REO and the HOA forecloses on the bank!

[Marc Jolicoeur]

This scenario happened in Minnesota. I would like your advice to determine what strategies an investor can do in a similar situation to end up with the property at a discount to ARV.

A bank owned townhome with no mortgages or other liens on it is vacant.

The HOA for the townhome assessed the unit for costs that the HOA incurred when the vacant property sprung a water leak in a cold snap and it needed to be dried out.

The bank did not pay to dry out the unit or to fix it and it did not pay the assessment. Months later the HOA decided to foreclose on the bank for what was owed (plus fees and legal costs).

At the sheriff's sale, the high bidder was the HOA - so now the HOA owned the property. In Minnesota, there is a 6 month redemption period so a couple of months after the sheriff's sale, the Bank came back and redeemed it for the amount owed.

If an investor had gotten involved at the sheriff's sale and bid $10 more than what was owed to the HOA, when the big bank needed to redeem, they would have had to pay off the investor for the same amount.

Does this give the investor any benefits? Could I as investor start the conversation with the big bank at that moment and ask for them to accept a cash offer from me for the unit?  This interaction, I assume there are no real estate agents involved, no BPO, or other intermediaries.  Does this give me an edge at all to have a direct negotiation?

If the investor instead paid $100,000 at the sheriff's sale, the HOA would have had a big bonus to fill their reserves. And when it was time to redeem, the Bank would have had to pay the $100,000 if they wanted the property back. If not, they would let the investor keep it for $100,000 and they would have to write off the asset. Once the 6 month redemption period ends, the investor can do the renovations and flip it or hold it.

Is this a valid strategy to get Bank owned properties at 70% of ARV? What am I missing in this last scenario?

REO and foreclosure experts please weigh in.