Purchased a HOA foreclosue, now what?

45 Replies

We are in FL. Without knowledge purchased a HOA foreclosue with a 1st lien. The 1st lien is in pre-foreclosure. The homeowner's were in the process of negoiating a loan mod so the foreclosue is on hold. I dont think the bank knows about the HOA foreclosue. The homeowner has left the property. How do we negoiate with the bank to rid the 1st lein? It is a Fannie Mae backed loan with BofA. Is it possible to make an offer to buy the note from Fannie or BofA? Any tips, ideas, etc?
Thank you.

Originally posted by Tammy Spearman:
We are in FL. Without knowledge purchased a HOA foreclosue with a 1st lien. The 1st lien is in pre-foreclosure. The homeowner's were in the process of negoiating a loan mod so the foreclosue is on hold. I dont think the bank knows about the HOA foreclosue. The homeowner has left the property. How do we negoiate with the bank to rid the 1st lein? It is a Fannie Mae backed loan with BofA. Is it possible to make an offer to buy the note from Fannie or BofA? Any tips, ideas, etc?
Thank you.

First, you purchased a home in which the HOA took the action? In FL, do HOA liens have superior position to mortgages? If the HOA took action, then I presume this is the case. If so, Fannie Mae will have to pay all superior in order to be able to resell the property. For this, you can research your state's statutes to see if associations have lien priority or call a real estate attorney. If they do have superior lien rights, then Fannie Mae may have to pay you off which means the amount of the original lien + lawful interest (10% usually) + legal fees. If you overpaid for the original lien amount meaning the lien was bid up, you may not be entitled to repaid on that premium amount. Your going to want to make sure you can be contacted easily if and when this happens so you can get paid so recording a notice in the publiec record is good policy. Also, depending on your state's lien laws, you may be required to have a third-party (attorney usually) collect the debt. So, in other words, get an attorney.

If, however, the HOA does not have a superior position rights, your are now in second postion. In this case, it will be key to locate the owners and try to work a deal through them with Fannie Mae. This will likely not work out since their is no longer incentive for the borrower since they will not get their house back.

Additionally, You will not likely be able to purchase the Note from Fannie because they normally do not sell them individually if at all.

Since you are not the borrower, there is no way you can do a workout without the sellers and frankly if your in an inferior position, you have no leverage. I have seen people buy liens at auction before only to find out they bought in second position.

HOA liens are considered personal debt in many states and you may pursue the borrowers and try to collect the debt or even sue to get a judgment. Not cheap to do, so you should consult with an attorney before so doing. If you get a judgment, you might be able to garnish wages. An alterntive might be to sell the debt to a third-party collector, however, this usually menas you will only recover pennies on the dollar.

Good Luck!

I would strongly recommend you do two things.

One is to have a title company run a title search on this property to find out exactly where you stand. You really should have done that before the auction, which I think you now realize.

The other is that you should hire a lawyer knowledgeable in FL foreclosure law. At the very least, do an initial consultation (sometimes free) and see if anyone is interested in taking your case.

There's a real possibility what you bought is worthless. If you have really won an auction (more below) for a second position lien, then you have possession of the property. However, you are also now on the hook for any superior liens. You'll need to pay those off to get a clear title, and if they're more than the property is worth then that wouldn't be worthwhile. If they're less, then you still have to come up with the money to pay them off.

If you're in a superior position, then the junior liens will be wiped out by the foreclosure.

You say "I dont think the bank knows about the HOA foreclosue." That's really bad, but might just save your bacon. When a foreclosure occurs, ALL relevant parties must receive notification. If the BofA wasn't properly notified, then the foreclosure you won may be void. If that's the case, the whole HOA foreclosure should be unwound.

This is why you really MUST get a lawyer involved so you can find out what's really going on.

Here in CO, HOA liens are funny things. A portion of the lien, up to some amount, is very high in the food chain, even before any first mortgages. If the lien exceeds that threshold (a few grand, IIRC) then the rest of the amount is in a very junior position.

Certainly an entity like BofA that holds a (presumably) relatively large mortgage (relative to the size of the HOA lien) on a relatively valuable property is not going to just roll over and let you have to property. Lawyer up.

Yes, I know we should have done the research first. However, my husband did this without my knowledge and is now enlightened as to what should be done first, but what's done is done now. In FL the HOA has the right to foreclosure just as a mortgage can; however, it is junior to the first mortgage. We don’t want anything “given� to us we just want to keep the house. It is totally upside down. We want to negotiate a fair deal based on the cash we have and the market value not what’s owed on the note.

If the HOA is the junior lien and you just bought it and the property is upside down...I would get a lawyer asap.

Echoing everything Jon said and adding DO IT TODAY!!

If the 1st lienholder forecloses, they wipe out all junior lienholders...you. You are left with nothing. They are under no obligation to deal with you either.

Generally, if you buy a junior lien, you want to make sure there is enough equity in the property to cover the 1st lienholder, that way, if the property sells, it now has a better chance to cover 1st & 2nd lien.

Again, nothing with regard to this situation sounds good. I would call a lawyer asap especially if you put any significant amountn of $$ into this junior lien purchase.

Best of Luck!

Yes, who knows - you may have a time period where you can back out of the purchase. Call a lawyer today.

I agree with others here. You are clearly in an inferior position, so you have little else to do but get advice from an attorney.

Unfortunately, the HOA was preparing to go after the sellers and was in the midst of perfecting a lien with the hopes of eventually turning it into a judgment when your husband stepped them in and paid them off.

Good Luck!

Can you post the numbers please so we can think this over.

I assume when you say its "totally upside down" that more is owed on the first mortgage than the property is worth. It also sounds like you do actually want the house. I see three possible outcomes:

1) The HOA foreclosure was done improperly. This seems like a real possibility if BofA wasn't properly notified. OTOH, BofA may have been notified and its just that whoever you're dealing with doesn't know that. If the foreclosure was improper, it might get unwound and you could get your money back.

2) The HOA foreclosure was legit, but there is still some way to bail out and get your money back.

3) The HOA foreclosure was legit and your stuck for whatever you paid. You're also on the hook for the first mortgage and any other liens that a senior to the HOA lien. Second mortgages, tax liens, etc. I doubt BofA can come after you personally for the loan, but they have a senior claim on the property, and are within their rights to proceed to foreclosure. You may have possession of the property, for the moment, but all you really have is a junior lien. In CO, junior lienholders do have redemption rights. Since you're the actual owner for the moment, I'm not sure what your rights are. A conversation with a knowledgeable lawyer is pretty essential right now. Don't know what you paid for the HOA foreclosure, but without a lawyer there is a very high likelihood that money is gone with nothing to show for it.

We have spoken with an attorney concerning this, his advice is to contact the previous homeowner and try to get his cooperation to do a short sale/obtain power of attorney and/or contact Fannie Mae/BofA and try to negotiate, or the last option is to bid at the BofA foreclosure sale.
The numbers are as follows: Market value about $200,000.00/215,000.00, the loan amount is $385,000.00

As the new owners: In order for BoA to "properly" foreclose, the new owners should be given notice. This might stall things a bit, maybe enough for you to get time to figure out what else you need to do.

In some states, the HOA is not totally wiped out even when it is a junior lien. I also recall reading posts here on BP regarding HOA and the state of FL; see here:

http://www.biggerpockets.com/forums/70/topics/49919-tax-deed-in-florida

http://www.biggerpockets.com/forums/41/topics/57660-which-liens-survive-foreclosure-

Good luck!

Originally posted by Tammy Spearman:
We have spoken with an attorney concerning this, his advice is to contact the previous homeowner and try to get his cooperation to do a short sale/obtain power of attorney and/or contact Fannie Mae/BofA and try to negotiate, or the last option is to bid at the BofA foreclosure sale.
The numbers are as follows: Market value about $200,000.00/215,000.00, the loan amount is $385,000.00

The strategies offered by your attorney are unlikely to happen in my experience. The owner has already vacated the property and has little incentive to cooperate with you. If the seller is cooperative, then this will likely be your best option.

The power of attorney, based upon my own experience, will get you nowhere since the investor is Fannie Mae. They have no formal programs to settle the debts.

Perhaps another strategy might be for you to see if you have rights to pursue a judgment and then proceed with wage garnishment. Did the attorney give you options with regard to rights to collect the debt? Wage Garnisment? Are HOA liens stripped in bankruptcy? Once perfected, you might be able to recoup a portion of the loss over time. Of course, this depends largely on how much you already have invested and the estimated legal costs which are usually fairly low.

Hope you find the previous homeowner. It might be better for them to try to resolve it via shortsale than foreclosure (at least for their personal credit), plus it is no skin off their back to forward a purchase contract to B of A to see what they say.
If that doesn't work...eh. Bidding at the foreclosure sale is a possibility, but one that would have existed to you with or without owning the 2nd lien I believe.

Best of Luck!

Tammy, do you actually own the property now as a result of winning that HOA auction? I would think that you do or will once the redemption time period (10 day?) passes. So, I can't seen how the previous owner could negotiate a short sale - they don't own the property. They are still on the hook for the debt, but you are now the owner.

I think the HOA lien is now satisified. Whether or not it survives the upcoming BofA foreclosure or what rights it might have had are no longer relevant because this HOA lien no longer exists.

Unfortunately, you are exactly what the HOA was looking for when they did the foreclosure. Someone who didn't really understand what they were buying. The HOA now has their money so they're happy. You have the property, but only until BofA forecloses.

Does your county post foreclosure results? Ours do, and it appears that in most cases the foreclosing bank starts the bidding at the amount that's owed and then ends up taking the property back. In a small number of cases, they start the bidding lower and then someone else wins the auction. If you can find auction results you might get some idea if there's a chance of getting it at auction.

Unfortunately, the money you spent on this auction is lost. Even if you do win the house at the upcoming auction, you could have done that without this HOA lien. Owning the house now doesn't really give you any leverage with BofA. The change in ownership probably helps BofA's case in that they can now proceed immediately to foreclosure based on the due-on-sale clause. Hopefully the amount you paid was small enough that you can chalk this up to the school of hard knocks and move on.

It might be worthwhile to speak with another attorney or two.

Since the HOA initiated foreclosure, I was under the impression that they had some sort of statutory priority. Why else would they foreclose?

Well, after speaking to an attorney friend in Florida, he told me that foreclosure actions are sometimes taken by the HOA in an effort to spur on a reactionary lis pendens.

Turnsout many associations property values have been impacted by slowness of lenders to foreclose. This can result in homes that are left uncared for and vacant for a couple of years in many cases.

So, Jon has given you some good advice. Findout if your on title and if the 1st has filed a lis pendens.

If your on title, perhaps you can rent the property out and recoup some of your money.

Originally posted by Scott Hubbard:
Since the HOA initiated foreclosure, I was under the impression that they had some sort of statutory priority. Why else would they foreclose?

The HOA's foreclose for a few reasons. #1 is an uninformed investor might just pay them off at auction as was done here.
#2 There are rules in FL that allow an HOA to speed up the FC process to just 30 days. This can be used to push the mortgage holders to move faster. The HOA just wants the current owner out so a new one can come in and start paying assessments.
#3 They are just frustrated and want to do something.

There also are some properties that are not upside down and it would make sense for a junior holder to FC.

Originally posted by Jon Holdman:
Tammy, do you actually own the property now as a result of winning that HOA auction?

I don't think they own anything except the lien. They would have to move in court to take the deed if they want to actually "own the house". Obviously that would require them satisfying senior lien holders.

Again I'm not a lawyer and not at all familiar with FL foreclosure procedures. Here in CO, if a junior lienholder forecloses and the foreclosure goes to auction, and someone wins that auction the public trustee (the county official who does foreclosures) WILL indeed issue a "public trustee deed". That's all the winner of a foreclosure auction in CO ever gets. That deed convey's ownership, but does not guarantee a clear and marketable title. Specifically, from the Jefferson County Public Trustee FAQ


8.Q: If a Public Trustee's Deed is issued in a foreclosure on a second or third (etc.) mortgage, does that remove all other liens?
A: No, the Public Trustee's Deed is issued subject to any other senior liens. A Public Trustee's Deed is not a Warranty Deed and does not convey clear and free title.

The lien that was foreclosed is gone. Its satisifed by the foreclosure procedure and the auction. So, the winner does not have the rights they would have if they had bought the note from the foreclosing lienholder. Specifically, in CO, a lienholder has redemption rights. If the first forecloses, a second lienholder has the option to pay the auction winner the winning bid amount (plus interest) and take the property. Since the winner of an auction for a second lien foreclosure doesn't own the lien, they don't have these redemption rights. They instead have an ownership claim. What, if anything, that is worth, I don't know. Not very much, it would appear.

I really think reason #1

#1 is an uninformed investor might just pay them off at auction as was done here.

is exactly what the HOA was hoping for. They may have been expecting #2 to be the outcome, but #1 was even better.

In FL title is given to the winning bidder. We have title to the property “subject to� the first lien. Yes if my husband would have known that, he would not have bid. However, the BofA foreclosure is on hold because they were working with the homeowner to obtain a modification. The HOA was not required to list the 1st lien holder and according to FL Statute and Fannie Mae guidelines the “due on sale/transfer� doesn’t apply.
Our goal was to keep the house for ourselves if at all possible. Does anyone have any ides/contacts with BofA? I see that BofA has bought back many “bad� notes sold to Fannie Mae. I wonder if this could be one of those. Just grabbing at straws guys.

If you really like the house and want to keep it, do you have enough cash to make an offer to BofA? At this point, they might be willing to take significantly less than what is owed to them.

We do have cash. What do you mean by "significantly less"?

If you really like the house and want to keep it, do you have enough cash to make an offer to BofA? At this point, they might be willing to take significantly less than what is owed to them.

This is what we are hoping to do. What is "significantly less". The house is in need of some work the previous homeowner's didn't keep it up very well. But we are willing to work with it. Any suggestions on what to offer based on the amounts listed above?

The HOA does not own the property, I just went through this with my roommate his condo was with BofA the HOA foreclosed. I work in the loan modification business, made a few calls to the lenders attorney, the HOA would have to pay off the first lien in order for them to have rights to sell or do anything with the property. If the owners where in a loan modification process and the bank new about the HOA foreclosing they (BofA) could be in real trouble. According to HAMP guidelines the lender most exhaust all possibilities and take care of any outstanding issues (ie: hoa dues), usually the lender would of paid those, unless they were planning on just foreclosing anyway. I hope you understand but I would work with the bank not the HOA, since they do not have ownership rights. Beware a lot of HOA's have dirty hands.... Deal with the source always!!! the bank...

Originally posted by Tiffiany Smith :
The HOA does not own the property, ...

Correct, but your explanation isn't relevant. The purchaser of the HOA lien at the foreclosure auction now owns the property; just happens to be the OP for this thread. The new owner does not own it outright ("free and clear"), since there seem to be underlying lien(s) from mortgage(s) that would first have to be paid off.

Certainly, there is no reason for the new owner to have to "work with the HOA" to get this paid off, since that was the purpose of the foreclosure auction - to pay off the HOA lien. But future HOA dues are now the responsibility of the new owner (the OP in this case).

Originally posted by Tammy Spearman:
In FL title is given to the winning bidder. We have title to the property “subject to� the first lien. Yes if my husband would have known that, he would not have bid. However, the BofA foreclosure is on hold because they were working with the homeowner to obtain a modification. The HOA was not required to list the 1st lien holder and according to FL Statute and Fannie Mae guidelines the “due on sale/transfer� doesn’t apply.
Our goal was to keep the house for ourselves if at all possible. Does anyone have any ides/contacts with BofA? I see that BofA has bought back many “bad� notes sold to Fannie Mae. I wonder if this could be one of those. Just grabbing at straws guys.

I can get you a contact at BoA that might be able to help. You should start there. I cannot post the contact information on this site though, so please PM me if your interested.

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