I just received highly pertinent information to anyone who is considering purchasing a HUD Home. In an effort to save money and streamline processes, HUD proposed changes will cause problems if the buyer, buyer’s real estate broker, and buyer’s lender don’t fully understand the changes. At this time these are just proposed changes yet they could go into effect, if approved, as early as February 2013.
The biggest change in HUD’s closing procedure is a program being called Buyer Select. With Buyer Select, HUD will allow the buyer to select a escrow company of their choosing. Companies like Escrow Solutions, First American, Chicago, Fidelity, Old Republic, and North Sound Escrow can be used. Or, buyers can select to use GBS who currently services HUD’s Snohomish County closings.
Similarly, through Buyer Select, HUD will no longer be paying the escrow fee. Buyer agents need to be aware of this when asking HUD to pay the buyer’s closing costs when submitting an electronic bid. Will the seller contribution to buyer’s closing costs be enough to cover the escrow fee or will the buyer have to have pay for that on their own? Agents may have to get tighter on their numbers.
I am a proponent for a buyer selecting their own closing/escrow company, however, the foreseen issue will be the skill level of the closing/escrow company with HUD’s processes. HUD is one of those great organization that will terminate a contract, similar to Fannie Mae, if the purchase contract is not correctly completed or errors are made in the process so be careful and get one of your HUD agents to teach a class to your closing companies.
Another change is HUD’s closing date extension policy. Right now HUD grants one free closing date extension but if the change goes through then no extensions will be free adding to the costs to purchase – watch those USDA financed transactions. Also, only 2 closing date extensions will be granted for both owner occupant and investor purchases.
On the lending side, HUD properties currently have an FHA appraisal conducted prior to listing the property for sale. By doing so, a lender can look up the FHA case number associated with the property as use this appraisal instead of having the buyer pay for one out of his/her pocket. This may go away. So, if HUD properties currently have an appraisal to determine their value then how will HUD determine property values in the future? There is conversation that HUD will use a AVM (automated valuation models) to set the offering price.
Something that is unlikely to change is HUD’s “As-Is” policy. Exceptions are:”safe, secure, and marketable”. Darn, as buyers and real estate brokers know, HUD homes can be in rough shape and typically require a 203k rehab loan or cash to purchase.
With change come challenge and it doesn’t appear that HUD transactions are getting easier.
Some great info in this article Toby – for agents and home buyers alike. It sounds like there is good news and bad news if these changes go through. I’m no fan of GBS so I won’t miss having to deal with them. Do you know if PEMCO will still be handling much of the contract work? They are another part of the problem and it would be nice to see them kicked to the curb as well.
From what I heard, PEMCO will still be servicing for HUD yet the field service managers may be changing. Not sure if that will have any impact on real estate transactions.