Consider a HUD house. The Department of Housing and Urban Development is currently holding approximately 39,000 houses whose previous owners held mortgages insured by the federal government. HUD houses go to market about six months after foreclosure. Local governments get the first option to buy. After that, buyers who pledge to live in the house have the first opportunity to offer a bid. If the house is still on the market after a period of about 10 days, the listing is opened to investors. Owner occupants end up with about half of HUD's properties, according to HUD officials.

A fraction of the total foreclosure market, HUD's inventory is concentrated in Georgia, Indiana, Michigan, Ohio, and other states where the mortgage crisis has been especially severe. But if one of these houses suits your fancy, HUD spokesman LeMar Wooley says the feds offer a few advantages. "You will know the fair price of the property" because HUD updates its appraisals regularly. It offers a "property condition report" too, though that report is not updated. Wooley is thus among the chorus of experts urging buyers to pay for their own home inspection before closing the deal.

If HUD appreciates the value of a good inspector, inspectors likewise say HUD houses are better protected. "The feds often take the steps to winterize the houses. They put anti-freeze in the traps, and drain the pipes. When HUD's involved it's a little bit better," says ASHI president Bill Richardson.

Don't expect to profit from a quick sale. Investors who buy intending to do as little as possible to a house, hoping to resell for a profit when the market turns around, may find little profit and a lot of headache. Some cities are cracking down on neglectful property owners, charging penalties that increase over time, and unmaintained homes lose value quickly. But real estate pros and housing officials report that, overall, investors are a welcome and all-too-scarce resource, and most are fixing up the houses they buy for rent or resell. What's more, investors and new owner-occupants might get the satisfaction of helping to turn a hard-hit neighborhood around.
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