HUD--Inspection revealed major issues undisclosed in PUD

[Susan Bearry]

(Sorry for typo--PCR, not PUD.)

I am completely inexperienced in purchasing HUD homes, never even bid on one before now. The questions below concern a HUD-owned manufactured home in the Austin, TX area.

What inspections are required to be done by HUD on Homestore properties, and what reports must be made available to buyers before and after contract acceptance? The home was listed as FHA loan eligible with no repair escrow. I am an OO but bought it in the open bid period when an earlier contract fell through. Before I bid I reviewed the PCR, which indicated no issues whatsoever. I am 800 miles away so couldn't visit it in person. This past Friday I came down to see the house and have a professional inspection done. The PCR missed obvious major issues like a roof in need of extensive repair. After acceptance I got a report of termite inspection and treatment, but there is no evidence of termites where they said they treated them, nor is there a sticker indicating that treatment was performed, but there are active termites in another location. There is also extensive drywall damage (including some visible mold in one small area) due to roof leaks, some which my inspector feels are active leaks, and a septic water level warning light.

I was told by the management company that an OO doesn't have an inspection period (not true) and that HUD will never do any repairs (per their handbook they can repair major--roof, electrical, plumbing, structural, septic--issues at their discretion if previously undisclosed but uncovered by OO's professional inspector and reported to HUD within 15 days, don't know about in practice). I sent them an e-mail yesterday (Saturday) including the appropriate excerpts from the handbook as well as the management company's own literature, and asking for roof repair or a price reduction due to the inaccurate inspection report and termite report and presence of mold. Also because I would be unable to get an FHA loan as allowed in the contract. I am waiting to hear back. If past experience in this deal is any indication, they will tell me to take our current deal or leave it, but that they will neither do any repairs nor reduce the price. Maybe they will give me my escrow back.

1. Are there any other reports that I can get? Appraisal? (We were told that HUD no longer does appraisals.)
2. Don't they check on the property twice a month?  Can I get a copy of those condition reports?  
3. Do I have any recourse whatsoever if they say they won't do anything?  
4. Are they allowed/are they likely to re-list it with all these issues still undisclosed?  
5. If they do disclose them and reduce the price significantly and I am outbid, do I have any recourse to get reimbursed all the money I spent getting utilities turned on, house  inspected, etc. when it was grossly misrepresented?  
6. If it is re-listed as uninsurable or FHA 203(b), can I still get a conventional loan?
7. If I stay under contract as it is currently, there is no way I can get an FHA loan without repair escrow, but I don't want all those added FHA fees. Can I get a conventional loan even with the issues? Will their appraiser look at the roof?

Our original plan was to sell our current house and buy this one plus an investment property or two, but I am not sure we will be able to do it if a big chunk of our funds earmarked for investment properties have to go into repairing this home.  (HVAC and water heater are end of life, plus needs interior/exterior paint, flooring, and other significant but not major issues).  We do not have the money to pay cash for this home.

Thanks very much in advance for reading my post and for any advice you may be able to give.

[Greg H.]

@Susan Bearry

HUD is exempt from the Seller's Disclosures required in most states. The PCR serves as a guidelines at best and no they will not provide you with any additional information. The PCR inspection performed by the Field Service Manager(FSM) is done without the power or water actually being on. They use a generator to test the electrical and an air compressor to perform a pressure test. The other items are visual only inspections and no additional inspections are done to find the source of the issue

HUD will do no repairs nor provide any price reductions. The only time HUD would make a repair or reduction would be for damages incurred after your contract is accepted. For instance, a storm cause roof damage right before your closing

To summarize:

-No, you have no recourse but to cancel the contract. You will not receive any money back for costs incurred for inspections or such. Being a OO, you might get your earnest money back

-They have no duty to disclose based on your inspection report moving forward more than likely they will not disclose

-You can get an FHA loan (subject to the appraisal finding the condition acceptable). Double check with your lender about conventional on a manufactured home as this can be difficult(No FNMA or Freddie Mac). Additionally, by the time the appraisal is done, you will be outside the 15 day window to activate the utilities(which is required for appraisal) so make sure your lender has a work araound