Many people (including real estate agents) are confused on exactly what differentiates HUD homes in Denver from other foreclosures. The easy answer is that a HUD home is simply a home that was foreclosed on which had previously been financed with an FHA mortgage. This FHA mortgage was backed by the Department of Housing and Urban Development and because of this backing, the sale of the home is handled differently than other Denver foreclosures.
After most homes go through the foreclosure process and the bank obtains ownership, the majority of homes are placed on the market and offered to homebuyers, investors and other organizations. Typically, these homes are marketed just as any other home would be and potential buyers simply need to submit a standard contract to the bank. These offers can be submitted by any licensed real estate agent. If the bank accepts the offer, the home then goes under contract and the inspection process begins. Depending on market conditions, this process can happen very quickly.
However, when most HUD homes in Denver are placed on the market, they are offered exclusively to owner-occupants (non-investors) for a period of 10 days. Regardless of the total number of offers received, the home stays on the market for a full 10 days and all bids are sealed until the eleventh day. During these initial 10 days, bids are only allowed to be placed by licensed real estate agents who are registered and approved by HUD.
Once the 10 day bidding period has passed, HUD will evaluate all bids and choose the “best” bid to accept. The “best” bid can be determined by total offer price, but other factors are also considered: source of funds, closing date, contingencies, etc. If HUD determines that no bid is sufficient, the 10 day bidding period is removed, and bids are accepted in 24 hour increments. Many times, it is at this stage that investors and non-owner occupants are allowed to bid.
Keep in mind that this is the scenario for the majority of, but not all, HUD homes in Denver. In certain circumstances, HUD releases homes deemed “non FHA insurable” directly to the investor market. In addition, some homes are offered only to teachers and law enforcement personnel at huge discounts in certain areas selected by HUD.
It is also important to note that HUD changes their programs constantly. In the past, HUD has offered homes for a $100 down payment to all eligible owner occupants. As of the writing of this article, this $100 down program is not being offered, but HUD has made it known they may be bringing it back soon.
If you are interested in HUD homes, it is important that you are working with an agent registered and approved with HUD. Agents cannot simply register the day they decide to submit a bid for a client. The approval process can take months and require both the company and the individual agent submit the proper forms.
In hot real estate markets making winning bids on Denver HUD homes can be difficult – especially for investors, but with patience and diligence, HUD homes can offer some of the most rewarding and profitable opportunities.