Judicial Foreclosure Auctions FAQ

• What is a Judicial Foreclosure Auction?
• When a home owner fails to pay the mortgage, the lender can file for foreclosure.  Once the lender obtains a judgment against the owner, the property is sold at auction to satisfy the judgment.  
• Second mortgages and Homeowner Associations can also file for foreclosure.  Make sure you know WHO is foreclosing!!  If an association forecloses, and you win at auction, you will become the owner, but the mortgages remain in place and they can foreclose later if you don't make arrangements to pay the mortgages.  Same with a second mortgage, if they foreclose, this may not remove the first mortgage.  
• Why does the bank bid at auction?  
• The bank does not want the property, but they do want to recoup the amount they loaned out plus their interest and fees.  In order to do this, they bid at auction.  If they are the winning bidder, they then take ownership of the property and later sell it as a Bank-Owned sale.  
• How much does the bank bid? 
• This is unknown.  Some banks bid exactly what they are owed in principal, interest, and legal fees, regardless of condition or market value.  This is most common.  Some banks bid less than what is owed, some bid more than what is owed.  There is no formula, and typically no sense to it.  The only way to know how much the bank will bid is to show up at auction. 
• The bank only bids once, and usually first.  Once you hear the bank's bid, any increased bidding will come from third party bidders only. 
• Where are they held? 
• The auctions are typically held at "the flagpole" at the Hilo Courthouse, the Kona Courthouse, or Hale Halawai in Kona.  (There is no flag on the flagpole at Hale Halawai so just look for the big pole, not a flag.)  I have also seen them held in front of attorney's offices, but this is very rare.
• Do I get to see the property? 
• Sometimes!  The commissioners are supposed to hold two open houses.  The only times open houses are not held is when the commissioner receives a court order not to hold them due to uncooperative occupants or unsafe conditions.  I've seen some commissioners abuse this and avoid open houses no matter what, but most commissioners do their best to convince the occupants to allow open houses.  
• What do I need to do? 
• Required:  Attend the auction with 10% of your max bid price in cash or cashier's check made out to the commissioner.  When you arrive, you will privately show your check to the commissioner prior to bidding so they know you are eligible to bid.  (If you win, be sure to ask for a receipt from the commissioner when you hand over your funds.) 
• Suggested:  Due all due diligence!  
• Obtain a fact sheet from the commissioner (handed out at open houses.) 
• These typically show the amount owed, which is helpful in determining how much might be bid by the bank at auction.
• Talk to the commissioner!  Some are very helpful, some are worthless.  This guide is a general overview, and each commissioner might want you to do things slightly different.  If you're planning to bid, make sure you're following that specific commissioner's requirements.  
• See the open house
• Two are held and this is your only opportunity to see the property. 
• If you love it on your first visit, consider taking your contractor, your lender, your guru, anyone you can think of to the 2nd open house.  
• Take a flashlight!  Many times utilities are not on. 
• If it is occupied, you may want to ask the commissioner: 
• Is occupant an owner or tenant?
• Has occupant stated they are trying to move?
• Is tenant is paying rent?  (The tenant is supposed to pay rent to the commissioner.) 
• Request a preliminary title report from a title company
• Check the court website to make sure all liens are being foreclosed. 
• Make sure you know if this is a primary, secondary, or association foreclosure!!  
• Be prepared for the process to take several more months before it is yours. 
• What are the risks? 
• There are many potential risks, including but not limited to: 
• Undisclosed/unknown liens on title or issues with chain of title. 
• Undisclosed/unknown issues with the structure, plumbing, electrical, etc. 
• Occupants unwilling to leave
• Market changes while you wait through the lengthy court confirmation and escrow process. 
• What are the costs? 
• Winning bidder pays: 
• Conveyance tax
• Escrow fees
• Title insurance (if available and desired) 
• No more than 6 months of past association dues, if owed. 
• It is a reasonable assumption that if the owner wasn't paying his/her mortgage, they were also not paying their association dues.  I always add 6 months of dues to my calculations. 
• If the association already foreclosed and is renting the unit (common) then there won't be dues owed. 
• State of Hawaii caps back dues at 6 months. 
• Back taxes if owed. Typically banks keep the taxes current, but you can confirm at the county tax website.  
• Who removes the occupant? 
• As the winning bidder, it is up to you to remove the occupant.  Removing an unwilling occupant in Hawaii County is very challenging.  
• What if I change my mind? 
• You give 10% to the commissioner at the time of the auction.  There is no guarantee that any of this will be returned to you if you change your mind or can't come up with the balance.  I have heard that the judge will sometimes allow return of a portion of the 10% deposit after paying for the commissioner's time and re-advertisement of the auction, but I have not actually seen this happen.  Don't plan getting any of your 10% deposit back if you cannot complete the purchase! 
• Can I buy with a mortgage? 
• Maybe, but this is very risky!  
• The commissioner will need to allow an appraiser in during the court confirmation period.  Most that I have asked have agreed to this, but one refused.  Make sure prior to bidding that the commissioner will allow this. 
• Nothing can be fixed, utilities cannot be turned on, etc.  If your lender will require utilities on for appraisal, but utilities are not on, you're out of luck.  If the appraiser sees a health and safety issue that prevents the lender for issuing the loan, even as simple as needing straps on a water heater, you're out of luck.  
• If you don't have a back-up plan to lending, and you can't get the loan to work out, you may lose your entire 10% deposit. 
• A much better choice is to have cash, or to pull a home equity line or cash-out refi from an already-owned property.  
• How do I find out about upcoming foreclosure auctions?
• All auctions are supposed to be advertised in the paper.  I check both the Hawaii Tribune Herald and the West Hawaii Today.  I put every listing on a foreclosure calendar for your convenience.    
• Oops, I missed the auction.  Can I still bid? 
• Maybe!  Call the commissioner to find out when the court confirmation hearing is.  If you attend, and give the judge a compelling reason, he/she may decide to re-open bidding at the confirmation hearing.  Typically, you'll need to bid 5% above the highest bid to begin.  Be sure to bring your 10%.  

Do you have a question I didn't answer?  Please post it in the comments below.