Purchase an HOA Lien?(On purpose this time)
Involved In Real Estate · Jacksonville, FL · Member since 2012 · 216 posts · 42 votes
I had someone bring up an interesting business plan after my recent trouble with purchasing a HOA lien that was thought to be a first mortgage. The idea would be to purchase HOA Liens and then rent the property out till the first mortgage is foreclosed. As long as the first mortgage foreclosure process was not started there should be about a 2-3 year window to cover the cost of the lien and make a profit. The tenant would be protected by having a long term lease in case the bank foreclosed earlier than expected. I thought it was a creative way of making money with the foreclosure mess. What are the problems with it?
Tim Czarkowski You are in a judicial foreclosure state which is totally different from my experiences in CA. I'm curious that the attorneys are saying that you won't be noticed of a pending foreclosure. I thought everyone was named and served in a judicial foreclosure suit: jr lenders, lienholders, borrowers and any owners of record. In fact, how could it be otherwise? I'd check further into that. Maybe you mean something different by noticing. Indeed, the senior lenders don't have to communicate with you as the new owner via a foreclosure. You haven't yet checked for a lis pendens? Or is this for property to be purchased in the future?
I find it hard to believe that lenders in FL have no recourse to recover collateral other than a 3 year foreclosure process. Is that because of a backlogged court system? So does that mean borrowers in FL are just taking a 3 year break from paying for housing?
Already discussed in this other thread, no?
http://www.biggerpockets.com/forums/67/topics/67064-why-do-investors-buy-hoa-liens-at-auction
Yes it appears it has, I actually read that previously. Does anyone have any specific things to be aware of? Any unusual risks with this strategy? Anyone have any experience doing this? Anyone have anything helpful?
Tim,
What state are you in?
Lynn (FL)
Try reading in this other thread:
http://www.biggerpockets.com/forums/105/topics/75043-how-to-interviene-into-forclosure-without-being-mortgage-holder
I haven't purchased anything yet but I spoke with my title agent and some other investors and they all seem to it is a practical strategy. The main risk that everyone has told me is that the bank will foreclose sooner rather than later. I wish I was able to find someone who is actually doing it so I could get more detail on possible risks. In any case I expect to start with two or three purchases over the next few months and see how it goes before i plow too much into it. There is some information on one I did not intend buy here.
http://www.biggerpockets.com/forums/41/topics/71946-bought-hoa-lein-not-on-purpose
I have this one rented out and should have my investment back within a year from now. I haven't had any problems and the bank doesn't appear to be moving ahead with the foreclosure. I would never have paid that much for one on purpose. If I had got this condo in the $3,000 to $5,000 range I would have made a very nice return. Another thing to consider is buying HOA liens on houses because the fees will be much less and the rent higher and so earn a better return. You would be much more likely to have expensive repairs to make to get it rented out however.
I would love to hear anyone's experience with these, intentional or not.
Tim Czarkowski I can give some input on this as I currently purchase these types of properties and have them cash flowing at the moment.
One of the main things you need to really be aware of is how long do you have on the property before it forecloses. Of course every bank is different, but naturally it takes a fairly long time prior to the banks foreclosing on the property. I know you mentioned that in your previous post, but this is I would say the biggest concern. What are you currently doing to postpone the foreclosure?
Another thing to look for if your buying, is to make sure that you buy houses over condos, although if you buy in the right building it can turn out to be a gold mine for you. Houses in associations are just easier to deal with and easier to rent out. You should make your initial investment within your first 6 months if you buy right and cash flow the rest of the way. Hope this helps!
I really appreciate your help. How do you estimate how long you have till repossession? I am not currently doing anything to postpone foreclosure. Although my contractor apparently has some experience with it and is prepared to help me. He is a fairly knowledgeable guy but I wouldn't have enough faith in him to do it without understanding the process myself. Can you recommend any resources to research it? Do you handle it yourself or have someone who handles for you?
It seemed to me also that houses would be better because of lower HOA fees compared to condo's for the amount of rent generated. The only thing would be the extra maintenance. Do you usually pay the taxes and HOA dues.
Have you had any other problems specific to this strategy?
Sorry for all the questions but your the first person I have come across who is actively pursuing this strategy. Thanks for the help.
Do you guys tell the new tenant that a foreclosure is imminent
Tim Czarkowski I've waiting to post on this topic as I recently took over an upside down HOA property by getting the deed from the owner. But I haven't yet decided whether I'll attempt a cash flow play by renting or short payoff with the lender. I'm still working with the lender to find the loan files. And it's been months.
This property has never had any foreclosure action and the borrower's debt on the house was eliminated in BK. I don't have any obligation to the owner to pay off the loans. However, I'm familiar with my state's foreclosure laws and time frames and know the minimum amount of time I would have should a foreclosure start. It sounds to me like maybe you haven't looked at the entire picture for your strategy. I suggesting getting all the facts you can about how much time you have in your state if the senior lenders start to foreclose. You'd also want to find out and do what ever it takes to make sure that you are noticed when and if a foreclosure starts.
Shawn Dandridge A foreclosure may or may not be imminent, rather it's a possibility. The Tenants in Foreclosure Act protects bonafide tenants with a lease (through 2014). The one exception would be if the property was purchased at foreclosure sale by an owner intending to occupy the property as their primary residence. In that case, they are entitled to the same notice as other tenants after foreclosure which is 90 days. Again this is through 2014 and who knows if this part of the act will be renewed or extended.
Here in CA a foreclosure takes 4 months from filing of first notice of default to foreclosure sale. So a tenant sitting in a property today has at least 7 months from the beginning of a foreclosure action to termination of tenancy. If they have a long term lease, they may just end up with new landlords for the remaining term.
I plan to explain the situation to them. That the bank will repossess the property, most likely in a two years or longer, and that they will be able to stay for the duration of their lease even if it is sooner. That is why I have them sign a minimum of a year lease so they are protected. I believe in disclosure.
Here in Florida foreclosures are averaging about 3 years from start to finish. 4 months sounds like too short of a time period for the strategy to be effective to me. My plan is to check for a Lis Pendens if there is not one great. If there is, as long as it had been no longer than 6 months I should still be in a good position. How do you go about getting them to give you notice when they start action? My attorney told me specifically that they had absolutely no requirement to do so but that they may. Thanks for the input.
Tim Czarkowski You are in a judicial foreclosure state which is totally different from my experiences in CA. I'm curious that the attorneys are saying that you won't be noticed of a pending foreclosure. I thought everyone was named and served in a judicial foreclosure suit: jr lenders, lienholders, borrowers and any owners of record. In fact, how could it be otherwise? I'd check further into that. Maybe you mean something different by noticing. Indeed, the senior lenders don't have to communicate with you as the new owner via a foreclosure. You haven't yet checked for a lis pendens? Or is this for property to be purchased in the future?
I find it hard to believe that lenders in FL have no recourse to recover collateral other than a 3 year foreclosure process. Is that because of a backlogged court system? So does that mean borrowers in FL are just taking a 3 year break from paying for housing?
I looked into this after seeing them bought up at the auction and started the mentioned thread. Just out of curiosity.
first, I can not see a responsible tenant knowingly enter into this sort of agreement. Why would someone move their family into a home you can not guarantee you will own in six months? If you don't tell them, and you can sleep well with that decision, when the bank amends the complaint and serves them, (timeframe unknown), you can almost bet on they are going to withold rent.
Second, what is to prevent the disgruntled owner to sign a stipulation for summary judgement speeding up the banks sale? They have no reason to delay the process any further. Of course as owner of title, you can hire a lawyer to delay the process, but that cost money.
I am glad it's working out for other investors on here, just didn't seem feasible to me.
Yes it's seems to me that they would have to notify me. I have recently switched to a new attorney because my previous one gave me incorrect information more than once. So I'll have to ask the new guy about it.
I am talking about future purchases. I have been planning on getting started for a couple months now but I have had my money tied up elsewhere for a while now and am very conservative with what I keep in reserves. I also have been hoping to get more information from people who are active in it.
Yes the reason it takes three years is because the courts are so backed up. I believe it used to average more like six months from start to finish before the crash. It also seems like the banks don't want to dump a bunch of properties at the same time and depress prices even further. Yes three years is the average that people can get away with out paying their mortgage and I have heard of people that have been in their home for 5+ years without paying. It is absolutely insane. It's like giving a underwater homeowner a huge incentive to stop paying, 3 years with no mortgage or rent. For most people that could allow them to save a large chunk of money. Even worse though my wife has a coworker,who is capable of paying, but has been bragging about not paying her mortgage for the past three years and then later talking about her new car and 60+ inch TV. The lack of pride some people have is truly disgusting.
Eddie P. Are tenants typically named and served in foreclosure suits in FL? I think that would be a deal breaker for me. IMO, no amount of disclosure would prepare a tenant for being served. If the tenants have a lease, do they have any grounds to answer in the foreclosure case? Or do the tenants wait until the property sells and becomes an REO or goes to a 3rd party buyer and deal with the new owner and landlord?
Tim Czarkowski I suggest reading the recorded mortgage docs for any property you take over with senior liens. They all contain some language about assignment of rents, but it may be called something else where you are. Assignments of rents is where the lender is entitled to rents upon default of the borrower. There are tons of variables and some states' rent skimming laws may apply. But I can assure that if I were a note holder in FL and could not access my collateral for 3 years due to foreclosure court back logs, AND if the borrower or the successor (you) were collecting rents, I would utilize the assignment of rent clause.
Can any other FL people confirm that the "average" foreclosure in FL is taking 3 years.
How do you rent a house out you don't own? You are a lien holder not an owner. Seem to me you are opening yourself up to tremendous liability and possible jail time.
Did you mean you bought the Property at an HOA lien foreclosure?
@K. Marie Poe in Florida the tenants are named and served along with the owners since they have an interest as well. Not sure if they need to respond.
You are correct as to the rent clause as well, I had forgotten about that.
Foreclosures here vary in time. I have seen as much as 4 years to as little as 8 months. It would depend on whether they are contested or not and the individual bank or investor of the note. Most of the cases I see going through auction lately are from 2009-2011 filings.
I have a friend going on 4 years with Wells Fargo for his primary home, but my neighbor has been fighting the foreclosure on his investment house with the
same bank and it's going to auction only after a year.
Usually they just put "Tenants" or "Unknown Occupants", so they would not actually be served. Also I don't believe they have any grounds to answer in the foreclosure case. As long as the tenant has a long term lease when the property is repossessed they can stay for the duration of that lease. They would then pay rent to the bank. If the bank sold it they would then pay to the new owner.
Since I am not the one who defaulted on the loan they cannot enforce their assignment of rent clause on me.
Just type average foreclosure time in Florida and you will get a ton of articles confirming it. I know it's hard to believe but it's actually longer in New York and New Jersey.
Ned Carey Yes that is exactly what I mean. So I am the owner of the property at that point.
P.S. I just learn how to do the @ thing but it wouldn't do it for you Maire
Incorrect, they ARE served as tenants in possession or as John Doe's. Also, the bank has NO obligation to honor that lease, they usually will give them 30-90 days to move out, file for immediate eviction or offer cash for keys. If that was the case, all tenants would magically have a 10 year lease at a ridiculously low rent. One of the reasons the tenants are served at the start of the foreclosure is to make them aware that they will have to vacate once the bank takes possession. Regardless, if someone was trying to keep the foreclosure hidden from the tenant, it would be difficult because the bank periodically sends a property preservation agent to the property who will knock on the door and speak to the tenant.
I worked for a property preservation/ asset manager a few years ago hoping to get leads and was encouraged to make contact with the occupants whenever possible.
Even if they aren't served, the property is usually posted conspicuously with a "handbill" or with a poster by the sheriff. Hard to miss seeing one of those (unless somebody else sees it first and removes it). Here is a handbill sample from a county in PA:
http://pasheriffsales.com/pdf/ADM_4505__ALLEN.pdf
Of course, the law requires publication in newspapers as well - but as we all know, many people do not read printed news these days. But before the internet became so popular, the newspaper was probably the most likely way to get info on a pending foreclosure.
I worked for a property preservation/ asset manager a few years ago hoping to get leads and was encouraged to make contact with the occupants whenever possible.
Although the practice of getting occupants out ASAP was the norm a few years back, the "Protecting Tenants at Foreclosure" legislation was passed during the Obama administration; here is a link to that which should give you info to realize that the quoted post is a bit out of date (for now):
http://www.occ.gov/publications/publications-by-type/comptrollers-handbook/ptfa.pdf
@NedCarey Yea that's the idea. If you buy right it seems like you should be in the black after six months or so.
@Eddie P. I believe that used to be the case but from my understanding of the Protecting Tenants at Foreclosure Act of 2009 that is no longer the case. Also I am not certain but I believe leases of more than two years for residential properties are not enforceable. As far as being served what you said makes sense. As long as they understand the situation I don't see that as a problem.
"Before President Obama signed the "Protecting Tenants at Foreclosure Act of 2009," most renters lost their leases upon foreclosure. But this legislation provided that leases would survive a foreclosure. The tenant could stay at least until the end of the lease, and month-to-month tenants would be entitled to 90 days' notice before having to move out (this notice period is longer than any state's non-foreclosure notice period, a real boon to tenants)."
http://www.nolo.com/legal-encyclopedia/renters-foreclosure-what-are-their-30064.html