The U.S. Department of Housing and Urban Development (HUD) is a federal agency that insures homeowner mortgages through its Federal Housing Administration (FHA) arm. HUD reimburses lenders for the outstanding amounts owed on the defaulted properties it insures through the FHA. HUD then turns around and puts them back on the market for re-sale to the general public.
Much like most lenders and/or insurers, HUD is not in the business of marketing/selling real estate; therefore, it enlists the services of approved brokers/agents who list, market, advertise, show and sell the properties on its behalf. These brokers/agents are often referred to as "HUD-approved," which is typically who you have to go through to purchase a HUD home (only they can submit offers). These brokers list the HUD properties assigned to them in the Multiple Listing Service (MLS), where they are accessible to other MLS members/agents. Ads in your local newspapers or contacts with local real estate brokerages may enable you to learn the names of brokers who have registered with HUD to show and sell HUD properties in your selected areas. HUDHouses.com is also a great resource of HUD homes online for those buyers and/or investors who need instant access to a local list of properties for sale.
When you locate a HUD home you want to visit and/or purchase, remember, it needs to go through an approved broker. In addition, the process isn't first-come, first-served. On the contrary, properties are appraised based on fair market value and then placed on the market for an "Initial Listing Period," during which time HUD will receive offers on the property. Owner-occupant offers, not those from real estate investors, will receive top priority (HUD's mission is to foster homeownership first and foremost). Once the "Initial Listing Period" window closes, which is typically about 10 days, HUD will review the offers and the highest acceptable owner-occupant offer will be accepted. If the owner-occupant offers are absent or unsatisfactory (i.e. the properties have not sold) bidding will be opened up to both owner-occupants and investors.
If you are the winning bidder, you will need to be ready to move fast. In fact, your HUD-approved broker/agent must submit your signed sales contract (on the HUD-9548 form) within 48 hours, reflecting the offer that was made electronically and that became the winning bid. The agent should have all the paperwork you need. Once your contract is submitted and approved, HUD will ratify the contract and schedule your closing date to occur within 30-60 days. Keep in mind that HUD requires an earnest money deposit as low as $500 (for properties that sell for $50,000 or less) that must be supplied to your HUD-approved broker/agent at the time of electronic bidding. This deposit will be submitted to the HUD Closing Agent immediately after your bid is acknowledged as the winning offer.
