Penalty for investor purchase of HUD owner-occupant listings?

I am thinking about bidding for a HUD listing that is in the owner-occupant phase; my intent is to fix it up and resell; but since I have no other OO property in my name and I may live in this property, can I still bid on it?

How does HUD check whether investors are bidding and winning in the OO bidding phase?
It seems they require you to sign a document that says you will live there for at least 12 months. What if, due to circumstances outside my control, I have to move before 12 months?

Does HUD check for owner occupancy?

BTW, I am thinking about bidding on 2 such listings in the same city (Austin, TX); my justification is that I will at least get one, if not both. But if I do win both, does that mean I have to give up one or the other since it was a OO bid?



I can answer a few of your questions. This is from my realtor in TX who has been selling HUD’s for years. I asked primarily the same questions.

Owner occupant bids must be Owner occupied. She told me that HUD does check, how I’m not too sure. how. The penalty for getting caught is stiff- I believe jail time and huge fines. They used to be more lienient, but with the market and so many investors, they check.

As far as I know, investors can bid on as many houses they want and get them- if they have the highest winning bid. She’s told me of a couple of college styudets she has as clients that have bid and won about 6-7 HUD homes, they fix’ em and flip them.

Your other questions as far as bidding on 2 properties as OO. What i was told, (I was in the exact same situation, I found several houses I liked), the highest net offer to HUD will be accepted. Whatever grosses them the most is the winning bid. A lot of people roll in closing costs into the bid. Example HUD list is $100k, bid is $100 plus $3k CC, total bid to hud is $103, their net would be $100, but the total bid is for 4103. If there are CC associated fees left over , HUD keeps it.

Hope this helps. You might check with a HUD realtor , they should be able to answer every question you may have about HUD homes, mine did.

Good luck.

Simple answer. Don’t do it.

Forget about the moral side of this, since you are considering doing it, your moral compass of right and wrong is a little skewed anyway.

You’re breaking the law by doing this. Federal law, I might add. What are the penalties for it? Try $25,000-50,000 and 5-10 years in federal prison for EACH occurance. Just by lying on the lender app that it is for owner occupy you can get some major fines/jail time.

If you find a REALTOR stupid enough to submit the bid for you (assuming that you’re not going to lie to them, too), you might want to make sure that they are fully aware that they’ll be sharing in those fines and jail time when you do get caught for it.

Yes, HUD does check? How? First, they keep tabs on the place. It’s pretty easy to determine without a whole lot of effort if YOU are actually living there? Second, they get reports from all the other angry investors who were waiting to bid on the property LEGALLY. HUD really doesn’t like it when people make them appear stupid, so they check out these reports thoroughly.

As far as bidding on two HUDs, knock yourself out. You can bid on as many as you’ve got escrow money to put down. However, if you win both, you either have to close on both (hard to be a OO in both) or you have to forego your escrow deposit on one, as HUD contracts have no contingency clauses that will allow you to get it back.


Here is my take on this (I tried to post yesterday but my posting got zapped somehow) – this is MY OPINION and others may disagree:

(1) The HUD programs allow low income folks that might not otherwise qualify be able to buy a home of their own. They are good, decent programs and relatively efficient (especially for the Government!).

(2) There are two phases “Owner/occupant” and “All bidders”. The names are self-explanatory.

(3) To try to get a HUD home under false pretenses is not only illegal, it is morally wrong. The investigative service for this, BTW, is the FBI. As shsugrad notes, there can be still penalties for you AND stiff penalties for you realtor if he/she knowingly assists you with the fraud.

(4) To attempt to purchase a HUD as an investor during the O/O phase, you are potentially depriving some deserving low income family of a property in which to live. I see this as putting your DESIRES as an investor above the NEEDS of a family…it’s wrong and greedy.

(5) Just the fact that you’ve posted here to ask, clouding the purchase with “since I have no other OO property in my name and I may live in this property, can I still bid on it?” kinda leads me to believe that you don’t really want the property as a home but, rather, as an investment.

Bottomline (again, MY OPINION): Be above board in all that you do. In all my dealings, I treat others as I would want them to treat me --really take a long, hard look at this and then I know you will DO THE RIGHT THING! If, after the 9 days of O/O bidding the property is still available, bid it the minute that it is open to “All bidders”…the system is fair, play by the rules.


Hmmm…if you have an agent that would allow, or encourage this, it is time to change agents. “a fine not to exceed $250,000 and/or a prison
sentence of not more than two years.” That is the penalty. Here is the link to the HUD Circular on it: Wait for the right deal. It is hard to make money from a federal prison. I do not believe that there really is any “Owner Occupied” police, however, if you are weighing up your investment decisions and the choice is to: 1. Make $20-40,000 in 2-5 months and do another deal, or; 2. Make $20-40,000, pay a fine up to $250,000 and become the girlfriend of the guy with the most cigarettes, as your realtor, let’s stick to number 1. I have sold 25+ HUD homes to both Owner Occupants and to Investors.

There is no penalty for bidding on two properties as an Owner Occupant, that I am aware. As an Owner Occupant, you get a 15 day inspection period and, should you decide not to proceed, your earnest money is returned. I have never seen an Owner Occupant lose their earnest money, even when the entire fault was with my buyer. We missed every extension deadline, extended one past the maximum number of extensions, and the Buyer kept dragging their feet. I told her she would never see her earnest money again. Boom…the check was returned. As an Investor, there is no circumstance, that I am aware, that you will get any of your earnest money back, for any reason. Your inspection period just cost you $1,000. As an investor, just part of the cost.

If you buy it, follow the rules and live in it for a year. It’s not worth it to get caught, and it’s not right to game the system. The purpose of the OO phase is to give non-investors a chance to get a good deal on a home that they may not otherwise be able to afford. I think there can be a $200,000 fine and jail time if you are caught. I read that they do check, but not only that, investors that were waiting for the property to be open to all bidders may be watching to see if you followed the rules. They will report you in a minute.

I looked all this up because my husband and I bid on a HUD home without knowing it was a HUD home. We were already working with an agent, and saw a for sale sign in the yard. It did not say anything about it being a HUD home. We submitted an offer to the agent. When I asked her the next day what was happening with our offer, she gave me the web site. I found the house on there and saw where it was for owner occupants only. I called the realtor and told her we didn’t qualify, and found out that she had submitted a bid for us as owner occupants. I googled the penalties and then nervously discussed this with my husband. We decided that if our bid was accepted that we would move into the house for a year so as to be legit, and maybe rent our current house to a friend.

Thankfully, we lost the bid by about $300. :shocked

Great story. I hate it when the HUD houses are in the owner occupant stage. The ones that move past that usually have a lot of damage to repair. You can always allow the deal to bust out for financing or inspections or something.