How to HUD: Part II. Tips and Suggestions from a local program facilitator

This is essentially a guest post as it is entirely a re-print (with permission) of an email Re/Max Properties Clement Team just sent out. I’m not sure how many agents actually received this, but the quality of the email is very, very high.

HUD deals are tough. They no longer pay up to a 5% commission, and they’re still based on net to HUD (price less commission less closing cost concessions) so I have the feeling fewer agents are working them. They also require a $100 key chain of keys once you’re under contract and have more expensive inspections (no utilities on, need air-pressure tests, etc.). The bottomline however is that they remain one of the very best deals out there, especially for owner-occupants. I just closed one earlier this month and am showing another today to an investor. Like any good deal, they take time, patience, and a sense of humor.

REPRINTED WITH PERMISSION OF THE CLEMENT TEAM, RE/MAX PROPERTIES COLORADO SPRINGS on October 28, 2011

RE/MAX Properties, Inc
Helpful HUD Information

1. Buyer Education
2. $100 FHA Down Payment Program
3. Common Contract Errors
4. Helpful Closing Hints
5. Contract Extensions

Greetings!
The following contains some helpful information when your buyer is considering the purchase of a HUD owned property.

Buyer Education

Meet with your buyer and EDUCATE him on the bidding process, requirements, expenses, etc. before submitting a bid

All HUD homes are sold AS-IS. Under no circumstances can any repairs be made prior to closing.
Bids are reviewed nightly and ranked by a computer (bids must be in by 11:00 pm MT to be counted for that day). This includes weekends, even though the bids are not reviewed on the weekend, Fridays bids will be reviewed first, if there is not an acceptable bid, then Saturday bids will be opened, etc.
The highest net to HUD wins
After a bid is acknowledged the fully executed contract and all addenda, pre-qual, EM check, etc. must be sent overnight to arrive within 2 business days to the Asset Manager.
All documents must be original signatures in blue ink
Please plan accordingly if your buyer is going out of town
Investors CANNOT get earnest their money refunded – Advise preliminary inspections prior to submitting a bid
A $150 fee must be submitted to the Field Services Office for permission to activate the utilities during the winterization period
If the utilities have been off for an extended period, a contractor may have to pull a permit and have the system (gas and/or electric) inspected prior to activation. The permits cost about $54 plus the amount the contractor charges. Don’t forget that some utility companies charge an account activation fee (CSU charges $30 to activate).
A typical home inspection costs $300-$350 and if there is an issue, the report is needed as substantiation to get the earnest money refunded for owner occupant buyers.
The plumbing can always be pressure checked if permission is not obtained to activate the water in the home. Cost is about $150-$200 to test.
HUD does not provided Title Insurance – this is a buyer expense that can be included in the closing costs (line 5 of the purchase agreement)
Appraisal fee – The FHA appraisal that was performed prior to listing is available to the successful bidder

$100 FHA Down Payment Program

1. Are all properties eligible for this incentive?
A. No, only properties advertised to the general public that are eligible for FHA financing including the 203K loan program with owner occupant buyers quailfy. Properties advertised through HUD’s Good Neighbor Next Door programs are NOT eligible for this incentive.
2. Is the $100 down payment incentive available to investor buyers?
A. No. the $100 down payment option is available for owner occupant buyers only.
3. Is the $100 down payment incentive available to nonprofits?
A. No. Nonprofit organizations have established discounts that are already in place. This incentive is not available for use by nonprofits.
4. Does the type of financing impact whether or not my buyer(s) can take advantage of the $100 down payment incentive?
A. Yes. The $100 down payment incentive is available only to owner occupant buyers using FHA financing to purchase their home.
5. My buyers were awarded a bid on an eligible property and started out using conventional financing. They would now like to switch over to FHA financing. Can they take advantage of the $100 down payment incentive?
A. Yes. So long as the property meets the eligibility requirements for the incentive, buyers can change financing and still take advantage of the $100 down payment incentive.
6. If my buyer uses 203(k) financing to purchase a home, can they take advantage of the $100 down payment incentive?
A. Yes. Please be aware that the 203(k) program may be used only on properties listed Uninsurable (UI). However, FHA also offers a financing option designated “Streamline 203(k)”. Streamline. 203(k) financing can be used on properties listed Insured (IN) or Insured with Escrow (IE).
7. Will the use of the $100 down payment incentive impact the net sales price?
A. No. Using the $100 down payment incentive has no bearing on the calculation of the net sales price.
8. My buyers won the bid but bid more than the appraised value to ensure that they would win. Can they still buy the home for $100 down?
A. No. FHA guidelines require that the buyers still have to bring in the “overbid amount” in the form of cash as part of the down payment. Obtaining a second appraisal to justify the overbid to receive the $100 down payment incentive is NOT allowed.
9. How long will this incentive program last?
A. At this time, HUD has indicated the program will be in effect through October of 2012.

Common Contract Errors

1. Buyer forgets to initial Line 12.

2. Name on contract does not match the name on the bid.

3. Financing type on the contract needs to be the same as when the bid was placed.

4. On the Lead Based Paint Addendum the Broker MUST initial where required. DO NOT USE CHECKMARKS.

5. Lender Letter does not indicate all the required items: loan type, loan amount, sales price, credit verified and name, title, contact information and signature of loan officer.

6. Money orders or other certified funds for earnest money MUST be made payable to HUD or Buyers name.

7. Dollar amounts on lines 5, 6a, 6b, & 7 do not match the bid.
8. Buyer or Broker signs in HUD’s space.
9. Authorization letter not included for agent to sign on behalf of broker
10. Not following all instructions on the correction email. Second revisions are coming in with NEW errors because they did not compare to original contract.

Helpful Closing Hints

Make sure the lender is only sending FINAL figures to American Title – any changes to the numbers means the clock starts over
Allow 8 business days for closing after Final figures are sent to American Title
American Title prepares HUD-1 for lender and realtor approval (2-3 business days)
Approved HUD-1 is mailed out to seller, HUD who has 3 business days to review and approve the closing package, sign and return it by mail. (4 days)
Closing package must be received 1 day prior to closing
Total of 8 business days
Any changes to HUD-1 will restart the entire process
Be aware of the contract expiration date! EXPIRED CONTRACTS CAN NOT BE REINSTATED OR CLOSED.
Request for an extension must be submitted as outlined below no less than 1 day prior to contract expiration. If you do not have a closing scheduled and it is 8 days or less to the contract expiration date, go ahead and file for the extension!

Contract Extensions

To request an extension request the following must be delivered to American Title:
Extensions are purchased in blocks of 15 calendar days.
A complete extension request form signed by the buyer.
You must use the correct form for the Asset Manager to whom the file is assigned. Incorrect forms will not be accepted.
Check the extension fees scheduled for the correct amount required.
Matt Martin assets – the fee is a flat $375.00 regardless of purchase price.
Pemco and Hometelos assets – fees as follows:
i.     $25,000.00 or less the fee is $150.00
ii.     $25,000.01 to $50,000.00 the fee is $225.00
iii.     $50,000.01 and over the fee is $375.00
All extension fee checks must be made payable to HUD (certified funds only). No personal checks or cash will be accepted. Wires are acceptable.
Extension requests must be submitted to American Title, preferably five business days prior to expiration date of the contract, but no less than 1 day prior to expiration
The buyer is only charged for the days that are actually used, any unused days will be refunded to the buyer

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