Buying HOA Liens

25 Replies

I am wondering if I can go directly to property management companies and buy HOA liens? . I've been reading that many investors buy the liens and rent out until the bank forecloses. Has anyone ever done this? The way I understand is that as long as the tenant has a valid lease the bank will have to honor it until it expires.

First, you have to buy it on the courthouse steps to claim ownership - that is required to rent out the property. Then you have the choice of paying on the previous owners behalf (which will delay foreclosure until they realize there's been a title transfer). Good luck!

Yes, it's the foreclosure on those liens that gives the ownership interest to the buyer; buying the liens from the HOA just gives you the rights to pursue the foreclosure (and the associated expenses of that).

It seems like if I wanted to buy direct from the HOA, I could play the scare tactic card. Especially if its amounts for like 1200 or less, could be easy money once they recieve a letter from an attorney talking about initiating the foreclosure process.

Originally posted by Shawn Dandridge:
I've been reading that many investors buy the liens and rent out until the bank forecloses. Has anyone ever done this? The way I understand is that as long as the tenant has a valid lease the bank will have to honor it until it expires.

This is not completely true. It is my understanding that if you enter into the lease knowing of the foreclosure and placing a tenant anyway, then the lease is essentially deemed invalid as you and the tenant knew that it was a matter of time before they were evicted.

Also there is an assignment of rents in residential mortgages as well, and doing this may open you up to a lawsuit by the mortgage holder since you essentially stole potential rent from them.

And finally if the plan is actually to buy an HOA lien and wait until a foreclosure, I think that falls under unethical practices and would never do that, or encourage anyone else to either.

I just saw your second post, so maybe I'm misunderstanding what it is you want to do. Do you want to own the property, own the lien to collect interest, or rent the home until the senior lien forecloses you and collect rent in the mean time?

Sry if I misunderstood your first post, but you haven't said what it is you're trying to do here yet. After you do I'm sure we can give some direction.

Matt,

At first, renting the property was my idea but it seems as thought it would be easier just to buy the lien directly off the HOA and start to initate the foreclosure process in hopes that the homeowner or the mortgage holder would satisfy the lien.

K.I.S.S. There are more great opportunities out there than you have money or time. Seek these out and you will make much more money with less hassles and aggravation.

If you are trying to out smart the system, or if it is fast, easy money, you are probably considering a very bad investment opportunity riddled with many problems. Before you know it, all your money is going to lawyers. You might as well buy the new Benz for them now and safe yourself the hassle and aggravation.

@Shawn Dandridge , yes you have to buy the HOA lien and what your mentioned earlier is the Protecting Tenants in Foreclosure Act (where the bank has to honor the lease). But it's not that simple. @Matt Devincenzo is correct in saying that some mortgages have assignment of rents.

In Florida, a HOA lien is a "super lien" (sort of equal to the 1st mortgage). The HOA can file foreclosure vs. the 1st mortgage holder. In other states, I am not sure.

You need knowledge of foreclosure law in your state as well as rights of HOAs. In some states, they get right of possession. How it conflicts with the PTFA, I do not know right now. I suggest you talk to a foreclosure attorney in your state.

If a property owner is not paying HOA dues and fees, the property taxes are probably delinquent. In most cases, tax liens are in front of all liens and mortgages, with Federal lien first in line should there be any.

Originally posted by @Tom Goans :
... with Federal lien first in line should there be any.

Tom Goans - Federal liens - specifically IRS - get in line just like any other lien; the main distinction of the IRS lien is that there is a 120 day right of redemption that the IRS gets.

@Tom Goans ,

You are incorrect. @Steve Babiak is correct in that Federal Liens get in line. They are after the mortgage; however, property tax liens typically jump ahead.

-Steven

Conduct an Internet search or call your favorite title insurance company to confirm the following:

Federal Tax Liens Take Priority Over Superior Liens

One exception to the lien priority rule occurs if you owe an unpaid tax debt. Failing to pay your tax debt to the IRS will result in a federal tax lien. Federal tax liens attach to all of your assets simultaneously, and the federal government’s security interest supersedes that of any other lender or creditor.

The federal government’s superior security interest can be subverted by the mortgage lender, however, if it wishes to foreclose. Mortgage lenders that provide the IRS with 25 days’ notice of an impending foreclosure can avoid paying off the tax debt when seizing the debtor’s real estate.

Unlike other unpaid junior liens, the IRS’ security interest isn’t terminated by the property foreclosure. The federal government’s right to re-claim the property continues for 120 days after a mortgage foreclosure takes place. Thus, an investor can purchase a foreclosed home and make improvements to it only to see it seized by the IRS as payment for the previous owner’s outstanding tax debt. After the 120 day redemption period passes, the IRS loses its right to reclaim the property.

@Tom Goans - consider your source, and then consider mine below:

http://www.irs.gov/irm/part5/irm_05-017-002.html#d0e1169

Updated over 1 year ago

Here is a link to a publication from the IRS that discusses how the lien position of an IRS lien is determined; above link has been reformatted so it no longer points directly to the pertinent information. https://www.irs.gov/pub/irs-wd/0922049.pdf

Seems the IRS re-formats the pages every now and then; the redemption period is now at this link:

http://www.irs.gov/irm/part5/irm_05-017-002-cont01.html#d0e2535

In Florida:  

HOA investment programs give the investor tremendous leveraging power in purchasing distressed homes. Once you hold the deed to the property you have now established a vehicle to cloud the title. Here, in South Florida, at least 40% of distressed homeowners have values less than the mortgages. Banks know that they will never get the mortgage paid off. They are receptive to the title holder and understand that they need to settle somewhere between 60 and 65% of the Fair Market Value. They are weighing the cost of fighting the "quiet title" issue, what they are going to get at auction, the time frame of getting the property to a sale date and the cost of carrying the HOA fees, the property taxes and the homeowners insurance during that time frame. Note that during that time the title holder owns the deed and can rent the property while negotiations are going on. Many investors can't compete with the hedge-fund "boys" as they will pay well over market on certain properties at auction. With the HOA's the tail is wagging the dog. The investor is technically in the driver's seat. Banks are settling rather than bearing the costs of continuing with the foreclosure action. If the investor has an end buyer than when the bank settles he is the transactional buyer so the only major outlay, for the investor, is the cost of the HOA at auction. There is your leveraging. With a formula and stringent due diligence these types of real estate purchases are very profitable.

NOTE: If the bank won't settle than the property can be rented usually long enough to recover the HOA cost and a profit to boot.

The quiet title actions by HOA buyers don't scare the banks here, as they have no merit. Many HOA foreclosure buyers have learned this lesson. They get foreclosed out along with the original owners.

Originally posted by @Wayne Brooks :

Wendell De Guzman Florida is NOT a super lien state, in that the HOA lien is equal, or superior, to the first mortgage....it is not. An HOA lien acts as any other junior lien, except for any overages from a first mtg foreclosure/sale.

 Wayne~

sorry, but you are mistaken: An HOA in Florida CAN wipe out all other liens with a so-called HOA Super Priority Lien, and IF the HOA files for foreclosure on the property. There are currently 23 states (as of last count a couple of weeks ago) that enforce this law.

I know this because we just locked up 2,500 SFR's in your state (in Orlando, to be specific) that are past the redemption period (bank did not pay delinquent HOA dues), and the same law group that won the case in Nevada in front of Supreme Court (see link below) is handling the conversion into Warranty Deeds. These 2,500 homes have an average BPO of $150K, and we are selling them at $32K/property, and each of these properties comes with:

1. HOA Super Priority Lien Assignment

2. POE of the HOA

3. Attorney Fees paid for already

4. Blanket Receivership (until Warranty Deed is issued by judge) ==> buyer can collect rent

I have included a couple of links for further explanation. One of these links actually is a video of the Argument in front of the Supreme Court in Nevada. The HOA walked away (on a $6K lien) with a property worth $880,000!!!

https://www.youtube.com/watch?v=EkJFBmkNBFw

https://www.youtube.com/watch?v=OAb7lLo-DJ4

@Conny W. Nevada state laws have no bearing whatsoever on Florida state laws. An HOA foreclosure against an owner who has a mortgage, does nothing to affect that mortgage. Anyone claiming it does is purely misrepresenting the law, and is looking for suckers to sell them to. Every HOA/COA Declaration has a unilateral subordination to a first mortgage. Hence the reason you're selling $150k properties for $32k. If you believed you had clear title, you wouldn't be discounting them so heavily. Yes, a buyer at an HOA auction has title to the property, albeit subject to the existing mortgage, and can legally collect rent....until the underlying mortgagee forecloses them out along with the original borrower. We just looked at a supposed tape of REO's a couple of weeks ago, at 50% of BPO, and they all turned out to be this same HOA auction acquired junk with underlying mortgages. Of course if you're counting on the underlying mortgages being "5 yeared out" that's a whole different delusion.

By the way, even in successful Quiet Title actions, Florida judges don't "issue Warranty Deeds".

I got a kick out of your post, @Conny W.  

Good try. Care to cite statute or FL case law supporting your claim?

Super-priority liens are only established in very narrow bands of gov law or by court order (or stip) here in CA. I work all 58 counties and know many of the judges; they hate to sign SP lien orders, leaving very limited statutory provisions. 

Wayne's been to a few rodeos and county fairs and knows FL title. I think I know CA, but won't go head-to-head with Wayne on his state. 

A close friend is on NV AG's legal advisory panel gave me the backstory on the State ruling. It ain't over,

I may be wrong, but I think you're pitching paper which is a no-no on BP unless you are Pro/plus status snd restrict posts to marketplace. IF I'm wrong, please accept my apologies in advance.   

@Bill Gulley, you out there?

Originally posted by @Karrie Hodgeman :

In Florida:  

HOA investment programs give the investor tremendous leveraging power in purchasing distressed homes. Once you hold the deed to the property you have now established a vehicle to cloud the title. Here, in South Florida, at least 40% of distressed homeowners have values less than the mortgages. Banks know that they will never get the mortgage paid off. They are receptive to the title holder and understand that they need to settle somewhere between 60 and 65% of the Fair Market Value. They are weighing the cost of fighting the "quiet title" issue, what they are going to get at auction, the time frame of getting the property to a sale date and the cost of carrying the HOA fees, the property taxes and the homeowners insurance during that time frame. Note that during that time the title holder owns the deed and can rent the property while negotiations are going on. Many investors can't compete with the hedge-fund "boys" as they will pay well over market on certain properties at auction. With the HOA's the tail is wagging the dog. The investor is technically in the driver's seat. Banks are settling rather than bearing the costs of continuing with the foreclosure action. If the investor has an end buyer than when the bank settles he is the transactional buyer so the only major outlay, for the investor, is the cost of the HOA at auction. There is your leveraging. With a formula and stringent due diligence these types of real estate purchases are very profitable.

NOTE: If the bank won't settle than the property can be rented usually long enough to recover the HOA cost and a profit to boot.

 What happens to the buyer when the bank forecloses? Does it affect their credit?