Every Thursday, investors crowd into a garage-size room on the second floor of the Maricopa County Courthouse in Phoenix looking for a deal.
Among these veterans, bidding goes fast for bargain properties placed in foreclosure by homeowners associations, often for as little as $1,200 in unpaid monthly dues.
Last spring, bidding started at $50,000 for a condo in north Scottsdale, about $8,000 more than the owner owed his HOA. Five minutes and 40 bids later, a Phoenix investor scored the property for $153,000, about half the going price of neighboring condos.
After the auction, the Salida Del Sol Condominium Association and its law firm were paid. The previous owner had bought the home in 2006 for $270,000 in cash. More than $100,000 remained from the auction.
Attorneys, foreclosure experts and other parties interviewed for this story could not say what happens to any money that is left over, or whether anyone must notify the previous owner about the proceeds.
The former owner could not be reached for comment.
Maxwell & Morgan, the law firm handling the Salida HOA, referred questions to Carpenter Hazelwood attorney Joshua Bolen, who is on the board of the Arizona chapter of the Community Associations Institute.
Bolen said he could comment generally about HOA foreclosures rather than about specific cases. He said homeowners have the right to claim the money left over after their liens are paid.
(After a foreclosure auction) the investor pays the sheriff, the sheriff cuts a check to the association, and the association is completely out of it,” said Bolen. “That investor basically fills the shoes of the association.”
The Sheriff's office says its not responsible for returning any extra proceeds from an auction to the homeowner.
"The homeowner must petition the court like any remaining lien holders for surplus proceeds from an HOA foreclosure sale," said Bolen. "Few people understand the process because it's been rare until recently that there are excess proceeds for a homeowner to claim."
A Maricopa County Superior Court judge then reviews all of the petitions for the leftover funds and decides how the money is distributed.
A homeowner trying to recover money will face court costs.
Since 2015, bidders have purchased more than 400 Phoenix-area homes at HOA foreclosure auctions, according to an Arizona Republic investigation.
Buyers are enticed by houses with equity that can sell for as little as $100 more than the amount owed to an HOA and its lawyers.
“HOA foreclosures are the newest way for Valley investors to make money buying houses on the cheap and flipping for profit,” said Tom Ruff, housing analyst with real-estate research firm The Information Market.
“There are the investors who have been around for a while and now a new influx of people bidding at HOA auctions," said Rob Benner, who handles the foreclosure auctions for the Maricopa County Sheriff's Office.
He said the bidding is so competitive that investors are removing the sheets with the list of HOA auctions posted in the courthouse, so others can’t see what homes are going on the block that day.
The Valley’s biggest HOA foreclosure investor during the past two years has been Jonathan Levine, according to The Republic's analysis of property and court records. He’s the director of four groups — Perfect Prestamos, Casa Calasa, South Central Holdings and Central Holdings — that have purchased more than 100 houses at community association auctions.
Reached by phone, Levine declined to comment about his strategy for buying HOA foreclosures.
In one deal, South Central Holdings paid the Arrowhead Lakes HOA $35,000 for a 2,650-square-foot house in June 2015. The owner used a $303,000 mortgage to buy the home for $379,000 in 2009.
South Central still owns the home. The house next to it on a smaller lot also fronting the lake recently sold for $550,000.
Last summer, South Central was the winning bidder for a half-million-dollar condo in north Scottsdale. It paid the Troon North Condominium Association the former owner’s past dues for it: $6,800.
During a Maricopa County HOA auction in early August, a homeowner watched her Glendale condo sell to the highest bidder.
She had paid $72,000 in cash for the home in 2014. But after her missed HOA dues and legal fees snowballed into an $11,500 debt, the association sent her home to the auction block.
It sold to an investor for $74,000. Other condos in the area have recently sold for more than $100,000.
The woman tried to talk to her HOA’s attorney after the auction, but she was escorted out of the building by employees from the Sheriff’s Office.
She likely will not live in that home again. Homeowners can redeem a foreclosed home if they act within six months, or 30 days if the house is empty. But because the price is much higher than pre-foreclosure, redemptions rarely occur, Benner said.
The homeowner has to cover the amount owed the HOA and its lawyers, plus an 8 percent return for the investor and a few hundred dollars in auction-processing fees.
If no one bids on a home foreclosed on by an HOA, the association becomes the new owner.
That doesn't happen often during a robust economy, but during the recession, HOAs frequently became property owners when they foreclosed. Now, the same HOAs are flipping those houses to investors.
In late June, the Glen Condominium Homeowners Association sold a central Glendale condo it foreclosed on for $13,474 in 2015. A group called Lexestate paid the HOA $61,900 for the home, according to property records.
HOAs say they don't want to be property owners because that usually means the expense of a mortgage, utilities and upkeep.
"The HOA doesn't want a house. We don't want to put anybody out of a house," said Brian Lincks, president of City Property, a Phoenix HOA management company. "We want the money in the bank account."