Hawaii Foreclosure 101

Hawaii Foreclosure Process

What is a Foreclosure?

A foreclosure is a legal process by which a homeowner’s right to the property is terminated, usually due to default. It typically involves a forced sale of the property at public auction with the proceeds applied toward the mortgage debt.

In Hawaii, mortgage lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure.

In judicial foreclosure or “foreclosure by action”, the mortgage lender files the appropriate documents with the court to rule that the homeowner is in default.

The mortgage lender then delivers the notice of default to the homeowner, or publishes the notice if they have trouble contacting the homeowner.

The homeowner has 20 days to respond. If the homeowner does not respond in 20 days, the court would find the homeowner in default and the mortgage lender can proceed with scheduling the foreclosure sale.

However, the homeowner has 30 days after the notice of default to file a notice of appeal.

A commissioner is usually appointed to sell the property at the public auction, which are usually held at the court house steps. The commissioner publishes the notice of foreclosure sale in the local paper showing the auction dates and open house dates, if any.

Any party may bid at the auction and the winning bidder is required to pay 10 percent of the bid cash or cashier’s check.
Unfortunately, the highest bidder does not automatically get the property. Additional bidding may continue at a confirmation hearing. If the court find the price fair at the confirmation hearing, then the sale is confirmed.

Non-judicial foreclosure or “foreclosure by sale”, does not involve any court action.

The mortgage promissory note usually contain a provision called a “power of sale” clause, which allows the mortgage lender to foreclose on the property upon default to satisfy the unpaid mortgage loan.

In a non-judicial foreclosure, the mortgage lender’s attorney would publish a notice of foreclosure sale once a week for three (3) consecutive weeks in a local newspaper in the county the property is located.

The last publication cannot be less than fourteen (14) days before the sale.

The copy of notice must be posted on the property and mailed or delivered to the homeowner no less than 21 days prior to the foreclosure sale.

The foreclosed property is auctioned off to the highest bidder. The auction maybe rescheduled, which happens frequently. And the notices of sale must be re-sent and re-published.

The homeowner has up to the three (3) days prior to the foreclosure sale to save the default by paying the defaulted debt along with any costs and reasonable attorney’s fee.

Hawaii offers no right of redemption for homeowners once the sale of the property is confirmed. However, homeowners in Hawaii do have up to one (1) year to redeem a tax lien foreclosure.

After the foreclosure sale, a homeowner may still face deficiency judgement if the proceeds from the foreclosure is not enough to pay off the mortgage promissory note IN FULL, meaning the property was sold SHORT.

A foreclosing mortgage lender who completed a non-judicial foreclosure of residential property is prohibited from pursuing a deficiency judgement against the homeowner unless the debt is secured by other collateral.

Read Avoid Foreclosure at All Cost.

Hawaii Private Money Lenders

Definition: A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note and deed of trust, for the purpose of funding a real estate transaction. Private money lenders are generally considered more relationship-based than hard money lenders.

Hard money lending is the process of borrowing money from a professional private lender, with the bulk of the lending decision based on the hard asset being bought.

Private money lending is borrowing money from non-professional lender, where the bulk of lending decision is based on the relationship between the lender and borrower, but enhanced by the hard asset being bought.

Private lenders lend money out not as a living, but usually as an investment. The rate, fees and terms are usually less and much more negotiable than hard money lending.

Why Borrow from Private Money Lenders?

One of the biggest mistakes that new real estate investors make is that they spend an inordinate amount of time learning about finding and typing up deals but a small amount of time on how to raise equity capital from private money lenders. It’s just as important, if not more important, for real estate investors to understand the ins and outs of raising money as finding the deal.

Finding a deal is great but if you do not have earnest money to tie up a deal or funds to purchase it, then all that time and effort is for nothing. (Ankit Investing Life Rules: Work Smarter Not Harder). When you make an offer on a piece of property, it is expected, and usually required, that you place an earnest money deposit down with your offer. If you are currently living paycheck-to-paycheck, coming up with even a few hundred dollars can be a big hurdle in launching your real estate investment business, let alone thousands needed for a purchase. Hence if you work on raising capital from private money lenders while locking up deals then you will have a greater chance for investment success.

The first question that most investors come up is who should I approach to raise the equity capital? Lets try to answer that question

Why Would Someone do Private Lending?

1. Higher return than stock market, index fund;
2. Security – private lender holds first position liens on the property;
3. Passive investment.

How to Find Private Money Lending?

1. RealtyShares is a crowd funding platform for raising capitals for real estate from accredited investors .
2. Local real estate investors, especially older ones, as they don’t want to do much work anymore and just prefer more passive income.
3. Family and friends. This is how most people begin. I don’t advise asking all your families and friends. You need to approach this very carefully.

How to Get Your Private Lenders to say YES?

1. Find a deal
2. Connect with private lender
3. Build your brand
4. Build relationships
5. Ask
6. Do the math
7. Reduce risk
8. Present it right

Related article: Investor's Guide to Private Money Lending.

Hawaii Real Estate Guide

Hawaii Real Estate

Before you get your feet wet in Hawaii real estate market, you should get yourself familiar with some local real estate terms and laws.

Land Tenure

First thing you need to know about Hawaii real estate is that you don’t always own the land when you buy a property.

Sound strange? Yes, it does.

Most people only know of one type of real estate ownership; fee simple, also known as freehold. There are only a handful of states (i.e. Hawaii, New York, Florida) that have another form of ownership known as leasehold.

It is important to know the difference between fee simple and leasehold property. The difference in these two types of land tenure can significantly affect the value of the real property.

Fee simple ownership is probably the most familiar form of ownership to buyers of residential real estate. Depending on where you are from, you may not know of any other way to own real estate.

Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. The titles of both the property and the land on which the property sits transfer to the new owner at time of closing. The fee simple owner has the right to own, use the land and dispose of the land as he wishes--sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.

On the other hand, in a leasehold property transaction, only the title of the property is transferred to the new owner at closing. The title of the land on which the property sits is not affected. What you’ll get as the new owner of the leasehold property is the leasehold interest as a “lessee”. This agreement gives you the right to use and enjoy the land as a fee simple owner ONLY for the duration of the lease. At the end of the lease, the land goes back to the land-owner.

Why buy leasehold properties?

Read Buy Leasehold Properties for Cashflow.

Hawaii Property Tax

Honolulu has one of the lowest real property tax rate in the country. As of June 2013, Honolulu home owners pay $3.50 for every $1,000 of the taxable property value. Property taxes are assessed on 100% of the fair market value of the property and are administered by the counties, with each county having different property tax exemptions.

See property tax rate for the state of Hawaii.

Home Exemption

Besides, having the lowest real property tax rate. Hawaii homeowners also enjoy property tax exemption.

Who qualifies for home exemption? You are entitled to the home exemption if:

1. You own and occupy the property as your principal home (“real property owned and occupied as the owner’s principal home”) means occupancy of a home in the county with the intent to reside in the county. Intent to reside in the county may be evidenced by, but not limited to, the following indicia: occupancy of a home in the city for more than 270 calendar days of a calendar year; registering to vote in the county; being stationed in the county under military orders of the United States; and filing of an income tax return as a resident of the State of Hawaii, with a reported address in the county;

2. Your ownership is recorded at the Bureau of Conveyances, State Department of Land and Natural Resources, in Honolulu on or before December 31 preceding the tax years for which you claim the exemption. In the case of a lease, the document must indicate that the lessee has a lease for residential purposes for a term of five years or more and will pay all property taxes;

3. You file a claim for home exemption (Form P-3) with the Real Property Assessment Division on or before December 31 preceding the tax years for which you claim the exemption.

How much is your home exemption?

The standard home exemption on your principal residence in the county of Hawaii (Big Island) is $40,000. If you are age 60 to 69 the exemption is $80,000 and if you are 70 or older, the exemption is $100,000.

The home exemption in the city and county of Honolulu is $80,000. If you are 65 or older, the exemption is $120,000. If you have an existing home exemption on file, you do not need to re-apply. The exemption amount is automatically increased depending on your age. There are progressively higher exemptions if you are 75 or older and your household income is not more than the low-income limits established by the United States Department of Housing and Urban Development.

The basic home exemption in Kauai is $48,000. If you are age 60 to 69 you can claim a $96,000 exemption and if you are 70 or older the exemption increases to $120,000. If your adjusted gross income for the preceding year is less than $40,000 you qualify for an additional $55,000 exemption.

In Maui, the homeowner exemption on your principal residence is $300,000.

Disability Exemptions

If your sight or hearing is impaired or you are totally disabled, you qualify for an additional exemption. This exemption also applies if you have Hansen's disease and are hospitalized or under temporary release. The disability exemption is $50,000 in the Counties of Hawaii and Kauai and $25,000 in Honolulu and Maui.

If you are a veteran and are totally disabled due to injuries while on active duty, your principal home is exempt from all property taxes except for special assessments and the annual minimum tax.

Widows or widowers of totally disabled veterans are also eligible for this exemption as long as they remain unmarried. Once you are granted a disability exemption you do not have to re-file each year as long as you meet the disability requirements.

Local terms

Lanai is the sixth largest island in the Hawaiian Island chain. It is located in between Maui and Molokai.

In local language, Lanai also means balcony in Hawaii.