MOLD In HUD Home
I'm a newbie getting ready to put a bid in on a HUD property that I wnat to rehab. On the HUD listing it says it's UI (un insurable ecause of the mold) From a rehab standpoint it has some surface mold in an area where you can see that the hot water tank had leaked causing mold on the floor under some carpet. Easily repairable. What does the UI designation mean to me as an investor?
Thanks
It means that you as an investor have much higher chance of buying it than if it was insurable or insurable with conditions. Generally, UI flag means the buyer cannot get FHA mortgage, and that rules out all FHA buyers.
So it's a good thing especially as a buyer. When I go to sell will that UI designation follow or does it go away with my conventional mortgage?
Those designations are purely by HUD to help buyer with information on the condition of the property. Hopefully, if you buy and rehab the property, you'll go over FHA's minimum property standards checklist and will make sure it's eligible for FHA insurance.
Make sure that you understand what you are buying when getting a MOLD home.
Even if you successfully remove all the mold, you will have to disclose that a) the home had a previous mold problem and b) due to that, is possible to have a mold problem in the future. This is not a suggestion. It is the law. Failing to disclose the mold problem is illegal.
The reason to bring this up is because it could affect the resale value and/or the time it takes to sale. If you're trying to sell it quickly FHA guidelines won't matter because of the new limitations on "flipping" However, the mold issue may limit or cancel any FHA loans anyway, despite being fixed.
Just take it into consideration when making your offer.
Roger
Could you elaborate on the comments below. Also wht are the new limitations on "flipping"....Thanks and sorry...I'm more of a newbie than I thought...
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If you're trying to sell it quickly FHA guidelines won't matter because of the new limitations on "flipping" However, the mold issue may limit or cancel any FHA loans anyway, despite being fixed.
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I have never understood the logic of trends in repairs. Right now Mold is the big thing. To my mind I find the corrections to the problem available in any proper clean up and treatment. If it is an area of continuing water instrusion, why merely correct it so that the water no longer goes to the area and the area has proper ventilation.
Some time ago I repaired a house in Hollywood that was about to change Zip Codes. Indeed the neglect had created a natural septic tank under the house as the 4" waste line had parted and over a few years built up this lovely hole in the ground representing a large unflushed toilet. Of course crawling along in the dark the edges caved in and in I went. Being unable to flush I finaly got out when one of my workman thru me a line. Talk about fun, stark naked under a garden hose washing off and going home wraped in a painters drop cloth. Of course I took bows while washing and one passerby clapped. I'm a little worried about him. This is indeed LaLa land.
It took some doing but we repaired the line so the waste went where it was supposed to go to the sewer. We also after proper draining and chemical treatment filled in the septic hole and the City of Los Angeles sent us a highly qualified inspector to examine our work. Very qualified man. Asked us if we had framed in the newly treated and filled in hole. I thought he was kidding and joked away for about ten minutes until I realized that he was serious. When I asked him to explain he backed off and made comments on the fact that we had sprayed the entire foundation area with a heavy white paint. First foundation,cripples and joists he had ever seen painted. Come to think of it me too. We at the same time treated with chemicals for mold and fungoids of various types. Small corrections were made to insure that any water that intruded in the future would travel on a grade of at least 1/4 inch per foot.
To qualify for an FHA guarantee on a future loan, merely have the property inspected and the item removed as having been treated and corrected.
You will notice on may HUD properties put up for bid they will list items to repair or correct and will even on occasion alot funds for that purpose. Their costing is a little strange and not always responsive to actual costs in the area of interest. You can always plead a case, but I wish you well they seem to be selected for employment with HUD by some standard which totaly escapes. me. Different language. Is it a Header or a Lintel? Whatever, you have my best.
Reflectively Lucius
Rajwarrior is giving you good advice and leading you to the steps you should always take when getting into a rehab, which is working backwards.
I always work backwards on any deal. The exit plan is the most important part of the entire process. If there is something that is going to make you have to drop your selling price by $10,000 in order to get someone to buy the house when you are done with it, the time to know this is while you are getting your offer together, not after you put it on the market.
Disclosure is part of the process of reselling the house. Anything you know of about the house has to be disclosed to any new buyers. So if you buy the house knowing it has mold, you will have to disclose this to the new buyers.
What was hinted at is the house will be tainted or stigmatized to some buyers who will absolutely not consider a house with any mold history. So you have to take this into consideration, which usually equates to MONEY. Maybe you would have to figure on selling at a reduced price to entice buyers? Maybe you will have to be prepared to hold the house twice as long as normal due to finding a buyer?
Call your insurance agent and have them pull a CLUE report on the address, this will possibly give you more insight into the problem.
[addsig]
I am curious, where is the legal responsability to disclose mold? I am and have been a contractor and have dealt with many mold issues over the years. I understand "failure to disclose a material defect" but if the sheetrock was removed (or flooring) and new sheetrock was installed and ventalation improved or added. Then the defect is no longer there. I have used Ionizors etc in the past to deal with mold as an after precaution.
INterestind in any other opinions on this.
[addsig]
Thanks for all the feedback. I feel confident now that I can make an informed decision regarding this opportunity.
Don't be afraid of mold. I almost shyed away from the property I'm currently rehabbing because of it....this would've been a costly mistake. Call the EPA and they'll tell you to use detergent and water and scrub...I prefer bleach. But it works and you're on your way. I don't believe you have to disclose the mold issue either IF it's been corrected and is not visible....water damage, yes, mold, no....at least not yet. Call a realtor they'll confirm this.
Mold disclosure is required, just like any other defect in the property whether it has been corrected or not. Moreover, IF no mold is there, BUT there has been water infiltration (ie a hole in the roof for example) that too much be disclosed as well because it creates the possibiliity of mold. This is exactly why HUD discloses it on each and every property. Check any standard realtors' disclosure statements, its on there.
Stock, think of mold like a termite infestion. Even if the property has been sprayed, and the damage caused has been fixed, it still must be disclosed that their was a PREVIOUS infestion.
Mold is an issue because it has been known to make people sick. It is the new scare of home buying. While you might not want to pass up on the deal, you should be aware that the mold issue could create some problems with selling.
Roger
The thing is with this property the mold has a very obvious cause of a water heater blowing which leaked into a room that was carpeted and the mold formed beneath the carpet. The floor was can easily be removed and replaced and the mold issue will be non existent....right?
Great topic....along these same lines. Can we consider a hypothetical? Since HUD is disclosing mold on quite a large number of its listings (especially in the South)...how would this affect the offer being made? Say...HUD's listing price is 60,000 as is...10,000 in rehab work...and the mold problem on top of that. What kind of offer would some of you seasoned guys make on a situation like this? Oh yeah...say the comps are running around 80,000 - 90,000.
Yes if you know about mold YOU MUST TELL Broker from michigan
Just to further the mold issue. I have seen hud houses that were listed with mold, however that is all they say: "mold" it is up to you to discover what that means. Can you expect to walk into the house needing a resperator and see black toxic fungus covering every ceiling, dripping down the walls like mold on a block or cheese?
One house listed with mold we searched high and low and the only thing we found was a bedroom in the basement with a 1 foot by 3 foot piece of dry wall cut out of the base of the wall. That was the mold in the house.
The problem is that once the house gets the "mold" tag identified with it as Ricky Ricardo says "You got some splain'in to due" when you go to sell it.
The whole mold issue is way out of hand in the US, anybody who resides in Texas has got an uphill battle because of it.
Keep in mind all you are doing is disclosing to the buyer that the house had mold, it is then up to you to explain what the situation was. A reasonable person will get over it if a reasonable explanation is given.
[addsig]
FYI, around here (Washington, and several other states use the same system) you can get the results of HUD bids to see the kinds of things they're accepting. It's on the web site. Google for Golden Feather Realty - they're the contractor HUD uses to manage their sales in this region. You want the "bid results" pages. They've got the bid amounts and the net amounts. Another page that's very useful is the bid statistics page. It's got all the bids for properties (after the bids have been accepted, not before, for obvious reasons). Very handy.
For example:
CASE NO. 561-608618
17212 31st Pl S SEATTLE Listed Price 105,000
JOHN L SCOTT REAL ESTATE 09/16/03 13:32:00 $128,000 $119,751
BEST REAL ESTATE SERVICES 09/16/03 18:50:00 $125,000 $118,000
EXECUTIVE REAL ESTATE 09/16/03 22:16:00 $123,999 $115,344
(more bids deleted)
So in this case, you needed to bid over the minimum bid. You get the idea - just take a look around.
- James
BTW, I'm one of those evil real estate agents :-]
All molds are not created equal. I had to deal with a "mold" house last year, before we could close. The whole house inspector found black mold in the attic due to inadequate ventilation. I had an environmental company come out and sample it ($150) and send a sample to a lab ($75). Turns out the mold was not one of the bad ones (stachybotrus or aspergillus), and a bleach treatment was all I had to do. Having this analysis done gives the new owner and me some peace of mind. I would reccomend it.
Kevin