Can they legally do this??

I’m looking at a property in Florida that’s being foreclosed by the HOA. However, the house is upside down. There’s 1.2 million owed in 1st, 2nd and a privately held 3rd. The house is worth about 500k.

I’m not putting my money in this property and obviously don’t see it as a money maker, BUT -the owners asked me a question to which I didn’t know the answer.

The 1st filed Lis Pendens a few years ago and then just stopped moving forward (Bank of America) after the owner filed a Pro Se “produce the note” defense. So, what would happen if the HOA went through the foreclosure process, the court forced a “sale” at auction, and then the first mortgage holder (BOA) came in and bid the minimum $100?

Could BOA just eliminate their foreclosure process by doing that? Obviously, no one else would bid, but BOA could wipe the 2nd and 3rd out, plus the HOA, effectively wiping out the need to ever have to “produce the note” or defend any other defense the owner may have had.

Surely there’s some law which prevents that from happening or it would be done all the time. I’ve never heard of it happening personally.

Does anyone know if this scenario is realistic and if not, what prevents this from happening?

If the court force a sale anyone can bid. The “produce the note” does not work like all the snake oil salesmen try to sell in the books.

In a foreclosure, the secondary notes are not just “wiped out.” Notes can only be rescinded by the bank. A bank can choose to walk away, or pursue payment from the homeowner, depending on what the actual note document says.

Therefore, even if the HOA forecloses, that doesn’t “wipe out” the mortgages. The HOA can foreclose and take the property from the owner, but usually this is subject to existing mortgages Remember BoA is in a first position; probably the HOA is fourth in this scenario. A fourth position will NOT successfully foreclose without approval of the deal by #1 thru #3.

Maybe the HOA can work out a deal with the banks, but the mathematical probability that the HOA would successfully take ownership of the property to sell at auction for $100 is exactly zero.

Banks have entire buildings chock full of attorneys with nothing to do except handle stuff like this.

With 25 years in this business I could never understand why anyone would want to live where a HOA is.

Ditto. I’m moving outside of town away from people, regulations, etc. I’ve seen some really dumb rules before like how long you’re able to have your garage door open.

Read up on the HOA’s in Nevada and see how many is going to jail for shake downs.

If it’s anything like Wyo, anyone has a right to bid.

So it’d be in the best interest of the 2nd, 3rd, 4th lien holders to bid up the auction, perhaps. The law typically works like this: The proceeds of the auction go to the 1st lien holder. Once that lien is satisfied then it goes to the 2nd, so on down the line and whatever is left goes to the original title holder (owner of the property). This is what we do in a lien theory state like Wyoming. In this case there is no way the 4th holder would want this property to foreclose with an upside down loan like that.

Say 2nd lien holder bids and takes it at $10k, that goes to pay 1st lien holder. Now 2nd lien holder get’s a sheriff’s deed (possibly depending on statutory rights of redemption) but receives rights to future title anyway (depending on state law the deed may go to a trust until the end of the redemption period). Anyway, with this $10k amount the rest of the lien holders get screwed (wiped) since the 10k obviously doesn’t cover past the 1st lien. The new title could be free and clear (except for redemption issues).


You need to find out what position the HOA is in. It could be in first position so the lenders will all be moved back one spot and they would be at risk. Similar to how we say a lender is in 1st but a tax sale shows that the lender is still junior to the property taxes.

The key to anything like this is to really peel back the details and understand just who is in which position and what the state allows for a foreclosure. Rights of redemption, what happens when someone bids more than one lien holder os owed but not enough for all of the lien holders, what the process is for a trust deed sale vs. a judicial sale when a mortgage is involved, etc.