Willow Ranch-SOLD Properties

HUD Bid Process

Please note this page addresses the HUD rules for properties in Metro Denver, Colorado ONLY.

What is a HUD Home? The Department of Housing and Urban Development (HUD) is the oversight agency for the Federal Housing Administration (FHA). The FHA provides federal mortgage loan insurance to allow lenders to make loans with as little as 3.5% down (see below) to purchase a home and construction or improvement loans. Occasionally, a lender is forced to foreclose on an FHA-insured single family home, townhouse or condominium. The lender can then file a claim under FHA to have HUD pay the balance due on the mortgage and assume ownership of the foreclosed property. These properties then become HUD homes.

How does HUD sell its properties? Currently HUD is marketing its properties using only the sealed bid process. For information on properties available for sale from HUD in the Denver, Colorado metro area

Alex Shefchek, ZipRealty,Inc. registered HUD agent at 303 570-8918 or www.alshefchek.com

Sealed Bid - In this method, HUD advertises properties with a specified asking price, which is normally, but not always the current appraised value, (appraised value "In Its Present Condition or AS IS") and bid opening date. The prospective buyer, utilizing a HUD Broker such as Alex Shefchek views the property, reviews the sales comparable's and makes an offer before the bid opening date. For the first 10 days the property is advertised, only owner occupied bids can be submitted. Bids are opened on the 11th day the property is marketed and every day thereafter at 11:59 p.m. until an offer is found to be acceptable to HUD. On the 11th day on the market, investor bids can be submitted along with owner occupied bids. If an offer is accepted and then fails to complete the property may be put back on the market for another 5-day period for owner occupant bids only. Back on the market (BOM) properties will then be eligible for investor bids on the sixth day if an owner occupant offer has not been accepted. After this owner occupant bid phase the property will typically be opened to all bids, and bids will be opened and reviewed on a daily basis. Successful bids will be published by 1:00 PST each day. In this type of sale, as with almost all HUD properties in Colorado, an earnest money deposit is required. The earnest money for Colorado is $500.00 when the purchase price is $50,000.00 and under and $1,000.00 when the purchase price is over $50,000.00. The Earnest Money deposit must be in the form of certified funds (cashier's check, money order or Bank certified check) made payable to BOTH "HUD OR Buyer's Name", example the check would read "Payable to: HUD or Your Name". Making the check payable to both HUD or your name will allow either HUD or you to cash the check. For all vacant lots, the earnest money must be 50% of the purchase price. On the bid opening date, HUD reviews all offers and selects the winning offer based upon the net to HUD and other factors. Each year HUD offers many properties using this method. It should be noted that in the past the properties often sell for more than the asking price, but also can often sell at or below the asking price. There are excellent bargains to be had using the sealed bid on HUD properties.

For information on properties currently available for sale using the sealed bid in the Denver, Colorado metro area call 303 570-8918 or visit our website. Please identify the cities you are interested in.

Types of Listings: HUD markets properties in three categories: Insured (IN), Insured with Escrow (IE) and Uninsured (UI). Each property type offers different opportunities to the savvy buyer:

INSURED (IN) qualifies for FHA financing. Property meets minimum property standards of FHA financing. Minimum Property Standards (MPS) are: a range and oven, no obvious holes in roof, wood sub-floor in place (does not mean there is hardwood or carpet) and one toilet regardless of the number of bathrooms (note you could have a 2 bathroom house with only 1 toilet in the property). This does not mean the property is does not need potentially major repairs. Buyers should thoroughly inspect the condition of the property prior to making an offer. FHA will finance up to 96.5% of the HUD appraised value. If the property sells for more than the asking price, the difference between the offer amount and the appraised value must be paid in cash to escrow (see example 1) plus the 3.5% down payment.

INSURED WITH ESCROW (IE) qualifies for FHA financing with repairs to be completed by the buyer after the close of escrow. At closing, the buyer must finance the HUD-designated repairs into their FHA 203b mortgage. The buyer has 90 days from closing to hire a contractor and complete the repairs. Upon completion and an inspection by the lender, the lender will pay the invoices. HUD pays the lender at closing to manage the process. If there are funds remaining after all invoices are paid, they will be applied to the principle balance of the buyer's loan. If the funds are not adequate to repair the property, the additional cost is the buyer's responsibility. If the buyers do not complete the repairs within the 90-day period after closing and no extensions have been granted, the funds are applied to the principle balance of the loan. Note the allowance for repairs is limited to Minimum Property Standard (MPS) (see definition under Insured above) required repairs. Buyers should thoroughly inspect the condition of the property prior to making an offer as there may be other non-MPS repairs needed. The MPS money is deposited with the lender at the close of escrow. The lender inspects the repairs and authorizes the release of funds. All contractor bills are submitted directly to the mortgage company for payment. If the owner does the work himself or herself, they are only paid for the actual cost of materials. Any remaining MPS repair money not used will be applied to the principal (loan) of the home loan. FHA 203B loans may be obtained for these properties. Note special rules regarding financing apply on this type of property; consult your FHA lender for complete details (see example 2 below). For Insured Escrow (IE) properties if the buyer is using FHA financing and the sales price exceeds the HUD appraised value, HUD will credit the buyer with the estimated MPS repair cost as listed in the listing offer (see example 2) not to exceed $5,000. The amount bid over the asking price and exceeding the estimated Minimum Property Standard (MPS) repair cost must be paid in cash. The net effect is this is not a discount off the purchase price, but does allow you to finance the repairs. See your FHA lender for complete details.

UNINSURED (UI) - Not eligible for FHA insured financing. This often indicates the property does not meet Minimum Property Standards (MPS) and that estimated repairs required to meet MPS exceed $5,000.

Appraised Value - HUD has each property appraised and sets the asking price at the appraised value. FHA will only finance 96.5% of the HUD appraised value. With one limited exception (see IE properties), on all FHA loans the difference between the offer amount and the appraised value must be paid in cash to escrow (see example 1) plus of course the 3.5% down payment. There is one exception to this rule for Insured Escrow (IE) properties. For Insured Escrow (IE) properties if the buyer is using FHA financing and the sales price exceeds the HUD appraised value, HUD will credit the buyer with the estimated MPS repair cost as listed in the listing offer (see example 2) not to exceed $5,000. The amount bid over the asking price and exceeding the estimated Minimum Property Standard (MPS) required repairs must be paid in cash. See your FHA lender for complete details.

EXAMPLE 1: FHA financing Insured (IN) property, HUD Asking price $100,000, FHA loan limit $96,500. Winning offer $105,000, buyers cash requirement $8,500 ($100K *96.5% plus $5K excess price from buyer). See your FHA lender for complete details.

EXAMPLE 2: FHA financing Insured With Escrow (IE), HUD Asking price $100,000, HUD estimated MPS repair cost $5,000. FHA loan limit $96,500. HUD will allow you to finance the amount designated as Repair Escrow up to $5,000 for MPS repairs. Buyers cash requirements $3,500 (*allowable financed amount is 96.5% of $100K plus $5K MPS designated repairs finance). Note: the repair escrow amount you may finance is limited to the amount offered in the listing under repair allowance. See your FHA lender for complete details.