HUD

23 Replies

Hi All, I found a good wholesale deal but the statement says "Is subject to HUD guidelines 24 CFR 206.125". What does this mean? Is this a house that can be wholesaled to a flipper?

Hello Kim,

My name is Jeff I am located in Pittsburgh,pa. I have wholesaled about 20 HUD deals in the past 2 years and I am very familiar w/ the process. I am not sure what that "24 CFR 206.125"" is but would be more than happy to help walk you through the process of wholesaling HUD deals. It is a little more complicated then just assigning a contract b/c you cannot assign bank owned deals, but it can be wholesaled if it is available to "investor buyers" when your bidding. If you have any questions feel free to email me at [email protected]

jeff

I have wholesaled 2 HUD properties and I have no idea what that means. Sorry I can't be of more help.

This is a REO that was a Reverse mortgage (HECM) and must be sold for at least 95% of the FHA appraisal. Therefore, not likely a good wholesale candidate.

A quick google search results that the property can't be sold for less than 5% of the appraised value without the permission of the secretary and they wont even counter for anything less than list price as determined by an FHA appraiser.

Doubt there's a scenario where those conditions would end in a profitable wholesale deal.

It means that it is a reverse mortgage and they need the full listing price. I've tried wholesaling a few of those and unless you get one that is already in a wholesale price they are not a good deal.

Thanks all for your help. I think I'll stay away from HUD houses until I get a few deals under my belt and feel a little more at home in the wholesaling arena. At least now I know to put my efforts into other deals that have leeway on price.

@Kim Handelman - Some HUD houses can be bought at significant discounts to their list price. I bought one last year at around 60% of list. Also, they can be wholesaled. You know, there's no rule that says that you can't actually close on the deal and then resell it.

This is from http://www.zillow.com/advice-thread/What-is-CFR-206-125-and-what-does-it-mean-for-the-buyer/436010/

What is CFR 206.125, and what does it mean for the buyer?



This language is disclosed in foreclosure listings where the home bore a reverse mortgage note that defaulted due to the mortgagor's passing, failure to pay taxes, or both.

HUD regulates the terms under which these properties can be acquired, sold, marketed, & their listing treatment. If the property is an actively listed REO, a Buyer's Agent can represent a Buyer the same as a traditional foreclosure. Disclosing the subject conditions communicates that the seller has restrictions under which they are obligated.

On these HUD deals are you just assigning the LLC like people do on REO deals?

@Bryan L. Would you please explain your process for getting a HUD deal for as much as 60% of the list price? I'm in the process of preparing an offer. My daughter will be the owner occupant and since she has to move and be there for an entire year, I want it to be well worth her trouble by getting a great deal. List price is $44K I was thinking of offering $38K but now I'm thinking $30K would not be a bad place to start. I want to make an offer that is too low for them to accept but at least one that they will counter and not ignore. This home came up while we have been waiting for another to come out of the Exclusive period. That one was not a good fit for my daughter as occupant and we will likely be competing with investors who will drive up the price once it's out of the Exclusive period.

Thank!

@Pyrrha Rivers  

 - Well, if you want to get a really good deal like 60% of asking, then you are obviously still offering too much at 30.  Do you want a deal, or do you want the house?  You have an emotional attachment to this particular house.  You most likely won't get a great deal that way.  You get great deals on HUDs and REOs by making low offers and being willing to move onto the next one if you don't get it. 

@Pyrrha Rivers  

It appears that you are looking at new HUD listing still in the exclusive period and you are not going to buy at 60% of the list price. The property generally is going to have been on the market for 60+ days with price reductions and very few bids in my experience. A this point, the best offer that would be acceptable to HUD is 4-6% off the list price factoring in 6% to the agents

@Greg H.  Yes, in this case the home has just been listed. So from your experience it may be best to go with asking price or very close. What you say makes sense. as well as @Bryan L.  I would like the house and I'm aware that $30K is not a 60% discount. However your sharing that example encouraged me to think about $30K instead of the $38 I was considering before. I'm not emotionally attached to this listing and I'm willing to let it go which is why I'm considering a lowball offer which may just cause us to not get it.

Thank you both so much for your feedback.

I purchased several HUD homes in the past and I think since you said you are willing to walk away from it if you are outbidded I would even consider going lower than 30k personally. I always offered half of the listing price and have been successful more often than not.

I have been reading all the comments on wholesaling and flipping with a double close. I still don't know the answer. Can you flip a HUD, VA, FHA Fannie Mae, Freddie Mac backed home in a double (back-to-back) close?

Originally posted by @Pyrrha Rivers :

@Bryan L. Would you please explain your process for getting a HUD deal for as much as 60% of the list price? I'm in the process of preparing an offer. My daughter will be the owner occupant and since she has to move and be there for an entire year, I want it to be well worth her trouble by getting a great deal. List price is $44K I was thinking of offering $38K but now I'm thinking $30K would not be a bad place to start. I want to make an offer that is too low for them to accept but at least one that they will counter and not ignore. This home came up while we have been waiting for another to come out of the Exclusive period. That one was not a good fit for my daughter as occupant and we will likely be competing with investors who will drive up the price once it's out of the Exclusive period.

Thank!

I have purchased several HUD deals and have found that the listing price in my area rarely is discounted for the first time home buyers. The agents have done their homework and the HUD homes that come up in my investing area will be worth 75 to 85K when done right. The homes that come up usually list on HUD at 30 to 45K depending on their condition. A first time buyer can get one at list and put 20K in and have great equity. So although this is not a 60% off value it is still a GREAT equity play. If you are intent on making the 60% off deal then you will have to make a lot of offers and one of them will come your way.

If I were using this purchase on my daughter I would definitely select the area and pay the HUD list if the numbers worked out. You would still have a solid deal and in a good area for your daughter. Good luck to you!

@Curtis Yoder , Thank you for responding to my post. Here is my update.

I did make an offer on the property in question, didn't get it so I kept looking and found an interesting MLS listing. Sent it to my agent and she discovered it was a Hubzu auction home. We offered on it, I asked her to set a maximum offer on auto bid and got it for a little less than my max. We're in the rehab phase and I expect it to be nice little rental.

I also want to share this update and thank  

@Bryan L. , @Greg H. , @Clarence Scott , for your valuable comments.

This language is disclosed in foreclosure listings aka bank owned or REOs, where the home was financed using a reverse mortgage note that defaulted due to the borrowers passing, failure to pay taxes, or both.

Any updates here? Has anybody successfully purchased a HUD property with HUD Guidelines 24 CFR 206.125???? I'm currently trying to figure out a purchase on a property like this.

i recently found out about HUD properties on HUDhomestore.com . im 21 years old have about 650 credit score . do you think i would be able to qualify for any hard money lenders or fha loans ?

Hi All,

I am currently trying to buy a HUD with a defaulted reverse mortgage. 1. The Selling Agent did not make it clear,that it was a HUD with reverse mortgage default. Nor did he provided all the 10 pages of documents that I had to sign until after we negotiated the price. I am still pursuing the property and have been waiting 2 weeks for HUD and the Bank to sign the contract that "supposedly" was agreed on verbally. All this waiting for a contract price 2.7% under the asking price. So other important lessons I have learned that I would like to pass on:

1. If the utilities are turned off, it is the buyers responsibility to turn them back on for the inspection.  I will not buy a house without an inspection. This is $250 in my area plus $300 for the inspection.

2.  The property is vacant and there is a property manager that winterizes the property and checks on it from time to time.  This person must be at the property when the utilities are turned on and must be part of the inspection.

3. There was one document that I refused to sign which stated that I would be responsible for any damage that occurred during inspection.  There is no condition report so I have NO WAY of knowing if the place is going to blow up when the gas is turned on.

4. One document indicated that you could get a 50% discount if closing with the Banks attorney and free title company.  However, they would not provide me the costs and the offices are up in the northeast so I assume the prices are higher.  I am sticking with my Attorney and it's impossible to know what level of title insurance they would provide free.

5. Once you sign the contract and accept the property after due diligence (10 calendar days) if the house gets vandalized, broken into ....etc. The Bank owner has no obligation to repair before closing. It is AS IS, WHERE IS...so close FAST.

This has been a really great learning process for me and I HIGHLY Recommend you require the SELLER AGENT provide you ALL terms and conditions of sale AND timeline/steps of a HUD contract approval and closing before you start negotiating.

Find a local person who has done a lot of these deals to talk to and don't get frustrated.  Oh and I agree don't expect a deal.  Let's face it if it's a foreclosure most likely people couldn't maintain the property so even if you buy it for less than market, you still have to fix it up to rent or sell.  

I still want the property so I'm going to see it through.  I would be very open to an comments on my 5 points above.

Warm Regards,

Dawn

@Dawn Quinn

A couple of observations :

4.  My guess is to why you have not received the signed contract back is that you did not sign the addendum.  Their addendums are their addendums and alterations or refusal does not conform to their policy

5. Typically you will be let out of the contract and earnest money returned for damage to the property after the contract has been accepted

By mandate HUD reverse mortgage foreclosure have to be sold for at least 95% of appraised value for the first 180 days

HUD reverse mortgages are not HUD Homes and are not listed on HUdhomestore.com. They have different policies and asset managers

A couple of pointers about HUD...

- If the property is still under exclusive listing, the best discount you can get from HUD is 80% net to hud. If it's in a prime location, it will sometimes be 85%. This is assuming that you are the only bidder on the property or have the highest bid by the end of listing period. Also, you can get HUD to pay your closing cost up to 3% of the purchase price as long as it's added on top of the net to hud.

- For HUD to accept/approve the sales contract you need to agree to all the contingencies in the sales contract. If the asset manager sees that there is a missing signature, the selling agent will be notified about it requiring them to amend the contract. If the amendment is not received within the given deadline , HUD will just cancel the contract and either award the property to a backup offer or put it back in the market.

- Lastly, you can wholesale or flip ANY property from hudhomestore.com as long as you bid on it as an investor. BUT, if you bid as an investor,  you won't get your earnest money back if you decide to back out

NOTE: This is based on my experience with buying HUD homes in GA state so can't say if this is true for other states.

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