All Forum Posts by: Andy Mirza

This one had IRS liens, CA tax liens, and a Ford Credit lien against the previous owner and her mother who was on title before her. It was a mess! None of the regular title companies would insure it but my real estate attorney made a few calls to his contacts and found a larger, national title insurer that would insure title.

If you don't buy the HOA liens at the trustee sale how do you buy your HOA properties? Directly from the HOA? The seller?

At that time, inventory was tight and we weren't seeing the deals we were able to get during 2012. The HOA lien sales also saw more competition, especially the ones with a lot of equity so we shifted strategies to go for the ones that had little or no equity. All of our condos have been buy and hold with the intent to make positive cash flow and wait until the condos recovered in price. We bought most of our condos for about 20% of what they sold for at the peak of the market. As long as they cash flow, we're willing to wait for the equity to return.

For this deal, I believed that the market value was around $150k. With a loan balance of $135k, HOA lien of $9k, and anticipated rehab of at least $5k, this deal wouldn't make sense for someone wanting to do a fix and flip. When you have the money ready and there's no inventory to buy, it made sense for us.

We got plain lucky that the market continued to climb and I was able to sell it for as much as I did. If the market didn't climb, we would've held onto the condo, rented it out, and paid down the loan until the peak of the next market.

To answer your question, I think the redemption period scare some investors away but I think most trustee sale buyers in CA don't understand HOA liens, don't like condos, or assume that there's a senior lien that will wipe them out. You have to do more homework on title issues and estimate loan balances which takes more time and I think that turns off investors.

That being said, in my market there are some players in the HOA lien market that know what they're doing and/or have cash that they have to deploy. I won't even go to the L.A. sales because I always get outbid by a large margin. Orange County is hit and miss. The smaller stuff in Riverside and San Bernardino have been where I've had the best luck.

It really depends on what your investing goals are and there are tons of ways to look at it. For me, I look at the cap rate and the cash on cash return. The cap rate is a percentage obtained by dividing the amount of money you would make in a year minus all your expenses by the purchase price, if you bought the property for all cash. (Example: if you bought the property for $100,000 in cash and the property netted you $8,000 in a year, your cap rate would be 8%. Do not include mortgage payments in your expenses.) The acceptable cap rate is a choice that you would make based on your own goals and should be influenced by the prevailing cap rates of similar investments in your area.

Cash on cash is more accurate if you're using leverage. It calculates your percentage based on how much of your own cash is in the deal. (Example: You buy the above property for $100,000 with $20,000 down and an $80,000 loan. You still net $8,000 in a year but you only have $20,000 in the deal and not $100,000. Your cash on cash return is $8,000/$20,000 = 40%).

There's more detail to cap rate and cash on cash return but those are the basics and they're ways that investors (especially commercial) use to evaluate deals.

If you want a simpler answer, as long as you're positive cash flow every month after you include all of your expenses (vacancy, taxes, insurance, maintenance, management, utilities, and repairs), it's probably worth doing. I personally would stay away from doing this if you anticipate being cash flow negative. If you have to add money every month to keep your investment going you put yourself at unnecessary financial risk. Just my opinion. I hope it helps :)

One of the things I do to help estimate the loan balance is to look at any NOD's and NTS's filed on the loan. The NOD usually has the reinstatement dollar amount (anyone out there, please correct me if I'm wrong). The NTS usually will tell you the amount necessary to payoff the loan.

For example, I used this method to approximate the loan balance of a condo I purchased last year:

Grant Deed 12/8/2000 $92,000

1st Loan 12/8/2000 $89,240

NOD 4/2/2007 $9,224

NOD 6/12/2008 $10,512

NTS 11/3/2008 $107,098

NOD 6/26/2009 $7,969

NTS 10/2/2009 $118,182

NOD 10/6/2011 $6,561

NTS 2/28/2012 $130,792

The trustee sale for the HOA lien was set for April, 2013 and was for almost $9k. The original loan amount was for $89k but, because of the last NTS, I estimated that the balance on the loan was about $135k (which I found out later was exactly right).

I bought the lien with no competition. After the 90 day redemption period was up, we evicted the previous owner, rehabbed the place, and sold it in March 2014 for $212k. Nice little deal!

I've purchased 7 HOA liens at trustee sales. 3 were redeemed by the previous owners (one did so on the 90th day), 3 we keep as rentals, and one I recently fixed and flipped. Two of them have loans I took over subject to, including one I paid off when we sold it. There were lots of challenges, including getting title insurance and paying off the 1st mortgage.

Every HOA seems to treat their properties acquired through HOA lien foreclosure differently. Some rent them out while others do nothing with them and wait until the bank forecloses.

Given the latter response, I've approached the HOA management company in the community I live in with the idea of trying to buy any HOA foreclosed property from them that was a problem. They were pretty ignorant of possible solutions to HOA acquired property and appreciative to hear about other options that were available to them. Since HOA's tend to move slow, I'm still waiting to get an answer but I'm hopeful about the idea of approaching other HOA's about this.

Has anyone tried something like this? Have any of you tried to buy directly from the HOA when it made sense equity wise or cash flow wise? Did you have any success?