HUD is behind due to an influx of foreclosure properties, but a sale shouldn't take five months. (Photo Credit: CC BY-ND/The Backyard Wealth Blog)

The U.S. Department of Housing and Urban Development manages Section 8 programs that provide rental housing assistance to private landlords on behalf of registered low-income households across the country. Unfortunately, buying a HUD home can be difficult, as one Bankrate.com reader named Bea notes. She tells The Real Estate Adviser Steve McLinden that she may lose her $1,000 cash deposit in what appeared to her to be HUD fraud.

Bea’s HUD dilemma

According to Bea, HUD accepted Bea’s $1,000 cash offer on a HUD home in November 2010. However, the sale still hasn’t closed due to what was explained to her as “an expired notary seal.” In order to prevent the deal from dying – and Bea from forfeiting her $1,000 – she must request an extension every two weeks, at her own time and expense. All Bea wants to do is complete the sale and live in the home.

Under new management

McLinden explains that while bureaucracy is the most likely cause of Bea’s trouble, the expired notary seal excuse doesn’t seem right, particularly after five months. In general, closing on HUD homes takes 60 days, while all-cash deals close in half the time. If a paperwork problem produced the notary seal problem, it could easily be remedied.

What Bea didn’t bargain for is that HUD is adopting a new system of management and marketing (M&M), according to McLinden. Pushing out foreclosure inventory is top priority, and this has reportedly slowed down the HUD process considerably. However, real estate agents attest that it still shouldn’t take five months to close, particularly since HUD foreclosure deals are less complicated than standard mortgage deals with Fannie Mae and Freddie Mac.

What to do if HUD has happened to you

Housing and Urban Development have numerous policies that apply to a consumer’s earnest payment – the good-faith cash deposit toward the purchase of a HUD home – that can illuminate how to proceed. Visit the HUD’s REO management page for information regarding transactions in your state, as well as local office contact numbers. If after following standard complaint channels, you believe that fraud may have occurred, McLinden advises emailing the Office of the Inspector General at HOTLINE(at)hudoig.gov.

Sources

Bankrate.com

HUD Fraud Prevention

HUD REO Managment

Wikipedia entry for earnest payment

Wikipedia entry for Section 8 (housing)

Using loan modification programs

The Department of Housing and Urban Development is being sued over reverse mortgages they own. Image: Flickr / nickbastian / CC-BY-SA

In late 2008, the federal Housing and Urban Development issued a rule clarification. This “clarification” has led to several individuals being foreclosed upon. The AARP has teamed up with these people to bring a lawsuit against HUD in hopes of preventing further foreclosures.

Rule clarification on reverse mortgages

The department of Housing and Urban Development in 2008 issued what it calls a “rule clarification” on reverse mortgages. This clarification applied to a rule that had, previously, allowed spouses who were not on home titles to continue reverse mortgages when their spouses died. The clarification said that rather than getting these bank-supported payday loans, spouses who were not on the home deed would have to close out the reverse mortgage. In effect, the surviving spouse would have to pay back either the reverse mortgage or the difference between the reverse mortgage and the value of the home, most often within a few months, if they want to keep the home or continue living in it.

Reverse mortgage lawsuit

The AARP is calling this “rule clarification” a “rule change.” If this is a rule change as opposed to a rule clarification, HUD may have violated prior-notification laws. Three people have brought a lawsuit against HUD with the support of the AARP. These individuals, who are not listed on the deeds of their homes and whose spouses have passed away, will argue against the requirement that they pay up or face being evicted from their foreclosed-upon home. The argument is that these spouses were not notified that they were going to lose their house until foreclosures were already in progress. This is forcing many seniors into a situation where they must take out a short term loan or move out of their home.

The dangers of reverse mortgages

Though this lawsuit questions the actions of the Department of Housing and Urban Development, most industry-watchers are surprised it took this long. A reverse mortgage allows senior citizens to cash out the equity of their home. When the senior either sells their home or passes away, the bank owns the home. With the crash in the housing market, many banks are facing the same situation of many homeowners — the homes they own are not worth the amount of money they have already paid. Combined with the fact that many homeowners with reverse mortgages have stopped paying insurance and property taxes on these homes, banks and HUD are ending up owing more than they can afford. By turning banks into homeowners, those who take out reverse mortgages are taking a significant risk of losing their home.

Sources

New York Times
Nonprofit Quarterly

These are the repossessed homes that banks no longer want to sit on. Banks are more than willing to work with you in any way possible to sell off the home. It’s smart business, if you ask me, and it is all to your advantage if you don’t have a home of your own.

Banks, mortgage lenders and Realtors

The best part about it is that it doesn’t cost anything to look into this amazing opportunity. Why not shop around? With interest rates as low as 4.25 percent, you just might score an amazing deal. It can be fun, too, rather than an emotional, upsetting adventure. There are plenty of horror stories out there about banks not performing well and Realtors who are only hungry for their commissions. However, all banks, mortgage lenders and Realtors are not created equal. You won’t find the good ones if you believe they are all bad.

Finding the right people

To find the right personal loan mortgage lender, ask around and don’t believe everything negative someone tells you. My friend (the Realtor) found a guy who can almost always get a loan done in a very short period of time. Now, is that because he is cheating or dishonest? Not at all. He just knows his business and only gets paid if he processes an approved loan. On the other hand, those working at banks may be paid on salary and won’t really care how long it takes to get you approved. Ask, and keep asking until you find that one lender that’s fast, efficient and professional.

It is to your advantage

It might take you a little while to find the right people; stay calm and be patient. What happens, typically, is we get excited about buying a house and jump on the first available opportunity, then get dragged through the mud, only to swear we won’t do it again. Just take the time to find the right lender. Make it an adventure and remember, you can always apply for a payday loan or a cash advance loan to help you along the process.