Purchase the Note or go to Auction?

[Lafi S.]

Hello everyone,

I've been negotiating a short sale that is now going to auction next week. I have a buyer lined up and the bank approved my Purchase with a great spread. The problem came when the condo association wanted too much money to release their lien that the bank or myself was not willing to give.

I've had no experience on note buying but is that a viable option in this case if I present it to the lender? This is a very small bank that will likely consider it, but what will happen to the other liens if I purchase the note from the bank?

Right now there is a tax lien, sewer lien, and a condo assoc., lien.

I know if I get this at the auction the condo and sewer will get wiped out but I really don't want to risk a bidding war.

Any advice would be a great help, this goes to auction on Thursday and I don't want to lose it!

[Steve Babiak]

If you purchase the note, nothing changes about any of the lien positions. Liens are exactly as they were - you're just taking the place of the original noteholder. Whether it is "viable" - I would say you have to look at numbers for that; part of the numbers you have to evaluate will include your added expense for completing the foreclosure as the new noteholder, and whether any delays to the foreclosure process are introduced by your acquisition of the note.

If the sewer is a municipal service, I doubt that lien will get wiped at auction. If it is some independent sewer authority, then it probably has a chance to get wiped.

Whether HOA liens are wiped out varies by state. There are other BP threads on the HOA liens:

http://www.biggerpockets.com/forums/67/topics/61233-is-anybody-else-having-some-major-issues-with-hoa-attorneys-and-crazy-fees-

http://www.biggerpockets.com/forums/41/topics/57660-which-liens-survive-foreclosure-

http://www.biggerpockets.com/forums/103/topics/58702-purchased-a-hoa-foreclosue-now-what-

http://www.biggerpockets.com/forums/70/topics/49919-tax-deed-in-florida

If you have to bid at auction, you should make sure your cash position is sufficient to cover your expected top dollar bid.

Some gotchas to look out for at auction:
http://www.biggerpockets.com/forums/48/topics/48126-title-lien-search

http://www.biggerpockets.com/forums/105/topics/50670-dancing-with-deeds-liens-notes-mortgages-and-the-like