If you are in the market for a new home, especially on Hawaii where real estate prices are so high, foreclosed properties can be really appealing. The biggest benefit is that they are usually priced below market, which allows you to buy a home that would otherwise be out of your price range. Keep in mind, however, that buying a foreclosure in Hawaii comes with a few risks.
What is a foreclosure?
In short, foreclosure is a legal process that lenders use to take back property (house, townhouse, condo, etc.) after the borrower stops making payments.
Foreclosure Laws in the State of Hawaii
The laws governing foreclosures vary from state to state. In Hawaii, foreclosures almost always follow the judicial, rather than point of sale, process. Hawaii also does not allow a homeowner to reclaim his or her property through right of redemption – a huge relief for foreclosure buyers.
Buying a Foreclosure in Hawaii
Purchasing a foreclosed home is different from a typical home sale. You generally get a great price, but the process is a bit of a grind, and there is little, if any, room for negotiation.
Foreclosure comes in four different stages: pre-foreclosure or “short sale,” auction, real estate owned (REO), and government owned.
Pre-foreclosure: In this stage, the homeowner and the lender come to an agreement on the sale of the home.
Auction: If a short sale agreement cannot be reached, the bank seizes the property and auctions it off. This is usually the time when you get the best possible price for a home; however, it comes with a couple caveats:
- You are buying the property “as is,” and the home may have serious maintenance issues
- You probably won’t be allowed to inspect the property first
- You almost always have to pay the full price of the home in cash upfront
- You may wind up responsible for back taxes and other debts against the home
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REO: Often, a local estate agency buys the foreclosed home at auction, fixes it up, and then turns it around for a profit. REO foreclosure homes will cost you more than at auction, but they come with the least amount of risk.
Government owned: Sometimes, the government will take ownership of a foreclosure. A little more uncommon, government owned foreclosures also come with less risk, but the process often takes much longer, and involves more paperwork.
If you are a homebuyer interested in buying a foreclosure in Hawaii, the best route to take is to hire a local real estate agent experienced in foreclosure sales. Not only will they will have better access to foreclosure listings, they will also be able guide you through all of the legal and financial challenges of purchasing a foreclosure home.