Baltimore Sun, October 2003
Ask people what comes to mind when they hear the term “HUD home,” and you’re likely to hear such responses as, “run down,” “bad neighborhoods,” “crack houses” and “no thanks.” However, subscribing to these misconceptions can result in missing an incredible opportunity to buy a great house at an even better price.
“The biggest misconception is that all HUD homes are in bad shape and in bad neighborhoods,” says Angela Vavasori, a top-selling real estate agent with the Fells Point office of Coldwell Banker. “HUD homes can be found all over the state – in Baltimore, Anne Arundel, Howard and Carroll counties as well as Baltimore City. Statistically, more are found in lower-income neighborhoods than exclusive ones; however, homes become a HUD home when there is a bank foreclosure, and banks can’t discriminate based on geography.”
The Department of Housing and Urban Development (HUD) was created as a Cabinet-level agency in 1965, but its roots date back to the National Housing Act of 1934, which created the Federal Housing Administration. HUD gained additional strength following the Civil Rights Act of 1968 (also known as the Fair Housing Act), which outlawed most housing discrimination and gave HUD enforcement responsibility.
HUD defines its mission as providing “a decent, safe and sanitary home and suitable living environment for every American.” In addition to helping the homeless, HUD aims to create homeownership opportunities, especially for low-income individuals. One way of attaining this goal is by offering HUD homes for sale.
When someone with an insured mortgage can’t make the payments, the lender forecloses on the home. HUD, in turn, pays the lender what is owed, takes ownership of the home and looks to sell it as quickly as possible at fair market value. “Many people believe that only poor individuals lose their homes and, therefore, HUD homes are only in bad neighborhoods; however, a foreclosure can occur as a result of a death or a job layoff,” points out Vavasori, who adds that HUD regulations state that anyone looking to buy a HUD home must use a real estate agent to submit a bid.
Vavasori says that interested home buyers can view HUD homes for sale by checking out www.hud.gov. In addition, many HUD homes are listed in the Multiple Listing Service (MLS) used by real estate offices. Vavasori notes that many home buyers will see a HUD sign on a home and call her to make a bid. “HUD signs can be a bit deceptive,” she cautions. “When the sign is posted, that simply means that HUD has taken ownership, but sometimes it will be a year before it’s on the market because improvements must be made to bring it up to code.”
Typically, HUD homes are sold in an “offer period” and usually the highest bid is accepted. In an effort to encourage owner-occupied homeownership, individual homeowners are given priority before investors are allowed to bid. If a bid is acceptable to HUD, the real estate agent is notified, usually within 48 hours.
After acceptance, the process mirrors a typical home purchase – the homeowner secures financing and homeowner’s insurance and a settlement date is determined. “Usually HUD purchases involve a settlement date 60 days away, so it’s not ideal for someone needing to move quickly,” notes Vavasori. HUD does not offer financing directly but does offer some mortgage programs that can help.
“It was remarkably easy to buy our HUD home,” says Katie Elder, who along with her husband Daniel purchased a HUD home in November 2001 in the Highlandtown-Patterson Park area. “Of course, there’s a lot of paperwork, but after talking to friends who’ve bought homes, ours didn’t involve any more work than theirs did.” Elder says that she and her husband were not specifically looking for a HUD home; instead, their real estate agent found it while searching for a home that the Elders could afford.
“Our real estate agent handled everything for us,” she says of Craig Elliott of the Mount Vernon office of Long & Foster. “We were totally in the dark about how to buy a home, especially a HUD home, but luckily, Craig has a lot of experience in HUD purchases, which made life easier for us.”
Vavasori adds that there are some extra “hoops to jump through” for the real estate agent. “Sometimes the electricity or plumbing has been shut off and I have to communicate with both a federal agency [HUD] and a local electric company so that the home buyers can view it. However, these ‘hoops’ only mean extra work for me, not the home buyer.”
The area the Elders moved to has experienced a recent revitalization, and hence, home prices have escalated. “We love the Patterson Park area, but we never would have been able to buy a home unless it was a HUD home,” Elder says. “We’re both in our 20s, and we never thought that we would be able to buy a home at our age. Now we have a three-minute commute to our jobs at the Grapevine Hair Studio in nearby Canton, so we don’t spend our mornings on the Beltway.”
In addition to great prices, HUD also offers incentives programs. Although HUD homes are typically sold “as is,” HUD might offer special incentives such as an allowance to upgrade the property, a moving expense allowance or a bonus for closing the sale early. Also, the buyer can request HUD to pay all or a portion of the financing and closing costs, and the selling agent’s commission may be paid by HUD if you make this a condition of the offer. The listing agent’s commission is always paid by HUD, which will pay a total sales commission of up to 6 percent. Also, HUD offers teachers and law enforcement officers a 50 percent discount on some homes through its “Officer Next Door” and “Teacher Next Door” programs.
The Elders benefited from buying a HUD home. “We were fortunate that our home needed some work but was completely livable the way it was,” says Elder. “Both HUD and an independent home inspector inspected the property, which reassured us; however, we had to add a railing on a set of steps that were considered a hazard. Luckily, we were able to pull money set aside by HUD to pay for it.
“So many houses in the city are forgotten, and HUD allows people to buy homes in the city that normally they couldn’t afford.”