The Best Kept Secret For Bidding On HUD Homes

[Gordon Vaughn]

I have bid & won more HUD homes for my investors than I can count, and I use a strategy that I have been hoarding all to myself for several years. A few of you may already have an inside track and are familiar with this strategy, but for most of you it's just not fair to keep it a secret any longer!!!

HUD uses 3 companies to manage the disposition of their homes; Pemco, Ofori, and Hometelos. Because these companies work on behalf of the govt, they're not allowed to think for themselves (no offense to the govt workers out there- but so true) and have very strict guidelines for considering and accepting bids. These guidelines are put into strict templates that dictate which bids managers can accept, and at what price points are acceptable. All asset managers for REO's are limited by similar guidelines. But thanks to a dear friend of mine who works as a senior asset manager for one of the above HUD asset companies, knowing this HUD template has been perhaps my best tool in gaining leverage to winning more bids at the lowest prices possible!! Here's the secret:

- For new listings and open listings that have not seen a price reduction, HUD will accept the highest offer in a single bidding period that equals 90% of the list price or higher. If you bid at least 90% of the list price and you're the highest bidder, the house is yours - period!

- For listings that have been reduced 1 time in price, Hud will reduce the price by                   exactly 10% of the list price and accept the highest offer in a single bidding period that   equals 85% of the list price or higher. That's 85% of the reduced list price! If you're the   highest and over 85% of the reduced list price, the house is yours!

- For listings that have been reduced a 2nd time, HUD will reduce the price by exactly 15% of the current reduced list price and accept the highest offer in a single bidding period         that equals 70% or higher of the 2nd reduced and current list price. At least 70% and         high bid & the house is yours!!!

- If the home still isn't under contract by the end of this bidding period, they'll consider     negotiating with the highest offer or wait until there's an offer worthy of their consideration.   Usually homes are under contract by the 2nd price reduction.

Knowing this trick has been extremely valuable to me and my investors in 3 ways: (1) It has saved valuable time from submitting low ball offers that could never be considered. (2) It has provided leverage for many accepted deals that have been just a tiny bit overpriced, closely competed for, but all the other bids barely missed the percentage mark. (3) When the bidding period changes to a daily bid, I submit a bid as quickly as I can and if possible on the same day that the bidding period becomes a daily period. During this period bids are reviewed and considered on a daily basis. I can submit the lowest price HUD will consider, on the same day status changes. If no other offers come in within a 24 hour period from my bid, the chances of an acceptance of that offer are very high!     

HUD used to advertise the appraised value in their listings, which always matched the original list price. When reductions occurred this appraised value would remain the same, which was a great gauge in determining how many reductions the listing has had. Now you have to monitor & keep a record of original list prices, unless someone in BP land has the answer for that! I hope everyone that likes bidding on HUD homes finds this knowledge to be very useful!

[Greg H.]

@David Krulac

Was the reverse mortgage available via Hudhomestore? I recently had one under contract that ended up having a title issue 

All HUD reverse mortgages have previously been marketed through FNMA and available only via MLS

[David Krulac]

@Greg H.  Yes the reverse mortgage property was available through HUDhomestore.com   

On the title topic, I had a HUD (not reverse mortgage) that had a title issue, and my title company refused to settle. I suggested to the asset manager that I still wanted to buy the property if they would resolve the title issue. They chose not to do that. They just relisted the property and sold to some other buyer the very next week and it settled with another title company.

the Asset Manager here is "Residential Enhancement INC."

RESIDENTIAL ENHANCEMENTS INC.

[Steve Babiak]

@Greg H. and @David Krulac - a few years ago I bought an REO that had a reverse mortgage that was foreclosed; and it had a title issue where there was a missing satisfaction of the mortgage before the reverse mortgage, and that lender closed its doors. I did track down who took over their business, and sent that to my title agent; rather than try to get the satisfaction piece, they tracked down the title company that did the settlement on the reverse mortgage who assured the funds were sent to the defunct lender, and they issued an indemnity letter to my title company.

When I put the property up for sale, I insisted on having the contract read that seller gets to choose the title company, rather than the more customary buyer choosing title company. I didn’t want the delay headache of that title issue cropping up ...

Moral of the story: Title issues have more than one way of being resolved.

[Greg H.]

@Steve Babiak

I agree. This was a case where the lender could not provide proof that the heirs were notified of the foreclosure.  I could have hung on to see if a resolution was available . However, I was not that excited about the deal so I canceled and received my earnest money back

[David Krulac]

@Greg H. and @Steve Babiak  

I had one where 3 owners before me the was an unsatisfied mortgage. When I went to sell the buyer's title company would not settle, AND my Title Insurance underwriter had gone bankrupt.  We ended up getting a letter from that lender of the unsatisfied mortgage, that even though the mortgage was not satisfied on record that it was indeed satisfied.

Another time the lender of another unsatisfied mortgage was out of business and there was no known successor.  we named that lender in a Quiet Title Action, giving notice by publication to clear the title.

When you deal with foreclosed property, REOs, bank owned property and tax sale property, there are greater chances that there are title issues.  

We had one that had a $2 million dollar Federal Tax lien and another $3.5 Federal Tax lien.  We were able to settle without paying the Federal liens. 

[Steve Babiak]

Originally posted by @David Krulac:

@Greg H. and @Steve Babiak  

...

When you deal with foreclosed property, REOs, bank owned property and tax sale property, there are greater chances that there are title issues.  

We had one that had a $2 million dollar Federal Tax lien and another $3.5 Federal Tax lien.  We were able to settle without paying the Federal liens. 

In foreclosure and tax sales, as long as the plaintiff in those sales properly notified the IRS at the US Attorney’s office, there will only be redemption rights after the sale. And those redemption rights do expire; 120 days is what is commonly tossed out by some “experts”, but the redemption rights for the IRS are actually the greater of 120 days or whatever redemption rights other parties with interests in the property have. In certain sales in PA, there are redemption rights that can be as long as nine months from the date that the sheriff’s deed is recorded - that can be close to or even more than 12 months in total time to redeem - the IRS would get that much time. I say “even more than” because I saw one case where the sheriff’s sale was challenged in court, and the challenge lasted almost a full year - then add nine months plus deed recording time for the IRS to redeem.

But those IRS liens do eventually expire (assuming proper notice was given).

[David Krulac]

@Steve Babiak  In one of our Federal Tax Lien situations, the IRS informed us that ALL notices were faulty.  And to be proper notice you needed to notify all of the following:

1.  IRS office for individual returns for that state, where the property was located

2. IRS office for corporate returns for that state, where the property was located

3.  The US Attorney for the region where the property was located

4.  The Attorney General of the United States.

Their position was that unless you notified ALL 4, notice was incomplete and faulty.  So we sent certified letters to ALL 4.  

[Maurice George]

Originally posted by @David Krulac:

@Steve Babiak  In one of our Federal Tax Lien situations, the IRS informed us that ALL notices were faulty.  And to be proper notice you needed to notify all of the following:

1.  IRS office for individual returns for that state, where the property was located

2. IRS office for corporate returns for that state, where the property was located

3.  The US Attorney for the region where the property was located

4.  The Attorney General of the United States.

Their position was that unless you notified ALL 4, notice was incomplete and faulty.  So we sent certified letters to ALL 4.  

Mr. Krulac, in our market, bank will only notify US attorney's office where the property was located. They will notify AG office with the exception of DOJ obtained a judgement against this individual before. 

[Steve Babiak]

Originally posted by @Maurice George:

Originally posted by @David Krulac:

@Steve Babiak  In one of our Federal Tax Lien situations, the IRS informed us that ALL notices were faulty.  And to be proper notice you needed to notify all of the following:

1.  IRS office for individual returns for that state, where the property was located

2. IRS office for corporate returns for that state, where the property was located

3.  The US Attorney for the region where the property was located

4.  The Attorney General of the United States.

Their position was that unless you notified ALL 4, notice was incomplete and faulty.  So we sent certified letters to ALL 4.  

Mr. Krulac, in our market, bank will only notify US attorney's office where the property was located. They will notify AG office with the exception of DOJ obtained a judgement against this individual before. 

 And that is all that is required per IRS code - notice must be sent to US Attorney.

[Ralph Galdorisi]

@Gordon Vaughn Great Info Thanks for sharing !

[Marian Smith]

@Greg K. So you are saying owners with delinquent FHA loans now have the option of selling via an FHA approved short sale but only for 4 months?

[David Krulac]

@Steve Babiak  In every case where I've checked notice on a Tax Sale in PA.  There was NEVER notice sent to the US Attorney.  All the notices that I have personally seen were sent to the IRS, some to the local office, some to other offices.  The 4 notice requirement was given to us by the IRS in writing on a specific case we were working .

[Adilene Benitez]

Hi, all (@Greg H. ):

I was wondering if I could get any tips. I'm looking at purchasing a HUD home as an owner-occupant and was wondering what would be a good bid for today's market. I have read through the thread and while there are helpful tips, they might be a little dated now. I live in the midwest and the housing market is hot. I've read about the 88 or 90% rule but I don't know if that is still effective.

Lets say the house is listed at $290,000, what would the net to HUD look like?

We really don't want to lose out on the house. Any help will be greatly appreciated!

[Greg H.]

Originally posted by @Adilene Benitez:

Hi, all (@Greg H. ):

I was wondering if I could get any tips. I'm looking at purchasing a HUD home as an owner-occupant and was wondering what would be a good bid for today's market. I have read through the thread and while there are helpful tips, they might be a little dated now. I live in the midwest and the housing market is hot. I've read about the 88 or 90% rule but I don't know if that is still effective.

Lets say the house is listed at $290,000, what would the net to HUD look like?

We really don't want to lose out on the house. Any help will be greatly appreciated!

The lowest acceptable bid during the owner occupant period would be approx $271,700. Subtracting the realtor commissions would produce a net to HUD of 88% ($255,200). Keep in mind that this is the minimum and if another bidder bids $1 more then you lose. They are no second chances or highest and best opportunities. So I always say when it is personal, get with your agent and come up with your best foot forward

[Zackery Smith]

So is hud bidding a wise thing to do to get a better deal on  a place 

[Mark Unger]

If there appears to be heavy competition on the initial listing of a HUD home - should you offer above the listing price? If so, what's your formula for that to be the successful bidder? Thanks

[David Krulac]

We have successfully bid on many HUD properties usually bidding less that their asking price. Their asking prices is based on current appraisal of the property in its AS-IS condition. Most of the time I personally disagree with the asking price. However, there was a HUD property with an asking price of $60,000, which I thought was under-valued. I bid $65,000 and got the property. It had sold 5 years earlier for $78,000. I owned the property for 14 years renting it out and sold it for $129,900, so I about doubled my initial purchase price and collected rent for 14 years. Win-Win