Understanding the foreclosure process in Hawaii is an important part of navigating your own home foreclosure should you find yourself in that unfortunate predicament.
Before we get started……..
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property (house, townhouse, condo, etc.) securing a loan (collateral), generally after the borrower stops making payments. When someone says “I’m in foreclosure”, this is the process they’re referring to – their bank is moving to take back the property because the loan is not being paid.
Foreclosure is no fun, but just know that it’s not the end of the world (even though it may feel like it). You still have options, even if you’re not yet aware of them (the point of this post).
When you know how foreclosure in Hawaii works, you have the knowledge to make sure you navigate it well and come out the other end as unharmed as possible.
The Primary Stages of A Foreclosure
There are a few stages that are important to any foreclosure process.
You should also know that foreclosure works differently in different states around the country, so knowing your own state’s laws becomes critical.
The two ways different states use to foreclose upon a property are: judicial sale or power of sale.
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In either scenario, foreclosure typically doesn’t go to court until 3-6 months of missed payments have elapsed. Usually (but not always), a lender will send out many notices (called a Notice of Default) that you are in “arrears” a fancy term for being overdue or behind in your mortgage payments. You may even have heard of a foreclosure dragging on for years – just know that while it may seem on the surface that this benefits the owner, it’s rarely if ever the case; you’re always better off taking action earlier than later.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days (unless directed otherwise) to bring payment to court to avoid foreclosure (sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
Under Power of Sale (or Non-Judicial Foreclosure):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee, usually a local attorney.
- The trustee can then sell your property for the lender at a public auction (notice must be given). On Oahu, these occur outside the courthouse steps at 777 Punchbowl Street in Honolulu.
Recent laws have largely put a stop to non-judicial foreclosures in Hawaii. Instead, now about every foreclosure is a judicial foreclosure. For a while, it seemed as if the banks were less willing to go through the more lengthy and expensive judicial foreclosure process. However, in many cases now, the banks are pushing ahead anyway when they feel they have no other option to protect their loan and the underlying asset (your house).
Anyone who has an interest in the property must be notified during either type of foreclosure. It becomes very public – another reason to take action early if you protect your privacy.
For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off from the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale has taken place.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower (in a short sale, deficiencies may sometimes be negotiated away to zero).
Here’s a great resource that lists the state by state deficiency judgement laws, since every state has different foreclosure proceedings and laws.
Generally, it’s best to avoid a foreclosure auction if at all possible. Instead, call your bank or work with a reputable real estate firm like us at Oahu Home Buyers to help you negotiate discounts off the amount owed to avoid being subject to a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a property near Oahu, we can help you.
We buy houses in Oahu Hawaii like yours from people who need to sell fast.
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Other Foreclosure Resources For Oahu Hawaii HomeOwners:
- Resources On Avoiding Foreclosure from the U.S. Goverment >>
- Governor Signs SB 651 Stopping Hawaii Foreclosures >>