How does HOA super lien foreclosure work?

Question

Hi BiggerPockets Experts, could you share how does HOA super lien work? Florida is HOA super lien state, does it mean if HOA foreclosed a house then 1st mortgage will be wiped out? I purchased a HOA foreclosed house through county auction in May 2021 in Florida, county transferred title to me and recorded in June 2021, when I was doing Due Diligence there's no other liens under previous owner besides HOA lien but there were 3 loans recorded when previous owner purchased home in 2013, one was USDA loan, one was FL housing finance corporation and one was through county, this house was first time home buyer assisted with government, my question is: Are these loans wiped out through HOA foreclosure since FL is HOA super lien state? Who will responsible for these loans balance? Previous owner or me? Why lender USDA didn't take any action through HOA foreclosure if previous owner stopped to pay their mortgage for a while?
Thanks a lot!

Guillermo Oyola · Answer

City lien search is also very key. I bought a property that had code enforcement liens and municipal liens in Florida. Luckily code enforcement liens in my city you can have them wiped out to $1000 per open cases. However, municipal liens do not go away. Those are for services the city had to pay for such as trash abatement or cutting grass or other sightly thing on property that caused a nuisance.

Wayne Brooks · Answer

@Rona Strish As @Chad U. mentioned, it’s hard to get a close estimate. If they stopped paying, you don’t know when and the mtg company could have placed force placed insurance at crazy high rates, property preservation services if it was vacant, ongoing interest, fees, etc. Itilities act as an unrecorded lien and assuming the title company does a “city lien search”, they will get the utility bills and pay them as they generally follow the property also.

Chad U. · Answer

This business is caveat emptor. And as I said in my other post, superior lien just means that they are entitled to their delinquent assessments (12 months if to lender, or full amount to a 3rd party) not wipe out 1st liens.  The only other state where this holds true is Nevada.

And to get the exact figure on the 1st (and other mortgages) is a crapshoot.  There's no way of knowing when they stopped paying, unless you pull their credit report.  And on top of this the lender may have been advancing escrow and other advances which may add up in the $1000's.  The only way you'll know is when the title co receives the payoffs.

Wayne Brooks · Answer

@Rona Strish I’ve bought at the auctions in FL and know the laws very well.  The first mtg absolutely stays attached to the property.  Generally any other loans/liens will also stay with the property as the hoa typically does not name them as defendants, there is no need to.

The “super lien” designation has for hoa liens doesn’t mean they are superior to a mtg....it simply means they survive a mtg foreclosure. In some states it is different.

The hoa’s generally get through the foreclosure process quicker than the mtg companies as the mtg foreclosure attorneys typically have 1,000’s of cases.

Did you check to see if the mtg’s have filed foreclosure yet (an LP would be recorded).

Unfortunately I have seen people buy at hoa auctions many times, not realizing the mtgs stay with the property.  You can expect the mtg lender(s) to foreclosure shortly.  I have seen people buy at the hoa auction on a Monday and the mtg foreclosure happened on that Friday.  Assuming there is no equity after the loan balances, your best bet is to simply live in the property or rent it out until the foreclosures complete. I hope you didn’t spend too much on it.

Wayne Brooks · Answer

@Rona Strish The title will find all these mtgs and get payoffs. The surplus from the hoa auction (the price paid less the hoa judgment) actually goes to the previous owner, not the first mtg. It’s a quirk in the law, the previous owner walks away with a windfall (the mtgs stay in tact so the surplus doesn’t go to them).

As I said before, the hoa almost never names any of the second/third mtgs as additional defendants, because they are not required to and it could create resistance from the junior mtgs since they would be wiped out. But.....check the hoa foreclosure suit to see if by chance they Did name any of the other mtg holders as defendants....if they did, the surplus would go to them, reducing their loan balances, but I highly doubt it.

Be prepared, the previous owner could have been behind on the mtgs and foreclosures weren’t filed due to COVID moratoriums/other reasons, so their balances could be quite higher than they may appear.

Rona Strish · Answer

Hello, thanks everyone's help!

I'm interested a property on first mortgage lien foreclosure but it had HOA foreclosed 2 years ago, current title is on a 3rd party which was the winner of HOA foreclosure, what is the risk for this auction? If I am the winner of this auction, do I get clean title or I have to pay current title holder to clean up title?

Thanks again.

Rona

Rona Strish · Answer

@Guillermo Oyola Thanks for the info, I checked there's no city liens but I did receive notice hang on the door to pay water bill and account is under previous owner, I called county water and they said I don't have to pay if the account is not under my name.

@Wayne Brooks That's good to know it won't take extra time for title to get payoffs.

Thanks a lot for the help!

Wayne Brooks · Answer

@Rona Strish Your sale is just like any other normal sale, in the eyes of the mtg holders....getting layoffs from them should be a couple of weeks......they may require copies of the CT, which your title company can easily pull up, since you are a different owner but I haven’t had issues in the past when selling and getting layoffs from a former owner’s mtgs.

Guillermo Oyola · Answer

The best think you could do is pull title on the property. Many title companies can do that and if you work with one regularly they do not charge for it. When they pull the title, it will show all the liens and encumbrances against the property. If there are multiple loans recorded you would have to see which loan is in first position, like was recorded first that has not been satisfied or paid. I'm not sure what county in Florida you are in but invest regularly in central Florida and have bid at county auction as well. I would only recommend bidding on first position liens. '

I would never bid on a property without doing due diligence first. That will tell the story of the any possible title issues. Feel free to dm me if you have any other questions.

Rona Strish · Answer

Thanks Wayne and Chad, you guys are very knowledgeable, I learned a lot from you, appreciated! At this moment, what is my best way to handle this? How long will it take title to get payoffs compare normal title closing? It will be fine if just couple of months, is there any chance will take 6-12 months? If it's the case, am I able to rent it out due the hardship with HOA 24 months rule?

Thanks again!

How does HOA super lien foreclosure work?

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