What Does HUD House Mean?
When a homeowner defaults on a mortgage loan and foreclosure follows, several parties lose. In addition to the displaced borrower, the lender loses out on the delinquent loan balance. To recoup their losses, banks typically attempt to find a new buyer for the property. When HUD assumes ownership of a property, a HUD Home (sometimes known as a HUD House) is born.
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Description
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HUD is the parent agency of the FHA. The FHA is best known as an insurer of home loans. When a borrower defaults on an FHA loan, the federal government pays the lender the balance remaining on the defunct loan. HUD takes control of the property and sells it, initially, at its appraised value. HUD Homes, according to the HUD website, are one-to-four-unit constructions.
Effects
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The impact of a HUD Home depends upon when it is sold and who buys it. If HUD accepts a bid during a HUD Home's initial offer period, which is open only to people who intend to make the property their sole habitat, it earns back some of the money it spent to back up its guarantee to the original lender. When HUD Homes go unsold, however, HUD offers them, at a discount, to local governments and nonprofits. HUD hopes that when local governments buy the foreclosed properties, community revitalization and increased low-to-moderate-income home ownership will ensue.
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Time Frame
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After a HUD Home's initial offer period, HUD notes that it opens the bidding to all parties, including investors. At 60 days with no sales activity, a HUD Home enters the agency's bulk sales program. If a local government entity buys 10 or more HUD Homes, they can do so at a 10 percent discount. HUD Homes valued at $20,000 or less sell for just $100 to local governments via the bulk sales scheme. After 180 days, local government agencies can buy HUD Homes that remain unsold for $1.
Potential
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Non-profit organizations can register with HUD to buy HUD Homes under the same or similar terms available to local governments. Often, nonprofits team with government agencies to purchase HUD Homes to for use in larger community revitalization efforts or initiatives designed to increase home ownership among minorities or low-income groups.
Incentives
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HUD designates certain districts as community revitalization areas. As HUD explains, it makes this classification based on the rate of FHA foreclosures in a neighborhood, household income and home ownership rates. Through the Good Neighbor Next Door program, HUD offers EMTs, firefighters, police officers and schoolteachers a 50 percent discount on HUD Homes located in these areas.
Warning
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HUD urges interested parties that want to make an offer on a HUD Home to get it inspected prior to bidding. HUD sells HUD Homes in "as-is condition." If something ends up being wrong with the property, HUD is not responsible.
Considerations
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As the HUD Homes website states, real estate agents who are "properly registered" with HUD can conduct HUD Homes transactions. HUD pays the broker's commission, up to five percent. The agency will also accept requests from buyers to cover a portion of the closing costs associated with a HUD Homes deal.
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