HOA Lien, IRS lien judgements and foreclosure on a condo

11 Replies

I came across a seller (widow) that presented a pretty complicated situation and I am trying to determine if there is something I am not aware of that could make this deal work. 

  • Husband passed away beginning of 2014
  • Their property was in default starting mid 2013 and the bank has filed foreclosure notices but no court date has been set. 
  • There is an IRS lien filed under the husbands name which the most recent notice was filed beginning of 2014.
  • The husband's will states that the sole beneficiary is his non-profit corporation. However, this corporation has 3 judgements levied against it that total to at least $300k!!
  • Here are the numbers:
  • Mortgage: ~130k
  • HOA Lien: ~ 8k
  • IRS Lien: ~70-80k
  • Judgements: >300k
  • ARV: ~250k

Obviously, this deal won't work if all debts/liabilities have to be paid, however it could work if the IRS lien and Judgements can be decoupled from the property. Is there anyway of doing that? 

Michael Finkelshteyn, Real Estate Agent

The property could potentially be sold subject to the liens, but you wouldn't be able to get a loan, and you would have to wait for the liens to expire (IRS Tax Liens expire after 10 years, for example). Depending on the type of judgement liens, they may expire over time as well; if this is a Texas property it is also 10 years for a judgement lien to expire: http://www.nolo.com/legal-encyclopedia/judgment-li...

The mortgage and hoa liens would have to be paid. I believe both are perpetual, so there is no expiration. In addition, if you don't pay the mortgage relatively soon (or bring it current with the cooperation of the bank), they are going to get around to foreclosing on the property eventually, and you will lose it.

Given that the mortgage + hoa + irs lien are all prior to any judgement liens and approximate the value of the property, it is unlikely a judgement creditor would pursue foreclosure against this property. However, the 10 year waiting period probably isn't worth tying up that much cash and being unable to sell the property for 10 years (or however long is left on the liens).

Simple answer is wait for it to go to foreclosure.

Originally posted by @Michael Finkelshteyn :

I came across a seller (widow) that presented a pretty complicated situation and I am trying to determine if there is something I am not aware of that could make this deal work. 

  • Husband passed away beginning of 2014
  • Their property was in default starting mid 2013 and the bank has filed foreclosure notices but no court date has been set. 
  • There is an IRS lien filed under the husbands name which the most recent notice was filed beginning of 2014.
  • The husband's will states that the sole beneficiary is his non-profit corporation. However, this corporation has 3 judgements levied against it that total to at least $300k!!
  • Here are the numbers:
  • Mortgage: ~130k
  • HOA Lien: ~ 8k
  • IRS Lien: ~70-80k
  • Judgements: >300k
  • ARV: ~250k

Obviously, this deal won't work if all debts/liabilities have to be paid, however it could work if the IRS lien and Judgements can be decoupled from the property. Is there anyway of doing that? 

Are you really that desperate to do this deal with all this debt possibly attached to it? You can bet there is more stuff than the above as well.

Couple other things:

First, unless title to the property was also in the spouse's name, then this property will have to go through probate before it can be sold. The deceased is not around to sign a deed, so there is no way to effectuate a transfer without a probate court getting involved. That court may or may not decide to sell the property to pay the debts.

Assuming title has passed to the spouse, then I think your best bet would be to look into bringing the loan current with the bank, and potentially rolling the delinquencies into the principle. This minimizes your cash outlay. Then you pay off the hoa dues, rent out the property, and wait for the judgement liens to fall off.

@Hal Thompson You are mostly correct, however probate is NOT the only way to effectuate a transfer. 

I like your thinking, however a foreclosure sale would be another form of transfer, right?

Other plays: buy the junior debt, control the equity, claim surplus, etc. 

Probate is still needed to complete the specific bequest to NPO. My point is that there are many ways to play an opportunity.

@Rick H. Yes, you're right. You can get more creative, like buying one of the junior liens and foreclosing it yourself. However, unless the property is really a screaming deal, I tend to avoid the headache of this approach.

How was title held prior to the husband 's passing? Was wife also on title? If so, did wife and husband hold title as tenants by the entirety or as joint tenants? If so, wife will be able to exercise her rights of survivorship and as a result should eliminate any probate proceedings. In any case, the lender is in the process of iniating foreclosure on the property, so you still have that to deal with along with the IRS lien.

I would buy the HOA lien, and start a foreclosure.

Hey guys, thanks for all the replies. I didn't mention earlier that the property has already gone through probate. The certificate of notice states that the only beneficiary is the decedent's non profit organization, so that should answer your question, @Jenny C.

I am not really sure how the spouse is involved and what claim she has to the property. 

The IRS lien was filed in 2014, the foreclosures and judgements were initiated before that. I read somewhere that the IRS is not a senior lien if it's filed after a foreclosure, but that's kind of odd to me. I thought Uncle Sam barged had senior rights all the time. 

My thinking was similar to yours, @Hal Thompson . I was thinking that the HOA lien could be paid off, the mortgage brought current and then assumed. Then the property could be repaired and either flipped or rented.

@Dave Metsker , I don't understand how you could foreclose with a junior lien if there is a senior lien in place. 

But overall, @James DeRoest is correct, I am not desperate for this deal. It was just an interesting deal and would have been a good exercise if I knew for certain that it was profitable. 

Michael Finkelshteyn, Real Estate Agent

@Michael Finkelshteyn, HOA's often foreclose on condos, when they believe it is in their best interest. Depending on the exact language in the HOA documents, in some rare cases, their lien is senior to the first mortgage. Recent court cases in Nevada have determined that HOA liens are superior to the first mortgage, to the great consternation of the mortgage companies.

Thanks @Dave Metsker . Thats interesting. So what type of language dictates that the HOA lien is superior to the mortgage? If that's the case, wouldn't lenders be wary of lending to a property in an HOA? It seems like you could lose your investment for a small sum.

Michael Finkelshteyn, Real Estate Agent

@Michael Finkelshteyn There's no value in the HOA angle. Without negotiating/satisfying the$300k in judgments, you won't be selling/flipping.

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