A Quick Outline of HUD’s Buyer Select.
A few clarifications before we begin. If you’re not working in the Real Estate industry you may not be sure what a HUD Home is or how an FHA loan differs from other mortgages. These condensed definitions might help.
FHA loan or FHA mortgage: An FHA loan is a mortgage that is insured by the Federal Housing Administration. It’s a common misconception that the FHA lend money or provides mortgages, they do not. They simply provide insurance to the lender. The borrower or Home Buyers pays insurance premiums (MIP) which are included in their monthly mortgage payment.
HUD Home: When a borrower with an FHA loan is foreclosed on, the lender is reimbursed through the insurance, and HUD (Department of Housing and Urban Development) takes physical possession of the home. On the market, this is known as a HUD Home.
In the past, the purchase of a HUD Home came with a long list of caveats, the most dismaying being the HUD closing agent assigned to process the transaction and closing. Hopefully HUD’s Buyer Select Program will resolve this issue.
HUD Buyer Select Program: An Overview
By Barbara Pronin
With the creation of the Buyer Select Closing Agent Program in 2013, the Department of Housing and Urban Development (HUD) modified the requirements for purchasing a HUD-owned property. (A HUD-owned home is one that has been acquired by HUD after a foreclosure on an FHA loan, and put up for sale in order to recover the foreclosure loss.)
Before 2013, a specific closing agent was designated by HUD. In an effort to streamline the closing process, the Buyer Select Closing Agent Program now requires the purchaser to select a closing agent who will perform all the services involved in processing and closing a HUD property.
Under Buyer Select, all responsibility for home-closing functions is transferred from HUD to the selected agent or HUD-approved real estate attorney.
Regardless of whom the purchaser chooses, the closing agent must meet the following requirements:
- Must be approved by HUD to complete the transaction
- Must strictly follow all HUD timelines and closing requirements
- Must clearly understand state law and the intricacies of a HUD transaction
- Must correctly file all paperwork; mistakes may result in lost time, money, and/or contract
Selling agents must explain to purchasers that if their bid does not include closing costs, they will be responsible for the closing agent fee, and that all earnest money checks must be certified (Cashier’s check or U.S. Postal Money Order) and payable to the selected closing agent.
Closing agents must be covered by Errors and Omissions insurance in the amount of at least $1,000,000. Failure to adhere to all HUD requirements will result in sanctions including, but not limited to, financial penalties and/or being barred from closing on HUD properties.
In general, HUD homes can be a good deal for buyers, and the basic buying process has not changed. Assuming the selected closing agent has a proven track record and a high level of HUD expertise, closing under the Buyer Select Closing Agent Program should be fairly routine.
For more information, Call or Text: 602-999-0952
eMail: golfarizona@cox.net
Bill Salvatore / Arizona Elite Properties
Residential Sales, Marketing, and Property Management
Barbara Pronin is an award-winning writer based in Orange County, Calif. A former news editor with more than 30 years of experience in journalism and corporate communications, she has specialized in real estate topics for over a decade. Reprinted with permission from RISMedia. ©2017. All rights reserved.
Ever wonder what Closing Costs you’ll be responsible for when you buy or sell a home? Check out our infographic and article:
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