In GA, generally, yes... when you buy a property on the courthouse steps, you are responsible for the whole ball of wax, including any liens and liabilities and anything else associated with the property.

Ever heard the term "buying a pig in a poke?" You have to do major homework when you buy at an auction; you're buying a pig in a poke! There's as much LUCK involved as there is skill, knowledge and experience... it's definitely NOT for the faint of heart or those who can't afford to lose some money and time.

Jeff, I'm not a courthouse steps pro. So, I'm not sure what types of deals are made on a consistent basis. I only decide to go to the steps every now and then. Last Tuesday was the first time that I ever actually made a purchase at the steps.

One thing that I have noticed though...is that some properties tend to be more expensive at the steps. I've seen the opening bid for a property be higher on the steps than the asking price after the foreclosure process is completed and the property is listed by an agent.

So, some prices on properties are deals; some aren't...

Mike-

Great to hear you got such a good deal. Based on that price it seems like the banks might be changing their strategy a bit. Typically they bid the property in at the full amount they are owed on the loan, including back interest, attorneys' fees, etc. If they let it go for $25,000 they seem to have made a conscious decision to not add to their REO inventory.

Have others seen this same phenomenon at the monthly foreclosure auctions? I may have to start going back down there!

Mike - at 25K in Buckhead you should be OK, hell you can rent that and still be fine if it goes worst case. I would go easy on the 3/2 vs 4/2 deal - as I wrote that could turn it into a "boarding house" feel....

Hank

Dear All,

Your advice has been extremely helpful. I bought a Buckhead condo on E. Paces Ferry on the steps for $25K on Tuesday. Afterwhich, the HOA tried to withhold my access to the building, claiming that I was responsible for paying over $4000 in delinquent HOA dues from the previous owner (who has moved to Germany). After threatening that I had spoken with two real estate attorneys, all of a sudden, I no longer owed the delinquent HOAs and was given fob access to the building for $60. You guys rock!!!!!!!!

Hank, you are right about the ATL condo market...it's definitely a dangerous game to play right now. I bought two condos on Pharr Rd. in Buckhead...and luckily got out by the skin of my teeth. Luckily, both condos were on the market for less than 10 days!...as some are still excited about the "New Streets of Buckhead" hype. I had bought both as foreclosures, so I was able to sell low.

Buying the unit on Tuesday for $25K has to be a low enough buy for me to make some type of profit. As my apartment lease ends in 2 weeks, I may live in it while I make renovations to the home on Moores Mill (that I referred to in prior questions), or I may rent it.

Also, thanks to all who answered the renovation question asked by my wife, Kelly. We really don't know what to do about converting our Moores Mill 3/2 into a 4/2....

Again, thanks a bunch to all of you!!!!!

Good calls Stacey and Jeff, dead on with the info. Now my two cents that echoes Stacey's point about the Atlanta condo market....it's a train wreck and will continue to be for the foreseeable future. I've been in the RE biz both selling and appraising here in Atlanta since '94 (6 years as the SE senior review appraiser for a huge private lender out of NY) and the idea that Atlanta can support an "in town" business/residential marketplace like NYC, Boston, Chicago, SF or any of those major cities is a pipe dream. The run up for the Olympics was driven by masterful PR; many of the towers that went up during and after the games quickly ran into occupancy and financial issues. We routinely passed on deals when during reviews, I’d find entire floors on which construction hadn’t started, floors being reconfigured to smaller less expensive units, developers looking to dump interests and cut losses and other signs reaffirming what we already knew. Today you see repeated major auctions just to unload standing inventory, this city cannot support the condo inventory and it won't anytime soon.

As far as buying on the steps, you better go in eyes wide open because those are shark infested waters. Unless you do thorough research on the unit, the project and the trends for the area you can make a big mistake; you stroke a check and get a pat on the back, keys and potentially a whole lot of trouble. Remember, it's easy to get in but one day (often sooner than expect) you have to get out. Look at it like a mouse trap, just as you get the cheese it’s lights out.

I would strongly suggest that you re-evaluate the condo idea as they are depreciating assets; single family detached is a better long term option if that's feasible for your situation. Don't forget as well that as a condo owner you are inextricably tied to the fate and financial stability of the building in general; think about all of the owners facing significant association fee increases, watching units being foreclosed, going short and going to auction. I could bore you with the calls from owners asking me for advice on how to help them eject without getting slammed; there isn’t anything good for me to offer.

Sorry to be a bit negative but I’ve been around the Atlanta condo market and have seen it from several perspectives, none are good and unless there are unique or special circumstances involved I recommend my clients think long and hard before jumping in.

Hank Miller, SRA, ABR
Associate Broker & Certified Appraiser
Prudential GA Realty
678-428-8276

Hi Mike, and thanks for your question.

As the Common Interest Development/Homeowners Association expert, the real answer is "it depends." If the foreclosure is brought about by the homeowners association and not by the first mortgage holder, then the past due assessments are what is being paid at the foreclosure sale, and although these are satisfied by the foreclosure, the first and any additional secured lien holders (loans, for example) are not wiped out in the sale and will demand to be paid.

If the homeowners association has perfected their lien through judicial foreclosure actions, even if the first mortgage holder forecloses before the homeowners association, some states recognize the court action and require the past due assessments acknowledged in the court case to be paid at the time of foreclosure by the first mortgage holder. In the past, this was rare, but it is becoming more common as homeowners associations suffer greater and greater losses in foreclosure. The only question to be resolved in this case, of course, is who pays the past due assessments and normally the answer is "the lender" and not the buyer.

If your state has endowed on the common interest development something called "Super Lien Rights", then the homeowners association's assessments are no longer considered "unsecured" debts and MUST be paid upon foreclosure. In some cases, these delinquent assessments are paid by the lender from the foreclosure proceeds, and in some cases, the assessments are paid by the buyer.

Finally, as the others have noted, most often if the foreclosure action is brought about by the first mortgage holder, the mortgage company will already be in negotiations with the homeowners association to pay for the delinquent assessments. In some cases, the amount is already 'built-in" to the minimum bid amount, and in other cases, such as California, for example, unless there was a judicial foreclosure action, the HOA is purposely left out of any payment plans--and this, last thing, unfortunately, is what is causing many otherwise very lovely homeowners associations to founder and fail to meet even minimum maintenance standards.

My only suggestion to you is that you check carefully before buying a foreclosure property in a homeowners association. If you are purchasing a condominium (rather than a planned development--and please, let's all stop calling these "townhomes" or "condos", because a townhome can be a "condominium" and it makes a huge difference, legally, to a homeowner to know the difference), then the homeowner association owns the building and the owner owns only the "box of air" bounded by the perimeter walls" or "envelope" of the condominium. Unpaid or uncollectible delinquent homeowners association assessments in a condominium community will affect the building's maintenance and that can be enormously detrimental to all remaining homeowners in the association. If this is a planned development, then the homeowner owns the building (not the Association) so failure to collect assessments only affects the common areas (outside of the building) and will, in most cases, not affect or only minimally affect what you own--the home.

Good luck and happy house purchase!!

Sincerely,
Grace Morioka, SRES, e-Pro
CID Expert, Co-Author, "Homeowners Associations: A Guide to Leadership..."
Area Pro Realty
San Jose, CA

Mike,

As both Jeff and I explained, outstanding HOA Dues are absolutely wiped away by a Foreclosure proceeding. [I have bought and sold Foreclosures from the steps on multiple occasions.] If there are additional funds remaining after the Senior Debt (1st Mortgage) + Attorney Fees are satisfied (Usually Bank's Opening Bid), the Junior Lienholders (2nd Mortgage, Mechanics Liens/HOA, etc.) have a claim to the additional funds. This rarely happens, but when it does the 2nd Mortgage (When Applicable) gets first crack and by that time everyone else gets the proverbial "short end of the stick" or $0...

Jeff makes an extremely relevant point considering the current state of the Condominium Market, which by the way is still declining... unlike the Single Family market which has made some modest gains over the last three months...

Do your homework on the particular Condominium Development that you are considering... as Jeff notes, if the Condominium Association is in a deficit situation, they WILL make a special assessment on the existing Home Owner to cover the gap... I will not mention the Development, but I know for a fact that this recently happened on a Mid-Town Condo project where the monthly HOA Dues went from $300/Mo to over $500/MO... that is a chunk of change and as you know they are NOT tax deductible...

Good luck and happy investing!

No. If you bid in excess of the bank's initial price the HOA may have a claim for that difference (depending on other liens that may be filed against the property), but past due HOA fees will be extinguished by the foreclosure. One thing you should be wary of, however, is buying a condo in a building full of foreclosed units. The HOA probably has a huge shortfall in revenue due to those foreclosures and there is a good chance that an assessment might be necessary in the future to shore up the HOA budget. If you know someone who already owns in that building/complex, see if they can get a copy of current financials for the HOA.

Unfortunately, you do inherit the past due HOA. If this were a normal transaction then this would have been researched by the closing attorney and deducted from the sellers proceeds. However, that does not prevent you from contacting the HOA and trying to work out some resolution regarding the past due amounts. As an investor, you have to expect the unexpected when purchasing foreclosure properties and remember to do your research in advance. Taking that extra step and having a real estate expert on your team can save you thousands!

Tammie Seldon
tseldon@kw.com
404-419-3696

Mike,

When you buy property at the Courthouse Steps, typically only two (2) things survive the Foreclosure Sale... Drum Roll please.... you guessed it... County Taxes and IRS Tax Liens. Uncle Sam NEVER gets shortchanged. ;)

I highly recommend that you identify a target list of properties you want to purchase and then do all the Due Diligence on those properties before the auction. You can check with the respective county to see if back taxes are owed on each property. If Taxes for the respective County traditionally include Water/Sewer/Garbage (e.g. Dekalb County) I would also check with those departments... back water/sewer bills are usually don't amount to a ton of cash... but if you are like me, I like to know all the details before I make a financial decision!!

You can also try and contact the Foreclosure Attorney responsible for each Unit/Home as they are your best source for the full details on the Foreclosure. The only challenge with the latter is that these attorneys are slammed with so many properties going through this process.

Good luck and happy investing!!