Updated May 10th, 2019
Picture this: you want to buy a house. You find the perfect listing, but as you are going over the listing agent’s remarks, you come across some unfamiliar and confusing terms.
On the first page, you see this, “property is being sold subject to HUD Guidelines 24 CFR 206.125.”
You think, “What in the world does that mean?”
“No worries,” you think. “I’ll just ask my Realtor.”
But when you ask them, “Hey, what are the HUD Guidelines 24 CFR 206.125?” They just say, “Let me get back to you.”
So now, you’re stuck. If you tried the third and most obvious option, which would be to reach out to the listing agent, they would probably just tell you to Google it.
Which you probably did already.
So, now you’re here.
Confused by reverse mortgages?
Clever Partner Agents can help you with buy or sell your home.
What are the HUD Guidelines 24 CFR 206.125?
They are the rules for selling homes that have been subjected to a Reverse Mortgage Foreclosure.
These rules are very specific and must be followed closely to avoid any legal trouble or a rejected offer. Because of this, you should always work very closely with your real estate agent and lawyer if you have one – just to make sure you do everything correctly.
Now, we can already feel your next question coming…
What is a Reverse Mortgage?
A reverse mortgage is a monetary arrangement with a lender, like a bank or credit union. In this agreement, a homeowner agrees to give up little bits of their equity in their home in exchange for cash back from their lender. Usually, this cash is a supplement to someone’s retirement income.
Usually, retirees who are “asset-rich” but “cash-poor” will apply for a reverse mortgage. Because of this, sometimes those in the industry call this loan a senior’s loan or a senior’s finance.
Remember, equity is the amount of your home that you actually own. For example, if your home’s final sale price was $100,000 and you have paid off $80,000, then you have 80% equity in your home.
In a reverse mortgage, your lender begins to take back your equity and give you cash on a monthly basis or in a lump sum. So, over the course of a set amount of time, you can receive say, $20,000 back from the bank. To receive this money, you forfeit 20% equity in your home.
Who Can Qualify for a Reverse Mortgage?
You have to be older than 62 to qualify for a reverse mortgage. If you’re married, then the rules are based on the age of the younger spouse. The only reason this would not apply is that the older spouse solely holds the title to the property.
You must also own the home you wish to take out the mortgage on. It must be your primary residence. You are not allowed to take out a mortgage on a house that is a rental or investment property. You must also have at least 80% equity in your home.
In addition to the 80%, you have to have enough money left over to cover the closing costs on this mortgage. You have to pay them in advance and they are usually as much as 5% of your home’s value.
When Do Reverse Mortgage Foreclosures happen?
There are three different instances that would lead a lender to foreclose on a home.
We’ve listed them here:
If any of these three things happen, then the bank forecloses on the house. They then establish an insurable title on the property.
If a home has an insurable title, it has known defects in the chain of title. In this case, it’s the foreclosure. But, with an insurable title, the title insurance provider agrees ahead of time to provide insurance regardless of the defect. Because of this, the defect also doesn’t impact the value of the home.
What Happens After the Foreclosure?
Once the lender finishes taking control of the property, they list it with a local real estate agent to sell.
This is where the HUD Guidelines 24 CFR 206.125 start to become very important.
We’ll list the full rules below, but here are a few of the highlights:
Lenders always list Reverse Mortgage Foreclosure properties with the utilities off. The foreclosure company will not turn on the utilities. If the buyer wants to inspect the home with functional utilities, then they (or their agent) can turn them, but it will be at their own expense.
Even so, the inspection is mostly a gesture to see what you are getting yourself into. This is because per the HUD Guidelines 24 CFR 206.125, homes are sold completely “as is.” The seller will not make any repairs at all.
There is also absolutely no negotiating on the price at all. Per the guidelines, the bank cannot sell the property for even a penny less than the listing price. To arrive at the listing price, the foreclosure company works with an appraiser. Once the price is set, it’s set.
The seller also won’t give a dime towards the buyer’s closing costs. This is still true even if the buyer ends up paying more than the asking price.
A Sample Listing
Per the Department of Housing and Urban Development (HUD), here is a small sample of a HUD Guidelines 24 CFR 206.125 listing with all of its caveats:
- Property cannot be sold below appraised value (LIST PRICE)
- No mediation
- No electronic signatures
- No repairs “AS IS AT TIME OF CLOSING”
- No buyer closing costs paid by the seller are allowed by the HUD
- Buyer pays HOA Doc & Transfer Fee
- Utilities off. Buyer can pay to have them on for the inspection ($100)
- No agent transaction fees allowed on the HUD. It doesn’t matter if the buyer is paying
- Seller will pay seller’s closing costs and provide the buyer with $29.95 PDQ Hazard Report
- Any realty transfer taxes due will be the sole responsibility of the purchaser
- Seller will bring taxes and HOA current through closing
- 10% deposit on cash offers (Cashier’s Check)
- $1,000 minimum deposit on financed offers (Cashier’s Check)
- 60 day MINIMUM escrow period.
- Homepath financing is not available on these properties
Offers that don’t meet these guidelines will be rejected. It’s very serious stuff! So make sure to follow all of the rules.
Still confused? You should partner with a real estate agent.
HUD Guidelines 24 CFR 206.125 are often confusing, especially when you encounter them “out in the wild.” If you find a listing that you really like, but notice that it’s selling under these guidelines, your first call should be to your real estate agent.
And, lucky enough, if you partner with Clever to purchase a home, your agent will know exactly what to do. You won’t get the runaround. You’ll just get clear answers and great guidance from the very start. Your Clever agent can help you to decide if the foreclosed home is truly the best fit for you.
Clever agents have years of experience working in all different kinds of sales, so you can be sure that throughout the entire HUD Guidelines 24 CFR 206.125 process, you are truly in the best possible hands.