What is a Tax Lien sale vs a Tax Auction? NO TAX LIEN SALES IN HAWAII!

Recently I kept seeing a Facebook ad wanting me to sign up to learn about how to buy tax liens in Hawaii.  🙄  Fortunately I know that Hawaii County doesn't do tax lien sales, they do tax auctions.  

In many counties on the mainland, instead of letting a large tax balance build up over several years and then doing a foreclosure, those county tax offices auction off tax liens.  Typically you pay ONLY the amount of taxes owed, and the bidding is for the interest rate you will receive if the owner pays it off.  It starts at 18% and you bid down to zero.  The bidder who bids to pay off that year's taxes in full at the lowest interest rate wins the lien.  The following year, that same bidder is given the opportunity to again pay off the taxes for a tax lien.  Once there are three years worth of liens, the bidder may take the property to court for tax foreclosure.  This system is much more fair to the owner because they get three years to pay off their tax liens, and they are only required to pay the taxes plus the interest rate the bidder bid.  It's also much nicer for the bidder because although they have to wait through a three year process, they have the chance to obtain a property for ONLY the past due taxes, no bidding up.  

Contrary to this commonly used tax lien system, Hawaii County does a tax foreclosure.  They let the amount of taxes pile up for three or more years, and then take the property to auction where the amount gets bid up, sometimes to $100k or more over the tax liability.  This is very unfair to the prior owner who then has to come up with all of that extra money, at 12% interest, if they want to redeem their property.  It is also not nearly as lucrative for the bidder since they are getting the properties at close to market value, not nearly the bargain they deserve since they are buying a property that now has a tax auction in the chain of title.  The one big benefit is that the foreclosure part is already done.  Unlike the tax lien system where the bidder is responsible for finalizing the foreclosure, in Hawaii the county does that step.  

So, don't get duped and sign up for a class on how to buy Hawaii tax liens.  We only do direct tax foreclosures here!  

Tax Lien System

Tax Foreclosure System

Bidder must buy three consecutive liens, then bidder forecloses.

County accumulates a tax owed balance for three or more years, then county forecloses.

County get their taxes paid in full every year.

County has huge amounts of taxes due while they process the foreclosures.

Bidding is on the interest rate, starts at 18% (depending on county) and bids down.

Bidding is on the purchase price.  Starts at taxes owed plus legal fees and goes up.

Owner still owns – can pay off tax liens through the county and the county pays back the bidder.  Much easier to pay off because it is ONLY taxes owed plus interest.

Bidder owns immediately.  Prior owner has one year to redeem the property directly from the bidder by paying the winning bid amount + 12% + all escrow fees.  Difficult to pay off because it is the market price bid at auction plus interest and escrow fees.  Typically a lot more than what was owed in taxes.  County does not assist in the redemption process.  

Bidder must foreclose after three years

County forecloses as part of the process

Usually online bidding

In person bidding

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