All Forum Posts by: Erika Leal

I bought this home from an HOA foreclosure auction. The house is worth $650,000 (conservatively). The previous homeowner took out a mortgage for $275,000. Since I bought it from an HOA foreclosure auction, I know the mortgage is a surviving lien on the property. My question is, do I have the right to payoff that mortgage? Also, do I have the right to get more information about the mortgage (like the balance, payments, etc.)? Thanks :D

I know somebody (another BP member, as well as being in local REIA that I belong to) who, as one of his business activities, purchases second position non-performing notes. I once posed the question to him of how he deals with the first position lender. He avoids paying them off! He waits until the first starts the foreclosure process, and then he is contacted by somebody from the first lender.

But of course, he does NOT want the houses. Seems you WANT the house here, so you might have to take a different approach.

Certainly, the former owners will no longer continue to pay on that first mortgage, so it is only a matter of time until the first pursues foreclosure. You just might be able to line up a buyer before the really bad stuff catches up with you, and then your method does make sense - the buyer's funds will go first toward paying off the most senior lien positions, then junior lien positions, and then you would get paid.. My bet is that the first hasn't been paid in a while, so the first will be foreclosing - just a matter of when / how soon.

In Florida:  

HOA investment programs give the investor tremendous leveraging power in purchasing distressed homes. Once you hold the deed to the property you have now established a vehicle to cloud the title. Here, in South Florida, at least 40% of distressed homeowners have values less than the mortgages. Banks know that they will never get the mortgage paid off. They are receptive to the title holder and understand that they need to settle somewhere between 60 and 65% of the Fair Market Value. They are weighing the cost of fighting the "quiet title" issue, what they are going to get at auction, the time frame of getting the property to a sale date and the cost of carrying the HOA fees, the property taxes and the homeowners insurance during that time frame. Note that during that time the title holder owns the deed and can rent the property while negotiations are going on. Many investors can't compete with the hedge-fund "boys" as they will pay well over market on certain properties at auction. With the HOA's the tail is wagging the dog. The investor is technically in the driver's seat. Banks are settling rather than bearing the costs of continuing with the foreclosure action. If the investor has an end buyer than when the bank settles he is the transactional buyer so the only major outlay, for the investor, is the cost of the HOA at auction. There is your leveraging. With a formula and stringent due diligence these types of real estate purchases are very profitable.

NOTE: If the bank won't settle than the property can be rented usually long enough to recover the HOA cost and a profit to boot.