At one time the term HUD houses was synonymous for foreclosed properties. In today's real estate market, HUD houses are a subset of the foreclosure market. When an FHA mortgage is foreclosed, the house securing the mortgage becomes the property of the Housing and Urban Development (HUD). It becomes a HUD house. Years ago these houses comprised the majority of lender owned properties, but in today's market they are in the minority.
Many real estate agents dislike HUD houses. It's not just because many of them stink! It's because of the many hoops required to present an offer for a HUD home. Here are just a few of those hoops:
- In order to present a HUD offer, the broker must be registered with HUD and given an ID number.
- Even though HUD houses are listed on the MLS, they cannot be entered with the traditional lock box system used in St. Paul. Each registered broker is given a master key that permits access to the home. If the broker is not registered, they cannot show the house.
- Registration has to be done in advance and renewed on a regular basis. Registration takes several weeks so one cannot choose a HUD home and then register.
- All HUD offers are presented on the web. The broker's registration ID number permits access to the site. Many agents are uncomfortable with the online bidding process.
- The purchase agreement is different and has a booklet of instructions as its accompaniment. Many agents hate having to learn another system to present an offer.
- Whereas HUD houses are listed on the MLS, they are listed for a limited time period. All offers are submitted within the same 4 days in a silent auction format. The winner from the simultaneous bid period is the buyer with the highest "net to HUD". There is no chance to counter offer or outbid another.
- If the agent's buyer wins the simultaneous bids, the original of the purchase agreement and the earnest money check must be overnighted to the proper HUD office.
- It's dealing with the government and there are NO opportunities for mistakes to be corrected or changes made. When it's done, it's done!