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An Officer's Guide to the GNND Program
10/06/2008 - By Jack Burns

An Officer's Guide to the GNND Program

GNND

The Department of Housing and Urban Development's Good Neighbor Next Door Program gives eligible police officers the opportunity to purchase select homes at a 50% discount.

An Officer’s Guide to the Department of Housing and Urban Development’s Good Neighbor Next Door Program

 

By  Jack Burns


The Department of Housing and Urban Development’s Good Neighbor Next Door (GNND) program gives police officers the opportunity to buy select single-family homes at a 50% discounted price.  In order to participate in the program, an officer has to meet certain eligibility requirements, use a real estate broker to purchase the home, and agree to live in the home as their sole residence for three (3) years. 

 

Eligibility

 

The Department of Housing and Urban Development (HUD) has set forth specific requirements in order for an officer to purchase a GNND home.  HUD requires a police officer to be employed full-time by a government agency at the municipal, county, state, federal, or Indian Tribal government level. Additionally, an officer must have the authority to make arrests for violations of municipal, county, state, federal, or tribal laws.

 

Under the new GNND program rules, an officer cannot purchase more than one GNND home.  If an officer or their spouse has purchased a GNND home in the past, an officer cannot purchase another GNND home.  Also, an officer or an officer’s spouse should not have owned a home within a calendar year prior to purchasing a GNND home. 

 

Eligible GNND Homes

 

GNND homes are located in a HUD designated revitalization area. HUD designates an area as a Revitalization Area if it meets one of three criteria:

 

  • The area has a high rate of defaults or foreclosures;
  • The area is a low income area, meaning the median household income for the area is less than 60% of the median household income for a designated metropolitan area; or
  • The area has a low home ownership rate for a given metropolitan area.

 

The GNND program allows teachers, fire fighters, and paramedics to participate in the program, but restricts them to bidding on homes located in the area where they work. Police officers are allowed to bid on homes located outside their jurisdiction and therefore have the opportunity to bid on more homes.  
 

Selecting a Broker

 

If an officer meets eligibility requirements, he or she must use a real estate broker to place a bid on a GNND home.  The real estate broker submits a bid on eligible GNND properties on your behalf.  A lottery is used to determine the winning bidder, and bids are accepted for one week after the GNND home is listed for sale.  GNND homes are listed weekly on HUD’s contract property management company’s website.  At the end of the week, a winner is randomly drawn, and the winner’s broker is notified. Two back up bids will also be randomly selected in case the winning bidder cannot close the sale or does not want the home. 

 

In selecting a real estate broker to assist in purchasing a GNND home, officers must look for one who has experience with the program and is willing to negotiate their commission. Officers must keep in mind that brokers usually calculate their commission on the listed price of the home and not on the discounted purchase price.  For example, if an officer bids on a home that is listed for $100,000, a broker will calculate their commission, which is usually 5% and is based on the $100,000 list price, making it $5,000. This would amount to $55,000, which will then be rolled into the mortgage fee.

 

An officer’s discounted price for a home listed at $100,000 is $50,000.  Five percent of the actual purchase price is $2,500, which if rolled into the mortgage, is $52,500.  When looking for a broker to assist with the purchase, officers must negotiate the broker’s commission based on the discounted price for the lowest possible commission.   

 

Required Deposit

 

Officers are now required to put up an earnest deposit after being awarded a GNND home and upon signing a contract.  The amount of the deposit equals 1% of the list price of the home and must be at least $500 but no more than $2000. For example, if an officer wins a home listed for $100,000, the deposit would be $1000.  An officer’s deposit is placed in their real estate broker’s escrow account and is refunded to the officer when the officer closes on the home.  Be warned that the deposit can be forfeited if an officer places a bid on the home, win the home, and later fail to follow through with the purchase.

 

Financing

Officers have the option to use both a conventional loan and a Federal Housing Authority (FHA) backed loan when they purchase their GNND home. HUD guidelines restrict officers who use conventional loans to purchase their GNND home. Officers are allowed to only finance the discounted purchase price of their GNND home. Officers who use conventional loans are not allowed to add the cost of repairs into their mortgage. Officers have the option of using an FHA-backed mortgage and can purchase a GNND home with only a $100 down payment.  Unlike a conventional loan, an officer who uses an FHA backed loan can add repair costs and customary closing costs into the total amount of the loan.

 
Silent Second Mortgage

 

When an officer purchases a GNND home, HUD establishes a “silent second mortgage” in the amount of the officer’s discount. For example, if an officer purchases a home under the GNND program with a list price of $100,000, he or she will finance the home for $50,000, plus closing costs.  The $50,000 discounted portion will be held in a “silent second mortgage” and will be reduced by 1/36 for each month the officer stays in his or her home.  At the end of the three year commitment, the silent second mortgage balance is zero.

 

If an officer decides to sell his or her home prior to reaching the 36th month obligation or upon stopping to live in the home as his or her sole residence, the officer will owe HUD the amount left in the “silent second mortgage” at the time he or she either sold or vacated the home.

 

Three Year Owner Occupancy Term

 

After an officer purchases a GNND home, he or she must agree to live in the home as his or her sole residence for three (3) years.  The start of the three-year term depends on when an officer closes on his or her home and if the home needed repairs.  If the home required less than $10,000 in repairs prior to occupancy the term begins thirty (30) days after closing.  If the home requires more than $10,000 in repairs but less than $20,000, the term begins ninety (90) days after an officer closes.  If  the home requires more than $20,000 in repairs, the term begins 180 days after an officer closes on his or her home.

 

Each year during an officer’s 36-month term of occupancy, he or she is required to certify that he or she occupies the home and the home is his or her sole residence.  Each year, HUD will mail a certification letter which the concerned officer will complete and mail back to HUD confirming his or her continued residence in the GNND home.

 

Conclusion

 

The GNND program is a unique opportunity for an officer to purchase a home and build a tremendous amount of equity in a short amount of time.  By knowing the eligibility requirements, the program mechanics, and financing options, a law enforcement officer can make an informed decision on whether to participate in the program. 

 

References:

 

“Disposition of HUD-Acquired Single Family Property; Good Neighbor Next Door Sales Program.” Federal    Register, 71. 211 (November 2006): 64422-64428.

 

“Successfully Selling HUD       Homes.” Guidebook for Real Estate Professionals. Southwest Alliance of Asset Managers: (December 2006)

 

Additional Helpful Online Resources:

 

BlueBlotter.com <http://www.blueblotter.com/articles.php> 

 This website has an entire section dedicated to educating officers with the GNND program. 

 

Department of Housing and Urban Development <http://www.hud.gov/offices/hsg/sfh/reo/goodn/gnndabot.cfm> 

HUD’s main website gives a brief overview of the GNND program.

 

Southwest Alliance GNND property listing website

Southwest Alliance website’s. provides a list of eligible GNND homes in Texas. 

 

Southwest Alliance of Asset Managers website <http://www.southwestalliance.com/sw_re_hud_programs.asp>. 

This website gives an overview of the GNND program

 

 

 

 

 

 

 

 

 

 








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