Government Repossessed Homes are Sold to the Public
HUD Homes and Government property are quite similar to Bank Owned properties. Like bank foreclosures, HUD homes and government repossessed homes had their title transferred to the government as a result of a foreclosure. This inventory of hard assets produces no tax payer return unless it is liquidated. So, like banks, the government is equally motivated to sell its distressed real estate. However, there are enough differences between bank owned and government owned homes that we decided to create a separate chapter. Government repossessed homes include residential and commercial property from the federal, state and local governments. The primary government agencies that sell home foreclosures or distressed assets to the public are discussed below:
Where do Government Repossessed Homes come from?
HUD: The largest number of government foreclosures can be found through HUD. HUD is a federal agency that implements housing policy and was created to increase home ownership across the US. HUD accomplishes this by insuring loans for people with low down payments or that don't meet standard credit requirements. The bottom line is that HUD loans are higher risk loans and therefore have a higher default rate.
When HUD homes are foreclosed, the properties are sold to the public. Since the foreclosure is insured by HUD, the government is required to pay the lender the amount due on the loan. Once the loan is paid off, HUD takes possession of the property and can dispose of it in any reasonable manner. In order to bid on a HUD foreclosure, you must submit the bid through a designated HUD broker. Normally, HUD homes are sold during an Offer Period. At the end of the Offer Period, all offers are opened and, basically, the highest reasonable bid is accepted. If your bid is accepted by HUD, your local agent will be notified, usually within 48 hours.
VA Foreclosures (Veterans Administration Loan Guaranty Service): The objective of the VA Loan Guaranty Service is to help veterans and active duty personnel purchase and retain homes in recognition of their service to the United States. Similar to HUD, the VA guarantees the home loans allowing veterans to purchase on more favorable terms. The VA acquires properties as a result of foreclosure on VA guaranteed loans. Unlike the VA loan program, you are not required to be service personnel to purchase VA foreclosures. In fact, you are not even required to be an owner-occupant, which is beneficial to investors. Once you have found a home that you are interested in purchasing and want to make an offer, you will need to have an agent prepare the "Offer to Purchase and Contract of Sale" VA form, together with all necessary documentation. In turn, your agent will submit your offer through the listing broker for approval.
Fannie Mae Foreclosure (Federal National Mortgage Association): Fannie Mae's public mission is to help more families achieve the American Dream of home ownership. It does this by providing financial products and services that make it possible for low, moderate, and middle-income families to buy homes of their own. A Fannie Mae foreclosure is a home that originally had a conventional mortgage, which was sold to Fannie Mae and then resulted in foreclosure. At that point, Fannie Mae owns the property and will attempt to sell it to recoup the original mortgage. All Fannie Mae-owned homes are sold through local brokers, so your qualified real estate broker can assist you in submitting a bid.
Freddie Mac (Federal Home Loan Mortgage): Freddie Mac is a publicly traded corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing. Freddie Mac provides special financing services through a select group of lenders who are skilled at helping buyers find the right financing to meet their needs. The special financing includes low down payment programs as well as reduced closing costs.
FDIC (Federal Deposit Insurance Corp.): The FDIC preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for up to $100,000. Since the start of FDIC insurance on January 1, 1934, no depositor has lost a single cent of insured funds as a result of a bank failure. When a financial institution does fail, the FDIC steps in as a receiver to service the existing loans of the bank. When a borrower refuses to pay or to provide the necessary financial information, the FDIC has no choice but to seek recovery through foreclosure. All FDIC properties are sold in "As is" condition. All FDIC property will include the appropriate contact information for submitting a bid on distressed real estate.
GSA (Government Services Administration): The GSA is responsible for promoting effective use of federal real property assets, as well as the disposal of real property that is no longer mission-critical to federal agencies. This property can include single and multi-family residences, undeveloped land and even commercial and industrial facilities. GSA can dispose of surplus property via a competitive sale to the public, generally through a sealed bid or auction. Since 1987, GSA has sold over $3 billion worth of property across the United States.