Sigh… I just sent an “Everyone” email that was worth re-printing.
Learn from my pain. This information is saved on the network directory, but you might want to print this out and save it. Since I’ve done a few HUD deals lately, my reputation has leaked out and I have been getting a lot of calls from other agents. This will hopefully prevent you from having to call me, in a panic, while you have your buyer standing there and you’re trying to submit a bid or complete a contract.
· First, show HUD homes. They’re a pain in the butt contract-wise, but they’re pretty amazing deals. Go through the pain and you shall get referrals from your appreciative clients.
· Second, advise your clients that they are a royal pain, but you’re willing to give it a go. Tell them before you ever show them one that if they buy it, they will have a much more labor-intensive escrow period filled with lots of uncertainty. For instance, it might be 3 to 5 weeks before you even inspect the thing.
· Third, get a HUD key. If you don’t want to buy one for $2 from Bruce Betts, go downtown to Henley’s. There is no reason not to spend less than $10 and have a tool that lets you open up some of the best buys in the city. Mine is not available because it is attached to my car keys. Sorry to be blunt, but it you have an RSC key, and in a market like this one, you need to have one eye on opportunity and another eye on doing something remarkable for your clients. This tiny investment lets you do both.
· Fourth, only work with lenders and inspectors that are top notch. Sorry if they’re expensive and your buyers are poor. The houses are listed cheap and have $100 move in options. Opportunity requires a little cash here and there. I make some comments later about only using experienced lenders, and you might be an inexperienced broker in doing a HUD sale. Trust me when I say: the burden is on the lender. As long as you are proactive with your communication, you can fix almost anything. Plan for the worst (especially on an inspection, over, over, over inspect) and surround yourself with pros.
· Fifth, remember the purpose of HUD sales is liquidation. Yes, the highest and best net offer wins, but also, these are being liquidated from HUD’s books. If it was easy, everyone would do it.
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MCBREO.com is where to find HUD homes in CO
http://www.MCBREO.com is where all HUD homes are listed; all forms are available; all contact information is provided; all offers are submitted; all winning bid history is saved.
Don’t even bother trying to have a correspondence with HUD about buyer names and property addresses. The 10 digit HUD Case number is required on all documents.
Do not submit a bid until you have your buyers’ social security numbers (both), phone numbers, address information and dates of birth. HUD doesn’t like to sell more than one home to a person. They need this at the time of bid.
HUD only cares about net dollars. A likely winning bid is full asking price, 3% in closing costs and a 3% commission. You can get up to a 5% commission, but you’re playing roulette with your buyer: if you ask for a 5% commission and 2% in closing costs, you’ll lose to someone who goes 3 & 3%. Please note: HUD doesn’t pay for title insurance. So when you are getting your GFE, that thing we all complain about on the new 2010 GFE’s where it shows the title insurance as a buyer expense? It is CORRECT AND APPLICABLE for HUD Homes. The buyers pay that expense. Tack on an extra grand in closing costs and have the GFE in hand BEFORE you submit a bid.
You MUST HAVE The Owner/Broker’s ORIGINAL (that means blue ink folks) signature on any offer submitted. In the event of Broker absence, you need a Designee’s signature accompanied with a photocopy of the letter authorizing Designee’s ORIGINAL signature. Maybe they accepted the stamp in the past, they were being nice. They’re not being nice anymore.
You can buy owner-occupied homes via an FHA loan for only $100 down. It must be exactly full price to do this. You can go over asking price, but every dollar you go over is tacked on to the $100 move-in rate. So if you’re in an obvious bidding war and go $3000 over, that’s a $3100 move-in. Not bad, but not $100. If you offer a dollar less than full price it is 3.5% down. The $100 move in does not apply to investor purchases. HUD is in the business of homeownership and apparently good neighbors. They give preferential treatment to primary residents, and then good neighbors get even better treatment (many, many restrictions, but 50% off of appraised value if bought in first week to teachers, first-responders in designated “improvement areas”). All HUD homes are FHA loan eligible. That does not mean FHA-condition compliant. They probably have leaking gutters, bad drainage, blown up furnaces, peeling paint, etc. But they are already pre-appraised so that is not an expense to buyer, and the appraisal takes on market conditions and then applies anything from a 10 to 20% discount to that value.
When you win your bid, you have two business days to get everything personally delivered or Fed Ex’ed to Glendale, CO. Get ready to scramble. You need original signatures on everything and there are a lot of signatures. The contact and the owner occupancy addendum always require original signatures, they will usually accept fax or email scans of correction addenda or supplementary documentation.
When someone sends a correction request, only submit that correction request to the person making the request. Always reference the HUD Case number.
If you don’t know what to do about a repair escrow or 203K financing, call MCBREO.
Earnest Money checks must be good funds (cashier’s check or money order) made payable to HUD. It used to be advisable to have them made out to the buyers so they could then endorse them over to HUD or the title company setting up the escrow. At least at this writing, they won’t even accept an endorsed good funds check, it must say “HUD” on the check. When you submit paperwork on an offer, do not include the earnest money check. Submit a copy. When they accept the offer and you get that joyous fax after one or two correction requests, two Fed Exes, a panicked email and three phone calls trying to track down Louise… only then do you Fed Ex (yep, that’s 3) the check to HUD.
Budget $750 for an inspection. You will have to have the utilities turned on and probably you the agent get to pay for those as a supplement to your home residence utility bill. CSU is great with this, the other utility providers, eh… not so much. It confuses the heck out of them. In addition to that, the property is probably winterized. You will need to do an air pressure test of the plumbing system from a licensed plumber. I’ve been down the bad road on this. Be careful who your plumber is. The one I’m working on needs a new furnace and has a $3850 repair escrow. We need to make sure $3850 will cover a new furnace. So on this one we have a general home inspection; utility turn on and off; plumber inspection; HVAC inspection. We’re getting close to $750. You will also have to have the home inspected by a home inspector. HUD will not correct a thing. I repeat, HUD doesn’t care what you find, that’s why they priced it the way they did. If you don’t want the property, don’t buy it. They’re happy to lower the price and put it back on for someone else.
HUD transactions must close within 45 days of HUD’s contract acceptance.
Today is May 19, 2010. We are in the escrow period between the tax credit deadlines. They are giving priority treatment to all contracts written before April 30th so they can close before June 30th. If you wrote/write an offer after May 1, get in line. It is one to 3 weeks until they will let you know of their recent, any corrections, or sign the contract. Make sure your lender locks are on a 60 day schedule.
Never, ever, ever use a lender that has not done a HUD deal “recently”, at least in the last year. There are so many moving parts to all HUD transactions, that the last thing your buyers need/want is to miss out on a great deal (they are often exceptional, especially on a $100 move-in) due to lender unfamiliarity/incompetency. I meant to use that last word in a very broad sense. If a lender says “we’ll figure it out”, go elsewhere. Starkey has been very good with these as well, but Jim’s gov’t processor has been excellent as well. They need systems out the wazoo… and a sense of humor.
Lastly, HUD will come to the office to close. They have two different title companies out of Denver that close the deals, both have mobile closers that will come here for the closing. Bruce Betts will probably not be informed of the closing for weeks, so when you close, remove the sign, place against the property in the sideyard and fax or email Bruce something from the closing indicating that it is closed, you sold it, your MLS number, and please remove the sign. Bruce’s office has next to no information on these properties, why they come back on market, what their room sizes are, etc. and that’s not his fault or his office’s. He’s just the lucky guy who gets to put them in the MLS and place a sign on them. His office doesn’t know much, but that doesn’t mean that they try and be unhelpful. The same can be said for MCBREO. They always drive me nuts, but understand, they’re enforcing rules and regs that apply to all 50 states and have a hierarchy of priority that probably leaves your client behind somewhere. They don’t mean to offend or be difficult, they have a rough job. Give ‘em a break and it’s amazing how much smoother things will run.