Why the Supreme Court Decision on HOA Foreclosures Is Good News for Everyone

October 22, 2014 Uncategorized No comments yet

Lenders and investors are squaring off in Las Vegas over the recent Supreme Court ruling that stated that Homeowners Associations (HOAs) have the authority to foreclose on properties and sell them at auctions to recuperate delinquent dues without needing to go to court for permission. The Supreme Court ruled that the super priority lien that the HOA holds on the property for unpaid assessments trumps the first trust deeds held by mortgage lenders. The HOAs are allowed to sell these delinquent properties to recuperate unpaid dues. These properties are often listed for sale at the auctions at prices equal to the total amount of dues owed to the HOA plus collection costs and late fees, which usually equals only a couple thousand dollars.

This means that investors at these HOA auctions can purchase these delinquent homes for a fraction of the cost of their real value, making these properties an excellent investment opportunity. After purchase the property is transferred over to the investors via a quit claim deed or a foreclosure deed which gives them title to the property and allows them to live in, resell, or rent (depending on HOA rental restrictions) the properties. According to the recent supreme court of Nevada ruling the first trust deed held by the mortgagee (the bank) is completely wiped out.

The super priority lien held by the HOAs allows the associations to foreclose on the properties and any delinquent dues to the HOA are paid back.  Any overage from this sale will go in lien priority, with the bank being next in line in most cases, to recover any overage from the HOA foreclosure sale.  This September 18th 2014 ruling has, of course, put many lenders in an uproar as lenders now potentially can lose their security to the property if they choose not to foreclose themselves before the HOA does or if they choose not to pay the back HOA dues to prevent an HOA foreclosure.

The Nevada Supreme Court and the HOAs have no sympathy, however, for the lenders. Since the bank foreclosure process has been taking a very long time (sometimes years!).  HOAs are often left with empty homes and delinquent dues with no possibility of re-payment through the existing owners. Lenders are given the opportunity to pay for the HOA liens to prevent the property from being foreclosed upon by the HOA, but if lenders choose to not pay the liens they run the risk of losing out on possession of the properties that they could foreclose on themselves.

Some lenders claim to be unaware of HOA liens on the property or state that the HOA will not allow banks to pay the liens. In this case the issue of timeliness comes into play. If lenders foreclosed on properties quicker there is less of a chance of the properties remaining vacant for so long and thus acquiring further delinquent dues. If a new owner was allowed to move in quicker the current dues could be consistently paid preventing the HOA from needing to foreclose on the property in the first place.

There has been a definite shift in the real estate market with this new Supreme Court ruling, and some agents are already beginning to notice the difference in how short sales and foreclosures are being handled. Some agents are reporting short sales that are being approved in less than a month, a process that usually drags on for months or even a year or longer in the recent past. Why the sudden quick decision from banks regarding short sale approvals? Banks and lenders are trying to recuperate their losses before the HOAs foreclose first and thus prevent them from losing their security against the homes.

It will be interesting to see how the lenders handle the new ruling and whether it will affect mortgage rates or the ability to get a loan in Nevada. While the banks have stated that HOA foreclosures may be bad news for them in reality it is a great situation for the banks.  The delinquent properties sold at HOA auctions are selling at about 70% of retail value and will actually get the bank their money faster than if they waited to foreclose themselves. Remember that any overage of the HOA auction is paid to the bank.  This is the same way it works with a normal trustee sale.

This decision is also good news for real estate agents and short sale buyers and sellers who may see quicker short sale approvals and re-listing of foreclosed and short sold properties. Residents who live in HOA communities will also benefit as the HOAs will be better able to service and maintain their associations with the recuperated dues.

Local Las Vegas Investors will reap the most rewards, however, especially those who took advantage of the HOA foreclosures prior to the Supreme Court decision. Millions of dollars of equity was created with the Supreme Court ruling and investors who purchased many of these properties are now sitting on a real estate gold mine.

For more information on HOA foreclosures and how you can still take advantage of this investment opportunity contact Glenn Plantone today!

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Trustee’s Sale Becomes Best Buying Option as Home Prices Rise in September

November 5, 2009 Uncategorized No comments yet

As you may know I have been very heavily involved in the Las Vegas real estate market for the last six years, both as a private investor and as a licensed real estate agent. As an agent specializing in undervalued properties, I have sold homes and condos to both owner occupants and investors at great discounts…before and after the bubble burst.

The current Las Vegas market represents one of the greatest buying opportunities that we have ever seen in real estate. Prices have over-corrected as a result of the credit crisis and have come down to levels that are way below builders’ costs. We are seeing condos selling at about $35-$45 per square foot and single family homes selling as low as $50 to $60 per square foot. From October of 2007 to May of 2009, the average median home price in Las Vegas fell approximately $10,000 per month…every month. As prices began to stabilize in the summer of 2009, investors realized that a bottom was arriving and began to flood back into the market. This past summer saw record sales volume in the Las Vegas valley. There were over 3700 closes in both June and July, 2009…beating even the previous monthly highs set in the summer of 2004, at the height of the bubble. Of these closings, 45% were cash deals and 40% were to investors (as opposed to owner occupants)…these numbers also exceed the percentages posted in 2004.

This extraordinary demand for great properties at great prices in Las Vegas caused the median home sale price to increase in September…the first increase in the Las Vegas market in over two years. September also saw sales taper off slightly. The general consensus, however, is that this decline is not because of a reduction in demand, but rather because of a drastic reduction in supply. In September only around 1800 homes were returned to bank ownership through the foreclosure process. In contrast, 3358 single family homes sold in this same month. Since almost 70% of all these sales were on foreclosure/REO properties, this represents a situation where more homes are being sold than are coming on to the market. The prices are low, the demand is high and, as a result, prices are starting to creep up on these REO sales. In addition, we are seeing multiple bid situations on almost every REO property that comes up for sale. These circumstances are making finding good deals by buying REO properties very difficult.

The most viable option at this time for acquiring properties below market value is at the trustee’s sale. Once the owner of a property passes his 90 day notice of default period, he is issued a notice of trustee’s sale. After the NOS, or notice of sale, is given, the owner has 21 days to cure the default or the property will be sold to the highest bidder at the trustee’s sale. Buyers at the trustee’s sale in Las Vegas are currently picking up properties for a discount of about 20% under the already heavily discounted REO listings that are setting current market values. For example: If a home sold in 2007 for $300,000, and it is now worth about $100,000 on the REO retail market, it may be picked up at the trustee’s sale for around $80,000. This would represent a buy price of approximately 25 cents on the dollar from the highs of just a few years ago.

I have spent the last several months working with a handful of investors and have made several purchases through the trustee’s sale. If you are interested in finding good properties at the best prices in the hottest foreclosure market we have ever seen (and may ever see) please give me a call or shoot me an email and I can go over the details with you. Buying at the trustee’s sale represents not only a great opportunity for the buy and hold investor to purchase properties for cash flow, but also represents the only viable opportunity for flip investors in Las Vegas to actually resell a property for a quick flip profit.

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Shrinking Inventory Necessitates New Buying Strategies

September 13, 2009 Uncategorized No comments yet

The Las Vegas real estate market has endured an amazing roller coaster ride in the last ten years. Homeowners in the Las Vegas valley saw very modest price appreciation throughout the 90’s and the early part of this decade. In 2003, sales began to pick up and by 2004 Las Vegas was the hottest market in the United States. Prices shot up to astronomical new heights only to come crashing down a few years later. The 2007 and 2008 season saw the Las Vegas real estate market become as cold as ice as both prices and closings plummeted and foreclosures soared. But all things come full circle and since the summer of 2008, the Vegas market has been picking up steam and has in fact enjoyed record sales going into the summer of 2009. In fact, there were more sales in June and July of this year than during any previous month on record…including the heyday back in 2004. The continued bad news, is that after 18 months of price drops the huge gains in appreciation that we saw from 2003 to 2006 have not only been erased, but we have receded to levels of a decade ago. The average median home price in Las Vegas has settled near $130,000. Virtually everyone that purchased in Las Vegas after 1998 is now upside down in their home. It does not make a lot of sense to most Las Vegans as homes are now selling well below builder’s replacement costs.

This drastic decrease in prices has brought droves of investors back into the Las Vegas real estate market. 80% of closings in the last several months have been on REO or post-foreclosure bank owned homes. Cash buyers have been dominating the market and getting great properties for around $40 to $70 per square foot. Unfortunately, the inventory of bank owned homes is now at an all time low of under 2000 units. This represents less than a two week supply of inventory based on the fact that the majority of the 4702 and 4602 closings in June and July were REOs. Even though Las Vegas is the “foreclosure capital of the world”, we are continuing to see foreclosure inventory shrink on a monthly basis. June and July saw nearly 3300 homes per month revert to the banks through foreclosure, but this pales in comparison to the over 3700 REO sales per month that we saw at the same time. This disparity means that we are loosing nearly 400 homes per month from the inventory of bank owned homes.

The low inventory is causing heavy competition for the homes that are available. REOs coming on to the market today are creating bidding wars as investors try to snatch up cash flowing properties at great, low prices. Both owner occupants and investors looking to take advantage of great buying conditions are finding that they are having serious difficulty getting homes under contract. This excess of demand is beginning to drive prices up on bank owned homes.

For months, I have touted the benefits of buying REOs directly from the banks. The process is simply and easy, and, until recently, investors could use this method to acquire great properties at great prices. But those days appear to be coming to a close, at least for the time being. There has been talk for over six months, since the moratorium on foreclosures ended in March of this year, that the banks have a surplus of inventory they are holding back. The problem seems to be that no one knows when or if this rumored inventory will be released. Until or unless that day comes, I am now advocating that investors change their strategy for acquiring properties in Las Vegas. Plan B is to buy homes at the trustee’s sale. After the notice of default (giving a late paying home owner 90 days to cure the late payment) and the notice of sale (giving them another 21 days) a home is sold at the trustees sale. At this sale, the property will either be bought by a third party (you or I) or it goes back to the bank and will eventually become a bank owned, MLS listed REO foreclosure property.

Previously, I have not advocated buying at the trustee sale because there are many restrictions and hassles involved in this method of purchase. Not the lease of which is that properties cannot be financed…cash must be paid at the time of sale. However, with the inventory of REO homes tightening so drastically, I am now finding that trustee sales are offering opportunities to purchase homes at 20-30% below the price that would be paid once the home becomes an REO. Buying at the trustee sale also eliminates the competition of multiple offers. This is where the true investor can now turn to get great wholesale deals. Investors must continue to adapt in order to profit in today’s real estate market. I believe trustee sales in Las Vegas are the next step in this evolution.

Anyone interested in getting involved and finding great homes at the best prices with the least amount of competition feel free to get in touch with me for more information.

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