Judicial ForeclosuresSeptember 26th, 2008
Author: admin
It's been front page news, so everyone knows that there are opportunities for investors to buy real estate at below market value if the property is facing foreclosure. But have you considered homeowner association foreclosures?
As you know, when a lender begins a conventional foreclosure the law requires them to publish 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 plenty of competition for that property. Every foreclosure investor in your area follows the legal notices of foreclosure.
Home Owner Associations
The trick is to do something others aren't. One area of buying foreclosures that is not so well known is homeowner's association (HOA) foreclosures.
In most cases, long before a home owner stops making mortgage payments, they stop paying their HOA assessment. That's your signal that the homeowner has serious financial problems and may be interested in getting out from under both the HOA and mortgage payments.
That is a gigantic opportunity! Yes, it is opportunity to not only buy a property, but to help a homeowner out of a tight spot. .
It has not been front page news, but many HOAs are experiencing increases in past due assessments. In the Arizona counties that are the most populated it has been reported that 20% to 35% of HOA dues are delinquent. That's a huge jump from previous years.
HOA Assessments
Normally past due assessments are collected by means of past-due notices, pre-lien letters or filing of HOA liens.
HOAs are facing an even larger problem now with lenders foreclosing at record rates and with some home owners filing bankruptcy to discharge debts. The HOA is faced with collecting through small claims court or judicial vs. non-judicial foreclosure.
Remember that fees are the HOAs' only source of income to fund community upkeep. When assessments are not paid other homeowners in the development must make up the difference. That means their assessments are increased. Many of them are already teetering on the brink of financial collapse and an increase in HOA dues could be enough to push them over the edge.
HOA Regulation
It varies from state to state, but an HOA has the power to foreclose on the property if the late payments on HOA dues reach a certain level. That foreclosure power is governed by HOA bylaws and state law. As an example, here's how it works in California:
Before an HOA can foreclose, either judicially or non-judicially, for delinquent assessments, one of two thresholds must be met
Number One - The HOA assessment debt must be $1,800 or more, exclusive of assessment charges; or
Number Two - The debt, no matter what amount, must be more than 12 months delinquent.
Pre Foreclosure Investing
This could be considered a pre foreclosure investment, because you will be watching published notices of default filed by home owner's associations. Just remember that any published notice will attract from dozens to thousands of other bargain seekers.
Could you get late assessment payment information directly from the HOA before it is made public? Probably not, but it can't hurt to ask.
Another tactic might be to offer to pay the late assessments to the HOA in return for the information. The average HOA fee probably ranges from $125 to $250 per month. A few months assessment might be a bargain price to pay for information you would get before anyone else.
In my opinion your best course of action may come through neighborhood marketing. You can target developments that have an HOA, and that's about all of them that have been built in the last ten years.
Using door hangers or direct mail, offer to pay a home owner's delinquent assessment. This can get you access to financially distressed home owners. Then it's up to you to find a way to make a profitable purchase of the home.
You might offer a lease option, buy subject to the existing financing or workout 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 through conventional methods. You can cut the competition to near zero by understanding the opportunity offered by home owners behind in HOA assessments.
Mark Walters is a third generation real estate investor. For a limited time Mark is offering a free guide to finding private money lenders for real estate investing: http://www.FindPrivateMoney.info
