Are 2nd liens and other junior liens wiped out in an HOA foreclosure?

42 Replies

Hi,

I wanted to confirm if a 2nd lien or any other junior liens are wiped out after an HOA foreclosures?

In most cases, no liens are wiped out from a HOA foreclosure, unless the HOA lien was placed before the 2nd or junior lien, and the HOA names that 2nd/junior lien holder in the foreclosure action.

@Steve Babiak could you kindly provide the link to your compilation regarding HOA and sheriff sales, I cannot seem to locate it.

In this instance, the 1st lien recorded in 1996 at the time of the purchase.  The Heloc recorded in 2008.  This property is in CA Chad Urbshott.  I will check the foreclosure document.

This property is in CA @Chad Urbshott.

Originally posted by @Jennifer Silletto :

In this instance, the 1st lien recorded in 1996 at the time of the purchase.  The Heloc recorded in 2008.  This property is in CA @Chad Urbshott .  I will check the foreclosure document.

That is the recording of the obligation to pay the HOA, and it probably even pre-dates the first mortgage. So in most states, that does not give the HOA priority over the mortgages. Instead, the HOA has to get a judgment for unpaid dues, and that judgment is the filing that determines where the unpaid HOA gets in line for payment at a foreclosure action. So look to the date of the HOA judgment and use that date in setting lien priority.

This next link is the compilation that @Chad Urbshott was referencing:

http://www.biggerpockets.com/forums/41/topics/6897...

So I had title rep pull all the documents and recording date is as follows.

1. 1996 the 1st lien recorded

2. 2008 2nd (heloc) recorded

3. 2009 HOA recorded delinquency

4. June 2014 HOA recorded another delinquent assessment

5. Aug 2014 HOA records NOD

6. Dec 2014 HOA records NTS

So that means HOA is junior to the 1st and 2nd mortgage liens correct? Do you @Steve Babiak and @Chad Urbshott find that the HOA's are not recording after a buyer has gotten a loan to purchase a property so that the HOA is in 2nd position?

@Jennifer Silletto the HOA will not bother foreclosing unless there is considerable equity and might not even bother with these loans. If the HOA, or whoever buys the lien forecloses it will be subject to the existing mortgages. Check out the mortgage balances to see what kind of equity there is.

@Jeff S. 1st lien is $224k (taken out in 1996)

2nd lien is a heloc up to $250k (so who knows if it got maxed out or not)

HOA delinquency is $6300.

 There was a 4 BR 3 bath 2700 sq ft home sold in 12/14 on the same street for $700k.

This home going to auction is a 5 BR 3.5 bathroom and 2555 sq ft.  So we are looking at about $200k in equity.

That is potentially pretty good equity but probably years of unpaid payments and foreclosure expenses.

You need to work closely with title because there is risk of one of the other loans going to foreclosure too. I would want help on this one @Jennifer Silletto  .

It isn't something I'd do with that much owing but plenty do well with those larger numbers. 

BTW you can be sure the bank didn't loan after an HOA was unpaid and there was a judgement which means the HOA is a junior lien.

@Jeff S. Homeowner stopped paying the HOA beginning July 2005 - and ending in July 2009. Owed $2396. Homeowner must have brought current again and then became delinquent as the HOA filed on 6/9/14 and states homeowner was delinquent through June 2014 owing $1830 of assessments (of which HOA dues are $60/month). So I don't know when or if HO stopped paying the mortgage, I would assume so but the bank has not filed an NOD. HO got the HELOC on 5/29/08 and HOA recorded delinquent lien on 2/19/09. Many unanswered questions as to how much is owed to the 2 senior liens. That's why these auctions can reap large returns but very risky too!

Also, there is some new case law, specifically in Nevada, that has an HOA lien wipe out a 1st mortgage. The basis of that is decision is that the HOA docs are recorded prior to the mortgage that lay out the HOA fees. So even though they do not have a "lien" recorded until after the mortgage it still has priority. Interesting case, here's a link to the article:

http://www.reviewjournal.com/business/housing/nevada-high-court-super-priority-lien-extinguishes-first-deed-trust

That's unique to Nevada law, and doesn't apply to all Nevada HOA FC's.......doesn't translate to other states.

@Jennifer Silletto  If there's that much equity, you need to go make your deal with the owner prior to the auction.....I can assure you others are.

@Jennifer Silletto  is the lien for sale? If you can spare that little amount to buy the lien and can afford to take over the loans then it looks like a good thing. If not in default you can go a while w/o making payments if that is in your comfort level.

Some people don't realize HELOC's and HOA's can actually take their home away and just ignore those debts and continue paying on the first, only to lose it in foreclosure to a second.

The owners are quite shocked when someone walks up to the door and asks them when they are moving. One lady actually got the cash together to pay off the second and was at the bank right when the auction took place. Know the guy that bought it. That was uncomfortable for everyone.

Originally posted by @David Mitchell :

Also, there is some new case law, specifically in Nevada, that has an HOA lien wipe out a 1st mortgage. The basis of that is decision is that the HOA docs are recorded prior to the mortgage that lay out the HOA fees. So even though they do not have a "lien" recorded until after the mortgage it still has priority. Interesting case, here's a link to the article:

http://www.reviewjournal.com/business/housing/nevada-high-court-super-priority-lien-extinguishes-first-deed-trust

It's not quite that simple to wipe out a 1st mortgage in Nevada. the HOA has to follow the same process EVERY lienholder has to follow. For the foreclosure to be valid, notice must be provided to all interested parties (This includes all of the lenders that could be wiped out). Only an idiot (US Bank was an idiot) would not pay the paltry nine months of HOA dues to protect their lien. The HOA is limited to nine months of dues.

@Wayne Brooks Yea I was thinking why not make it easier on myself and go speak to the homeowner. Of course, if they will answer the door at this point is another story. It's a wait game and a lot of patience as the auctions keep on getting postponed. Yes this is an auction for HOA lien. Any tips on making a deal with the homeowner? For me, even if it is not to buy the home, I can certainly help them list it and sell the home.

There are a lot of postponements now in So Cal auctions. I had my eye out on 3 HOA lien auctions today and they all got postponed. Some more than once already.

@Steve Babiak    @Jennifer Silletto   @Wayne Brooks  et cetera...

Currently there are 23 states in which HOA's can wipe out ALL other liens (incl. any first mortgages) via foreclosure. It is called a HOA Super Priority Lien. See below the link for the NV case in front of Supreme Court:

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

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

But Nevada is NOT the only state. Some of the other states are Florida, Colorado, Arizona. I know this because we just locked up 2,500 SFR's in Florida (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 is handling the conversion into Warranty Deeds there. These 2,500 homes have an average BPO of $150K, and we are selling them currently at $32K/property; these properties come 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 FL 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

It should read 'POA' (power of atty) of the HOA.... Sorry.

@connie wolfram

Why do you believe HOA liens in Florida will wipe out a first mortgage holder?

In Florida, HOA auction liens will NOT wipe out 1st or 2nd mortgages. The only benefit in buying an HOA lien is being able to rent out the property until the bank forecloses on the note. You can do an official record search to see how far along the foreclosure is. In Florida, if there is a LP, you have about 2 years before foreclosure. You can also suggest bankruptcy as well as other things to buy more time. I know some investors that will also strip the house before the bank takes it.

@Conny W.  As for Florida, this is either pure delusion on your part, or you're just looking for a bunch of sucker buyers.

The foreclosure of a HOA or condo association lien will extinguish a 2nd mortgagee if the lender is properly joined in the foreclosure. The foreclosure will not extinguish a 1st mortgagee.

Originally posted by @Erin Wysocki :

In Florida, HOA auction liens will NOT wipe out 1st or 2nd mortgages. The only benefit in buying an HOA lien is being able to rent out the property until the bank forecloses on the note. You can do an official record search to see how far along the foreclosure is. In Florida, if there is a LP, you have about 2 years before foreclosure. You can also suggest bankruptcy as well as other things to buy more time. I know some investors that will also strip the house before the bank takes it.

 That's incorrect. I actually posted this reference in another thread, but here it is again, the relevant portion of the Florida statute (this is not legal advice. i cannot guarantee this information is correct. use at your own risk):

"5)(a) The association has a lien on each condominium parcel to secure the payment of assessments. Except as otherwise provided in subsection (1) and as set forth below, the lien is effective from and shall relate back to the recording of the original declaration of condominium, or, in the case of lien on a parcel located in a phase condominium, the last to occur of the recording of the original declaration or amendment thereto creating the parcel. However, as to first mortgages of record, the lien is effective from and after recording of a claim of lien in the public records of the county in which the condominium parcel is located. Nothing in this subsection shall be construed to bestow upon any lien, mortgage, or certified judgment of record on April 1, 1992, including the lien for unpaid assessments created herein, a priority which, by law, the lien, mortgage, or judgment did not have before that date."

This tells us that the HOA lien is effective as of the date of the recording of the declaration or its last amendment if built in phases, except where first mortgages are concerned, where it is effective as of the date a claim of lien is filed with the recorder.

So HOA liens do in fact wipe out second mortgages.

I think we need to put a rule on here that if you are going to discuss the applicability of a law, you must post the law itself. There is just so much bad information on these forums, it is really scary. For newbies, this forum is more like a minefield than a library.

@Hal Thompson Yes it may say that, but it's not that simple.  The second mortgage needs to be named in the suit.  To this day, I have never seen the second mortgage named as a defendant in a case, just the homeowner.  I guess if the second mortgage was named, you would be correct in saying that the second mortgage would be wiped out.   It's just like when a first mortgages forecloses on a property, they have to name the second mortgage in the suit.  If it is not named they have a legal case to go after the property.  That's why buying foreclosures properties is a risky business.  You have be diligent and preform due diligence before taking the risk.  I was just at the auction and an investor bought a second mortgage foreclosure thinking it was the first.  Well now the first is foreclosing and they will be losing their 80K investment.  

I'm still wondering why it would even matter if the second got wiped out, there is still a first and eventually the bank is going to come after the property.

Note:  I am not an attorney, just sharing my experiences.

@Hal Thompson @Erin Wysocki Your're both right. The second mortgage must be named though. As Erin said, I Never see a junior mortgage, or any other lien holder named in a HOA action.

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