There’s a common misconception among home buyers when it comes to purchase contracts on HUD homes. Many people believe you can’t cancel a HUD contract, no matter what.
That is not the case!
HUD Homes Contract Contingencies
Actually, there are 2 contingencies in any HUD purchase agreement that allow prospective buyers to get out of the contract: a financing contingency and an inspection contingency.
Some buyers and real estate agents shy away from submitting offers on HUD homes, because they are sold “as-is”. This means that the Seller (HUD) will not perform any repairs.
Private real estate purchases are often contingent on certain repairs. A buyer may ask the seller to replace the carpets or install a new furnace.
That’s not possible with HUD homes. The government won’t make any repairs. You buy a HUD house in the condition it is in at the day of closing. Even if the house was burglarized the day before closing, HUD won’t remedy it.
However, you have the right and you are strongly encouraged to perform your own inspections after your contract has been accepted. All HUD contracts grant you a 15 day inspection contingency. If your home inspector finds a condition that is unsatisfactory, you can cancel the contract and get your earnest money back.
The contingency only applies to owner occupant buyers. Investors are out of luck. They will loose their earnest money, if they cancel the contract and don’t close.
Where can you find the exact wording of these contingencies?
Any HUD house listed on the HUDHomeStore comes with a stack of documents (PDF files) you can download, even before you make an offer. Go to a property of your choice and click on the Addendums tab. There you will find a Contract Package, as well as other addendums you should read. The Addendums are different for each asset manager.
Here’s a sample contract package for HomeTelos. Go to page 10 and read the Purchaser’s Rights and Responsibilities. It explains the 15 Day Contract Cancellation Contingency for property inspections.
An other section deals with the Forfeiture of Earnest Money Policy. It explains how the financing contingency works. You can read it on page 12. There are 6 circumstances under which an owner occupant buyer will get a 100% refund of their earnest money – one of them is financing.
You are required to sign these documents when you submit an offer. Your Columbus real estate agent is required to specifically alert you to these contingencies.
Make sure you work with an agent that really understands HUD homes and will help you get your earnest money back, if you need to get out of a HUD contract.