Where, oh where, are all the HUD foreclosures?

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In the first nine months of this year, the U.S. Department of Housing and Urban Development acquired 2,310 homes in Colorado that had Federal Housing Administration-loans.

Yet, as of today, HUD has 300 homes listed for sale in Colorado. And some of them are not on the open market. Some of the homes are first offered to non-profit groups, as well as teachers and others before investors or owner-occupants can bid on them. Weld has the most foreclosures listed at 41, while Adams and Arapahoe counties each have 38. El Paso County had 37 and Denver 30. A number of counties only had one foreclosure listing, including Archuletta, Chaffee, Huerfano, Kit Carson, Montrose, Otero and Rio Blanco.

Backlog?

And while it has sold 2,542 homes to other buyers so far this year – some of them acquired last year – it appears that HUD must have a backlog of homes that it owns, but they are not actively marketing.

“That is the insanity of it,” said Bobby Burnett, owner of Keller Williams Realty – DTC. “I don’t think they want to put all of this stuff on the market at once and just saturate it. I think they are just sitting on it. That is my opinion.”

If that is the case, he has mixed feeling about it.

“It’s not a bad thing,” Burnett said. “If you dropped another 2,300 homes on the market at once, it would have a very negative impact on prices and the market. The only bad part of is that the longer the property sits there, it deteriorates more, and hurts the value of that property and the surrounding neighborhood.”

Shadow Market

Also, the homes that HUD appears to be sitting on, are part of a “shadow market,” that next year could swamp the market, driving down prices, he warns. Banks, by some estimates, likely own thousands of more homes that they have yet to offer to buyers. (For more on the shadow market, please visit my previous blog on the subject.)

It’s a far cry from the late 1980s, when HUD used to buy thick weekly special sections in the Rocky Mountain News and Denver Post, listing all of its homes for sale, noted Nickolas Terry, a broker with RE/MAX Leader.

During that foreclosure crisis, caused by an exodus of jobs from Colorado when the energy market collapsed and over-building in anticipation of a boom that went bust, HUD became the largest single landlord in the Denver area. The foreclosure crisis was known as the “death spiral” and in some cases HUD would pay buyers $500 to take houses off its hands.

Steve Cramer, principal of Exit One Realty, said from the time HUD acquires the homes until the time it hits the market, is not a speedy process.

Cramer said that HUD gets the title of a home with an FHA-insured mortgage from the lender, after it has been sold at a public trustee auction. Then, a company called Michaelson, Connor & Boul, (better known as mcb Colorado), which has a contractual relationship with HUD, inspects the property. A FHA appraisal is needed to determine the asking price, and the home is winterized. Then, mcb doles out the homes to 16 designated brokerages (including his) by ZIP Code, he said. The listing broker only receives $100 per home, he said, but the broker who brings a buyer can typically expect to make $1,300 to $1,400 on each home sale, Cramer said.

“From the time HUD takes possession until it is put on the market can sometimes take four to six months.”

Related blogs:

HUD foreclosures drop by 15%

Drop in HUD prices probably a quirk

FHA loans soar