Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney in Hawaii for guidance on your specific situation.
Detailed Answer
When a foreclosure or sheriff’s sale generates surplus funds—meaning the sale price exceeds the total debts secured by the property—those funds become available for distribution. Under Hawaii Revised Statutes (HRS) Chapter 667, the mortgagee and junior lienholders must be paid in order of priority. To determine whether other creditors or lienholders may have valid claims to those surplus funds, follow these steps:
1. Conduct a Comprehensive Title Search
All real-property liens in Hawaii must be recorded at the Bureau of Conveyances or the Land Court. Review:
- Mortgage and Deed of Trust records (HRS §667-8): https://www.capitol.hawaii.gov/hrscurrent/Vol13_Ch0061-0072/HRS00667/HRS_00667-008.asp
- Lis pendens notices (HRS §507-1): https://www.capitol.hawaii.gov/hrscurrent/Vol9_Ch0497-0502/HRS0507/HRS_0507-001.asp
2. Search for Judgment Liens and UCC Financing Statements
Judgment liens against individuals or businesses may attach to real property if recorded (HRS Chapter 507):
- Review judgment lien recordings (HRS §507-32): https://www.capitol.hawaii.gov/hrscurrent/Vol9_Ch0497-0502/HRS0507/HRS_0507-032.asp
- Check Uniform Commercial Code filings for security interests in fixtures (HRS Chapter 490 – Article 9): https://www.capitol.hawaii.gov/hrscurrent/Vol10_Ch0481-0530/HRS0490
3. Investigate Tax Liens and Government Claims
Unpaid real property taxes or special assessments create liens:
- County tax collector records
- Federal tax liens recorded at the Bureau of Conveyances (26 U.S.C. §6323)
4. Review Bankruptcy and Court Filings
Bankruptcy filings can create an automatic stay or lien. Check the U.S. Bankruptcy Court’s public docket for any past or pending cases involving the debtor.
5. Check Statutory Deadlines for Claiming Surplus Funds
Under HRS §667-30, a claimant must file a written claim for surplus funds within 90 days after the sale report is confirmed by the court: https://www.capitol.hawaii.gov/hrscurrent/Vol13_Ch0061-0072/HRS00667/HRS_00667-030.asp. Failure to file timely generally bars recovery.
6. Verify Priority and Subordination Agreements
Priority of liens generally follows the rule “first in time, first in right.” Exceptions include:
- Purchase-money mortgages (HRS §667-8)
- Tax liens with super-priority
- Intercreditor or subordination agreements
7. Consult Public and Private Resources
Consider ordering a professional title report from a licensed title company to uncover obscure or unrecorded claims.
Helpful Hints
- Use Hawaii’s online Bureau of Conveyances search for free preliminary checks.
- Check the Judiciary’s eCourt Kokua service for judgment and bankruptcy records.
- Review county tax office websites for outstanding property taxes.
- Confirm any mortgage subordination agreements in writing before the sale.
- Keep detailed timelines of recording dates to establish priority.
- When in doubt, consult a real estate attorney to avoid missing deadlines or hidden liens.