Maui Bank Owned Property Update

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We continue to see a steady supply of bank owned or REO listings coming on the market in Maui. There are some good values in this segment of the market, but these properties require significant due diligence and inspection. Title issues, liens, back association dues, physical neglect and /or other structural damages may accompany these properties. It helps to have a Realtor who can assist you in identifying the resources that will help you make an informed purchase.

While Maui has not seen the levels of REO listings as some of the worst off mainland markets, the impact of foreclosures has become a little more pronounced in the last six months. There are some segments of the Maui market that have been hit worse than others. The entry level condo market is one area where foreclosures have been hit particularly hard. These condos were hit by a perfect storm of rapid appreciation towards the end of the peak market, sub prime financing and financial hardships from the downturn in the local economy. The volume of foreclosures in some of these complexes is starting to have an impact on the associations for a number of entry level condos. Condo owners are missing association payments just as they are missing mortgage payments. This is leading to deficiencies in operating budgets and reserves.

Those who are shopping for condos in this segment may be impacted in a couple of ways. It is getting harder to obtain mortgages for some condos. Banks have thresholds where they will not lend if a certain percentage of condo owners are deficient on their association dues. We are also seeing an impact as condo associations are forced to raise dues to make up for budget short falls.

There are two steps buyers can protect themselves from these issues. Now more than ever, it pays to get prequalified with a mortgage professional before hopping in a car to look at properties. Let your potential lender know where you may be looking and they can help advise you of complexes where loans may not be feasible. Increases in association dues should be foreclosed by sellers. If no increases have been announced, buyers can look for the potential for future increases by taking the time to thoroughly review the condo docs that come with an accepted purchase contract. Review recent meeting minutes to see if budget issues have been discussed. Look at the condo’s reserve fees as a means to determine if there is the potential for special assessments. While most condos on Maui are on solid financial footing, it makes sense to be thorough when reviewing condo docs.

With a steady flow of REO properties still coming on the market, many ask when will we start to see a decrease in distressed properties. That is a tough question to answer. That being said, today I read some of the better news I have seen on foreclosures in some time. While existing loan modification programs have had limited success in stemming the supply of troubled inventory, I am hoping a new program from Bank of America may have a more substantial impact. Today, B of A announced they would be starting a principal adjustment program for distressed home owners. This new offering could mean principal reductions of up to 30% for delinquent home owners in hard hit markets. The Bank is offering the program due to an agreement with attorneys general from a number of states. It is hoped that similar programs may be adopted by other banks over the next few months. It will be interesting to see the effect of this program and whether other lenders follow suit.

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