First Responders, Teachers Vie for FHA REO Discount
The words competition and highest net proceeds replace luck and lottery in the U.S. Dept. of Housing and Urban Development’s (HUD) Good Neighbor Next Door Program. HUD approved real estate brokerages must be used now to place bids for purchasers. The GNND program has new design features attendant to the HUD Homes M&M III Contractor program.
GNND gives a 50 percent discount on HUD Homes to qualified police officers, firefighters, emergency medical technicians, and teachers. GNND’s aim is to help in reducing crime, raising test scores, and promoting better relations between inner-city residents, first responders, and teachers. These homes are FHA REOs located in revitalization areas, subject to a three-year owner occupancy requirement.
Competitive bidding replaces a lottery system in place since the inception of “Officer Next Door” in 1997. Under the previous system, eligible borrowers placed a full-price bid on a HUD property. Following a lottery period, one name was selected and that person became eligible to buy the property at a 50 percent discount. The bidding, contract, and transaction were accomplished most times without the aid of a real estate agent.
New procedures require GNND buyers to employ real estate agents to submit bids in their behalf. They can specify a price higher or lower than the list price during a five-day interval that is still described as a lottery period on theHUDHomeStore website.
Rather than randomly selecting a buyer, however, a HUD Asset Manager selects the bid with the highest net proceeds to HUD. The 50 percent discount calculation still applies. Example: A police officer bids $100,000 on a HUD property listed at $90,000. There are three other offers at list price. The police officer’s $100,000 bid will be accepted, and sale price will be set at $50,000.
In most cases, GNND buyers can obtain FHA financing with $100 down payment.
HUD requires the GNND purchaser to sign a second mortgage and note for the discount amount. No interest or payments are required on this "silent second" provided the buyer fulfills the three-year occupancy requirement. The note is forgiven after the occupancy period has elapsed.
(Frances Flynn Thorsen is a contributor to Real Estate Economy Watch. She is the author of “HUD Homes for Sale: A Complete Buyer’s Guide” and “HUD Homes for Sale: Sales and Marketing Guide for Real Estate Agents.” Thorsen operates an accredited real estate school for real estate agents and brokers continuing education in Arizona.)
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