Going, going, going...gone! Sold to the highest bidder. Bang goes the auctioneer's gavel, as the next property goes up for bid. Every potential homebuyer dreams of walking away from an auction with the bargain real estate buy of the century. Recently, the Department of Housing and Urban Development (HUD) has streamlined their property disposition program to make the purchase of foreclosed property easier for both buyers and brokers. The Mortgage Almanac recently attended a HUD auction which took place on July 28th in Worcester, Massachusetts. We spoke with buyers and their real estate brokers who came away from the event as successful bidders and new property owners. Nearly 50 properties were sold over the course of two hours with one home going as low as $1,700 in Brockton and many others selling in Fitchburg, Haverhill, Holyoke, Huntington, Lowell, Mattapan, Methuen, New Bedford, North Adams, Peru, Pittsfield, Southwick, Springfield, Ware, Webster, Westborough and Worcester for between $6,000 and $76,000. One week prior to the auction, HUD offered buyers and their real estate brokers the opportunity to attend two free buyer/broker awareness seminars to learn just how simple buying a home at auction can be. During the training seminars, which took place at the Worcester Marriott, HUD personnel answered questions about the registration process, the properties, bidding and financing. A mock auction was held to give potential participants a feel for the procedures involved in the transaction. After attending the seminar, HUD suggests that potential buyers and their brokers inspect the properties before deciding which ones to bid on. Properties are sold "as is", and marketed via a color brochure listing all properties available throughout Massachusetts with a photo, the address and a description of the house or condo. As an incentive to brokers and buyers, HUD offered a early cash closing bonus for properties selling for over $3,000. A bonus of $500 each was paid to both broker and buyer on properties closing within 15 days from the date of acceptance by HUD. All properties listed as "insured" can be financed through FHA for 3-5% down on an owner-occupied property and 15% down on an investment property. Buyers of "uninsured" properties need to perform required improvements before HUD will insure the property. These buyers have the option of financing through HUD's 203(k) rehab loan program. Larry Latham Auctioneers are under goverment contract to run all of the HUD auctions nationwide. Sam Luft, auction manager, provided six bid spotters who surveyed the audience of over 300 for bidders. Luft explained, "We are the national contractor for HUD and have sold over 6,000 homes in the past year from Portland, Maine all the way to San Diego, California. We encourage broker participation by making the certification process simple. The buyers can easily preview the properties prior to the auction day, and they must understand that they are purchased 'as is.' These properties are a great deal, all they need is a little tender loving care." Luft added, "Americans are the most competitive people in the world, they just love to win. Here, we put everyone on the same playing field...it's an open market." Edward Bernard, director of Boston HUD's single family housing department opened the auction with the following statement: "We are motivated to sell these properties. HUD's focus is on public relations; we sent out 8,000 brochures for tonight's auction. Our goal is to make the public aware of the below-market property pricing available to home buyers who attend a HUD auction. We believe that the program offers opportunities for both the first-time buyer and the investor to take advantage of pricing that is unmatched on the open market. We will pay for inspections on the septic systems so that buyers can comply with Massachusett's new Title 5 requirements. We want to make this process as painless as possible." Bernard explains that in the past, it was difficult for potential homebuyers to reach HUD with requests for information. Now, an auction hotline has been set up just for the purpose of educating consumers on the HUD auction program. Interested parties can call Boston at (617) 565-7450 and speak to a HUD employee directly if they have questions about the auction registration, bidding and financing process. Indeed, the buyers and brokers we interviewed after the Worcester HUD auction on July 28th confirmed HUD's commitment to streamlining the auction process. Carl and Caroline Rellstab, a husband and wife REALTOR team from Worcester were two of the real estate brokers who brought buyers to the HUD auction with high hopes. The Rellstabs were introduced to the auction scene nearly two years ago by a mutual friend, Cynthia Bruder of North Oxford. Carl Rellstab explained their involvement: "This is our third or fourth HUD auction. We feel it is a good program, the auctions serve the purpose of getting the inventory back out on the market. If there are Title 5 problems, it can affect the entire neighborhood, and HUD is trying to address these situations by offering solutions. We especially like bringing first-time homebuyers to the auctions, it is satisfying to see someone actually purchase the home and move in. We drive around all day long, looking at the properties and trying to find the deals." Investor Gerald Gerbrands made the trip down from Rindge, New Hampshire. He shared his good luck at the previous night's auction in Hartford, where he purchased three homes in Hartford, East Hartford and Stratford, Connecticut. After working as a REALTOR for 7 years, Gerbrands got into the auction game, buying and selling auction properties for a profit. He gave some background: "Last October, I purchased a single-family home in Winchendon, Massachusetts for $26,000. I did nothing but hold the property for 43 days, then sold it for $45,000...a $19,000 profit! Now, I want to increase my inventory." Gerbrands later successfully bid on a house in Fitchburg which went for $6,500. Walking out of the bidding room, he commented, "Who knows...it might be a termite trap!" Another investor, Steve Kriger, is a carpenter by trade. Kriger completes all the renovations on his properties himself, to save money and to insure that the work is done properly. He also bought a property for $6,500, a single family home at 26 Cambridge Street in Springfield. "I plan to completely rehab the house myself," Kriger stated. "These auctions present a fantastic opportunity for someone like me. Back in '92, I bought my first investment property for $43,500. I put in a new boiler, plumbing system, windows and hardwood floors. I probably spent around $15,000, then sold the property 30 months later for $86,000; almost double the money." Several couples, such as Reba and Bill Shrewsbury of North Attleboro, came with the whole family in tow. The Shrewsbury's two toddler daughters ran up and down the side aisles while their parents carefully considered which properties to bid on. Reba is a Mary Kay skin care consultant while Bill works as an aircraft electrician. Reba shares their experience: "My husband and I bought a single-family house in Attleboro for $52,000 at our first auction. One week after the purchase, the property appraised out at $87,000...needless to say, we were thrilled. The great thing is that the house does not need a great deal of work. If we put as little as $5,000 into it, the house would be top notch. Although we originally wanted to rent out the property, now we are trying to sell it for a profit. Our goal is to own a bunch of houses. Ever since we found out about HUD auctions, we think they are awesome. It's like a little vacation for us, we take a room upstairs and spend the night." Although most bidders took the time to preview the properties, John Santos of Somerville, left the auction owning a property in Brockton which he had never seen. Santos exclaimed, "For $1,700, you can't go wrong. I guess I just didn't want to leave with my hands empty. I know it's taking a big risk, because I don't even know what I bought. But tomorrow, we'll take a ride out there and we'll find out." Santos purchased two properties at the last auction which he is in the process of fixing up to put on the market. As he submitted his winning ticket, the auctioneer commented, "Come on, the lumber alone is worth more than this!" His companion, Carmen Numeriano, shook her head as they walked away. In addition to real estate brokers, buyers and investors, representatives from four mortgage companies, Commonwealth United, Equitystars, K Mortgage, and Norwest Mortgage, were on hand to complete the necessary pre-qualification steps. Tim Brennan, from Equitystars Mortgage even went as far as to hand each new buyer a congratulatory bottle of bubbly. David Gravelle, branch sales manager of Norwest Mortgage's Braintree location, looked on as his loan officers used the latest laptop technology to pre-qualify borrowers while on line with the company's corporate headquarters in DesMoines, Iowa. New buyer Daniel Osterander had just purchased a two-family house at 93 Lenox Avenue in Pittsfield. Osterander went through the complete application process with Norwest account executive Jim Wendell. Gravelle explained Norwest's procedure: "We pre-qualified 10 of the buyers here today using our state-of-the-art equipment. Our laptop computer system has the ability to actually take an entire 203(k) loan application in just 20 minutes. We input income, assets and debt, and in moments can produce a letter of pre-qualification. Of course, we make the letter subject to written verification; the borrower must send or fax us copies of their W2's and pay stubs to confirm the information they are giving us verbally. At Norwest, we are very excited about the work we do with HUD." Call to find out about future
auction visit www.hud.gov. Michael Licamele is the Editor of MortgageAlmanac.com and President of Residential Finance Network at rfnc.com. |
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