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$1.2 million mansion for $10K?

By Jay MacDonald · Bankrate.com
Monday, July 4, 2011
Posted: 9 am ET

Here in Florida, the Foreclosure State, we thought we'd already cataloged every genus responsible for this plague on all our houses, from the predatory lenders to the oblivious robosigners and rocket dockets to the no-mod-for-you bank Nazis. That was, until we caught wind of the HOA chasers.

The St. Petersburg Times recently profiled an opportunistic little industry that discovered a loophole in the state's foreclosure laws and is milking it for all it's worth.

Florida law allows homeowners associations, or HOAs, to foreclose on properties when dues are in arrears and does not require the HOA to notify the primary mortgage lender. Florida has 40,000 homeowner and condo associations, many struggling to keep basic services going with so many owners behind in dues. The HOA's lawyers encourage them to foreclose because, if the bank beats them to it, they usually won't see a cent.

Here's where opportunity creeps in: Since most homeowners owe less than $15,000 in association dues, the HOAs can file their foreclosure cases in county court rather than in circuit court, where caseloads are backed up. This allows the associations to get final judgment on a foreclosure in as few as 270 days verses the 617 days it now takes for the average bank foreclosure.

Yes, a mortgage lender would gladly pay the back dues to protect their investment -- if they knew about it. But because the HOA doesn't have to notify the bank of its foreclosure actions, it could be months or even years before the primary lender forecloses.

Enter HOA chasers like Barry Haught and his associates. They acquire HOA foreclosures in private for pocket change, since they only have to pay off the delinquent HOA dues, not satisfy the mortgage. They then rent the property, and sometimes live there, for the months and even years it takes for the bank to foreclose.

This loophole has allowed Haught and his associates to acquire 71 properties in Tampa's Hillsborough County worth $8.2 million for a little more than $220,000. Among his deals: a $1.2 million home on Tampa Bay for $10,010; a 3,700-square-foot home for $8,090; and dozens of single-family homes for $4,000 apiece.

And no, they are under no obligation to inform their renters that the primary lender could unceremoniously kick them to the curb one day.

Did I mention that this is all perfectly legal?

We're kind of used to this stuff in the Foreclosure State, where the unofficial state motto is: Only in Florida!

But I'm wondering if this HOA play happens elsewhere?

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166 Comments
Jay MacDonald
August 30, 2011 at 3:42 pm

Hi, Ben. To your questions: they're not buying the house, they're beating the bank to the foreclosure and using the time it takes the bank to catch up to their advantage by renting the place out. They never actually hold the deed. What's outrageous is, it's all perfectly legal, at least here in Florida. As I say in the blog: "Florida law allows homeowners associations (HOAs) to foreclose on properties when dues are in arrears and does not require the HOA to notify the primary mortgage lender." The HOA just wants their back dues before the bank moves in and leaves them hanging. The HOA forecloses on the house, evicts the occupiers and hands the keys to the foreclosure chasers once they pay the back dues. Remember, it's the HOA, not the bank, doing the foreclosing here, which is how the occupiers exit the premises. The problem you would have renting your neighbor's house is, your neighbor is going to return. Not so much a problem in these sad cases, since they've already been evicted. Having said that, there are also con artists here in Florida who in fact do break into foreclosed homes and rent them out, claiming a little-used seizure law that was written for things like undeveloped farmland. Fortunately, the cops don't buy that strategy. Hope this helps!