Can SOMEONE please explain to me why LLCs bid on HOA liens

Question

Hello,

I have been following the daily foreclosures for South Florida now for the past 24 months, everyday i look at the daily activity to get a sense of the pricing and overall market. I keep seeing LLCs bid on the these HOAs and I know they are not rookies or this is a "mistake"

Could someone explain to me what you can do with an HOA lien ? and worst case scenario ?

Auction Sold09/27/2017 09:08 AM ETAmount $17,100.00Sold To 3rd Party BidderFinal Judgement Amount $17,093.76Whats their BEST and WORST case scenario to invest $17,100 USD ?You can PM me the answer if this is one of those "industry secrets"Thanks,Christian

09/27/2017 09:08 AM ET

Amount $17,100.00

Sold To 3rd Party Bidder

Final Judgement Amount $17,093.76

Whats their BEST and WORST case scenario to invest $17,100 USD ?

You can PM me the answer if this is one of those "industry secrets"

Thanks,

Christian

Linda Weygant · Answer

Florida is a Superlien state which means it works a little differently there than it does in states where HOA liens do not have a "Super Priority" status.

Colorado is also a Superlien state, so I'm just going to speak about what I know from Colorado.  Florida may or may not have some of the same intricacies.

In Colorado, the Superlien portion (6 months worth of HOA dues) pops into First Position ahead of the first mortgage and mechanic's liens (but not always property tax or IRS tax liens)

The balance of the amount owed beyond the value of six months' worth of dues then comes in behind all the other liens (first mortgage, second mortgage, etc).

This puts the owner of the lien in a pretty interesting position.  As the first place position, you can begin foreclosure and, if the mortgage company is not paying attention, you could wipe out all of the other mortgages behind the superlien when you foreclose.

If the mortgage company is paying attention, you're still in a decent position.  The mortgage company will try to preserve their position by buying out the superlien (the six month portion).  At that point, you can remind the mortgage company that you are also behind them, so you have the right to either satisfy their lien and take the property or you can wait for them to foreclose and come in on the tail end and redeem your last place lien position for whatever the last bid price at auction was.

In Colorado, any overages that are bid at auction that are not needed to satisfy liens or fees associated, go back to the homeowner.

Of course, this only works on houses that have lots of equity and if you have cash on hand to satisfy the mortgage holders ahead of your last place position.

SO this is why somebody would buy an HOA lien if they are specifically investing and working through liens and the foreclosure process.  It's kinda like property tax liens, but there are enough differences that the processes are not interchangeable.

Another reason why you might see an LLC buying HOA liens is that it is part of their wholesaling promise with the house seller.  The seller might say "I'd love to sell you my house (or let you wholesale my house) but I have an HOA lien on my house that has to be satisfied first for (some weird or unknown reason).  The wholesaler agrees to buy the lien and then wipes out the lien in the wholesaling process.  This would be more of a one-off scenario though, so anybody you see buying HOA liens in bulk probably isn't doing this.

Wayne Brooks · Answer

@Christian Paolo

1. They collect more rent than they paid for the title.

2.  This is no longer an option, the title holder is no longer the borrower

3. At the bank foreclosure, the party is over.  Part of these guys strategies is entering the foreclosure action, delaying the inevitable as long as possible, in order to keep collecting rent.

@Linda Weygant Yeah, I'm aware FL is known as one of the super lien states, as to HOA's, and I'm not really sure what that actually means.

I do know though:

An HOA foreclosure has no effect on a first mtg whatsoever

An HOA foreclosure Does wipe out 2nd mtg.s and junior private judgments IF they are also named/served in the action.  For some reason HOA's Never name these junior lien holders, so their liens don't get wiped, and therefore the foreclosed owner actually collects any surplus, if any, from the hoa auction.

A first mtg foreclosure does Not affect an hoa debt, whether a lien is recorded or not, and the debt remains against the property and can be foreclosed upon.  However, if the first mtg forecloses, and the lender takes title to the property, the hoa is required to accept either 12 mo.s of dues or 1% of the original mtg, whichever is less, and release all previous debt against the property.

Linda Weygant · Answer

I think this might be Florida's take on a Superlien.  It looks like in the foreclosure hierarchy (this is Florida only), a mortgage foreclosure wipes away the HOA lien, but not the underlying debt.  So that's kind of bizarre. and I'm not sure why they are stating that Florida's HOA liens are superliens if they are then wiped away with no funds due to the HOA in a mortgage foreclosure.

It's weird because all of the other superlien investigation I've done, there tend to be small differences from state to state.  For example, in Nevada, the superlien is 9 months worth of dues as opposed to Colorado's 6.  But they function in basically the same way in the half dozen different states I've looked into.  Leave it to Florida to be the odd man out.

So that being the case, I have no idea why anybody would purchase an HOA lien in Florida.

Linda Weygant · Answer

@Wayne Brooks - Florida is listed as a superlien state (or at least it was in the articles I was reading as of 2013 and 2015) which means that the super priority portion of the lien jumps in front of most other liens, including mortgages

Florida Superliens

Wayne Brooks · Answer

It started heavy 8-9 years ago.

Rodney Williams · Answer

This a very interesting strategy to say the least

David Sicherman · Answer

yep,. all about renting them out until it gets foreclosed on.   Big money if you analyze it correctly.

Christian Paolo · Answer

Another one today in Broward County, won by an LLC -

Auction Sold

09/28/2017 10:03 AM ET

Amount $27,400

Sold To 3rd Party Bidder

Final Judgement Amount $27,371.84

http://www.bcpa.net/RecInfo.asp?URL_Folio=484123AD...

The property is barely worth 50-60k, not sure the rent strategy would work here ?

Christian Paolo · Answer

If you guys are confused imagine me LOL ?

What would be the benefit under both strategies ?

1. They pay the $17,100 and try to rent it out

2. They pay the $17,100 and try to negotiate the rest of the mortgage, create a short sale ??

Assume that they hold onto this lien and then the primary foreclosure goes to auction and they don't bid or win ??

What happens to this

Linda Weygant · Answer

Hmmm.... Actually, I'm having a tough time figuring out Florida's status, @Wayne Brooks.  At first it seemed like HOAs have super lien status in Florida, but now I'm finding things that talk about super priority liens in Florida, but it's not including HOAs in the list of entities that have that status.

More research.....

Can SOMEONE please explain to me why LLCs bid on HOA liens

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