Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
I have a opportunity to purchase one HOA deed at 25 cents on dollar. I can rent it out and negotiate with bank for clear title in the meantime. My cost is 35k for a nice condo, A property in B+++ hood worth 132k. Anyone ever attempt such an unusual play?
Investor · Bartlett, IL · Member since 2014 · 193 posts · 43 votes
12y
Some States Give HOA Liens Super Lien Status
Approximately 20 states have laws that give HOA assessment liens super lien status under certain circumstances. For example, in Colorado, HOAs have a super lien that has priority over a first deed of trust (mortgage) to the extent of six months worth of delinquent assessments (Colo. Rev. Stat. § 38-33.3-316). In Nevada, nine months of assessments have super lien status (Nev. Rev. Stat. § 116.3116).
What Happens When the HOA Forecloses its Super Lien?
If the HOA forecloses a super lien, not only does it collect its debt, it eliminates the first mortgage, as well as any other junior liens on the property. Consequently, when a lender is notified that a foreclosure has been initiated by the HOA for unpaid assessments in a super-lien state, in most cases, the lender pays off the super-lien amount to preserve its position as the first-lien holder and stop the foreclosure.
There have been instances of first mortgages being completely wiped out in an HOA super lien foreclosure when the mortgage holder neglects to pay off the super lien to halt the foreclosure. As a result, both Fannie Mae and HUD (the U.S. Department of Housing and Urban Development) have instructed mortgage servicers to proactively protect the priority of the mortgage lien and to clear all liens for delinquent HOA dues, rather than waiting until an HOA foreclosure starts, to keep this from happening in super lien states.
Lender · Redmond, WA · Member since 2014 · 553 posts · 490 votes
12y
Right. I simple title search should verify that the mortgage liens are gone. I think the real issue is one of notification, where if the first lien holder did not receive proper notification of foreclosure they could potentially win recourse of some kind in a lawsuit. The question I have is what is that recourse. My assumption is that the mortgage lien could be reinstated against the deed. Using Matt's numbers above, that would leave him with a loss on the investment. (38K investment + 97K lien = 135K, against FMV of 132K, and we haven't counted delinquent property taxes and selling costs yet.)
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Yes Rick I hear ya. This is the info I have so far. From what I know, the super priority status is the exception to the normal rules of forclosures. I have not found any info on the 1st lenders losing their position rather just the added super priority lien is still in place during foreclosure and must be satisfied to clear title. Still checking and I understand there is still legal wrangling going on with the super priority liens in Nevada.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Perhaps these liens are like a mechanics lien. I understand even those are technically junior to 1st yet they still must be satisfied to clear title. I am guessing that this is similar?
Right. I simple title search should verify that the mortgage liens are gone. I think the real issue is one of notification, where if the first lien holder did not receive proper notification of foreclosure they could potentially win recourse of some kind in a lawsuit. The question I have is what is that recourse. My assumption is that the mortgage lien could be reinstated against the deed. Using Matt's numbers above, that would leave him with a loss on the investment. (38K investment + 97K lien = 135K, against FMV of 132K, and we haven't counted delinquent property taxes and selling costs yet.)
Good point Mike. This lien strategy might work if you get lender to short sell the 97k at 50 to 60 cents on dollar. thanks, Matt
Lender · Redmond, WA · Member since 2014 · 553 posts · 490 votes
12y
Matt - If the 1st lien holder gets their lien re-attached to the deed in a legal action, they would have no motivation to short sell because their lien would be at 97K against a property value of 132K. They would simply foreclose since they would have 35K equity in the property.
Matt - If the 1st lien holder gets their lien re-attached to the deed in a legal action, they would have no motivation to short sell because their lien would be at 97K against a property value of 132K. They would simply foreclose since they would have 35K equity in the property.
Another great condideration Mike. I will have to look into that. I am not sure if the 1st lenders position is unattached at any point but that would become a deal breaker if that happens. Does it make sense that these would behave like a mechanics lien where as it is considered work rendered and junior but must be handled? Thanks, Matt
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
Why would a seller of hoa liens cosmetically rehab at 5k expense guestimate? Did they buy for 5k put 5k in sell for 35k just for rent undar radar pontential?
Matt - If the 1st lien holder gets their lien re-attached to the deed in a legal action, they would have no motivation to short sell because their lien would be at 97K against a property value of 132K. They would simply foreclose since they would have 35K equity in the property.
Another great condideration Mike. I will have to look into that. I am not sure if the 1st lenders position is unattached at any point but that would become a deal breaker if that happens. Does it make sense that these would behave like a mechanics lien where as it is considered work rendered and junior but must be handled? Thanks, Matt
Matt - We seem to have a disconnect here. Your original post said you had the opportunity to purchase an HOA deed at 25c on the dollar. A deed conveys ownership so my assumption was that the HOA foreclosure had already happened and your opportunity was to take ownership of the property. I am thinking now that you meant HOA lien. Is that correct?
Matt - If the 1st lien holder gets their lien re-attached to the deed in a legal action, they would have no motivation to short sell because their lien would be at 97K against a property value of 132K. They would simply foreclose since they would have 35K equity in the property.
Another great condideration Mike. I will have to look into that. I am not sure if the 1st lenders position is unattached at any point but that would become a deal breaker if that happens. Does it make sense that these would behave like a mechanics lien where as it is considered work rendered and junior but must be handled? Thanks, Matt
Matt - We seem to have a disconnect here. Your original post said you had the opportunity to purchase an HOA deed at 25c on the dollar. A deed conveys ownership so my assumption was that the HOA foreclosure had already happened and your opportunity was to take ownership of the property. I am thinking now that you meant HOA lien. Is that correct?
Yes, first assumption is correct Mike. Since this is on the market from a reputable broker, I have to assume the hoa part is done and in hand from seller. This is not a future thing, this is now today, to buy the hoa position.
This issue is currently pending before the Supreme Court of Nevada. There is video online of the oral argument, for example here: https://www.youtube.com/watch?v=OAb7lLo-DJ4
Given the uncertain legal framework upon which ownership of an hoa foreclosure property in Nevada currently exists, it would be pretty risky to buy this at this time. However, the price will go up big time if the Supreme Court rules in favor of hoa lien investors, so if you are confident the hoa will win, then maybe it would make sense to buy.
Legally speaking, this is currently Wild West territory in Nevada. The banks are arguing that they cannot be deprived of their ownership rights without notice that their lien position was at risk. This strikes me as a compelling argument, and I have a hard time seeing how the Supreme Court rules in favor of investors in Nevada, since the losses for the banks would be huge, and largely inequitable given the hazy status of the law. I think that the Supreme Court is going to force the hoa super lien process through the judicial foreclosure process, which is what happens in other venues, and is discussed by the Supreme Court in the above video. This would take it out of Wild West territory.
Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes
12y
I have one question, a few of the states I have been part of something like this even though they were super lien states to everything other then property taxes, one had a 6 month right of redemption and the other had a 12 month. Maybe that is the card the bank is holding to their chest. So that is something I would check out, does the state of Nevada provide redemption rights in their law?
I have no idea about Nevada HOA law. All my deals there just involved paying back dues to close while the owner was in possession but being threatened. One settled for 50% of what was on the HOA books. I haven't done a deal there in 15 years, I just send any leads I know about to an old investor/broker friend there to take a shot at if he likes it, gives him something to do besides occupy a seat at a poker table.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
This just in from Rick Harmons home work.
Rick posted yesterday on this subject.
"For those of you who invest in either NV real estate and/or trust deed notes or even judgment liens, I just got the official ruling:HOA liens that are foreclosed on are given a priority status and wipe off 1st mortgages. There have been several threads on this topic in recent months here on BP"
I thought that is how the law read. The legal take was the banks knew the rules and that was that. I hope to see what is available.