Silver Lining - The Investment Opportunity Lurking Behind AB 284

If you follow my articles, you know that I have been writing a lot lately on how the passage of Nevada Assembly Bill 284 has swiftly and dramatically changed the landscape of Las Vegas real estate over the last 8 months.  By and large, this change has proven disastrous for investors.  One of the components of AB 284 is a provision making it a felony carrying a $5,000 fine per offense for any mortgage servicer or trustee to make false representations concerning a property title.  On paper this may sound inoccuous.  In practice, the bill was designed to target specifically the practice of bank employees signing documents and affidavits (such as notices of default or notices of sale) without verifying personally the information contained in the document or affidavit.  Banks had developed a method of dealing with the flood of defaults on their books and issuing the required documentation attending each foreclosure proceeding.  This method involved bank employees signing thousands of these documents at a time and became known as “robo-signing.”  As a result of the new Nevada law carrying threats of criminal charges for faulty filings, many mortgage servicers (banks) have simply stopped initiating foreclosure proceedings in Nevada.

After the passage of AB 284 in September of 2011, foreclosures plunged instantly.  There were over 5,000 notice of defaults issued to Nevada homeowners in September of 2011.  In October there were just over 600.  The foreclosure auction market dried up literally overnight and investors were left scratching their heads as supply suddenly disappeared.

But I have learned over my many years as a real estate investor myself, that behind every disaster is an opportunity.  I’ve spent the last several months searching for this opportunity for myself and my investor clients and I’ve just recently found it.

The Silver Lining

Nevada is currently home to over 2,000 common interest communities or HOAs as they are commonly known.  These HOAs charge fees to homeowners within their communities for the upkeep of common areas (pools, parks, club houses, etc.) as well as landscaping and, in many cases, certain utilities like water, trash or cable TV.  As you have no doubt seen in the news, many of these HOAs have been hit very hard by the recent recession as homeowners cease paying their mortgages and, with them, their HOA dues.  This has resulted in the default of several HOAs who can no longer afford to meet their monthly expenses.  This, in turn, impacts communities and their basic standards of living.

Under NRS 116, which relates to common interest ownership, HOAs actually have the power to foreclose on properties for unpaid HOA assessments.  In this statute, HOAS are provided a 9 month “super-priority” that allows them to lien AHEAD of the first mortgage when a house enters foreclosure.  This means that debts to the HOA are not erased when a home is foreclosed upon, and whomever is the new owner of record is responsible for paying 9 months worth of dues to the HOA.

Because of this, many banks that are in possession of large portfolios of foreclosed homes are failing to pay assessments, many even failing to record title to the foreclosed homes in order to avoid accruing HOA fees and transfer taxes.  Some HOAs have authorized their collection agencies to initiate foreclosure actions against HOA member properties in order to recoup their unpaid assessments.  However, most HOAs do not allow the foreclosure to actually occur and, instead, cancel the trustees’ sale on the scheduled day in order to not empty more homes in their communities which are often already struggling with vacant properties.  As a result, HOAs with first position liens are starved for cash but unwilling to execute foreclosures.  This is where the opportunity comes in.

I have begun working with a new corporation formed for the express purpose of helping HOAs to collect the monies due to them, allowing them to function properly and maintain living conditions in their neighborhoods, while also providing members in the LLC with astounding returns on their investments.

This LLC is currently approaching home owners’ associations across Las Vegas and Nevada and offering to purchase their receivables at a fair discount.  This LLC then “steps in the shoes” of the HOA as owners of the receivables and assumes not only the receivables, but also all the claims of the HOAs.

There are now two possible outcomes to the situation.  First, the homeowners could pay the assessed dues.  In this case, the LLC will, at minimum, double their investment.  Second, the homeowners could choose not to pay their assessed dues.  In this case, the LLC can foreclose and take title for possession of the property.  At that point, the LLC would immediately lease the property for cash flow to recover the initial purchase price of the receivable including any property rehabilitation costs.  Concurrently, the LLC would move quickly to quash any outstanding liens on the property and clear any cloud to title; including any first mortgages if they exist.  Bank owned properties that are acquired will be clear of any liens. If the title is obtained
through a judicial procedure, the LLC will own clear title to the property for less than $10,000.
If title is not obtained, the LLC will realize sufficient cash flow to recover the purchase price and
any rehabilitation costs as well as a return on investment.  We are projecting significant returns for members through these two courses of action.

This LLC is being formed to capitalize on an anomoly...a perfect storm if you will.  This is not intended to be a long term course of action.  The company will take advantage of the unique opportunities that currently exist and turn a profit for as long as the scenario is workable.

If you are interested in learning more about this opportunity, please contact Glenn Plantone as soon as possible for a complete, confidential executive summary.