Salability of HOA Lien

Home Owner Association (HOA) Issues & Problems Forum 3.6K Posts 542 Discussions

If there is an HOA lien in 2nd position headed for TS, and it gets sucked into the postponement vacuum that other liens tend to, does anyone have any experience with purchasing these liens, similarly to the way you would purchase an NPN?

Bueller?

@Jake Kucheck

Check out the two threads below. Their value and utility will vary by state.

https://www.biggerpockets.com/forums/67/topics/67064-why-do-investors-buy-hoa-liens-at-auction

https://www.biggerpockets.com/forums/41/topics/72805-purchase-an-hoa-lien--on-purpose-this-time

@Jake Kucheck did you find anything out about this topic? I've heard of HOA's turning over delinquent accounts to collection agencies but it seems to make sense to me that HOA liens are different animals than regular liens and I wouldn't think they could be bought and sold like other NPN's out there. Most HOA's seem to bend over backwards to make arrangements with the owner to get them on some kind of payment plan to avoid foreclosure and I believe most of the postponements are because of that. Especially the ones that get postponed month after month.

@Jake Kucheck I sit on a couple different Board of Directors (BoD) and in Illinois, we put liens on condo units for non payment of assessments. We begin this as early as 60 days late and go as far as evicting the owners unless they pay in full prior to filing for an FED. Are these the liens you speak of? I may be able to help you understand this from the inside, but am trying to understand what your ultimately attempting to do here. If these are the liens, yes they would be in second position to the bank (most of the time) trying to buy these liens wouldn't help you because you would have to pay off the balance of the lien to the association and at that point, they will rightfully and legally have to return the unit to the owner. Unless of course, you could work something out with the owner and earn interest or something on the monies payed to bring the unit to current, but this is an awful plan because if they are behind assessments, they are more than likely behind on mortgage payments as well. It's just the nature of the beast and when you have done this as many times as I have and have say through executive session enough, you learn the nuances of this very niche within the HOAs. If I have this wrong, let me know so I can help provide insight, should you wish. Good luck.

@Christopher Leon  If you foreclose on a condo, do you rent it out? I think that's the best option for HOA's. 

I'm planning to market to HOA's to see if I can buy the problem ones that they foreclose on, the ones that need a lot of rehab or have occupants that they'd rather not evict. Do you come across those types of condos? If so, how do you deal with them?

As far as an actual transaction would go, I would think that the Board would need to pass a resolution to sell an HOA owned property and authorize someone to sign a purchase agreement. Does that sound correct?

@Andreas Mirza Every state is different in how they handle this process; last I heard, Illinois is one of the last states that has the ability to file a judgement against unit owners with the ability to gain legal possession of these units (granted by the judge) and rent them out to recuperate the monies lost due to non-payment of association dues. This also means the monies spent to pay the attorney, late fees, court appearances, filing for FED (Forcible Entry Detainer), etc. I see units with amounts owed from $3k-$12k. 

 In answer to your questions: 

 Yes, this is the best option for the HOAs because it allows them to recuperate the money they should have received initially. It is sometimes a gamble too because when your pursuing these kinds of units, it is likely the owner is not paying their mortgage. So in some instances, the banks are on top of things and they pursue these units and can secure them before the association so the banks can the delinquent units to sheriff sale. 

 Here is the problem with your approach unfortunately, HOAs do not OWN the units, they merely gain LEGAL possession of the unit (in my state) to rent them out to a bonafide tenant with the objective to recuperate monies lost. Once this account reaches a zero balance, the association MUST return the unit back to the rightful owner. Now, although this is the case, most associations get to hold on to the unit just long enough for the mortgage company to begin the judicial foreclosure process and then they basically take it back and sell to whomever. At that point, the purchaser that closes on the unit is "typically" responsible for paying whatever amounts owed to receive a PAL (payed assessment letter). 

 As I said above, trying to acquire this particular kind of product is not possible due to the association only having legal possession and not being the bonafide owners. I would suggest you speak to your real estate attorney to help you further understand this. 

 As far as the transaction goes, that is not correct. Once again, this would have nothing to do with Association. The real person/entity you would need to seek is the bank (in most cases) At this point, your just talking about purchasing a REO, pre-foreclosure, or you have no choice but to purchase at a sheriff sale. Now, if the condo is mortgage free (doubt it) then the unit is still legally owned by the owner, but the association may have legal possession over the unit by having filed a judgement against the owner for non-payment of dues. Like I said above, if the account is brought current (by the way, this can happen at any time by whomever) then the unit is, or should, be given back to the rightful owner. 

 Good questions. Hopefully this has cleared up some ambiguity about these kind of units or the process in of itself. I do recommend you speak to a real estate attorney in your state/area to distinguish what may or may not be true from what I know of the law in my land. Good Luck!

@Christopher Leon  Thanks for the detailed reply. Interesting to see the differences from state to state.

Things in California are very different than from what you've described of Illinois. An HOA that forecloses on its lien gets a recorded "Certificate of Sale Subject to Redemption" or a "Trustee's Deed Upon Sale" depending on the trustee that conducted the sale. The HOA (or a 3rd Party bidder) becomes the owner of the property but realistically you shouldn't spend much time or money because the previous owner has 90 days to redeem the property. Once that 90 days is up and the TDUS has been recorded (if it wasn't earlier), then that property belongs to the new owner subject to any senior liens. So, if nobody bids at the Trustee Sale and it reverts to the HOA, the HOA is the actual owner of the property and will be safe to do whatever it wants with the property after 90 days. 

Interesting that your HOA's only gain possession of the unit until they recoup their losses. 

@Andreas Mirza  Thanks for sharing! Gee, its amazing how things differ from state to state. Sounds like you may have something over there in California then. Good thing we spoke about it, could be a profitable niche if you can tweak it just right. Good luck to you out there!

@Christopher Leon  Thanks! I'm going to start a white letter campaign to HOA's that foreclosed on their units within the last 18 months in southern California. I've got a list of about 135. I'm hoping there's at least one or two associations that would be willing to work with an investor to get rid of problem condos. Good luck in Illinois!

Originally posted by @Tiffany Warren :

@Andreas Mirza have you found any luck with this in CA? 

 No luck for me with this approach. I sent out one batch of letters with no responses. I know for marketing to work effectively, you really need 6-8 touches and maybe that would make a difference. However, I had a couple of experiences that soured me on the whole approach. I approached one HOA management company but got nowhere. When it comes down to it, there are too many people involved in making decisions and thinking outside the box is a lot more difficult. IMHO, the best way to get deals through an HOA is to maintain consistent contact and relationships with board members over time. Eventually deals will come your way and this could be one more avenue to get deal flow.