DC Condo Assoc Foreclosure on MORE than 6 mo. Superpriority Lien?

[Amanda Schlener]

Hi! So I have attended several of the Alex Cooper foreclosure auctions in DC to bid on Condo Association foreclosures (as opposed to those being foreclosed on by the Lenders) because a lot of the time it seems to me that the credit bids the foreclosing Lender's are able to make are practically close to market value. I don't get how people are making a profit on these? But that is another issue...

The only properties I have bid on (and lost so far) are those that I have verified through title search to have NO outstanding first trust or other secured liens. My question is, why are other investors bidding on Condos that have unsatisfied first trusts? Almost all of the Condo Foreclosures I've seen are being foreclosed on for on MORE than the 6 month Superpriority Condo lien and often explicitly say they are "subject to applicable first Deed of Trust."

I am an attorney by trade (but with NO experience in Real Estate Law). It seems to me that based on current case law (Chase Plaza, Liu, Green Parks), there is an outstanding question of law as to whether a Condo Association foreclosure for more than it's 6 month superpriority lien entirely forfeits it's superpriority status of even it's 6 months of back assessments, and becomes entirely subordinate to the first deed of trust. With this question unanswered, why are investors (and I've see a lot of the same ones purchasing Condos in this situation on multiple occasions, so I have to assume they are professionals) purchasing these Condos when they know they can't get clear title, and could subsequently be joined as a party to the 1st Trust Lender's foreclosure on the property?

Example: At a recent auction there was a Condo being foreclosed on by the Association for $20K (for "both its six month superpriority lien and the balance of the Association’s statutory lien against the Property subject to any the first deed of trusts.") There was an outstanding 1st trust balance of at least $232K+ (based on the previous Lender's Lis Pendens Notice from about a year ago, so probably more than that now). Redfin/Zillow estimates for the unit were around $275K-$325K, and the winning bidder paid $138K for the unit. 

If the unit is subject to the first trust $232K + bid $138K, the investor's total liability on the property would be $370K...and it's only worth a max of $325.

What am I missing here? Are people just willing to gamble that the first trust Lender will allow their lien to be extinguished? Are they not worried about being able to resell the unit with clear title?