HOA Foreclosure Play for Big Profits at the County Auction
Benefits of Winning an HOA Foreclosure at Auction
The “Auction Buy to Rent” or buy an HOA Foreclosure play is still hot, hot, hot! The reason, low investment and a great return if executed correctly.
What is the HOA Foreclosure Play?
It’s a simple idea that can be very profitable. You are looking to buy a foreclosure property at auction that has a plaintiff which is the Homeowner Association as the plaintiff. Then once you win the bidding you are going to rent out the property for as long as possible before it’s foreclosed on by other parties that hold interest, primarily, Banks with mortgages. You find HOA foreclosures that you can hold on to as long as possible and make rental income in the meantime.
The math is relatively straight forward, and for the ease of explanation and to keep things simple we have rounded the numbers of this very basic hypothetical example;
You can see that different variations will bring less or more profit, but the above example is serving as a principle of buying a HOA foreclosure. We have purposely left off insurance, but you may choose, and we would certainly advise to get a form of liability insurance, all other encumbrances such as future HOA fees and assessments, property taxes, mortgage payments will not be paid. However, you may have some prior utility payments that you will have to take care of for obvious reasons.
It is not unusual to see this whole process make it to the three-year marker. During the housing melt down of the “Great Recession” and as recent as five years ago, properties were taking five to six years to get through the courts to a foreclosure auction.
How identify a Good HOA Foreclosure Play?
Member’s Only: Download “HOA Foreclosure Play E-Book” for detailed steps!
1. Find all the HOA Foreclosures coming up for auction.
First identify all the upcoming HOA Foreclosures, so you can rule out any auction that has a bank as a Plaintiff. Simply looking at the “Plaintiff” field on PropertyOnion.com’s listings will tell you this, or you can search plaintiff by keywords like “Association” or “Assn” in our filters. Another technique is using the “more filters” tool on our site allows to narrow results to only show Final Judgements of less than a certain amount. Typically, HOA Associations Final Judgements are in the $3,000 to $35,000 range.
2. Find HOA Foreclosures without a Mortgage Lis Pendens.
Primarily you are looking for a recorded Lis Pendens, Lien or Judgements from the mortgagee or mortgagees. In a perfect world the mortgagee has not recorded a Lis Pendens yet, which means even if they were to record one immediately it would take on average in most Florida Counties eighteen months to two years (minimum) to bring a successful foreclosure action and with a proficient property attorney by your side this timeline can be stretched even further. In this best-case scenario, you will not see any Lis Pendens from the Bank when searching Official Records, or when looking at the PropertyOnion.com Title Search cover page.
3. Find HOA Foreclosures without Final Judgements.
If a Lis Pendens has been issued but no Final Judgement is recorded, you need to see the recorded date of the LP and from there you can figure that it usually takes eight weeks for the issuer to then record a Final Judgement. This you can calculate into your timeline to the foreclosure auction. If a lien has been recorded but no judgement issued, you can count on fourteen to sixteen months from when the lien was recorded before the property will be foreclosed on at auction.
4. Run Numbers on Each Potential HOA Foreclosures Play.
Each point in the process you can choose a play depending on the information you have gathered. It cannot be stressed enough that you need a competent real estate attorney to help point if not steer you through the process. As a premium member of PropertyOnion.com we can introduce you to some of the best property attorneys who specialize in this arena. You can also download our HOA Foreclosure Deal Analyzer tool and play with the numbers to see if you have a profitable deal and plan your maximum bid.
Go ahead and “whack” the Mortgages
Depending on circumstances you may decide to take the mortgagee out, by this we mean pay off the mortgage and own the property free and clear.
As the title holder to the property deed once you get your Certificate of Title, you can now approach the mortgagee for a payoff statement. Once received you can make the judgement call whether you want to pay off the mortgage. Of course, if you have won the property at the auction from an HOA foreclosure, without any recorded encumbrance documents at the county, you would be best advised not to approach the mortgagee just yet.
If the mortgagee hasn’t filed a Lis Pendens, you don’t want to alert them to the recent activity on their property, even though they would have been named as a defendant by the plaintiff on the complaint for judgment at the county court. Due to the vast amount of paperwork going back and forth at most mortgagees’ offices and with no call to action required by the mortgagee there is a good chance they will remain in ignorance and there is no need to alter this position.
You can always estimate a mortgage pay off by simply finding the original mortgage note or notes (if there is more than one mortgage) at the county recorder’s office. Looking at the first page or two of the mortgage will show maturity date, and some will even include an amortization schedule toward the end of the document.
By putting in the start date and the current date to an online amortization calculator and applying an arbitrary percentage rate you can make a rough estimate of the payoff amount.
The following example is purely theoretical and is just shown to prove out this particular principle, however it is based loosely on a recent deal carried out in the past month by one of our clients, that shared with us.
The key to the above is that the mortgage pay-off was low enough to make the deal work, it also helped that this was an estate sale with no known relatives.
Our client is going to rent the property for a year which will give her some funds towards the rehab and the year will allow also allow her to accumulate other cash flow to put towards the deal. She is however pondering on whether to refinance through a conventional lending institution as there is enough equity in the property, or take out a hard money loan, which she can take on this property but use the funds to buy another one or two HOA foreclosures in the Miami Dade auction.
You can see that there is a veritable feast of possibilities when buying an HOA foreclosure and we have not even discussed Condo Association foreclosures.
Condo Association Foreclosures bring a different dimension to what on the surface seems a similar situation but are completely different because of some added complexities, we will deal with this subject matter in a future article & tutorial. For now, you have a good overview of how you can make a nice amount of profit by closing a few HOA foreclosure deals per year. What most ignore is now another source of deals you can go after.
Member’s Only: Download “HOA Foreclosure Play E-Book” for detailed steps!
Update 10/21/2019: After readers reached out and asked about the legality of this investing strategy we had a legal opinion published called “Is Buying Association Foreclosures a Violation of F.S. § 697.08?“