source:
  type: guide
  id: hud-4000-1-ii-e-hud-real-estate-owned-properties
  authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. HUD Real
    Estate Owned Properties (08/19/2024)
  description: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. HUD
    Real Estate Owned Properties (08/19/2024).
  coverage_tier: operative
obligations:
- id: hud-4000-1-ii-e-hud-real-estate-owned-properties-full
  canonical_id: hud-4000-1-ii-e-hud-real-estate-owned-properties-full
  section: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. HUD Real
    Estate Owned Properties (08/19/2024)
  type: do
  tags:
  - regulator-direct
  - fha
  - hud-handbook
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: FHA Single Family Housing Policy Handbook 4000.1, Part II — e. HUD
      Real Estate Owned Properties (08/19/2024)
    source_class: hud-handbook
    source_url: https://www.hud.gov/hud-partners/single-family-handbook-4000-1
    snapshot_id: 8c03836f77f317e1
    fetched_at: '2026-05-23T00:28:40Z'
    content_hash: sha256:411430f29b13f9b54a2ebb0e6f6e7087ecd2b90d0da22eb0c8c792eaa2d7d0df
    paragraph_quote: 'e. HUD Real Estate Owned Properties (08/19/2024) i. Definition
      A HUD REO Property, also known as a HUD home or a HUD-owned home, refers to
      a one- to four-unit residential Property acquired by HUD as a result of a foreclosure
      on an FHA-insured Mortgage or other means of acquisition, whereby the Secretary
      of HUD becomes the property owner and offers it for sale to recover the mortgage
      insurance claim that HUD paid to the Mortgagee. ii. Standard An appraisal may
      be ordered on a HUD REO Property as one of one or more evaluation tools to establish
      list price or subsequent price adjustments. (A) Assignment Type Under “Assignment
      Type” in the “Subject” section of the appraisal reporting form, the Appraiser
      must mark the box labeled “other” and indicate that the Property is a HUD REO
      Property. (B) Intended Use of Appraisal The intended use of the appraisal for
      a HUD REO Property is as one of one or more evaluation tools to establish list
      price or subsequent price adjustments. (C) Intended User The intended user of
      an appraisal of a HUD REO Property is HUD/FHA or its contractors. iii. Required
      Analysis and Reporting (A) Appraiser’s Inspection The Appraiser must inspect
      the interior and exterior of the Property. The Appraiser must describe any differences
      found between the information contained in the Property Condition Report (PCR)
      and the Appraiser’s observations. The Appraiser must support this description
      with photographs when warranted. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      11. Programs and Products Handbook 4000.1 873 Last Revised: 11/26/2025 (B) Utilities
      - Mechanical Components If the utilities are off at the time of inspection,
      the Appraiser must ask to have them turned on and complete all requirements
      under Utilities – Mechanical Components. However, if it is not feasible to have
      the utilities turned on, then the appraisal must be completed without the utilities
      turned on or the mechanical systems functioning. (C) Sales Comparison Approach,
      Use of Real Estate Owned Sales as Comparable Sales When considering sales to
      be utilized as comparables, the Appraiser must note the conditions of the sale
      and the motivation of the sellers and purchasers. In some markets, non-arm’s
      length sales constitute the majority of recent transactions of similar properties
      and thus are significant in the analysis of the subject. This assignment is
      to estimate Market Value, so REO sales, short sales and other non- arm’s length
      transactions must not automatically be chosen as comparables. If there is compelling
      evidence in the market to warrant their use, the Appraiser must provide additional
      explanation and support in the “Analysis” section of the sales comparison approach.
      Transfers to a Mortgagee or entity that owns the Mortgage by deed of trust,
      through foreclosure sale or sheriff’s sale, are not acceptable as comparable
      sales. Appraisers must exercise due diligence and care in the research and validation
      of REO sales to ensure similarity to the subject, especially in physical condition.
      (D) Appraisal Conditions The Appraiser must provide an analysis and report of
      the value of the subject Property “as is.” The appraisal report must include
      the applicable property specific appraisal reporting form, all required exhibits,
      and a copy of the PCR. For Manufactured Housing, the Appraiser must not require
      a certification that the foundation complies with the PFGMH. (E) Extraordinary
      Conditions The as-is value can be impacted by extraordinary conditions. If the
      Property has an illegal use or an extraordinary condition, the Appraiser must
      estimate the cost to bring the Property into compliance with zoning or typical
      marketability. The Appraiser must report whether any legal non-conforming use
      is allowed. The Appraiser may contact the Asset Management (AM) contractor for
      guidance and clarification when appraising a HUD home that is impacted by extraordinary
      circumstances. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser
      and Property Requirements for Title II Forward and Reverse Mortgages 11. Programs
      and Products Handbook 4000.1 874 Last Revised: 11/26/2025 (F) Statement of Insurability
      The Appraiser must include a Statement of Insurability in the “Comments” section
      of the appraisal report. (1) Insurable The Appraiser must state that the Property
      is insurable if, at the time of the appraisal, the Property meets MPR and MPS
      without needing repairs. (2) Insurable with Repair Escrow If the Property requires
      no more than $10,000 in repair, the Appraiser must state that the Property is
      insurable with a repair escrow. (3) Uninsurable If the cost of repairs is greater
      than $10,000, the Appraiser must state that the Property is uninsurable. (G)
      Submitting the Appraisal The submission of the appraisal report and data is
      uploaded in HUD’s P260 web- based internet portal or subsequent system. The
      Appraiser must obtain a completed copy of the PCR from the contractor and submit
      the PCR with the appraisal report. (H) Claims Without Conveyance of Title Properties
      (1) Assignment Type Under “Assignment Type” in the “Subject” section of the
      appraisal reporting form, the Appraiser must mark the box labeled “other” and
      indicate that the Property is a HUD Claims Without Conveyance of Title (CWCOT)
      Property. (2) Intended Use of Appraisal The intended use of the appraisal is
      to develop the as-is Market Value, which is a Mortgagee’s tool for calculating
      the Commissioner’s Adjusted Fair Market Value (CAFMV) (24 CFR § 203.368). (3)
      Intended User FHA is the intended user of a CWCOT appraisal. II. ORIGINATION
      THROUGH POST-CLOSING/ENDORSEMENT D. Appraiser and Property Requirements for
      Title II Forward and Reverse Mortgages 11. Programs and Products Handbook 4000.1
      875 Last Revised: 11/26/2025 (4) Appraiser’s Inspection The Appraiser must inspect
      the interior and exterior of the Property. If the Appraiser cannot enter the
      Property, the Appraiser may perform the valuation based on an exterior-only
      inspection on the Fannie Mae Form 2055/Freddie Mac Form 2055, Exterior-Only
      Inspection Residential Appraisal Report, dated March 2005, or the Fannie Mae
      Form 1075/Freddie Mac Form 466, Exterior-Only Inspection Individual Condominium
      Unit Appraisal Report, for a condominium Property. The Appraiser must indicate
      that the Property could not be entered and identify the sources of the factual
      property data employed by the Appraiser in determining the value. (5) Appraisal
      Conditions CWCOT Properties are to be appraised “as is,” in the condition as
      it exists on the effective date of the appraisal. The value to be determined
      is Market Value. The Appraiser must provide an analysis and report of the value
      of the subject Property “as is.” Under “Reconciliation” in the “This appraisal
      is made” segment, the Appraiser must mark the box labeled “as is.” (I) Pre-Foreclosure
      Sale Program (1) Assignment Type Under “Assignment Type” in the “Subject” section
      of the appraisal reporting form, the Appraiser must mark the box labeled “other”
      and indicate that the Property is a HUD Pre-Foreclosure Sale (PFS) Property.
      (2) Intended Use of Appraisal The intended use of the appraisal is to develop
      the as-is Market Value, which is a Mortgagee’s tool for determining the list
      price of a HUD PFS Property (24 CFR § 203.370). (3) Intended User FHA is the
      intended user of a PFS appraisal. (4) Sales Comparison Approach Sales selection
      requirements for PFS are the same as the Sales Comparison Approach in the REO
      section of this Handbook 4000.1. II. ORIGINATION THROUGH POST-CLOSING/ENDORSEMENT
      D. Appraiser and Property Requirements for Title II Forward and Reverse Mortgages
      12. Mixed Use One- to Four-Unit Single Family Properties Handbook 4000.1 876
      Last Revised: 11/26/2025 (5) Appraisal Conditions PFS Properties are to be appraised
      “as is,” in the condition as it exists on the effective date of the appraisal.
      The value to be determined is Market Value. The Appraiser must provide an analysis
      and report of the value of the subject Property “as is.” Under “Reconciliation”
      in the “This appraisal is made” segment, the Appraiser must mark the box labeled
      “as is.” iv. Appraisals for HUD Real Estate Owned Properties Purchased with
      a New FHA- Insured Mortgage A new appraisal must be prepared for all transactions
      involving the purchase of a HUD REO Property with a new FHA-insured Mortgage.
      The appraisal must be prepared in accordance with HUD Appraisal protocols except
      as noted. (A) Property Meets HUD’s Minimum Property Requirements If the appraisal
      reveals that the Property meets HUD’s MPR, the Appraiser must complete the appraisal
      report “as is.” (B) Property Requires Repairs If the appraisal reveals that
      the Property requires repairs in order to meet HUD’s MPR, the Appraiser must
      provide an estimate of the cost to cure and complete the report “Subject to
      the following repairs or alterations on the basis of the hypothetical condition
      that the repairs or alterations have been completed.” 12. Mixed Use One- to
      Four-Unit Single Family Properties'
  judgment: false
