HOA Foreclosure- Mortgage Payoff

36 Replies

I bought this home from an HOA foreclosure auction. The house is worth $650,000 (conservatively). The previous homeowner took out a mortgage for $275,000. Since I bought it from an HOA foreclosure auction, I know the mortgage is a surviving lien on the property. My question is, do I have the right to payoff that mortgage? Also, do I have the right to get more information about the mortgage (like the balance, payments, etc.)? Thanks :D

What state are you in? Is the HOA lien senior to the existing mortgage or not? Are their any other liens?

Assuming your HOA lien is junior to the mortgage, you have not only the right but also the obligation to pay off that loan. If you don't, they can foreclose and take your property.

If you don't have a title search, do one now.

Ya think? Yes! like before you bought it. The questions you are asking need to be asked of the bank.

What happens when that bank forecloses because the prior owner obviously wasn't paying their bills.

Do you have a lawyer? I would make 2 calls to start 1) the bank 2) a lawyer.

By the way, this all doesn't sound right.

Its perfectly right. An HOA in a junior position knows they have little recourse if the senior lien forecloses. They file a foreclosure hoping that maybe the first mortgage forecloses, takes possession and gives them a target to go after for some money. Better yet, someone who doesn't understand what they're buying actually bids at the auction and pays them off.

another thread on this same situation

This one sounds better because there appears to be some equity. Trouble is, without a title search, who knows if there are other liens. If it really had that much equity, the owner could have easily sold it at a fire sale price and avoided the foreclosure. Almost certainly more going on here.

I am in Florida. The Mortgage is in first position. No their are not any other liens on the property. I am looking for a new attorney because I asked this question to my current attorney and he wasnt sure... My plan was to list the property at a discounted price (maybe $575,000), and then pay off the mortgage straight out of closing. Do you think this is a good idea? The bank has to release the information about the loan, right?

I know somebody (another BP member, as well as being in local REIA that I belong to) who, as one of his business activities, purchases second position non-performing notes. I once posed the question to him of how he deals with the first position lender. He avoids paying them off! He waits until the first starts the foreclosure process, and then he is contacted by somebody from the first lender.

But of course, he does NOT want the houses. Seems you WANT the house here, so you might have to take a different approach.

Certainly, the former owners will no longer continue to pay on that first mortgage, so it is only a matter of time until the first pursues foreclosure. You just might be able to line up a buyer before the really bad stuff catches up with you, and then your method does make sense - the buyer's funds will go first toward paying off the most senior lien positions, then junior lien positions, and then you would get paid.. My bet is that the first hasn't been paid in a while, so the first will be foreclosing - just a matter of when / how soon.

Because the ownership has changed as a result of that HOA auction, the first can proceed immediately to foreclosure, whether payments are being made or not. But I too would guess the payments aren't being made and this is just the additional incentive to start moving as quickly as possible.

When you find that new attorney, discuss the timeline. They may have to restart the process with you as the new owner. If you can find a buyer quick enough, maybe you can get through the sale before they can complete the foreclosure.

Alternatively, you could look at doing a refinance and pay off this first. That's more expensive, but avoids them coming after you.

Originally posted by Jon Holdman:
Because the ownership has changed as a result of that HOA auction, the first can proceed immediately to foreclosure, whether payments are being made or not. ....

True, but the banks are going to be much slower to notice something like that. Now a missed payment - that's money out of their pocket and they'll take immediate notice to that.

I actually contacted the bank and they said that they would give me 3 months to sell the property. The also told me that the pay off is $228,000. They would tell me what the payments were or if the mortgage is in default. I also listed the property ($595,000). So hopefully I make at at least $350,000. Not bad for one deal...

Originally posted by Joshua Walters:
I actually contacted the bank and they said that they would give me 3 months to sell the property. The also told me that the pay off is $228,000. They would tell me what the payments were or if the mortgage is in default. I also listed the property ($595,000). So hopefully I make at at least $350,000. Not bad for one deal...

If I understand correctly, homeowner stopped paying HOA fees and got foreclosed on over that? Check other liens, might happen that there are other (than first mortgage) liens on the property.
PLEASE keep us updated, sounds like an awesome deal.

Goofy stuff happens to some people. I have a property that I bought at sheriff sale that was foreclosed for unpaid taxes (waiting out redemption period now); those people could have easily sold it to pay off the taxes, and have some cash left over - but they didn't ...

Actually I just had a Title search completed earlier today their is a $6,500 unrecorded lien for the new windows. I am going to pay it later on today

I am not familiar with Florida law. I have always known HOA Liens to be ahead of 1st mortgages. I would love to know more details of this deal because something does not sound right. Please someone explain it to me in detail, I like to think I know my way around the block a bit, but this one is unclear to me.
Thanks :oops:

Originally posted by RobTheHouseGuy1:
I am not familiar with Florida law. I have always known HOA Liens to be ahead of 1st mortgages. I would love to know more details of this deal because something does not sound right. Please someone explain it to me in detail, I like to think I know my way around the block a bit, but this one is unclear to me.
Thanks :oops:

HOA forecloses on the house for not paying the dues and foreclosure is subject to existing liens. It means if you pay $500 (outstanding HOA dues) at the auction for the house that is worth $100k and has an $80k mortgage, you gotta pay this $80k lien off in order to own the property. It's not wiped off as if it would in case you were foreclosing on tax lien.

Actually, it will vary from state to state as to whether an HOA lien has senior priority or not.

And as for tax liens, in PA a tax lien foreclosure does not necessarily wipe out the mortgages on a property, so you can't assume that the type of lien being foreclosed will determine some other type of lien getting wiped out.

This is all stuff that each state handles differently, so you need to understand the rules as they exist in the state where the property lies.

Here in CO HOA liens can be both senior and junior. A certain amount, a few grand, IIRC, is senior to any mortgages and the rest is junior. If there was both a senior and junior amount, a foreclosure on the first would result in the winner being responsible for the senior amount and the junior amount would have redemption rights.

Originally posted by RobTheHouseGuy1:
I am not familiar with Florida law. I have always known HOA Liens to be ahead of 1st mortgages. I would love to know more details of this deal because something does not sound right. Please someone explain it to me in detail, I like to think I know my way around the block a bit, but this one is unclear to me.
Thanks :oops:

In florida, all HOA liens are junior to any mortgage. So when I got the house, the mortgage lien survived the sale. I only paid $1,200 for a $17,000 HOA lien all because the plaintiff's (HOA) representative didn't submit a bid at the auction and everybody else just ignored it because it was an HOA auction and figured the property was upside down. I found out the owner moved to England and is in his late 80's so I guess he's not all that interest in saving it any more.

Just got an offer on the house. I HATE when people low ball. The guy wanted $395,000. He so lucky he wasnt in front of me or I would have cursed him out so bad. Still cant believe he would offer $200,000 less than asking price ($595,000) on a house that is appraised for $672,000. I was so mad that I countered him back at $790,000 (2 times what he offered). Lets hope he gets the message...

You paid $1200 + $6500, with a loan payoff still outstanding of $228,000, for a house you can sell for $600k? Wow, good find.

It means if you pay $500 (outstanding HOA dues) at the auction for the house that is worth $100k and has an $80k mortgage, you gotta pay this $80k lien off in order to own the property. It's not wiped off as if it would in case you were foreclosing on tax lien.

I think he actually owns it after the foreclose sale but cannot transfer clear title until the liens are satisfied.

Joshua, let us know how the negotiations work out. I think I would have done a normal counter but I'm interested to see if your tactic works.

I agree with Justin on the normal counter, just to see if you have a "bird in the hand", or just a tire kicker.

Originally posted by Joshua Walters:
Actually I just had a Title search completed earlier today their is a $6,500 unrecorded lien for the new windows. I am going to pay it later on today

How was it discovered if it wasn't recorded?

I have seen liens get slapped onto a property AFTER it has been sold at sheriff sale. IRS does this. Municipal liens (unpaid taxes, sewer, trash, water, natural gas in Phila) can all become the new owner's obligation to pay. Mechanics lien rules are state specific ...

Originally posted by Steve Babiak:
I have seen liens get slapped onto a property AFTER it has been sold at sheriff sale. IRS does this. Municipal liens (unpaid taxes, sewer, trash, water, natural gas in Phila) can all become the new owner's obligation to pay. Mechanics lien rules are state specific ...

Exactly. When we repossessed a house last year on a fix-and-flip loan gone bad, we bought an extra rider on the title insurance to protect against such liens. We were concerned the rehabber hadn't paid all of his contractors, and had no ability to find out for-sure there were no outstanding liens.

The Title company found out about the unrecorded lien by looking at unverified documents in the official records. The buyer countered back at 550,000. But I not going to sell it for more than $100,000 less what its worth.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here