Every week, we ask a real estate professional for their Short List, a collection of tips and recommendations on an essential topic in real estate. This week, we talked with Nick Aalerud, the principal broker for AA Premier Properties LLC, for his tips on working with HUD/HomePath Properties.
5. What are HUD/HomePath Properties, and Why are They Important? – When a homeowner had a government-backed loan (FHA, Fannie Mae/Freddie Mac, VA, etc.), and the home is foreclosed by the lender, it then becomes a HUD-owned property, is typically assigned to a HUD-certified Listing Agent in that area and put on the website www.HUDHomeStore.com.
Due to the volume of foreclosures (which are seeing a small resurgence in my Boston area) the last few years, that has become a necessary tool for my agents to learn, so they can service both homeowners looking for a deal as well as investors looking to flip or rent out cheaper homes. On occasion, many of those homes are not even on the MLS; they are only on the website. Knowing about and having access to those homes gives you a great benefit as a buyer’s agent, and gives you “the inside edge” on potential deals that pop up in your neighborhoods.
Most of those listings provide for a 14-day “first look” period to give preference to owner occupants only before they will allow investors/non-owner occupants to submit offers on them. While that does work for the homes that need less work, our experience is that most of the homes found on this site need significant repair work, and many do not qualify for conventional financing. That said, prep your buyers! Many of the properties will say right on the listing if it’s “203K-eligible” or not, meaning it can qualify for 203K Rehab Financing.
4. How Do I Get Direct Access to Those Properties? – You need to ask your managing broker to become HUD-registered. Your broker submits the application form found on the site, and once approved, gets an “NAID,” which now can be used by all agents in his/her office. The managing broker and each sales agent now must log onto the site and register, each with their own information, but all underneath the same NAID number. The office will also receive the key codes to have a set of HUD keys made – the keys that every HUD property’s locksets are coded to. The office should keep one or two sets on hand, and agents can sign them out as needed.
Once you have your own login, now you can submit offers on behalf of your clients directly on the website, and you also have access to any other information the seller has, i.e. property disclosure reports, inspection reports (HUD requires a general inspection be done on these properties to verify the state of them – some of these are very helpful!) and even some repair estimates. Take a look at everything with your buyer.
Also, a word of warning – I don’t know who prepares those estimates, but the last time I paid $4,000 for a 2,700 square foot colonial roof replacement…well, let’s say it was a very long time ago. So as always, tell your buyers to do their own due diligence on every one of these properties to get accurate repair costs, and figure their offers from there.
3. How is the Offer Process Different on Those Properties? – Well, if you’re not HUD-registered, the old fashioned way still works – if it’s listed on MLS, you can submit a paper offer to the listing agent, and they are responsible for inputting the details into the HUD website.
However, the more direct way is for you to be registered and submit it yourself. HUD works with “Property Case Numbers” more than by address, so bear that in mind as you’re viewing properties. You can still search by area and general home criteria to make it easy, but whenever you start submitting offers, always take note of the Case ID. If countered, you’ll still get a rejection notice, but in that same e-mail, you’ll see what offer price is “acceptable to HUD.”
It’s up to you to reply back, and in the necessary timeframes; indeed, the tight timeframes are one of the more challenging deals – once they counter, you only have 24-48 hours to respond by logging in and either accepting the new terms or responding with another counter. The trickiest part is if they accept your offer, you have no more than 48 hours to see the e-mail, get all the signed paperwork and disclosures found under that Case ID, and with the deposit check, send everything overnight to your local HUD office (for us, it’s usually Citiwide in Manchester, NH). We’ve found they are very strict on this deadline; if you don’t meet the 48 hours, they have the right to reject and restart the process.
IMPORTANT: Some contracts allow for a default 14-day inspection period (check the addendums) for your buyer to back out and get a deposit back. Other contracts do NOT, so your buyer’s deposit is immediately at risk. Check them carefully!
2. How Do I Prepare My Buyer? – We’ve found it’s always best to prep your buyer for the unknowns. They can still get a good deal, but they should know what to expect. HUD will usually not accept; they will generally counter a net price. Prep the buyer for the quick turnaround time that will be required, and prep them that the repairs will always be more that what is stated online. You should have already verified their proof of funds or have them pre-approved through a reputable renovation loan lender you know and trust. If there is an inspection contingency, definitely use it. We’ve found structural issues, hidden mold issues, stolen copper and burst plumbing lines, etc., that were not caught by the asset manager or occurred since their last visit to the property.
1. “My Investor-buyer Client Wants Me to Submit Offers on Those HUD Properties Without Seeing Them First – is That OK?” – Our office deals with many properties –from higher-end retail listings on the ocean all the way down to the investors that want to purchase the bottom of the barrel listings that need to be torn down – so we get this question frequently. Add to that, a couple late night infomercial gurus are teaching investors they can “get great deals by using this system to make lowball offers to HUD-owned homes,” and you can find yourself, as an agent, put in a precarious situation.
Here’s the short answer – your investors can do what they wish, and you can choose to work with whom you wish. That said, you as an agent need to ensure you’ve verified you have all the signed paperwork and disclosures for each property. In the event HUD accepts any one of them, and you don’t get the signed paperwork andcertified bank check deposit to them in time, you’ll not only start losing deals, but worse – you’ll start losing credibility under your office’s NAID. That means that if enough deals go bad where your buyer doesn’t perform, or you as an agent can’t get organized enough to get things back in time after an acceptance, it affects the credibility of the whole office.
Generally, on a few of the disclosures you and your buyer need to sign, your managing broker will also need to sign it to acknowledge they know what’s going on. I’ve had the asset manager reach out to me directly as the managing broker if my agent or buyer is not meeting a deadline – and there’s a danger that if enough deals go down, any offers submitted under the office’s NAID will not be taken as seriously as offers submitted under other NAIDs for offices around us. We’re fortunate to still have an impeccable relationship with them, but this is definitely a danger. Talk to your broker if you feel you have an investor-client putting you in a situation where you’re uncomfortable.
HUD-owned homes continue to be a great source of “deal-seeking” inventory, for both owner occupants and for investors alike. Though a different process, if you choose to have this as a tool you’ll find a few more deals than your competition, and bring added value to your buyer clients.
Nick Aalerud is the managing member of Short Sale Mitigation, the president of AA Real Estate Enterprises LLC, the managing member of Rapid Property Relief LLC and the principal broker for AA Premier Properties LLC – and he even owns an Edible Arrangements location, as well!