What Happens If I Don't Pay Property Taxes in Hawaii?

What happens if you don’t pay your Hawaii property taxes? You might eventually lose your home.

By , Attorney

People who own real property must pay property taxes. The government uses the money these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value.

When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes.

So, if you don't pay your real property taxes in Hawaii, the tax collector can sell the property to a new owner at a tax sale. Fortunately, you'll have some time to get current on the delinquent amounts both before and after a sale happens.

Do You Have to Pay Property Taxes in Hawaii?

Yes. If you don't pay your real property taxes in Hawaii, the overdue amount becomes a lien on your home. Once the lien has been in existence for three years, the tax collector can sell your home at a public auction to collect the delinquent taxes. This process is considered a "foreclosure without suit." (Haw. Rev. Stat. § 231-63.)

You must pay the past-due taxes, along with interest, penalties, costs, expenses, and charges accrued or set to accrue by the date of payment, to stop the sale. (Haw. Rev. Stat. § 231-63, § 231-65.)

How Property Tax Sales in Hawaii Work

Before the sale, the tax collector must mail you a notice about the upcoming sale and give public notice.

Notice By Mail Before the Tax Sale Takes Place

In Hawaii, the tax collector must mail you a notice by registered mail, return receipt requested, at least 45 days before the sale date. (Haw. Rev. Stat. § 231-63.)

Public Notice Before the Tax Sale Happens

The tax collector must give public notice in a newspaper for at least four weeks before the sale and post notice in at least three conspicuous places within the taxation district. One of the three postings will be on the property if the land has improvements, like a dwelling. (Haw. Rev. Stat. § 231-63.)

The Tax Sale

The tax sale is a public auction where the collector sells the home to the highest bidder. The sale price will be at least enough to satisfy the lien plus interest, penalties, costs, and expenses. (Haw. Rev. Stat. § 231-63.)

After the sale, the high bidder (the purchaser) gets a deed (title) to the home, subject to your right of redemption. (Haw. Rev. Stat. § 231-67.)

Your Right of Redemption After a Hawaii Tax Sale

If you lose your home to a Hawaii tax sale, you have the right to get it back, called the "right of redemption," within one year after the sale. But if the deed isn't recorded within 60 days after the sale, then the redemption period is one year from the recording date. (Haw. Rev. Stat. § 231-67.)

To redeem the property, you must pay the purchase price, costs, expenses, and interest at the rate of 12% per year. But you don't have to pay interest during the extension if the redemption period is extended because the deed wasn't recorded within 60 days of the sale. (Haw. Rev. Stat. § 231-67.)

What Happens to My Mortgage in a Tax Sale?

If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly payment to pay the property taxes. The servicer then pays the taxes on your behalf through an escrow account.

But if the property taxes aren't collected and paid through this kind of account, you must pay them directly.

The Servicer Might Pay Any Delinquent Taxes If You Don't

If your loan isn't escrowed and you don't pay the property taxes, the loan servicer might pay any delinquent taxes and then bill you for them. Here's why: Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.)

Because a property tax lien has priority, any mortgages get wiped out if you lose your home through a tax sale. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this sale from happening. The servicer will then demand reimbursement from you, the borrower.

If You Don't Reimburse the Servicer, You Might Lose Your Home to a Regular Foreclosure

The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount that it paid, you'll be in default under the mortgage's terms.

The servicer can then foreclose on the home in the same manner as if you had fallen behind in monthly payments.

Your Servicer Might Set Up an Escrow Account

After demanding repayment of the amount it paid for the taxes, penalties, plus interest (assuming you repay this debt), your servicer will probably set up an escrow account for the loan.

Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and possibly other expenses, like insurance—along with your regular monthly payment of principal and interest. This money goes into the escrow account.

The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.

What Gives the Servicer the Right to Set Up an Escrow Account?

Many mortgages have a clause allowing the lender to establish an escrow account basically at any time. The servicer establishes and manages the account on the lender's behalf.

To find out if and when the lender can set up an escrow account for your loan, read your mortgage contract and any other relevant documentation you've signed, like an escrow waiver.

Pros and Cons of Having an Escrow Account

The downside to having an escrow account is that you'll have to make a bigger monthly payment to the servicer. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps others, are due.

Getting Help

If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay.

Talk to a foreclosure lawyer, tax lawyer, or real estate lawyer if you're facing a tax sale in Hawaii and have questions about the process or need help redeeming your property,

To learn more about property taxes and other aspects of homeownership in general, get Nolo's Essential Guide to Buying Your First Home by Ilona Bray, J.D., Attorney Ann O'Connell, and Marcia Stewart.

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