Purchasing a lender or bank REO (Real Estate Owned) property that has been foreclosed can be a fantastic real estate deal. Be prepared to act quickly and make a reasonable offer. Along with the offer, the lender will want to see evidence of cash funds for an all-cash offer or a pre-qualification letter if the offer involves financing.
The lender usually does extensive market research to price the property to sell quickly. As a result, frequently there are multiple offers on the foreclosed property. When this happens, it's common for the lender to come back and ask each offerer to make a “highest and best bid” but this is not always the case. Sometimes a lender will take the first offer that comes in if it is considered reasonable.
Lenders are typically extremely willing and motivated sellers. They do not want to hold foreclosed properties in their inventory. However, lenders are heavily regulated and need to follow a myriad of laws, both Federal and State.
On May 5, 2011 Hawaii passed Act 48 which requires lenders to perform a judicial foreclosure rather than a non-judicial foreclosure when an owner-occupant is involved. While the idealistic intend of this law is to keep Hawaii owner-occupants in their homes longer to give them an opportunity to re-negotiate the terms of their mortgages, it overloads the already-burdened Circuit Court system.
In response to this new Act 48, on June 10, 2011 Fannie Mae directed its mortgage servicers as follows:
- Effective immediately and until further notice, all new Fannie Mae foreclosures in Hawaii must be commenced as judicial foreclosures.
- Effective immediately, all pending Fannie Mae non-judicial foreclosures in Hawaii that have not proceeded to sale should be dismissed and converted to judicial foreclosures.
It was taking lenders about a year to complete a judicial foreclosure in Hawaii. Only time will tell what impact this new Act 48 will have on foreclosures and on Hawaii's real estate market.
The non-judicial foreclosure process that was commonly used in Hawaii usually took only 60 to 90 days if uncontested. This was delayed if the borrower contested the action in court, sought delays and adjournment of sale, or filed for bankruptcy.
Yet another law to be mindful of when buying a foreclosed property in Hawaii is Chapter 667, Hawaii Revised Statutes, Section 514A-90 and Section 514B-146, amended by House Bill 321 effective July 1, 2011. The buyer of a foreclosed property is responsible to pay up to $3,600 for delinquent homeowner assessments.
In Hawaii the foreclosed borrower has no statutory right of redemption which would allow that party the right to reclaim the property by making payment in full of the unpaid mortgage plus all costs. The borrower may cure a default up until 3 days prior to the foreclosure sale by paying all amounts that are in arrears.
A deficiency judgment may be obtained against the party whose property was foreclosed if the public sale brings less than the amount of the underlying mortgage.
If you are a property owner wishing to avoid foreclosure, we may be able to assist you with a short sale prior to the foreclosure taking place. Consult with an attorney and contact us at Sales@OceanfrontRealty or call us on Kauai at 1 800 222-5541.
If you are looking to purchase a Kauai foreclosed property, we recommend that you consult a Hawaii attorney and work with a Hawaii Realtor who is knowledgeable with foreclosures and all that is involved. At Oceanfront Realty, we have professional Realtors happy to work with you. Contact us at Sales@OceanfrontRealty.com or call us on Kauai at 1 800 222-5541.