Showing posts with label FAQ. Show all posts
Showing posts with label FAQ. Show all posts

What is a Partition Sale?

When multiple parties own a property together, one party can file for a partition sale.  This could be because one wants to sell and the others don't, or because someone isn't paying their share of the mortgage, family disputes, etc.  The parties go to court and if they cannot resolve their differences in any other way, the judge will sent the property through for a partition sale that is held very much like a foreclosure sale.  If there is a mortgagee, they may send a representative to bid, similar to in a foreclosure sale, but the interested owners may also show up to place a bid.  It could end up being a bidding war between family members.  

Partition sales are rare so I don't have nearly the experience with them as I do with regular foreclosures, but I'm including them on the foreclosure calendar because of how similar they are in the process. 

The County of Hawaii January 2024 Tax Sale List

The January tax sale list has posted!  See it here:  Tax Sale List 12-13-23

The link will change as they update so keep checking HERE for the updates.  As owners pay down their taxes, properties will be removed from the list.  

For all the details on the tax auction, check out these past posts:  

Here are the links to understanding tax auctions: 

Hawaii County Tax Auction FAQ

How to work the tax list to prepare for auction

And finally, a recap of last January's auction so you can see how it might go: 

January 2023 tax auction recap

See all open houses and auctions on the calendar.

Subscribe to receive these notices via email. 

Kyra Bronson R(B) 23930

LUVA Real Estate

What happens if you're the winning bidder - but can't come up with the money?

Today an auction was published for a unit I knew I had seen before: Elima Lani #1803.  I had always been told that if you bid on a unit and cannot complete the purchase, that your 10% bid would be returned, less the expenses for re-publishing the notices and holding the auction again.  However, I had never seen it happen.  

Apparently, after winning the bid and depositing his 10% with the commissioner, the bidder could not come up with the balance of the purchase price.  From the court minutes: 

Court: Orders the commissioner to re-auction as a NEW auction and to publish in a newspaper. Will GRANT plaintiffs motion and CANCEL the sale to the high bidder based on the representation that were unable to secure financing but will maintain possession of the 10% deposit until the costs to re-auction are sorted. 

Commissioner: Tenant moved out; inquires as to open houses and to rechecking out the property. 

Court: YES the commissioner shall treat this as a new auction and hold more open houses. 

Bidder: Pleads for the Court to release his deposit due to serious financial hardship; 

Court: The order states the deposit is to be held

I am interested to continue watching this one to see how much of his deposit the bidder is actually able to recover.  

Please remember: 

  • Don't bid unless you have the full amount readily available to you. 
  • Financing is very risky during a court foreclosure process.
  • Just because this judge is willing to return some of this bidder's deposit, does not mean other judges would do the same under other circumstances.  Do not count on receiving any of your 10% deposit back if you cannot complete the purchase.  
Be sure to Subscribe to email alerts do you don't miss the updates as this case makes its way back through the new auction and the final accounting of bidder's deposit return is completed.  

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

County of Hawaii Tax Auction June 2023

It's that time of year again!  The Hawaii County Tax auction has been scheduled for June 8th at the Afook-Chinen Civic Auditorium starting at 9am.  

Here is a link to the county site with the auction list and the folder full of litigation guarantees:

Here are the links to understanding tax auctions: 

Hawaii County Tax Auction FAQ

How to work the tax list to prepare for auction

And finally, a recap of January's auction so you can see how it might go: 

January 2023 tax auction recap

January's auction was held at the Sangha hall which was a great location inside, but the parking situation was dismal.  This year it looks like it will be back at the Afook-Chinen Civic Auditorium which had tons of parking but it was very difficult to hear what was happening.  I miss the days when the attendance was low enough that the auction could be held at Aunt Sally's.  

The publication of the list was also different this year, so maybe attendance will be down.  Typically the list is published along with bank foreclosures and association foreclosures in the online classified section of the West Hawaii Today and the Hawaii Tribune Herald.  This year, for some reason, it was only published in their print or online print-reader version, so if you didn't have a paid subscription to the paper, you wouldn't have seen the notice. I only saw it because I routinely check the county site for it starting in December and May.  

Subscribe to receive these notices via email. 

How to work your tax list to prepare for auction

**Please note - this tutorial was written based on the 71st tax auction list.  The current June 2023 list is not reflected below.  The advice is still the same, but the properties detailed below have already gone through the process.  

The tax auction list is finally posted, now what?  In this post I'll explain how I read the list and I'll share with you the research I do for each property I'm interested in.  

As a reminder, the list can be found at the Tax Department's website:

New this year, the county has also put the litigation guarantees online which is amazing!  We will cover those later.  The first step is to click on the 6.08.23 Tax Sale List, 5.16.23 link.  (The list/link is only available for 30 days prior to auction).  This brings up the list.  As we get closer to the auction, you'll want to check this list several times.  Owners pay off their taxes owed and their properties get removed from the list.  Fortunately, when this happens, the list does not get renumbered, so if you like number 21, it will always be number 21.  (See #20 for example of a "removed" property.)

Let's start with #1 on the list: 

The "upset price" on this property is $6,012.54.  This is the starting bid price.  This is the least amount of money the county will accept to sell the property.  (In years past, there would be spaghetti lots in HOVE that didn't sell even below a $2,000 upset price.  When that happened, the property would be added to the end of the list and the county would try to auction it a 2nd time that day.  If it still did not sell, it would be added to the list the next time around, and so on.  I do not expect any of these to go unsold in this market.)  

As you can see, each property shows the neighborhood, but no address.  It also lists the acreage.  If you decide on a minimum acreage size or if you are familiar with the neighborhoods maybe this will help you narrow down the properties you will research further.  Remember, there are 120 properties on the list, so investigating all of them for potential purchase will be very time consuming.  

If you are interested in Orchid Land Estates, and it meets your acreage requirements, the next step is to search it on the county tax website to look at the map.  To my knowledge, this is the only way to know where the properties are.  In the past, I've asked the tax office to link the list to these sites.  They didn't get it done this year, but they did manage to make the litigation guarantees available online so you don't have to go review them in person, so they are making progress.  Maybe next time around the TMKs will be linked.  For this time though, you'll first open the county tax website search:

You'll need to put the TMK into the "search by parcel number field".  Annoyingly, it needs to be in a different format than it is on the list so you cannot simply copy and past.  You'll enter the TMK into the tax website without any dashes.  (You can leave off the last four zeros.)  

Once you've entered the TMK, the next screen has a map link: 

There is other info on this screen below that I revisit later if I'm interested, but my first look is the map.  And, wow, what do we see on the map for the 1st item on the list?  Yup, looks like a structure to me!  

This is not typical.  Most of the properties that end up on the tax list are raw land.  Permitted houses are rarely on the list because they typically have mortgages in place, and the lenders will pay the taxes to make sure the properties don't go to auction.  We will have to do more research to see if this structure is permitted and if it has a mortgage on it.  But first, let's do our map research since we are on this screen.  

The first thing I do is click on the parcel on either side to see who the owner is.  I do not want to buy a tax sale property right next to the same owner!  That would be awkward.  It is very possible that someone could own two or three or more adjoining parcels, but only one of them has gone to tax auction.  I usually stay away from those situations.  

The other thing I do is check for the cross streets and landmarks.  If you are going to do a drive-by, you'll want to know how to get there.  Since most of these are vacant land, they aren't typically assigned an address.  For this reason, I click on the closest parcel with a structure, to see if it has an address that I can plug into my gps.  This gets me close to the parcel for a drive by.  In this case, we are lucky that the parcel has an address.  See top 2nd column below the map:  

Situs/Physical Address  16-1766 38TH AVENUE

I've clicked on the parcel on either side and confirmed they are not owned by the same owner as the subject parcel, and I have the address.  Usually, by this step in my research, I've crossed the property off my list due to lot shape, location, obvious junk yards on the subject or neighboring properties, etc.  If I'm still interested at this point, I go back to the prior screen to do a bit more research: 

#1 on the list is giving us lots to look at.  Most of the properties won't be this exciting.  As I scrolled down on the parcel info, I get several gems of information: 

First, there is a home exemption in place.  This indicates that the owner occupies the property.  Is this a red flag for you?  It is for me!  Much more research is needed now on the owner.  Are they deceased?  {google search their name for an obituary} Have they moved off island?  {try finding them on Facebook or other social media that might tell you} Do they have a violent criminal record?  {Run their name through the court website.}

Second we see the building sketch and a permit number.  We used to be able to tell right way if the permit was completed, but the building department has changed this and gone to a horrible permitting system that is extremely cumbersome to use.  It would take two more blogs just to explain how to find out if these permits are completed, so I won't be covering that here.  Just know that you should check with the building department before assuming that a sketch on the tax site means it is permitted.  Our tax department is really good at collecting property taxes and they don't care if a structure is permitted or not, they'll tax it.  So, just because it has a sketch does not automatically mean it is permitted.  Having a permit number also doesn't mean the permit has been completed.  More research is needed.  Call the building department and ask them to improve their permit system online search so we can figure these things out like we used to.  

Once I do these steps, if I am still interested in the property, my next task is to check the litigation guarantee.  These are in the folder at the tax sale link:  Tax Sale Reports.  (Link only valid 4 weeks before the auction.) They are numbered to match the list.  When we open #1, we get the litigation guarantee.  Litigation Guarantees are very similar to title reports.  The important things I look for on this report are any liens listed in Schedule B.  There will often be road maintenance liens on these properties.  Sometimes PMMs (Purchase Money Mortgages which is where the prior owner acts as the lender when the property is sold, rather than a traditional mortgage lender.) and sometimes State and IRS tax liens.  Again, it is very rare to have a traditional mortgage show up on one of these because the mortgagees pay the taxes to prevent the property from being sold at auction.  (Schedule B always talks about mineral and water rights because in Hawaii those are always owned by the state and never the property owner.  They are always listed as an exemption in Schedule B and are nothing to worry about.)  

In the case of #1, we have a PMM in schedule B.  This is a problem.  

If you notice, it isn't even in the name of the current owner.  The PMM was from 1987 and if we go back to the County Tax Website and look at the sales information, we see that the property has been transferred 3 times since 1987.  

The current owner likely has no idea that the PMM is still on title.  (One more reason to go through a reputable escrow company when you buy property so these types of things get cleared off before you become the owner.)  

In theory, this PMM (or road maintenance liens) gets wiped out through the tax auction two ways:  First, if there is an overage (anything bid above the county's upset price of $6,012.54) the additional funds go to the lien holders first, so if the PMM is still a valid lien, they can collect their funds from the county from any overage.  Second, tax auctions are supposed to wipe out most liens.  It isn't always easy to convince the mortgagors, road associations, or title companies of this though, so always proceed with caution and consider contacting an attorney if you're buying something with any issues listed in Schedule B of the litigation guarantee. 

Beware - IRS tax liens are NOT wiped out through county tax auctions (or any other auctions to my knowledge.)  There are other ways to get these removed, but consult an attorney before proceeding on anything with an IRS tax lien.    

If I'm still interested at this point (so far #1 does seem very interesting) I do a drive by and I also decide on my max bid amount.  As a Realtor, I have an advantage because I can more easily pull up past sales in the area to get a quick idea of current market value, but this type of data is also available on sites like Zillow.  I write my max bid down and I stick to it.  It amazes me how easily everyone (including myself) gets caught up in the bidding process.  Most of these properties will sell very near to, and sometimes even above, market value because of the exciting auction environment.  

Write down your max, stick to it.  

Read my tax auction FAQ to learn more about the process on bid day.  Will I see you there?  

Road Maintenance Fees - do they really survive the foreclosure? Maybe...

I just recently closed on a house I won at the flagpole, and had a surprise road maintenance charge on the settlement statement.  Since I had done my due diligence prior to auction, I knew there was a lien against the property from the road maintenance association (let's call them KRL), but KLR was a named defendant in the foreclosure, and the foreclosure order the judge signed clearly stated "all named Defendants junior to Plaintiff's interest shall be terminated from right, title, and interest in the Property."  So owing these past due fees didn't make any sense to me!  

Initially escrow was trying to charge me for drafting a lien release and recording it.  I pushed back and they agreed the lien had been wiped out due to the foreclosure and recording a release wasn't necessary.  But KLR insisted the amount (accrued since 2012 with attorney fees included!) was still owed.  After a bit of phone tag, I finally got the KLR attorney on the phone to discuss.  Fortunately he was very kind and helpful in explaining KLR's position.  He agreed that the foreclosure wiped out any liens KLR had attached to the property, but the prior owner still owed those amounts.  Makes sense.  So why am I being charged?  He then explained that the KLR CC&Rs - which I had agreed to by purchasing the property - state that any amount owing will be an obligation of the successor owner.  So... even though the property itself was no longer encumbered, the prior owner still was, and therefor I now owe it.  Shoot.

Is the KLR attorney correct?  Sounds valid, and the amount isn't big enough to try to take it back to the judge for further determination.  And the roads desperately need work, so I've paid their demand and I'm hopeful KLR will use the big check they just received to fill some potholes.  Lesson learned.  

Make sure you know if this is a primary, secondary, or association foreclosure!!

There are often auctions that catch my eye and although there is NO WAY I would bid on the property, I am so curious about it that I go to the flagpole just to see what happens.  I watched a very concerning auction last week and was sad to see a third party bidder take the property for well over what I thought was a reasonable price.  Although my Judicial Foreclosure Auction FAQ page tells bidders to "Make sure you know if this is a primary, secondary, or association foreclosure!!" I don't think that advice was followed this week, so I thought I better go a bit further into detail on this.  

Liens are ranked.  I'm sure there are exceptions, but for the most part it is: 
1 - IRS tax liens.  No matter when they are attached to a property, IRS tax liens are always #1.  
2 - State and county property tax liens.  (This is why there is rarely any back property taxes owed.  The mortgage companies keep them paid up so the properties aren't taken at tax auction.) 
3 - Mortgage liens.  There can be one, two, three, etc.  They are ranked in date order.  
4 - Association liens.  

When a creditor forecloses, they can try to remove the other liens by naming all the other creditors as defendants.  Junior liens are removed this way.  Prior or priority liens are determined during the court process.  The way a junior creditor can recoup their funds when they are named as a defendant in the foreclosure is to bid against the foreclosing bank.  I've seen this happen.  I was surprised at an auction years ago to watch a second mortgagee credit bid against the first mortgagee and take the property.  Confused?  

Let's say the house was worth $400k (this was a while ago!) 
The first mortgagee that was foreclosing was owed $250k
The second mortgagee was owed $50k
The first mortgagee bid $250k
The second mortgagee, in order to protect their $50k, outbid the first mortgagee.  
The first mortgagee receives the $251k that was bid at auction, so their note is paid off by the second mortgagee. 
The second mortgagee takes title to the property and sells it for $400k, recouping their original $50k, the $251k they paid at auction, and a bit extra.  

Whew, hope that made sense.  

A second mortgagee could foreclose just their mortgage, leaving all higher-ranked mortgages in place.  Imagine the scenario above if the first mortgagee is still getting paid but the borrower defaults on the second mortgage.  If a bidder goes to auction, unaware that he or she is only bidding on the second mortgage, that bidder could win an take ownership of a property that is STILL subject to the first mortgage.  

The same can be done with an association lien.  If association dues aren't being paid, the association can foreclose on the unit.  This does not wipe out any of the mortgages!  Anyone bidding on an association foreclosure needs to know if there are any mortgages on the property because they do not go away.  They are still owed, and they can foreclosure in the future if they aren't paid.  

Last week's auction that concerned me was an ASSOCIATION foreclosure for a unit at Kona Kai.  Remember, as we learned above, this means it does not wipe out any mortgage liens.  The unit was absolutely trashed and needed a top to bottom gut and remodel.  The average sale for a one bedroom unit at Kona Kai over the last 6 months is $123k.  These are leasehold units, currently charged $323 per month lease rent.  Because I was not interested at any price, I did not pull a title report to see if there is an existing mortgage, but as a Realtor, I can see that a mortgage was used when the unit was purchased.  In Hawaii, when a lender forecloses and names the association, the association by statute can only collect 6 months of back maintenance fees.  However, I have no idea if that is the same for leaseholders.  In this case, the leaseholder - Queen Liliuokalani Trust - was not named in the foreclosure so even if it was possible to wipe out any lease liens, the association did not attempt to do so with their foreclosure.  

The association was owed approximately $68k in past due maintenance and fees.  Typically Mortagees only bid once, but in this case the association started at just $1000 and continued to outbid the other bidders until they hit $65k.  At that point, the winning bidder jumped the bid up to $75k. 

IF the bidder had done his due diligence, he would have known only $68k was owed, and he could have likely won the unit at $69k instead of jumping all the way up to $75k.  Since he hadn't even done that much research, I am concerned that he did not pull a title report to check for a mortgage or call Queen Liliuokalani Trust to see how much they are owed in past due lease fees.  If he is lucky and there is no mortgage and no lease fees owed or any other random liens.  At $75k he will still be cutting it very close if he intends to rehab it for a profit, so any additional liens will make this a loss for him.  

If you want to avoid these types of issues, I'm available for hire to guide you through your auction purchase.  Contact me to discuss.


Re-opening bidding at court confirmation

 You may remember the post I did about the bank bidding way too much on a condo unit that smelled like pee and was tenant occupied.  Well I got word that the tenant had moved out.  All of a sudden, the price sounded much more reasonable!  

Since it was after auction, the only way to be able to bid would be to ask the judge to reopen bidding at the court confirmation.  In the past, I was always told it was very hard to get a judge to reopen bidding.  You had to provide a very good excuse for why you weren't at the auction in the first place.  (Even worse, I was in attendance but did not bid.)  I was also told that IF you could convince the judge to reopen the bidding, your bid must start at 5% above the highest bid at auction.  

Several years ago I attended a court confirmation where the bidding was reopened.  The bank had failed to send a representative to the flagpole, so the winning bidder (ME!) had gotten the property for well under what was owed.  The bank did not have to beg or plead, the judge reopened bidding and the bank outbid me by well more than 5%.  

With this old knowledge, I contacted the commissioner to find out when court confirmation would be.  She informed me I would need to bring 10% more than the high bid at auction.  WHAT?  I learned that this amount is not a standard rule, but rather is set in the Findings of Fact and Conclusion of Law that the plaintiff's attorney files during the foreclosure process.  Okay, fine.  For this one the amount to bring needs to be 10% above.  She also tipped me off that someone else was planning on asking to reopen bidding.  Yikes!  At 10% above the bank's bid, plus competition, and not knowing what kind of condition the tenant left it in, this unit had once again become too pricy for me.  But I had to know more so I attended the court confirmation anyway.  (Anyone can go watch a court confirmation!  I encourage you to.  I find them fascinating.)  

This confirmation hearing was in front of Judge Kim.  I met him years ago when he was doing commissioner work.  He was the most conscientious commissioner and works hard to make things fair for the borrower in default.  With that in mind, I was curious how he would handle a request to reopen bidding.  I was not surprised at all when, after first asking the plaintiff's attorney and the commissioner to state their names, his very first question to the commissioner was, "has anyone contacted you with plans to reopen bidding today."  There was no begging or explaining why he missed the auction.  The commissioner indicated the new 3rd party bidder, and Judge Kim called a recess and asked them to go to the flagpole to reopen bidding.  Of course I tagged along!  Back down the stairs, through security, and outside we went.  Bidding was reopened by the commissioner.  The new bidder bid exactly 10% over the bank's bid, handed his cashier's check for 10% of that over to the commissioner, and back inside we went, back through security, and back up the stairs.  We had assumed Judge Kim would take another case while we did that and we would need to wait, but when we re-entered the court room it seemed they had put all cases on pause to wait for the bidding.  The confirmation hearing was promptly resumed, and the new 3rd party bidder was confirmed.  


Check the Findings of Fact to know what % over auction bid price you'll need to bring to start. 

Whether or not reopening bidding is easy or allowed will depend on the judge.  

Where are the Foreclosure Notice posts?

You may have noticed that it has been 6 days since I posted a new foreclosure notice.  I'm not slacking.  I do check every single morning, but there simply haven't been any posted.  I chat with commissioners often at the open houses and they all tell me they have more foreclosures coming, so keep watching.  They'll be published soon and as soon as they are, I will post them here and add them to the calendar.  

Pre-pandemic I would see only about 2 or 3 notices a week.  There are many more notices coming out now, and yes it is pandemic related, but not in the way most people assume.  These foreclosures that are being published and auctioned now are from before the pandemic.  The courts put foreclosure auctions on hold due to gathering restrictions.  Foreclosure court cases were still happening if it was not for pandemic-related non-payment, but those cases, and the others that had started pre-pandemic were not able to go to auction even after obtaining judgment.  Now that gatherings are allowed again, commissioners are now allowed to move forward with the auctions provide they meet all the gathering rules.  We have a backlog of auctions of about a year to get through.  

It remains to be seen if we will see an upswing in actual foreclosures due to the pandemic.  I am doubtful that we will see those here in Hawaii.  Even if someone took forbearance or failed to pay their mortgage due to reduced income from the pandemic, their homes went up in value during the same period, so they would be much better off selling than allowing their home to go to foreclosure.  I do not anticipate a huge influx of foreclosures due to the pandemic, just this backlog of auctions that were on hold.  

If you want to quickly determine how old a case is, here is a post on how do do that:

How old is this foreclosure anyway? And why does it matter?

 How can you tell when a foreclosure was started?  Look at the case number.  In all the foreclosure notices the commissioners include the case number.  The first two digits of the number represent the year it was started.  For example, the last notice I posted: has the case number 18-1-0308 (sometimes they are in different formats, sometimes including 3CC at the beginning (3rd Circuit Court) but they all have the year number.  The Makanaa street foreclosure started in 2018.  This to me is also a good indication of how challenging it might be to deal with the prior owners.  If someone has dragged a foreclosure out for 4 or 5 years, they are stubborn and willing to bog the court system down with nonsense to stay in their home.  If they are occupying the property still, you can expect they will be more than challenging to remove.  

To get more details on the case, check the eCourt Kokua website:  

Judicial Foreclosures on Raw Land

Why are judicial foreclosures on raw land so rare? 

Lots of people ask me to let them know when raw land comes up on foreclosure auction.  For the most part it doesn't.  Raw land is almost all you will find at the tax auctions, but rarely comes up at judicial foreclosure auctions.  The reason for this is the difficulty in obtaining land loans.  

Very few lenders do land loans because they are riskier.  The theory goes that when finances get tight, the last thing people will quit paying is their home, but if someone gets into financial trouble, likely the first bill they will cut out is their raw land mortgage.  So the few credit unions and farm loan services who do raw land loans typically require great credit, a lot of money down (around 35%), high interest rates, and short term loans.  This system steers most people into construction loans which allows them to purchase the raw land as long as a contractor is lined up to begin construction on a residence.  The loan is quickly converted to a regular mortgage as soon as the home is built.  

This means that most people who manage to purchase raw land have either used all cash or a lot of cash and so these loans rarely make it to judicial foreclosure.  However, a couple of weeks ago I posted one:  This raw land was obtained through owner financing.  The owner (in this case a company - Tahan’aineo Seedtime&Harvest LLC) who sold the property to the buyer/borrower also financed it.  So in this case, the foreclosing party is not a bank or traditional lender.  Anyone who holds a mortgage note can foreclose.  

Hawaii County Tax Auction FAQ

  • When are the county tax auctions?  
    • They occur twice a year, usually in January and June.
  • How do I find out about the auction? 
    • The county will post the notice in the Hawaii Tribune Herald and it is also posted on the County Tax Sale website.  (Where it says "No List Available."  This will change to the list 4 weeks prior to the auction.)  
  • What types of property are auctioned?  
    • Typically banks will make sure that property taxes are paid so for the most part, only properties with no current mortgages are auctioned.  This means mostly raw land.  While there are usually a handful of houses on the list, probably 99% are raw land parcels.  
  • Can you see the properties? 
    • The county does not hold open houses, so driving by is the best you are legally able to do. 
  • I have the list.  Now what?  
    • Sadly, the county list isn't much help.  The list that is generated gives you the Tax Map Key (TMK), but not the address.  (Many of the properties don't have an address.)  If you want to drive by, you can look up the TMK on the county website, and click on "view map".  This is a long tedious process.  Hopefully the county improves it before the next tax auction.  
  • The list changed?  How come? 
    • Owners have until the morning of the tax sale to pay up their past due taxes.  As they pay them off, the properties are removed from the list.  Check for an updated list every few days.  
  • How do I know if there are issues with the title? 
    • The County of Hawaii provides a "Litigation Guarantee" (very similar to a preliminary title report) with each parcel.  These are available for review prior to the auction in the folder on the website.  They are also provided the day of the auction, each taped to long tables that everyone shuffles through before the bidding starts.  
  • Will I receive title insurance?  No, all you receive at auction is a receipt and a copy of the litigation guarantee.  A recorded deed will come later.  
  • What do I need to bring to the auction? 
    • Cash or a cashier's check made out to yourself.  You must pay in full immediately after bidding. 
    • Copy of your trust documents if you will hold title in a trust (can be emailed in as well after bidding.)  
  • How does it work? 
    • The auction usually starts at 9am.  Someone from the tax office gets up and reads off a long disclaimer, then a county attorney reads a disclaimer and takes Q & A, and then, after everyone has been waiting for about half an hour, excited to get started, they take a break before starting!  
    • Once the auction starts, the minimum bid is the "upset price" that is noted on the list (taxes + fees).  You must stand to bid and call out your bid when the auctioneer motions to you.  Bidding proceeds back and forth until there is a winner.  A county employee comes from the front with the bid paperwork and a sticker numbered with the same number that was on the tax sale list.  You put this number on your arm and proceed through the payment and purchase process in the back of the room, moving along from station to station.  Bidding continues and you ARE able to bid on additional properties from the payment line.  If you brought a cashier's check made out to yourself, you will sign it over to the county.  If there is a balance, they will offer to hold it as a credit for you for future bids, or they will write you a check for the balance.  You can close out your credit at any time.  
  • What do I get to show I won? 
    • At the auction you only receive a receipt and the litigation guarantee.  A deed will follow, but they take a while.  Usually 4 to 6 months.  
  • When do I own it? 
    • You officially own the property immediately.  However: 
      • Without the deed it is challenging to prove ownership, so if you need to evict someone from the property you will likely have to wait for the deed to be generated and recorded. 
      • The prior owner has a one-year right of redemption to purchase the property back from you. 
  • Will there be liens? 
    • Very often there are road maintenance liens owed.  If the bidding proceeds over the upset price, any overage the county receives goes towards paying off as many liens on the property as possible.  If there is still an overage after all liens are paid, the prior owner may claim it.    
    • Tax foreclosures are *supposed* to wipe out any junior liens, but consult with an attorney since this is not the same process as a judicial foreclosure.  
  • Will I be able to get title insurance? 
    • You may have heard that properties that have gone through a county tax auction cannot get title insurance.  This is true in a lot of cases, but not all.  As part of the tax foreclosure process, the county notifies the prior owner via certified mail and publication.  This is all the law requires.  However, title companies have decided they will not insure properties where the prior owner did not sign for the certified mail.  (And they may even decline to insure properties when the prior owner did sign if there are other issues.)  Do not count on being able to get title insurance, but don't rule it out without obtaining the mailing packet from the county and running it by your favorite escrow officer for review.
  • I decided I don't want this property.  How do I undo the sale? 
    • Unfortunately this is not possible.  The best you can hope for is that the prior owner wants to buy it back during the redemption period.  Or you can wait a year and then list it with your favorite Realtor.  
  • The prior owner wants to buy the property back. 
    • Do I have to let him/her buy it back? 
      • Yes. 
    • I already improved the property.  Can I charge him/her for the improvements I made? 
      • Nope, shouldn't have invested in the property before the right of redemption was over. 
    • Can I charge them more than I paid? 
      • Yes, they must pay you back the full amount you paid plus 1% per month plus they have to cover all escrow fees, deed drafting fees, recording fees, notary fees, etc.    

Bank-Owned Listings FAQ

  • Bank-owned properties are cheaper, right? 
    • Not necessarily.  The bank has already paid out a lot of money in court costs, attorney fees, possibly eviction expense, and now they are paying Realtor fees.  They are going to list the property at market value. 
  • How is buying a Bank-Owned property different from buying a privately owned property? 
    • Banks will typically require their own contract or will add their addenda to the standard purchase contract.  These contracts or addendas remove a lot of liability from the banks during the sale. 
    • Banks will often offer to pay escrow fees and owner's title insurance premiums if you use their chosen escrow company. 
    • Banks are not required to provide a seller's real property disclosure. 
    • If the bank offers an owner-occupant "first look" period, and an owner-occupant buys during this period when investor's are not allowed to compete, the bank may put a restriction on resale in the deed, preventing the new owner from re-selling the property for a year or so.
  • How can I make my offer most appealing to the bank? 
    • Unfortunately, this is not always clear.  Some banks look ONLY at price and simply take the highest offer.  Some banks look for the cleanest offer and expect to see zero contingencies or seller-paid expenses.  
  • There is a house in my neighborhood that is bank owned?  Why isn't it on the market yet? 
    • Banks will often take "deed in lieu" of foreclosure.  When this happens, it hasn't gone through the regular foreclosure process so there could be other liens or issues involved.  The bank may be working to clear title before they can list it. 
    • Some banks have too many houses to list or don't want to flood the market. 
  • How can I contact the bank about a house they own? 
    • Good luck!  If you figure this one out, please let me know!
  • How can I see all the bank-owned listings on the Big Island? 

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?
  • 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.  

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