HUD Home Occupancy Question

[William Fraser]

Recently a home went for sale in a great neighborhood.   The lot is very attractive but the home is in total disrepair.  We are interested in the home as an owner occupant.   Our goal would be to acquire the house knock it down and then build a new home on it which would be our primary residence.   We would then sell our current residence to move in.   

Among other issues, the roof leaked for years during the previous owners occupancy and while it sat vacant for the last two years. HUD put a new roof on it this month, but the damage inside has been done. The house smells of mold and there are signs of it on the ceiling. I believe the hardiest of individuals would have a difficult time living in this home as it would negatively affect their health. I've fixed up homes and lived in homes with previous water damage. This home is not livable. It could not be remedied within 60 days.

Can an owner occupant knock down a HUD home? Is the occupation period of 12 months attached to actual home on the lot? I've not been able to get any solid advice on this and don't want to run afoul of the rules. Thank you in advance for any insight.