Condominium Association Lien Foreclosure?

Question

Hey everyone. I am newer to BP and real estate investing. I am still trying to figure out my niche and so I am analyzing all the deals I can. Can anyone tell me what the listing below is indicating?

NOTICE OF CONDOMINIUM ASSOCIATION LIEN FORECLOSURE SALE

WHEREAS, default has been made in the terms and conditions of the Declaration for Prairie Bend Condominiums (henceforth the Declaration) dated May 31, 1995 and recorded in the Office of the County Recorder in and for Scott County, Minnesota on May 31, 1995 as Document No. 353122 as amended by Doc. Nos. 353750, 354269 and 357113, which said Declaration covers the following described property situated in the County of Scott and State of Minnesota, to-wit: Unit No. 2703, CIC Number 1024, Prairie Bend, a Condominium, located in Scott County, Minnesota. Street Address: 705 Roundhouse Street, Shakopee, MN Property ID #27 1991300. WHEREAS, pursuant to said Declaration, there is claimed to be due and owing as of the date of this Notice by Jacob Szyperski, as unit owner, to Prairie Bend Association the principal amount of Two Thousand Seven Hundred Thirty-seven Dollars and No/100 ($2,737.00) for condominium assessments, interest and past due attorney fees through March, 2019; and no action being now pending at law or otherwise to recover said debt or any part thereof, and; WHEREAS, pursuant to said Declaration, and the statute in such case made and provided, said debt creates a lien upon said premises in favor of Prairie Bend Association. NOW, THEREFORE, notice is hereby given that by virtue of the power of sale created by statute, said lien will be foreclosed by the sale of said premises with the hereditaments and appurtenances, which said sale will be made by the Sheriff of Scott County, Minnesota at the Scott County Law Enforcement Center, Civil Division, 301 Fuller Street South, in the City of Shakopee in said County on May 23, 2019 at 10:00 a.m., at public auction to the highest bidder, for cash, to pay the amount then due for said condominium assessments, together with the costs of foreclosure, including attorney's fees as allowed by law. The time allowed by law for redemption by the unit owner, his personal representatives or assigns, is six (6) months from the date of said sale. TIME AND DATE TO VACATE PROPERTY: If the real estate is an owner-occupied single family dwelling, unless otherwise provided by law, the date on or before which the unit owners must vacate the property if the lien is not reinstated under section 580.30 or the property is not redeemed under section 580.23 is 11:59 p.m. on November 23, 2019. If the foregoing date is a Saturday, Sunday or legal holiday, then the date to vacate the property is the next business day at 11:59 p.m. Dated: March 19, 2019 PRAIRIE BEND ASSOCIATION FULLER, SEAVER & SWANSON, P.A.

Andy Mirza · Answer

I am speaking from experience and, if it's an issue with title companies in CA, there's a good chance it will be an issue in other states. Title companies don't seem to like HOA foreclosures and believe that there's additional liability in insuring them. They'll list the transfer as an exception and suggest that you do a Quiet Title Action. This makes selling an HOA lien foreclosure as a fix and flip a problem. I solved that problem by eventually finding a title company that would insure title. If you're considering doing a fix and flip of one of these properties, I highly suggest that you run the scenario by your title company to see if they'll insure it. If you're planning to hold the property as a rental, this is not such a big deal if you're not worried about selling or refinancing right away. Some of the title companies mentioned that they would insure title if 5 or so years had passed from the time of the transfer. Their thinking was that if that much time had passed, there was a small likelihood that the previous owner would dispute the HOA FC.I've bought 4 properties this way. Two, I still hold as rentals and were refinanced with no title concerns about 4-5 years after the transfer. For two others, I bought them at the HOA lien FC sale subject to existing mortgages, about two weeks before the mortgages were about to be foreclosed. I was able to reinstate both loans and, knowing what I know now, I would never have done that. The lenders were under no obligations to allow me to reinstate and they could have gone forward with FC and I would have lost my money.I got lucky, flipped one and rented the other. It was during the flip that I found out about the title problem. When it came time to sell the other one, I ran into the same title issue with the same title company that issued the policy for my flip. With some persistence and finding the same title officer, I straightened it out. BTW, we sold the rental because we couldn't get insurance on it that covered our interest. The lender had forced place insurance on it, wouldn't add us to the policy, and threatened to accelerate the loan on which they were accepting our payments. No insurance company would issue us a policy since there was already a policy on the property. We were stuck. And we got lucky again because the house never burned down and we sold it for a nice profit.

Wayne Brooks · Answer

@Tracy T. It is very, very unusual for a condo board to bid at a first mtg auction. There is a provision in the statutes regarding hoa debts in a first mtg foreclosure. As I mentioned above, if you as a third party bidder buy at the first mtg foreclosure auction, you inherit the previous hoa debts. However, if the foreclosing bank is the high bidder, they only have to pay 1% of the original mtg, or 12 months of dues, whichever is less. So, I guess maybe the board knew there was equity, so they actually bid to protect their debt from being wiped out if the bank took it back. I’ve never seen an association do that though.But as a buyer, I don’t see why would you would care about....along as you got clear title.It is possible though, some guy name his llc to resemble the association, for whatever reason. There were a few investors kicking around the foreclosure auctions and bought a lot of properties, with llc names that mimicked the large banks, trying to fool people I guess, for whatever reasons.

Zach Ataiyan · Answer

@Andy Mirza Thank you for taking the time to share your experiences. I will definitely call around to identify any potential issues with MN laws and title companies. I am still trying to determine if I want to pursue these FCs at all. They just seem like a great opportunity from the cost standpoint, but I can understand how that would ensnare unsuspecting newcomers thinking they could by a townhome/condo for pennies on the dollar. I will certainly take your shared experiences to heart. Thanks again.

Zach Ataiyan · Answer

@Chad Urbshott Agreed. I did eventually stumble across some useful information. Thanks for Chiming in. To clarify my research, HOA Liens in MN are prior to all other liens except for a first mortgage, any government tax liens, any liens existing prior to the HOA lien, and/or a master association lien. Not to mention surviving the 6 month redemption period.

Zach Ataiyan · Answer

So while waiting for a response I did some research... It would appear that the Association can foreclose on the property for the amount owned plus interest and other fees and the owner would still be on the hook for their mortgage unless they found a way to resolve the issue during the redemption period (6 months after the sale in MN). Has anyone had success purchasing a foreclosure like this?

Tracy T. · Answer

@Wayne Brooks Thanks Wayne. I actually just did a bit more research on Duval County Clerk site on unit I mentioned and from docs viewable to the public I see Wells Fargo was lender and courts finalized the mtg foreclosure in Dec '18. It then went to auction in early '19 and the highest bidder was an LLC acting as trustee for Condo Board. So I take what I read to mean Board paid off Wells Fargo and now selling for ~30K above foreclosure payoff (assuming they still need to recover HOA fees, etc. but also looking to make a profit). There is a lot of information out there it seems, if you know how to interpret it correctly (which I may not be).

Wayne Brooks · Answer

@Tracy T. Making an offer on a property in foreclosure, whether by the lender or the hoa, is no different than any other purchase. If it’s not a short sale, everyone gets paid from the closing. If it Is a short sale, same deal, only with delays and a lot of negotiations.In Florida:If you’re buying at a foreclosure auction by an hoa, you inherit the first mtg. If you’re buying at a first mtg foreclosure auction, you inherit the hoa debts.In either case, assuming no other issues or errors, title insurance afterward is no problem.

Tracy T. · Answer

@Zach Ataiyan Hi - would you mind sharing the HOA foreclosure thread with the detailed information discussed here? I put an offer on a pre-foreclosure condo unit in Jacksonville, FL but after a day realized it just didn't feel right so didn't accept their counter and let it go. Since then it has dropped another 1K as done consecutively for several weeks making me think I did the right thing even though an uneducated decision. Thanks

Zach Ataiyan · Answer

@Andy Mirza I definitely stumbled across that thread. I went from not knowing a thing about HOA foreclosures to understanding a fair deal of why they could or couldn't be a good deal (in addition to everyone's opinion on their ethicality...)Thank you for your input! Now I have a couple follow up questions: If I am not looking to do business in California, will that be an issue for me, or are you just speaking from personal experience? Have you ever pursued an HOA foreclosure deal?

Andy Mirza · Answer

@Zach Ataiyan There's one super long thread in the HOA category, I don't if it's live anymore, but you could find virtually all of the answers to questions pertaining to HOA lien foreclosures. One thing I didn't see there, though, is that it's very difficult to find a title insurance company in California who'll issue title insurance when you re-sell a California property you obtained via HOA lien foreclosure sale. If you look hard enough, though, you might be able to find one that'll do it.