Why a HUD?

Question

Can someone explain to me the pros and cons of trying to rehab HUDs for resales or rentals as opposed to the traditional means of searching for distressed sellers to get you a discount?

These are listed and open to most bidders like it would on MLS except it's a HUD database of houses. So the competition for these houses in my mind should be the same.

Am I missing something here?

Account Closed · Answer

TC,

Here is a quick lesson.

Assume you own Property X. I sign a quit claim which states that I have no interest in the property. Did anything change? Do you now know more than you did before I signed the document?

Lets assume that I tell you I own Property Y. I sign a quit claim. Who owns the property now? Do you really know if I owned it before? Am I making any promises about the condition of the title that you paid me good money for?

A quit claim indicates who is saying they have no claim. It makes no statement as to if they ever had a prior interest or if they are the legal owner. If a quit claim is used some title companies will not write a title policy for a subsequent deal. I am told that one state no longer recognizes the document

You really want the title work to be done correctly when transferring title. Otherwise a mistake could really mess up later deals. It might blow out a buyer or mess up a refinance. The costs are not very high at all. HUD is not going to let you do it on the cheap in any event. You are also likely to run into title problems when there was a foreclosure. Lots of junk happens during a foreclosure so cutting corners later is bad news. Best to have a really clean transfer from HUD or make them clean up the prior mistakes before you spend your money. Why spend money when you do not know what you have received in return. Worse would be to sink money into a property and then find out that someone has a senior claim so they get your improvements for free.

Do better deals so there is margin to pay for a property escrow. Note that some of the costs are recorder's fees or transfer taxes so not all that easy to avoid in any event even if you used a quit claim.

John Corey

Tom C · Answer

John,

Perhaps I have the wrong idea about what a quitclaim does and doesn't do then. I am trying to avoid the long drawn out hassel and expense of running this through a title company. I realize that it is for my benefit, but can I not accomplish the same thing that a title company does, other then offer title insurance by conducting my own investigation into the former owners of the note?

Educate me here on this topic and the rest of us. It appears that some of us don't fully understand exactly what a quitclaim is.

Thanks

Account Closed · Answer

On the funding question. If you are really sure you will have the funds get a hard money lender or a local bank to issue a letter saying you are good for the money. Specific wording will vary based on what they generally issue.

A bit of a rant...

Why would you want to buy this way? In some states you will have title issues if all you have is a quitclaim from the seller. All a quitclaim means is the other party has no interest in the property. It does not show that they sold it to you. It does not show that they have a valid claim on the title and therefore the right to sell it to you.

It is the worst way to buy if you want to be sure you obtained the title. It really is about the other side saying they have no interest. I could quitclaim everything in a state where I own nothing and they would be valid quitclaims. I am just stating that I have no legal interest.

John Corey

Tom C · Answer

I have a HUD that I need to place a bid on. It will be a cash deal, although I will not have the funds for around another 2 weeks. How do I bid on the property, without being able to show funds in an account or a preapproval letter from a bank?

Also will HUD do a quitclaim deed verses running the normal closing process?

Thanks

Tom C · Answer

Counter offers?? What state are you in?

Tom C · Answer

Are you kidding me? I was told that I had to use their looser title company. Ugh.. You can have the utilities turned on, but you are responsible for all damages and the utility bill. In my case, they found a gas leak inside the house and then 3 days later, one outside the house.

Tom C · Answer

HUD's in my area need a lot of work. Sometimes they are completely trashed and have been vacant for years. You can find some great deals though. One major problem is that unless you want to jump through hoops, you will be inspecting it with no utilities. Meaning after you buy the sucker, be prep'd to find water leaks, gas leaks, bad furnace and just simple things that wont work. All of these things add up when rehabbing, so factor them in. Closing can be a real pain. The title company that I was forced to use was completely incompetent and was very hard to close with. Your earnest money will go into the principle, you don't get that back as a refund.

I like HUDs and have looked at many, but I haven't found one that hasn't needed a lot work to make them liveable again.

Account Closed · Answer

Check the HUD rules for properties they have for sale. In many cases the properties are open to owner occupants only when the property is first offered for sale. After a period of time investors are allowed to make offers. Hence the list is a bit picked over before the investors get a shot.

This could be good or bad depending on your view. Maybe the more interesting properties are the ones that owner occupants will pass on. Projects or other reasons that turn off the retail buyers.

John Corey