Let us explain what a HUD Foreclosure means...

First of all, you should know that a home becomes a HUD Home because someone that had an FHA Insured loan, defaulted on that loan and was foreclosed by their lender. The lender in turn collects from FHA (Federal Housing Administration) any losses they incurred from foreclosing. FHA is part of HUD (Housing and Urban Development). HUD in turn eventually gets the deed to the property and offers it for sale to the general public

The reason lenders can recover their losses is that everyone, yes everyone who gets an FHA Insured loan pays what is called "mortgage insurance". These insurance premiums show up on your settlement sheet as an initial premium, which is usually added to your loan amount and then an additional monthly premium is added as part of your mortgage payment. These premiums go into a fund to payoff lenders.

Now that you know how a home becomes a HUD Home, you need to know that it takes 6-12 months for HUD to get the deed so it can try to evaluate and sell the home. It takes the lender 3-6 months to complete the foreclosure process and another 3-6 months to get reimbursed by HUD so HUD can get the home, inspect, appraise the property and put it on the market. All the while the home is usually vacant; this total timeframe could easily be 12-18 months from the date of foreclosure, but 8-12 months is probably the norm. All these and more are reasons that HUD sells homes strictly on an "AS-IS" basis.

HUD Homes typically have been vacant for an extended period of time often without any utilities turned on. HUD is working with its private Marketing and Management contractors (M&M's) trying to come up with an efficient way of keeping things like sump pumps running and getting utilities turned on before the appraisal is completed. Until recently, appraisers did not necessarily have the benefit of having gas and electric service. How could they give a reasonable determination of value without knowing if the plumbing, electric, heating and air conditioning works? These procedures have been changing and result in better appraisals. However, home inspections should be conducted to see for yourself exactly what the condition is so that you go to the settlement knowing what to expect from the home and what repairs will be needed.

Remember, HUD Homes are sold in As-Is condition. If the repairs needed exceed $5,000 HUD has a program to lend you the money called its FHA 203k rehab loan program.

HUD wants you to use a real estate agent to help you use their contracts and forms to submit contracts if your bid is accepted.

**To bid on a HUD Foreclosure you must first get pre-qualified.