Auction foreclosures include any property that is in the process of being foreclosed on, and is slated
to ultimately go to auction if the lender and the borrower cannot resolve the problem or work out a
payment arrangement. During this period, the borrower retains possession of the home, but an auction
date has been set.
If the property goes to auction, and the lender is the winning bidder, then ownership of the property
is taken back. This is known as Real Estate Owned (REO) by the bank. At this point, the bank will
likely list the foreclosed property with a real estate agent, and will be entered into MLS to sell,
like any other property for sale on Oahu.
Q: How do I buy an auction foreclosure?
You can either make an offer to the borrower to purchase the property before the auction date,
or you can bid on the property at the courthouse steps on auction day.
Q: Where can I find a list of these properties?
Auction foreclosure properties are listed in the newspaper when the notice of default is filed. But
finding a comprehensive list of all foreclosures headed to auction is more difficult. Auction
foreclosures should not be confused with foreclosed properties you see listed on MLS — these are
post-auction, bank-owned REO properties, and represent a small percentage of the total number of
homes on the island in foreclosure. LocationsHawaii.com is the first of its kind complete
resource, listing properties pre-auction and post-auction foreclosures. There are several
hundred on the list, accessible 24/7. A complete and current list of island foreclosures
can be found here.
Q: What does it mean when a property is upside down?
Basically, it means there is more owed on the property than it is currently worth. Let’s say,
for example, that the owner in default owes more for the property ($500,000) than the property’s
appraised value ($450,000.)
The property cannot be sold for less than what is owed, without the approval of the lender
involved. But if the lender is amenable to selling the property for less than what is owed,
it is termed a short sale. When the bank agrees to a short sale, or when making an offer to
the bank below what is owed on the property, extra administrative steps are required to
facilitate the transaction. If you are considering making a short sale offer, a
Locations LLC real estate agent specially trained in
short sale negotiations can walk you through the steps and act as an advocate for you as well as
a liaison with the lender.
Q: How is value determined?
A bank’s appraiser generally determines value. However, to come up with a reasonable offer,
work with your Realtor to determine a property’s current market value by comparing recent sold
prices of similar properties in the neighborhood. Remember, the amount the previous owner paid for
the property, or what is currently owed on it has no bearing on its current market value.
Your Realtor will help you determine what the house would sell for in today’s market.
Just doing the math, however, isn’t enough. A property’s actual value will also depend on its
condition. If there are costly repairs that need to be made, this will certainly affect the value.
Talk to your Realtor about inspecting the property thoroughly. A seasoned and knowledgeable real
estate agent will assist you in determining a realistic offer price.
Q: Is it common for foreclosures to be sold in “as is” condition? What does that mean?
Generally, foreclosures are sold in “as is” condition, meaning the seller will not pay for
any repairs that are needed. Sometimes, appliances and cabinetry are missing, and often,
because the previous owner was short on funds and in default on the mortgage, maintenance of
the home was low priority. Foreclosure victims might also purposely cause damage to the home.
The foreclosure process is as full of potential gain as it is potential pitfalls if you’re not
careful. “As is” transactions are the ultimate test of the buyer-beware philosophy. Foreclosure
transactions are complicated enough and if something regarding the property condition is
overlooked, it could mean a costly, unexpected repair. Having an experienced set of Realtor
eyes overseeing this type of transaction — and a professional home inspector or contractor on
your team —can save you from some serious pitfalls.
Q: Should I try to preview the property before the auction?
Absolutely. It is almost never a good idea to buy a house sight unseen. Your Realtor will be
able to help you find out if it is possible to preview the property, and can help you find
a good home inspector. A dilapidated property that may cost tens or hundreds of thousands of
dollars to repair may have a dramatic impact on your offer price. Unless you are a general
contractor, be prepared to bring a contractor or home inspector with you to look for any
defects in a property and to be able to estimate cost to fix the problems. If the property
is not available for a walk-thru, there isn’t time to hire a home inspector, or you aren’t
sure what needs to be repaired or how much it will cost, it probably is not worth the risk.
Q: Can I inspect the property after the auction, if I am the winning bidder?
All sales are “as is,” and they are final. If you show up on the courthouse steps ready to bid,
and haven’t inspected the property, it’s too late. There is no contingency period after the
auction to inspect the property then. Do your homework. Make sure to inspect the property
ahead of time.
Q: Does it matter if the seller has equity in the property?
Yes. If the seller does not have equity in the property, or if the property value has
dropped, a short sale may be the only way to sell the home. The lender may or may not
be agreeable to this. A short sale proposal can be a very complicated process and requires
the expertise of a real estate professional with practical knowledge in this type of transaction.
Q: If I bid $1 on a property, and no one else bids, do I win?
Not likely. In Hawaii, the lender sets the starting bid price. Because Hawaii hasn’t
experienced the sheer numbers of foreclosures as some places on the mainland, lenders aren’t
as desperate to get rid of these properties at fire sale prices. More likely they’ll opt to
recoup an amount equal to (or more than) the outstanding balance of the defaulted loan.
If no one bids higher than the lender’s initial bid, then the lender takes back ownership
and will normally sell the property later as an REO property in MLS.
Q: How much money do I need for a deposit that day?
You must be prepared to put 10% of your purchase price down that day in the form of a bank
cashier’s check. Those who make a business out of buying foreclosures may come with several
bank drafts in a series of denominations to allow them to bid at different levels.
Q: If I am the highest bidder and win the property, what happens next?
You may be required to close in 30 days. There are no contingencies and no extensions.
If you don’t close within 30 days, you will lose your deposit. Thirty days may not be enough
time to obtain financing. Check with your Realtor to see if you will need all cash for the
purchase ahead of time.
Q: Aside from unknown issues with the property’s condition, what other risks are there to buying a foreclosure?
When you buy a property in the traditional way, you will get a seller’s disclosure sheet,
detailing problems/issues with the property that might affect the value of the home, and
there will be a title search done, to ensure that you are getting clear title without any liens.
When you buy a foreclosure, you may not get either. The bank makes no promises about the
condition of the property or title. Liens, due to unpaid taxes, unpaid improvements, or
second mortgages, may unknowingly be attached to the home and will become your responsibility.
The advice of a Realtor on these subjects is wise as such problems could turn a ‘good deal’
into a nightmare quickly.
Q: Can my Realtor help me to order a title report?
Yes, talk with your agent for the kinds of ways you might go about ordering your own title report.
Q: What percentage of these homes gets resolved and never goes to auction?
In a large percentage of auction foreclosure cases, more than half, the borrower and the lender
work out an arrangement and the foreclosure is postponed or cancelled.