The town (Hawi) is still buzzing with questions about last week’s foreclosure auction of the roughly 7,000 acres owned by Kohala Preserve Conservation Trust. Because the land in question includes some of the most culturally and recreationally important shoreline property in North Kohala at Mahukona, along with mauka lands important for grazing, watershed, and the Kohala Ditch, residents share hopes and concerns over who will be the next owner of a big chunk of historic Kohala real estate.
Here is an update on the auction and how the foreclosure process is likely to play out from here.
Foreclosure Auction Results
I personally did not attend the auction as I knew others were going and the outcome (credit bid) was 99% certain; I asked another friendly real estate agent to call me with a report. The auction was set for noon. He called at 12:04 p.m.
One offer was submitted for $2 million (I understand that was $2 million total so I’m guessing the bidder had not read my previous blog post suggesting bidders show up with a check for around $3 million as their 10% down payment). The amount of the credit bid by what people seem to refer to as “the Canadian pension fund” was $25,600,000.
Those in the crowd who were most knowledgeable were there to see who else was there, and that was the substance of the report my friend gave. In addition to representatives of the large Kohala landowner I’ve referred to as the White Knight, there were two other individuals who either on their own, or in the other case probably on behalf of a development group, might have the wherewithal to be players at the next stage.
What Happens Next in the Foreclosure Process and Beyond
There are several more steps to a judicial foreclosure:
- Confirmation motion is filed by attorney.
- Confirmation hearing is set and the bidding is re-opened at that time.
- Once the order confirming the sale is issued by the court there is still a 30-day appeal period before the sale records.
- Now the new owner is free to sell all or portions of the land assets to others.
The reason why a serious party would not bid at the auction is that they don’t want to show their hand too soon. That’s why the players were there last Wednesday: to scope out the competition. At the confirmation hearing a bid must be 5% above the auction bid to be considered. The judge does not want to waste time with someone bidding $1 over the previous bid price so the statue sets a minimum increment to avoid frivolous proceedings.
Assuming the lender takes ownership at the confirmation hearing, once they have clear title, they can sell for whatever price they feel is fair market value. In a down market, that often turns out to be significantly less than a lender is owed. It depends on their appraisal…and in this case, very likely on the complexity of the land assets involved and the significant management issues and ongoing costs. Which brings me to the next questions I’m being asked…
Aerial showing some of the mauka land included in the Kohala foreclosure auction at top
Why Didn’t the Bank Accept an Offer Before the Auction? Can They Take One Before the Hearing?
People often ask me if they can negotiate directly with the bank to acquire a property before foreclosure. This is true not just with the large Kohala land auction. I’ve been asked the same question about the Kolea condo set for a similar foreclosure auction on September 5th…and then there was the recent sale of a beautiful home on 10 acres in Kapaau…but I digress.
The answer is no: until the lender acquires title through foreclosure or deed-in-lieu, they have no right to sell! In other words, the lender cannot make the owner accept a short sale. They are two separate processes. (Phew, usually I have owners wishing they could force lenders accept when they have a short sale offer on the table!)
In other words, up until this foreclosure auction occurred, it would have to be KPCT agreeing to sell to the White Knight, with lender agreeing to take less than the full amount owed if indeed the offer was less.
Back to the judicial foreclosure process. I have also been asked whether the Kohala community should give the bank their opinion on who they would prefer among the bidders. At the auction it is the commissioner, not the lender, that must sell to the highest qualified bidder; the lender is simply one bidder.
So again, the lender has no say in the who or how much of the property’s sale at this stage, other than via its credit bid. Once a property goes to foreclosure auction, it is only a question of who wins the auction.
That is not to say that the foreclosing lender would refuse to sell the property to the White Knight – or anyone else – for less than their credit bid after they get title…they might be happy to do so. If you are reading this and are intrigued, you might be wondering should you step into the arena. Stay tuned for another post soon on the question of what else a buyer for Hawai’i real estate with a $20-$30 million budget might consider.
A hui hou,
Beth Thoma Robinson, R(B)