Function

• The function of HUD listings is to provide for the orderly disposal of foreclosed properties and recoup the losses incurred by Federal Housing Administration (FHA) due to the foreclosure. Once a home goes through foreclosure and the former owners have vacated, if the mortgage was FHA-insured, the property is transferred to HUD. HUD completes a preliminary property condition report and lists the property for its current market value or the amount lost due to foreclosure, whichever is greater. HUD contracts third-party providers in each state to facilitate the listing process and keep the HUD listings current. Offers on the properties are submitted to HUD through HUD-approved real estate brokers. Once HUD accepts and offer on a HUD listing, the property proceeds to closing like any other real estate transaction.
  
  

Time Frame

• The priority period for owner-occupant buyers to purchase a HUD home is generally two to three weeks. After that, the property is made available to all purchasers, whether owner-occupant or real estate investor. If a HUD listing is within the priority period, the listing will disclose the termination date of the priority period.
  
  

Geography

• Generally speaking, HUD listings will be located in less desirable neighborhoods in major metropolitan areas. This makes them appealing to investors because the properties can usually be renovated for less money than a nicer home and the more affordable rental rates ensure a steady stream of available renters.
  
  

Considerations

• When bidding on a HUD listing, the most important aspect is due diligence. Often HUD listings are in poor condition and the necessary renovations are beyond the scope of the average handyman. Before bidding on a HUD listing, a potential buyer should hire a professional contractor to estimate the cost of renovation. That way a buyer can submit an informed offer and won't have any unpleasant surprises after the closing.
  
  

Expert Insight

• The Department of Housing and Urban Development is not in the business of property management, and it doesn't like to own houses for very long. In addition, the houses it does own are generally undesirable in one way or another, limiting the pool of potential buyers. This makes HUD a motivated seller. Even if a property is offered by HUD for $100,000, there is no reason that it wouldn't consider a $50,000 offer if the property needs extensive repairs. Often, submitting a list of necessary repairs countersigned by a licensed contractor with the offer on the property is all it takes to get HUD to accept an offer well below the asking price.