I live in Hawaii, where it’s really expensive to buy a home. I just heard that there is a house in my neighborhood that is going to be sold at a foreclosure sale and am thinking maybe I could get a good deal. This seems like a great option, but I’m nervous that the homeowners may be able to get the house back after the foreclosure by paying off the loan or doing something else to reclaim it. Can they do this?
No, the former homeowners cannot get the house back after a foreclosure in Hawaii. (Some other states provide foreclosed homeowners with what’s called a “statutory right of redemption.” Basically this means that state law gives the homeowners a certain amount of time after the foreclosure to repurchase or “redeem” the home by reimbursing the party who bought it at the foreclosure sale for the full purchase price, plus various other costs. Hawaii law has no such provision, however.)
While the homeowners won’t be able to take the property away from you after the foreclosure, it is possible (though uncommon) for the IRS to redeem after the foreclosure sale if there was a federal tax lien on the property.
Keep reading to find out how this could affect your ability to settle into your new home without worrying that you’ll eventually lose it to the IRS.
Hawaii law does not provide the former homeowners with the right to redeem the house after a foreclosure.
When a homeowner fails to pay federal income taxes, the IRS typically records a Notice of Federal Tax Lien at the local county recorder's office. If there is a federal tax lien on the home at the time of the foreclosure, the IRS gets 120 days to redeem the house after a foreclosure sale under federal law -- though the IRS does not exercise its right to redeem very often. The IRS would redeem only if it believed that it could later sell the property for more than you bought it for at the foreclosure sale. This is something to keep in mind if you get a really good deal (for example, you buy the home for much less than the fair market value) when buying a foreclosed home.
If the IRS considers redeeming the foreclosed home, you would first learn about it when the IRS sends you a notice to inform you that redemption may occur.
Even though you could get a good deal at a foreclosure sale, there are a few other things you should be aware of if you’re planning on buying a house this way.
You won’t receive any seller disclosures about the condition of the property before the foreclosure sale takes place. (In a regular sale, the seller would be obligated to tell you a great deal about the property's features, physical condition, and more.)
Also, you’ll have to purchase the home “as is” without being able to negotiate repairs. Since the owners were in foreclosure, it’s pretty likely that they stopped paying for upkeep a while ago and the house could need some major repairs. (Learn more in Nolo’s Buying Foreclosed Properties area.)
To find the statutes that govern foreclosures in Hawaii, go to Title 36, Chapter 667 of the Hawaii Revised Statutes.