The HOA lien is coming up for auction. The 1st is also scheduled for auction but a few months later. I have some detailed questions and hope you can help! If I buy the HOA lien can I immediately contact the lender for the 1st to set up taking over that loan? Do I have to wait out the 90 day redemption period and hope that the owners don’t come back to me with the amount of the HOA lien? And if they don’t do I have to wait for the 90 days to be up to tackle the 1st mortgage? What if I do have to wait and the 1st gets sold at auction?
Thank you
As MikeT wrote in another post
“This brings up too many scenarios to discuss here. If you get possession, at some point down the line you should be able to get title insurance. You might have to wait a year. IF you let the first go to sale, they will probably want to interplead the overbid - and - most likely, will send notice of same to the former owner - who would have no reason not to make a claim and muddy the waters.
If you advance to the first during the redemption period, you should be able to get your advance back if, in the long shot, the former owner redeems. Problem is, if there is a lot of equity, a speculator could approach the owner and buy his interest and redeem.”
As Michelle’s reposting of a comment from MikeT from another post alludes, it is complicated.
That said, when I’ve bought HOA Liens, I have typically approached the prior owner in an effort to get them to quit claim the property to me - usually as part of a cash-4-keys agreement. That resolves redemption, concerns about homeowner claims, and the possibility of interference from another investor.
If I couldn’t get the quit claim, I personally would wait out the 90 days before advancing anything. If a senior loan was scheduled during that period, I would be prepared to bid it up sufficient to cover whatever I paid for the HOA lien, and whatever profit I desired (as the owner you’d be entitled to any excess proceeds - the amount bid over the amount owed), thus protecting my position.
Thank you Sean and Michelle. I am thinking of simply approaching the owner who seems to have been unable to pay either mortgage or HOA for some time. Would you recommend approaching before the HOA lien comes up again?
If there is enough equity in the property for you to be willing to purchase the HOA lien, then yes, it might make sense to simply approach them with an offer to buy the property. These days most of these are underwater, so the question rarely comes up anymore. Before you approach them make sure you read up on Civil Code 1694 if you plan to buy the house as investment, though don’t worry about it if you intend to live there.
Even after the 90 days, can the previous owner still try to raise issues with ownership/redemption, or would they likely not file a suit and/or have a case? Before the 90 days, could they sell the property without having to satisfy the HOA lien you bought because it is not recorded yet? If they filed bankruptcy does that change these answers? Thanks SO much in advance for any help.
Anyone can file a suit for anything at anytime. Plus they can declare bankruptcy, damage the property, etc to try to delay their eviction. That’s true of all trustee sales, but fortunately relatively rare, and when it does occur its a hassle, but usually works out in the end as they won’t prevail in a lawsuit as the law is very clear, and even if they have a valid complaint they’ve had more than enough time to raise the issue or take care of it within the foreclosure process and the 90 day redemption period. As such the court is unlikely to take the property away from a bonafide purchaser for value (you). Always best to head these things off by doing a cash-4-keys with the seller, and if you really want to be safe have them sign a quit claim deed.
Thanks Sean for that great answer. I didn’t realize it is similar to a 1st trustee sale, of course with some nuances and very rare to actually work out to purchase. Is there any difference if they declare bankruptcy before the HOA lien trustee sale, between the period bought at the trustee sale and the 90 day period to record, or after the 90 days? Last question, I understand the HOA also had to follow all the procedures for getting the lien correctly in order for it to be valid/not fought by owner, in your experience, do they usually file everything correctly?
More similar to a 2nd, as any senior loans will need to be paid off (which all of them will be unless HOA lien was filed before them - unlikely). Most HOA’s will use one of the specialized HOA trustees, if you see them, then things were properly filed correctly. I don’t know of anything different with HOA liens on the bankruptcy front. If they file before the sale and the trustee holds the sale anyway, then the sale will be overturned. If they file after the sale, then you will need relief from the bankruptcy court in order to proceed with the eviction. But that’s standard stuff.
Thanks Sean, yes you are correct, it is more similar to a 2nd. I just meant there are some similarities to what I’m used to with 1sts, whereas I had in my mind to not assume anything was similar (although there are key differences). Thanks so much for the answers to the questions and the additional information.
If the house is rented, who is entitled to the rent after the sale, but prior to the 90 day redemption periord expiration?
I’m pretty sure the law is silent on this, but I think its likely that if it went to court the buyer would be entitled if the owner did not redeem, and the owner would be entitled if they did redeem. Basically, the sale should still be effective as of the date of sale, unless redeemed, in which case the sale essentially never occurred (from a title standpoint).