HOA Foreclosures in Las Vegas - Part 2

There are four primary scenarios encountered as we pursue clear title on a property:

1. Our attorney pursues quiet title on the home in an attempt to get a 100% free and clear title on the property that is marketable, can be insured, and allows us to resell the home at any time.  Although it is not the norm, there have been many cases when this method has worked and the buyer of the HOA delinquent receivables has walked away with a free and clear title from the quiet title procedure.  Since many investors are buying these HOA receivables at 5-10 cents on the dollar, when quiet title does occur, it generates a huge return on investment.
2. If a lending institution still holds a lien (1st or 2nd mortgage) on the home, a second strategy is to hold onto the home to generate cash flow for as long as possible while the bank tries to foreclose on the property.   If properties are bought at a low enough price, and the foreclosure is not completed quickly (as they usually are not,) there is a very good possibility that this will end up being a positive return situation for our investor client.  In addition to rents collected, the probability of receiving the majority of the investment back from the bank during negotiation is also very strong.  The bank may have to pay the investor the super priority lien amount plus the overage of what was paid at auction.  If this is the case, the investor receives all of their money back, less the rehab costs, plus any rental cash flow generated during the foreclosure process.   This seems to be what most investors are banking on and are now starting to bid properties up to 20% of the property’s value at these HOA auctions.
3. The third scenario is one that has generated personal success for my clients and I and one which I believe will become the most profitable and prevalent of all.  Once an investor has possession of the home, and has hired an attorney, it becomes very costly and time consuming for the bank to battle to get their home back.  If the bank were to foreclose on the home, their goal would be to eventually list and sell the home anyway.  So why not sell the home to the investor that currently has possession of it?   We have successfully negotiated with the bank through our attorney to buy a home at 70% of BPO.  On this particular home, the client had only put a little over $4000 into the purchase.  This $4000 includes the cost of the lien at auction, rehab, maintenance, management for a year, and attorney's fees less the rental proceeds from the months the home was rented.  The bank agreed to sell the home to our investor for $84,000 and the home is worth about $145,000 in today’s market. 

Another example of the benefits of having a good attorney can be seen in a recent transaction where our client purchased liens for two condos and after negotiation the bank simply wrote off and completely released their liens on the properties.  In that case it appeared that the bank understood that it wouldn't be economically beneficial for them to fight and spend upwards of $30,000 in legal fees for a $50,000 condo. 
As you may have gathered from trying to understand this new form of investing, there is a tremendous upside to it and very little downside based on current legislation, court cases, and history that we have seen so far.  I have personally been involved in approximately 30 of these transactions and have sold around 50 others to my client base of investors. 
If you are interested in learning more about the HOA foreclosure process and how you can use it to generate returns, please give me a call directly and I can answer any and all questions you might have.  I can also describe in detail how we are able to partner with investors to buy these homes, townhomes, and condos at 5-20 cents on the dollar and manage them effectively while getting the maximum return out of each home that we obtain, manage, or sell. 

HOA Foreclosures in Las Vegas - Part 1

 

As many of you know, there has been very little bank foreclosure activity lately in the Las Vegas marketplace (an average of 270 homes per month over the last 3months-May, June, and July 2013.)   However, a new development in the Las Vegas real estate scene is HOA foreclosures. Home Owners Associations (HOA’s) are now foreclosing on homes within their jurisdiction for unpaid HOA fees.

We have been working hard to secure many of these foreclosures for our investor clients using two  paths:

1. Buy the HOA delinquent receivables for homes, townhomes, and condos at auction (Trustees sales, collection company auctions and/or private attorney auctions.
2. Approach HOAs directly and buy their receivables for these delinquent accounts, foreclose on the homes ourselves, and gain title to the homes through this method.

When we buy at one of the auctions, we usually end up paying between 10-15% of the property’s value for the home.  We get a foreclosure deed, we record it, and this gives us legal possession of the property.

If the home is vacant, we rehab it and rent it out for cash flow.  While we are collecting rent on the property, our attorney negotiates with the bank to obtain "quiet title" for free and clear ownership of the home, or our attorney negotiates with the bank to buy the property at a discount from current market value.

If the home is currently occupied with a renter, we place the home in our property management division and rent comes directly to us.  If rent is not paid, we treat the property as a normal rental and evict the current tenant.

If the house is occupied by the former owner, we give them three options. 

1. They stay, sign a lease, and pay rent as any other tenant would do. 
2. They stay unlawfully and we have them evicted (unlawful detainer.)This process takes approximately two months.
3. They move out voluntarily and we are able to rehab the home and get it rented. 

When we approach the HOAs directly and negotiate the purchase of their delinquent receivables, we pay off the collections costs, foreclose on the homes (with their assistance), and are able to acquire the homes by paying approximately 5% of their current market value.  We are able to acquire more homes at a cheaper price through this method, but the time frame is much longer.

Gaining possession of the home is very important. It allows us to control the rental and management of the home.  This control does not grant us free and clear title which is what we are ultimately seeking, but it does allow us to generate cash flow on the property while we pursue title. 
 

Hot Weather Cools Home Sales in Las Vegas

Temperatures in Las Vegas in June soared above average bench marks, but the hot weather seemed to be one factor contributing to slightly cooling sales trends in the local real estate market. The GLVAR reported declines in both new home sales and resales of existing homes last month. During June of this year, there were 3,642 closings of existing single-family homes compared to 3,884 closings in May (down 6.2%) and 3,945 closings in June of 2012 (down 7.7%.) This mark is also down from the high volume of sales Las Vegas recorded shortly after the market collapse.  Vegas properties closed at a rate of 4,702 resales in June of 2009, mostly due to the huge number of cheap foreclosures flooding the market and being snapped up by investors at that time.

New home sales were also down in the Las Vegas valley. Builders unloaded just 637 new properties in June, down 8.5% from May.  This number is still significantly higher than the previous June though, when very little new construction was available on the market. Dennis Smith, president and CEO of Home Builders Research, blames hotter than average weather and the sharp rise in interest rates for the decline.

It is interesting to note, however, that 60% of Las Vegas deals are still being completed as cash transactions, most of these sales to investors.  It seems unlikely to think that investors who are paying cash would have much regard for either rising interest rates or rising temperatures.  Rather, it seems to me, that the slow down in sales rates has more to do with the decrease in foreclosures on the market and the subsequent difficulties investors are facing in finding properties that cash flow as profitable investments.

I have been pursuing HOA foreclosures over the last year as an excellent way to obtain Las Vegas investment properties for my clients at 2010 and 2011 prices. These properties can not only generate positive cash flow, but they have instant equity and still benefit from the rising home prices we expect to continue to see in Las Vegas as the housing market recovers further from its catastrophic lows. If you are interested in learning more about this unique way to purchase discount Las Vegas real estate, call Glenn directly for more information.

Flipping Slows in Las Vegas - We Could Have Told You That!

A new report from California based real estate information group RealtyTrac was cited recently in the Las Vegas Review Journal.  The report shows that home flipping activity has slowed dramatically in Las Vegas in the first half of 2013. The average gain per home is also down significantly. The Review Journal explains:

"Investors in Nevada flipped 2,932 homes from January to June, a 34 percent decline compared with the first six months of 2012. The average purchase price for a flipped property, defined as a home bought and resold in the same six-month period, was $162,472. That included an average gross profit of $15,205, or 9 percent.

Nationally, investors flipped 136,184 homes, for a gain of 19 percent. The average purchase price was $200,942, with a profit of $18,391, also a 9 percent margin. Buyers typically purchased at a 5 percent discount on market value, and sold at a 1 percent premium."

Well...yeah.  We could have told you that was coming almost a year ago.  Oh wait...we did tell you. Ever since the passage of AB289, the inventory of foreclosures in Las Vegas has been dwindling.  Without this traditional source of undervalued homes, investors have struggled to find homes to flip.  Lately, they've struggled to find even homes to keep as buy and hold investments.

We've been investigating a new source of undervalued properties for our investor clients in the last year: HOA foreclosures. This new buying strategy has been working very well and we are once again able to secure property for our investors at prices we thought we might never see again.  If you are looking to purchase investment property in Las Vegas and have been unsuccessful, give me a call directly. I can explain the HOA foreclosure process to you in more detail and let you know how it can help grow your portfolio of investment properties.