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What is a HUD Home?

J. Philip Faranda March 8, 2016

Many first time home buyers get into the Buffalo Real Estate market and purchase their first home with a HUD home.    There are some differences to a conventional sale and it is the buyer that is prepared that can then be ready to act when the right home comes up on the market in Western New York.

If you are a first responder or teacher the savings are even greater with the Good Neighbor Next Door program.   Often, Investors feel that they are left out of the process as there is preference given to Owner Occupant and those that qualify for the Good Neighbor program in the purchase of a HUD home.

What is a HUD home?

HUD Homes comprise one of the largest inventories of foreclosed properties in the United States. They are owned by the United States Dept. of Housing and Urban Development (HUD).   A HUD Home is a property that has been lost by a previous owner in foreclosure to a bank or other lender, or a property that an owner has given back to the lender with a deed in lieu of foreclosure.

Property owners facing financial difficulties are sometimes unable to keep up with mortgage payments. In the case of HUD Homes, the property owner is a person who obtained an FHA mortgage to purchase or refinance the property as a principal residence.

A lending institution, such as a mortgage company, bank, or savings and loan association, funds the mortgage loan; the Federal Housing Administration ( FHA ), an agency that is part of the U.S. Dept. of Housing and Urban Development (HUD), insures the mortgage. The mortgage insurance protects the lender from financial loss in the event the borrower defaults. When an FHA homeowner defaults on an FHA loan and the bank takes the house back in foreclosure, the lender has two choices about the disposition of the property:

  1. The lender may decide that there is sufficient equity in the house to turn a profit; it may keep the property and sell it as part of its Real Estate Owned (REO) inventory.
  2. Or, the lender may “cash in” on its FHA insurance policy and turn the property over to HUD. HUD adds the property to its pool of properties in the HUD Homes For Sale REO Program.

There are several other ways HUD takes ownership of properties:

  • Deed in Lieu of Foreclosure:  Properties conveyed to HUD by a mortgagee following a deed-in-lieu of foreclosure of an FHA insured mortgage. In this case, the borrower gave the property to the lender without a foreclosure sale and the lender filed a claim for FHA mortgage insurance.
  • Custodial Properties:  Properties secured by a second mortgage or home equity conversion mortgage (HECM). These properties are in default and upon inspection by the Field Services Manager (FSM), determined to be vacant or abandoned.
  • Foreclosed Secondary Held Mortgages (SHMs):  Properties acquired as the result of the foreclosure of a mortgage serviced by HUD including assigned and purchase money mortgages.
  • Home Equity Conversion Mortgages (HECM):  Properties acquired as the result of foreclosure of a reverse mortgage insured by FHA.
  • Legal Settlement:  Properties acquired as a result of a lawsuit or for other reasons. Sometimes HUD accommodates another federal agency to dispose of real estate assets not insured by FHA.
  • Repurchases/ Buy Backs:  Properties repurchased by HUD to resolve a post sale claim by the purchaser of a HUD Home.
  • 184s:  Properties located on Indian or tribal lands and acquired as a result of foreclosure of a loan guaranteed by HUD’s Office of Native American Programs (ONAP) under the Section 184, Loan Guarantee for Indian Housing.
  • 312s:  Properties acquired as a result of foreclosure of a HUD Community Planning and Development’s Rehabilitation Mortgage

What About One Of These Homes?

All statistics are gathered from the Buffalo Niagara Association of REALTORS®.

For more information, call our J. Philip Real Estate Team at (716) 650-0051

Thinking of selling your Western New York home? Interested in finding out the current market value of your single family home, condo or investment property? Then call us at (716) 650-0051 to discuss what is happening in today’s Western New York Real Estate Market. We would be happy to give you a personalized Comparative Market Analysis for your home or assist you to purchase a home.

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