Many guys have tried this here, including those who thought there was traction with the 5 year statute issue. The quiet title action scares no lenders, as they know it has no merits. The ones promoting this strategy are mostly the attorneys looking to get paid for doing the QT actions. While some lenders may negotiate with a title holder in this position, it's not something to bank on. Most of the HOA bids I see, where the mortgage foreclosure has not started, or recently started, equal 1 1/2 to 2 years of rent....doesn't seem to be a good gamble.
What's the question? When you buy an HOA auction property, generally there is a mtg for more than the value of the unit. At some point you'll get foreclosed on, so you're just buying a somewhat undetermined rental income until the lender forecloses.
They're often driven up above what the rental income stream is worth, by investors with some delusional idea of how to get around the mortgage.
Very, very rarely you'll find an HOA foreclosure property with an outstanding lien/mortgage for far less then the property is worth that you can then pay off and still have equity in the property. However, finding these is like a needle in a haystack and then they will likely be bid up for far more than the HOA lien amount. You just have to put in an intense amount of research to filter them out.
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 drivers 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 wont settle than the property can be rented usually long enough to recover the HOA cost and a profit to boot.
Many guys have tried this here, including those who thought there was traction with the 5 year statute issue. The quiet title action scares no lenders, as they know it has no merits. The ones promoting this strategy are mostly the attorneys looking to get paid for doing the QT actions. While some lenders may negotiate with a title holder in this position, it's not something to bank on. Most of the HOA bids I see, where the mortgage foreclosure has not started, or recently started, equal 1 1/2 to 2 years of rent....doesn't seem to be a good gamble.
A lot of people are bidding at HOA foreclosures now. Three to four years ago when HOA foreclosures are not well known, there's money to be made. However, now bidders bid up the price to ridiculous levels there's no money to be made.