HUD (Housing and Urban Development) is the recipient of all the FHA insured homes in the United States and its territories. This means that whenever a home buyer purchases a home with an FHA (Federal Housing Administration) insured loan and the home owner stops paying the monthly mortgage payment HUD will eventually take possession of the house.

HUD takes possession only after the home owner has let the house go to foreclosure by not

making their monthly payments. Then the lending institution that holds the mortgage owns the house and they want to get their money out of the deal and they most certainly don’t want the house, so they collect on the FHA insurance and are made by transferring the home to HUD.

This process can take anywhere from 6 to 18 months but by keeping a careful eye out, getting pre-qualified in advance a homebuyer can take advantage of the foreclosed property the day it comes on the market as opposed to focusing only on the home and forgetting that the financing of the HUD foreclosure is every bit as important as the house itself. A buyer must be pre-qualified by a loan officer before HUD is willing to consider the offer.

Once HUD is the owner of record of the house it is referred to as a “HUD Home” and becomes part of their inventory of thousands of homes. Each home in the HUD inventory costs the federal government approx $45 to $65 dollars each day. Multiply this by the number of homes in the federal inventory of 25-30 thousand homes and the financial exposure is staggering at anywhere from 1 to 2 million dollars per day. That’s about 60 million dollars each month.

This does not include the cost of cleaning, maintaining or managing the inventory which adds another substantial dollar figure for keeping the home in their inventory.

Understanding this it is not difficult to imagine the pressure that HUD is under to remove these homes from their inventory. Because of this urgency and the sheer mass of homes that are being foreclosed on each day HUD does not work as well as we the tax payer might like. But, by understanding these inefficiencies we can take advantage of the opportunities provided.

As an example of just one of the inefficiencies HUD hires local appraising firms to appraise the value of its homes in order to offer the house for sale. These appraising firms are chronically under paid and over worked which results in appraisals that are inaccurate and incomplete.

Homes that should be on the market for $400,000 are often appraised for much lower and therefore offered for sale for well below their market value. This is common and can be a fantastic chance for a home buyer to walk into an instant equity position even in today’s depressed Real Estate market. Especially if you apply the HUD reduced price formula to the purchase (Fore more on reduced price formulas go to www.UsHud.com)

The opposite is also true and a house can be listed above market value but this is rare with HUD foreclosures and can be overcome by waiting for the sales price to be reduced which normally happens every ten days.

Overall HUD foreclosures offer the best bet at getting a house for below market value but you must do some research first by looking at comparable sales in the same community or nearby communities as a last resort.