Real Estate Investor · Riverside, CA · Member since 2009 · 11 posts · 0 votes
I am still fairly new to flipping properties. I have been told to stay away from going after HUD homes? but no one has given me a reason not too. Is there any reason not to buy a HUD home to fix & flip? dont they work the same as regular REOs?
A HUD house is first listed in the owner occupant only status for the first 5 business days and if it is not purchased by someone willing to live in it for 12 months then it becomes available to investors and the bids are looked at every day instead of 5 days. The guidelines used to be stated as under $49,999 the EM is $500 and it went up by $500 increments. They also charge an extension fee with a minimal extension of 15 days. $25000 or less is $10 per day, $25001 to $50000 it is $15 per day and over $50000 it is $25 per day.
A HUD house is first listed in the owner occupant only status for the first 5 business days and if it is not purchased by someone willing to live in it for 12 months then it becomes available to investors and the bids are looked at every day instead of 5 days. The guidelines used to be stated as under $49,999 the EM is $500 and it went up by $500 increments. They also charge an extension fee with a minimal extension of 15 days. $25000 or less is $10 per day, $25001 to $50000 it is $15 per day and over $50000 it is $25 per day.
HUDs have been my primary source of flip inventory. I find them to be very lucrative. Just like with anything else, bid timing is everything.
I agree 100% with Herb, the EMD is refundable if the property doesn't pass inspection. However, that being said, I have also been told that MCB (the law firm handling MI properties) is more lienient with EMD refunds due to inspection deficiencies than that of the law firms in other states. Check with the law firm handling your state's HUDs to be perfectly clear.
The listing agenst in Colorado have informed me it is non-refundable (at least for investors, owner occ has different rules), I haven't looked into this in a while so perhaps it has changed. Below is from HUD's broker's handbook.
Disposition of Earnest Money Deposits
The failure by a purchaser to close on the sale of property within the allowable
time period, including any granted extensions, will result in the forfeiture of the
entire earnest money deposit, except where the purchaser presents
documentation to HUD that one of the special circumstances described in
paragraph (B) below this section has occurred.
A. Investor Purchasers:
1. The failure by an investor to close on an uninsured (not involving FHA)
sale will result in forfeiture of the entire earnest money deposit.
2. Fifty percent of the earnest money deposit on an FHA-insured sale will be
returned to an Investor Purchaser where HUD (or a Direct Endorsement
Lender using HUD guidelines) determines that the Purchaser is not an
acceptable borrower.
B. Owner Occupant Purchasers:
1. The entire earnest money deposit will be returned to an Owner-Occupant
Purchaser who fails to close after the sales contract was signed due to:
• There has been a death in the immediate family (contract holder,
spouse, or children living in the same household).
• There has been a recent serious illness in the immediate family that
has resulted in significant medical expenses or substantial loss of
income, thus adversely affecting the purchaser’s financial ability to
close the sale.
• There has been a loss of employment by one of the primary
breadwinners, or substantial loss of income through no fault of the
purchaser.
• In the case of an FHA-insured sale HUD (or a direct endorsement
lender using HUD guidelines) determines that the purchaser is not an
acceptable borrower.
• For other good cause, to be determined by MCB.
2. In the case of an uninsured (not involving FHA) loan where, despite good
faith efforts by the purchaser, there is an inability to obtain a mortgage
loan from a recognized mortgage lender, 50 percent of the earnest money
deposit will be returned.
3. On either type of sale, forfeit 100 percent of the deposit on those
instances where no documentation is submitted, where the documentation
fails to provide an acceptable cause for the purchaser’s failure to close, or
where the documentation is not provided within a reasonable time frame
following contract cancellation. (e.g., 90 days).
getting your EMD is far easier as and O.O. I don't know who said to shy away from HUD homes. Like anything else they are another great resource for finding nice deals. Just need to be patient till priority period is over. Generally, the more work a property needs the better your chances of getting a great price.
Just my 2 cents,my first property was a HUD home with 1k in earnest money down. I was informed when i made my bid that if anything major was discovered in the inspection i could back out.