It made headlines, so everyone knows that there are opportunities for investors to buy property below market value when the property is facing foreclosure. But have you ever thought of foreclosures by homeowners’ associations?
As you know, the law requires that when a lender begins a conventional foreclosure, it posts a public notice. Oh boy does that make it easy to find the name and address of a distressed homeowner?
The problem is that it also means you will have a lot of competition for that property. Every foreclosure investor in your area follows foreclosure legal advice.
The trick is to do what other people don’t do. One area of foreclosure buying that isn’t as well known is Homeowners Association (HOA) foreclosures.
In most cases, long before a homeowner stops making mortgage payments, they stop paying their HOA appraisal. This is your signal that the homeowner has serious financial problems and may be interested in getting out of both the HOA and mortgage payments.
This is a gigantic opportunity! Yes, it is an opportunity not only to buy a property but also to bail out a homeowner. .
It wasn’t front page news, but many HOAs are seeing a spike in overdue reviews. In Arizona’s most populous counties, it has been reported that 20% to 35% of HOA fees are overdue. That’s a big leap from previous years.
Usually, overdue tax assessments are collected by means of reminders, advance mortgage bonds or the submission of HOA liens.
HOAs now face an even bigger problem as lenders foreclose at record rates and some homeowners file for bankruptcy to pay off their debts. The HOA is confronted with debt collection through small claims courts or judicial vs. extrajudicial enforcement.
Keep in mind that fees are the HOAs’ only source of income to fund the upkeep of the community. If appraisals are not paid, other homeowners in the development will have to make up the difference. This means that their ratings will increase. Many of them are already on the brink of financial collapse, and an increase in HOA fees might be enough to push them over the edge.
It varies from state to state, but an HOA has the authority to freeze property if late payments on HOA fees reach a certain level. This foreclosure authority is governed by HOA statutes and state law. As an example, here’s how it works in California:
One of two thresholds must be reached before an HOA can exclude defaulting reviews in or out of court
Number one – HOA appraisal debt must be $1,800 or more, excluding appraisal fees; or
Number two – The debt, whatever the amount, must be more than 12 months past due.
Invest before foreclosure
This could be considered a pre-foreclosure investment as you will be watching the published notices from the homeowners associations. Remember that each announcement posted will attract tens to thousands of other bargain hunters.
Could you get information on late appraisal payments directly from the HOA before it’s made public? Probably not, but there’s no harm in asking.
Another tactic could be to offer the HOA to pay for the late reviews in exchange for the information. The average HOA fee is probably between $125 and $250 per month. A multi-month assessment could be a steal for information you would get before anyone else.
In my opinion, your best course of action can be achieved through neighborhood marketing. You can target developments that have an HOA, and that’s about anything built in the last ten years.
Offer to pay for a homeowner’s overdue appraisal using door hangers or direct mail. This can give you access to financially troubled homeowners. Then it’s up to you to find a way to buy the house profitably.
You can offer a lease option, buy as part of existing financing, or enter into an equity sharing deal. There are many ways to buy from those facing foreclosure that can benefit both you and the seller.
Foreclosure investors are falling over each other trying to profit using traditional methods. You can reduce competition to near zero by understanding the opportunities homeowners offer behind HOA ratings.