Real estate bargain bin
There are some deals to be had buying homes from the government. Plus: 8 on the market now.
By Les Christie, staff writer

NEW YORK ( -- Who says there are no deals left in real estate? Government Web sites sell homes all over the country and many of them qualify as real bargains.

The sites offer homes from Housing and Urban Development (HUD), the U.S. Department of Agriculture and the Veteran's Administration. These agencies take possession of foreclosed homes and return them to the market.

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Individuals can look at homes at HUD's Web site and

"It's one of the better deals you'll find anywhere," says HUD spokesman, Jerry Brown. (Photo gallery with 8 HUD homes on the market.)

The properties are sold at appraised or below appraised value and the agencies, especially HUD, make them easy to buy with generous loan terms with low up-front costs.

"It's 3 percent down and 100 percent yours," says Brown.

The HUD homes are acquired when a mortgage holder defaults on a Federal Housing Administration (FHA) mortgage, which are goverrment sponsored loan guarantees designed to promote home ownership, especially for working class and lower income Americans. When the loans go bad and lenders foreclose on the properties, the agency pays the lenders off and takes over the homes.

"Because the sub-prime loans target low-income borrowers and those with impaired credit, many loans go into default," says Laurie Maggiano, who heads HUD's single-family home sales program.

The agency's mission is two-fold: The first part is to get maximum return on investment in order to replenish the mortgage lending fund. The second is to work to improve communities. So when HUD takes over a home it doesn't just sell it off immediately for whatever the market will bear.

Where they go

Homes are first offered to approved non-profit organizations, mostly in inner-city neighborhoods, at a 50 percent discount to their appraised values. The non-profits then rehabilitate and resell them.

Any properties not picked up by the non-profits are then offered to police officers and teachers at a 10 percent discount. HUD also recently began giving first shot at homes coming into the system to people made homeless by Hurricane Katrina at the same 10 percent discount.

If, after five days, no teacher, officer or Katrina victim makes an offer, HUD puts the properties on auction for the general public. At that point only buyers who intend to live in the house may bid.

After 10 days more, however, anyone, including investors, can join the bidding. Bidders may lowball the listing with a bid as minimal as they like but most of the properties do carry an undisclosed minimum.

In some stronger housing markets, winning bidders often offer more than the appraised value but in depressed markets the winning bids can be substantially less. The winning bids average about 98 percent of the appraised value, according to Maggiano.

She reports HUD sold 57,930 homes during the past 12 months, with an average selling price of about $79,000. "That makes HUD the largest seller of single family real estate in the United States," says Maggiano.

Few HUD homes in hot markets

Today, there are a total of more than 28,000 HUD homes available. Although they come from nearly every state, the really hot markets provide little of HUD's inventory. Homes in California and the rest of the Southwest simply don't make it ithrough the foreclosure process; they're snapped up in the early stages of delinquency.

But the Midwest and South, in particular, have lots of listings, with Michigan, Illinois, North Carolina and Texas leading the pack, according to Maggiano.

"We used to have a very large inventory in Florida," says Maggiano. "No more."

HUD sells everything "as is" and tries to include as much information about the state of each property as possible, including an environmental compliance report and a fairly extensive property condition report. But HUD provides very little description of the homes assets and features. For that, househunters should visit the property itself.

It's advisable to get a thorough inspection done before buying. Not only will the inspection reveal just how many repairs and how much it will cost to make a place livable, but the rehab expenses may be added into the mortgage loan if uncovered before closing.

And while many homes need extensive repairs others come to the market in very good shape.

"We have some really quite lovely homes for sale," says Maggiano.

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