Monday, October 17, 2016

HUD Guidelines 24 CFR 206.125 Buyers Guide

HUD Guidelines 24 CFR 206.125

Did you recently come across a listing that states it is a HUD home that has restrictive guidelines referenced as: HUD Guidelines 24 CFR 206.125?
These HUD homes are Fannie Mae Reverse Mortgage foreclosures that are resulting as a default on a Reverse Mortgage.  The seller has many rules to maintain a reverse mortgage, and at some point, they defaulted on the loan.  Even though the borrower does not have payments, the HOA, property taxes, and other fees have to be maintained.  The borrower also has to maintain the property as their primary residence.
Either way, the property will go through the foreclosure process, and eventually be listed with a local Realtor.
Buyers and Realtors representing their buyers need to understand that these properties will NOT be sold for less than asking price.  The seller does an appraisal prior to listing, and they will not accept offers for less than the listed price.  The seller will NOT allow you to add money to the purchase price so you can have buyer credits towards closing costs.  Also, the seller will NOT allow closing cost credits to the buyer at asking price.
Once you do have an accepted offer...
This is where it gets fun for a buyer.  As a buyer, especially in the state of CA, you need to do your inspections, and all of your due diligence.  Often, the buyer will be financing, and if they are, FHA, VA lenders, and some convention loans products, will require a home inspection.  (*Note: Homepath financing is NOT allowed)  As a foreclosure, the listing agent and seller will NOT help with these, and they will NOT have utilities on at the property.  So the buyer, or the buyers agent will have to turn on utilities to do their inspections.  In addition, some water districts will require a signed service card for the water to be turned on, and you have to show proof of ownership, or a lease agreement.  And if you are using a lease agreement, you will need the owner to fill out information with the water district so they have someone to go after if the bill is not paid by the tenant.
Once you have over come these hurdles, and you realize you need repairs to be done to satisfy the lender, you will be responsible for those said repairs.  The seller will NOT make repairs to the property.  And in some cases, it stipulates in the purchase contract that the buyer can not make repairs to the property until after the close of escrow.  These properties are sold AS IS, and no repairs will be made by the seller.
Pertaining to escrow fees, the seller will only cover past due taxes, HOA dues (if needed) and provide a clear title.  They will not pay transfer tax fees, or state fees, or HOA transfer fees (if needed).
HUD properties can be a great find, and often worth the money.  Usually a little bit of sweat equity in the property can turn it into a beautiful home.  So, as a buyer, you will need to decide if it is worth it to go through the process.

I made a summary list below of some of the highlights to remember.
Feel free to reach out to me if you have any additional questions, or you would like to find these homes in the Palm Springs, CA area.
HUD Guidelines 24 CFR 206.125
This property is a Fannie Mae Reverse Mortgage REO.
Other stipulations of this type of property include:
  • Property cannot be sold below appraised value (LIST PRICE)
  • No mediation
  • No electronic signatures
  • No repairs, “AS IS AT TIME OF CLOSING”
  • No buyer closing costs paid by seller are allowed on the HUD
  • Buyer pays HOA Doc & Transfer Fee
  • No utilities are on. Buyer can pay to have them on for inspection
  • No agent transaction fees allowed on the HUD, regardless if the Buyer is paying
  • Seller will pay Seller’s closing costs and provide buyer with "PDQ Hazard Report"
  • Any State, County or City transfer taxes due will be the sole responsibility of the purchaser
  • Seller will bring property taxes and HOA current through closing
  • 10% deposit on cash offers (Cashier’s Check)
  • $1,000 minimum deposit on financed offers (Cashier’s Check)
  • 60 day MINIMUM escrow period. Could be longer if title is not clear. 
  • Offers that Do Not meet these Guidelines will be REJECTED
  • Homepath financing is not available on these properties
  • If LLC, will need stamped articles of incorporation pages

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