owner occupying the property, ie living in one of the units?

@Michael Deter Even if investors are lying about living in a unit I don't think it is worth the risk to me. As you can be fined 250k for doing so. See https://www.investopedia.com/terms/o/owner-occupan...

Also just put in a bid on this one for a client. This one is hot in Columbus! 

I was just giving a "real world" answer. The buyer will sign a document stating that they will occupy one of the units for 12 months. There are no deed restrictions or follow up inspections. The reality is that HUD has no enforcement division for this. The way HUD monitors is:

-They track by SS# so a buyer may only by 1 HUD home every 2 years

-They will review loan documents of the buyer prior to closing to determine the loan is indeed an owner occupant loan

 ya i think the mortgage fraud is the bigger deterrent.. but you know peeps.. not going to stop them.

Originally posted by @Michael Deter :

Has anyone heard of this happening? 

Yes. It happened to me. An investor purchased the property in his name then transferred it to an LLC. He ended up flipping the place for a decent gain. I was thinking of send him an anonymous letter shaking him down for a few bitcoins for my silence, ha ha...

To go along with everyone else, yeah I don't think it's worth it. My first rental was a 3.5% down FHA loan. I did move in and renovated while living there, but no official ever came to verify it actually was my primary residence. It is tempting, especially when you don't have enough capital built up yet to put down more than 3.5%, but also don't want to move your young family into every place you buy. However, though I was tempted in times of frustration, I ultimately looked at it as bad juju.

Better to build up capital for rentals in other ways than lie about occupying.  

Wouldn't surprise me. OO means occupy for a year. We have been in our HUD as OO and I can't say anyone has checked upon us living there. However the consequences are steep (orange jumpsuit anyone?) so hopefully people use some sense and just play fair.

I agree with above posters, make an aggressive enough offer and the bidding won’t even make it to investors!

Well, i made what I thought was an aggressive offer on this property at $108k over the asking price and I still did not get it.  I guess I'm not being aggressive enough.  There was room to go a little higher based on my analysis, but I thought I had a good chance with my offer.  Maybe next time.

@Michael Deter

Was that a typo that you bid $108,000 over list ? lol

You should be able to find out the winning bid under the bid results tab at hudhomestore.com within a few days if the buyer follows through

Make sure your agent checks email and/or hudhomestore because if the buyer fails to perform within the 48hr deadline, HUD will most likely award the property to the backup bidder

No typo. The property was grossly under priced!

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