Oahu Property Tax Foreclosure Auction

On May 5, 2009 the City and County of Honolulu held its first tax lien auction in two years.  Two properties were advertised.  One parcel had a upset price of $20,023.87 and another had an $8,169.45 upset price.

You know how people get excited about buying foreclosures!  Some friends of mine were interested in placing a bid, however they were going on a vacation in early May.  They asked me to bid on their behalf and I said "Okay!"

How a Tax Lien Auction Works

Tax lien auctions are different from the auctions held at the courthouse.  At the tax lien auction, the winning bidder must immediately pay the full purchase price.  Methods of payment include cash, certified check, cashiers check or wire transfer arranged prior to the auction.  In other words, don't plan on bidding and then going to your bank for a mortgage loan. 

Another important thing to know is that the taxpayer whose property was auctioned off may redeem the property from the winning bidder!  The taxpayer can do this by repaying the winning bidder the price he paid at the auction plus all costs he was required to pay, such as the deed recordation fee.  Interest will also be added on at the rate of 12% per year.  The taxpayer has one year to buy back the property from the winning bidder.

Hmmm.  So a winning bidder should be very careful about the improvements he makes to a property in the first year.  Extensive repairs and renovations might end up going back to the previous owner if he happens to get the money together to redeem it.

Tax Auction on May 5, 2009

The auction was held at the Mission Memorial Auditorium at 550 South King Street, near Honolulu Hale downtown.  I entered the auditorium, registered and went behind a curtain to show the organizers my "proof of funds."  Actually, it was "proof of funds" for my friends, whom I was bidding for.  They gave me one of those paddles with a number on it, to hold up when I place a bid.

When everyone was registered, the Director of budget and Fiscal Services for Honolulu went to the podium and announced the auction.  He read a prepared statement and asked if there were any questions.  Several hands went into the air.

One bidder had done some research on the first property, located on Hanalei Street in Waianae.  The bidder said he had talked with the City building permits department.  He said the property owner had made unpermitted additions which need to be removed or permitted.   Fines were piling up at around $150 per day.  He asked if the successful bidder would be purchasing the property "free and clear of all liens" as described in the public notice.  The Director was unsure and he called a recess.

After conferring with other officials, the Director returned and said there is no guarantee that the building permit fines would be waived.  Another bidder asked about mortgages.  If the property had a mortgage, would the winning bidder own it be free and clear of the mortgage?  The Director conferred briefly with others and then announced that "free and clear" means the bidder owns the property free and clear of property tax liens and that's all that's warranteed from this auction.

There seemed to be other issues and the Director announced that the first auction would be postponed for a short time.  The second auction, with the $8,169.45 upset price would be held now.

This was the auction my friends were interested in.  They gave me $8,200 to bid with.  They had hoped that the bidding audience would be small and we'd "get chance."  I could see about 30-40 potential bidders in the room and I wasn't sure how it would go! 

The property being auctioned was a three bedroom, two bath home in Makakilo, built in 1968.  Its tax assessed value was $425,700.

Bidding started at $8,269.45 and several paddles went up.  The next bid was $9,000 and several more paddles went up.  We were already out of the running!

I watched the bidding escalate.  Most bids were in $1,000 increments.  Once in awhile when there were lots of paddles going up, the auctioneer raised the price in $5,000 increments. 

How High Do You Think the Price Went?

As the bidding price escalated, the number of bidders went down to a handful.  The bids got up to $145,000 and there were two bidders left.  Coincidentally, they were sitting a few feet apart from each other.  The bids went up in $1,000 and 5,000 increments.  Finally, the guy in the red won at $226,000!

Although I haven't seen the house, you can be pretty sure it was a good deal.  There are just a handful of homes for sale on the entire island of Oahu in this price range.  Basically, the bidder bought a house for a condo price.  With some conditions, such as the one year redemption period mentioned above.

After the auction, the winning bidder went and sat with the officials for a quite some time as they did whatever they had to do to take care of his payment.  I wanted to stay and see the results of the other auction but I had to go.

What I Learned at the Honolulu Property Tax Auction

Successful bidders CAN get a great deal.  As with foreclosure auctions at the courthouse, cash is KING.  And be careful about that one year redemption period!  You don't want to completely remodel a house and then have the old owner come back and buy it for the winning bid price plus interest nine months later.

Looking for House Deals on Oahu?

There are plenty of MLS foreclosures, short sales, lender sales and even regular sales that are very attractive these days.  Lower prices, lower interest rates and that $8,000 Federal tax credit to first time homebuyers can be a great buyers incentive.

Call Mike Bates at (808) 548-1220 to get started!

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