The U.S. Department of Housing and Urban Development – Office of Inspector General audited HUD’s Federal Housing Administrations rules and requirements pertaining to nonprofits purchasing real estate-owned (REO) homes during the exclusive listing period.  We initiated this review based on information found during an audit of a nonprofit that purchased homes during the exclusive listing period in memorandum 2015-DE-1801.  Our objective was to determine whether HUD had adequate requirements to prevent nonprofits from acting as investors while purchasing REO homes during the exclusive listing period.

We concluded that HUD did not have adequate requirements in place to prevent nonprofits from acting as investors while purchasing REO homes during the exclusive listing period.  This deficiency gave nonprofit investors an unfair advantage over legitimate investors by giving them the first opportunity to purchase REO properties.

We recommend that the Deputy Assistant Secretary for Single Family Housing develop and implement a policy or rule change that prevents nonprofit agencies from acting as investors for homes purchased during the exclusive listing period, regardless of whether the nonprofit purchased those homes at a discount.