Disclaimer:  I am neither an attorney nor a real estate professional.  The information contained in this post is believed to be accurate, but should not be relied upon in reaching a decision to purchase a unit at the Belvedere.  Consult a competent real estate attorney.

A 2 bedroom, 2 bath 863 SF renovated unit at the Belvedere for $21,900?  For real?  Over the past few weeks, I have been contacted by several potential buyers and real estate professionals asking for my opinion on this question.  Here’s what I’ve been telling them:

First, a recap on lien positions in a condo.  In a normal situating, Property Tax liens are in first position, followed by Special Assessment liens, HOA association liens (though the power to actually foreclose is limited by NRS), then the 1st / 2nd bank Deeds of Trust, followed by Mechanic’s Liens.  For a bank to foreclose on their 1st loan, they must pay off the lien holders senior to their position.  Liens junior to their position are wiped out.

The Belvedere is slightly but importantly different.  Belvedere recorded their subdivision map prior to construction, which is rare.  The construction and consultant contracts were prorated to the individual units from the start,rather to the project as a whole.  After signing the construction and consultant contracts, the Belvedere refinanced and increased their construction funding, but failed to rewrite these contracts.  The effect of this was to place Mechanic’s Liens IN FRONT of the construction financing, though still junior to Property Tax liens.

When the Belvedere defaulted on paying their general contractor (and thereby the subcontractors) and consultants, at least 20 filed Mechanic’s Liens.  Because of the way the contracts were structured and prorated to the individual units, each party filing a lien filed on each individual unit.  I have heard that the total is about $84,000 per unit, and does not vary depending on unit size.

Statutory and Mechanic’s Lien law is established in NRS Chapter 108.  Liens are easy to file (you usually get unrecorded Preliminary Notice of Lien by all the subcontractors before they start work), but keeping them in force can get arcanely detailed.  The first lien filing is good for a maximum of 6 months, but can be extended for an additional 6 months without too much hassle.  Legal proceedings need to be initiated with one year of the original lien filing.  Remember, filing a $30,000,000 lien against a project costs exactly the same as filing a $3000 lien against an individual unit.  I suspect that some of the parties to the Mechanic’s Liens realized that their rights were too expensive to defend and have let their rights lapse.

So, with the cloud of $84,000 in Mechanic’s Liens looming over your head per one of the listing agents, do you buy a unit in the Belvedere?  2 people have taken that risk this year.  Unit 4-N-10,a 352 SF studio originally sold for $269,000, was purchase for $19,000 in January 2011 as an REO.  8-N-10, a virtual twin, was sold for $20,990 in July.

If you want to see your title company weep, tell them you are looking at the Belvedere.  At this time, you cannot receive title insurance for a unit there.  The best they will give you is a “Conditional Title Report”, excluding the Mechanic’s Liens which is why you want the policy in the first place.  Unless clear title is established at a later date, these exclusions will pass to anyone you try to resell your unit to.

The units sold and listed at the Belvedere are all REOs from foreclosures on the original buyers.  Property tax and special assessment liens have been paid off, but the Mechanic’s Liens may (or may not – more later) be in force.  The completed units that US Bank inherited in the foreclosure of the project have not been listed on the MLS to date.

Going back to the order of  lien issue.  Washoe County held a Delinquent Tax Assessment Sale in June on about 200 unit, which I believe are actually the US Bank units.  A buyer at these sales pays the delinquent taxes and penalties, then must wait 6 months for the actual transfer of title to be completed and a Certificate  issued.  During this cure period, the original owner can repay the tax sale amount plus 12% per annum interest, and reclaim the unit.  It is sort of getting “dibs” with a good return if it doesn’t work out.  Remember, a tax lien is senior to a Mechanic’s Lien – they would be wiped out if the Certificate is issued.  None of the parties with Mechanic’s Liens bid on the units.  Instead, virtually all of them were “purchased” by Secured Assets Belvedere Tower LLC, which the RGJ reported is a front for the original developers attorney.  Something is afoot.

If I were looking at buying a Belvedere unit, I would buy the biggest unit I could.  The price spread between studios and 2 bedrooms is quite minimal, and the liens are just about equal.  I would be prepared to lose my entire investment.  That said, there are  holders who have to figure out who is in the 1st position to foreclose on you.  They don’t want to go through the expense and find out they are STILL in junior position.  And if one of the lien holders tried to foreclose, it would take a good deal of time and money.  If you look at your buy in purchase price, versus what it would cost you to rent a unit, your net exposure reduces rather quickly.  I don’t think anyone but Metcalf Builders, the general contractor, has enough invested in each unit to risk the cost to foreclose on you, and most of their exposure is bourne by their subcontractors.  Again, the lien per unit situation may work in favor of the buyer.

I’m not going to even speculate on the stability of the HOA and on the possibility of them going BK and special assessments being assigned.  You get that at any condo these days.  Yes, all Belvedere sales are going to have to be cash, same as Montage and even Riverwalk now that their HOA is once again in litigation with the developer.

It’s a game of chicken that I have a sneaking suspicion that anyone brave enough to buy at the Belvedere will ultimately win.

Now what if the risk of the $84,000 per unit in liens went away?  Go the Washoe County Recorder’s site, and enter Belvedere in the Grantee field.  It appears that many of the liens are being settled and/or expunged.  The realtors don’t know it yet.  The REO banks don’t know it yet (though they may be figuring it out – the MLS listings for 450 N Arlington are mysteriously disappearing).

Or maybe the listing agents for the banks do know now.  Units originally listed for $14K were bumper to $21K after receiving multiple bids, and overbids on the upped listing prices were rejected.  The listings have disappeared from the MLS, so it is too early to know if the units sold or were withdrawn.

So what is a lien free Belvedere unit worth in today’s market?  Look to the Riverside for guidance – it isn’t as much as you think, but well above current asking prices.  Gold mine?  Just maybe, but the window may be closing as news of the lien settlements leaks out.

A 2/2 for $21,000 at the Belvedere?  I’d seriously consider it.  At $40,000, I’d have misgivings on the risk of a HOA collapse.  Any thoughts?

And for fun, a cached copy of the old Sundowner site is here.  $20 internet room rate.  $2.99 western omelet.  Ah, the good old days.