How To Purchase Real Estate In Hawaii

For those of you who have never purchased Maui real estate, you should be aware that Hawaii works with escrow and title companies instead of using lawyers for their real estate transactions, just like the mainland East Coast. Of course if a buyer or seller wants their attorney to look at any of the paperwork, they can do so as well.

Escrow Functions

Whether you are purchasing Kihei, Wailea or Makena real estate, the closing process is the same. When presenting a purchase contract, usually the buyer will have decided on an independent escrow company. The functions of the escrow company include the following:

- Holding earnest money deposits
- Passing information and documents back and forth to the buyer and the seller.
- Making sure that all provisions of the contract are complied with.
- Acting on escrow instructions.
- Gathering reports and completing forms.
- Liaison between the title company, attorneys, buyer and seller, real estate broker, agents and all parties involved with the transaction.
- Preparing the closing statement for the buyer and the seller.
- Facilitating the closing and transfer of the property.

Escrow Period and Contract Contingencies

During the escrow period, there are certain contract contingencies that the buyer must meet in order to close. These include conducting a physical inspection of the property, including any mold inspections, obtaining a survey if purchasing a home, reviewing the title and any underlying documents and reports, as well as meeting the loan and appraisal contingencies, if they are obtaining financing.

South Maui home inspection contingencies run anywhere from 7 to 14 days, and financing contingencies run around 30 days. The time periods are negotiable between the buyer and the seller, usually presented as part of the original purchase contract.

There are also seller contingencies that the seller must meet. The most important contingency is the delivery by the seller to the buyer of the seller's disclosure statement about the property condition. The seller must disclose any material facts about the property condition that would affect the buyer's decision to buy the property.

There are also other statutory disclosures and reports that must be delivered by the seller to the buyer such as lead based paint disclosure and natural hazards reports. These reports reference whether the property is located in any fire, flood, earthquake or wind designated areas.

It is up to the buyer, seller and their agents to make sure the contingencies are met. The escrow company also makes sure that the contract contingencies are met, satisfied and released, and that the necessary reports have been generated, received and delivered to the buyer and the seller.

Title Reports

During the escrow period, the escrow company will order the title report from the title company. Typically the seller pays for the owner's title report, and the buyer pays for the lender's policy. It is negotiable and depends on what the parties have agreed to in the original contract. The standard Hawaii real estate purchase contract offers a pre-written script on how costs are devided.

The title company will perform a title search on the property to make sure that the seller has clear title to pass to the buyer. If there are any title issues such as judgments, liens or encumbrances against the property, they must be satisfied prior to the closing. If they are not, the closing will not be able to take place.

The title report contains the following information:
- Address of the property
- Legal description
- Current title owner of the property
- Buyer's name
- List of encumbrances and exceptions such as claims, judgments, liens and restrictions. Amount of real property taxes due and owing. Whether there are any mechanic's liens. Any mortgages the seller may have taken out on the property in which case they must be paid at closing.
- List of easements and encroachments. This would include items such as shared driveways and buildings or fences that are encroaching from the subject property to a neighboring property or vice a versa.

The buyer should review the title report carefully to make sure there are no errors, especially in the legal description or the spelling of their name.

Home Owner Documents or CC&R's

If you are purchasing one of the Maui Condos, you will be given the condo association documents including the condominium CC&R's (conditions, covenants and restrictions). These are the rules and regulations that are in affect for any of the South Maui Condos.

Closing Fees and Documents

The escrow company will prepare a HUD-1 closing statement for the buyer and the seller a few days before closing. The buyer will need to make arrangements with the escrow company to either wire the closing funds or deliver a cashier's check prior to closing.

As of January 1, 2010, the new RESPA (Real Estate Settlement Procedures Act) regulations that were published on November 17, 2008, will be going into effect. Lenders must now provide their borrowers with a standardized Good Faith Estimate form (GFE) that must contain the following:

- Loan term.
- Interest rate and whether it is fixed or variable.
- Whether there is a pre-payment penalty should the borrower choose to refinance at a later date.
- If there is a balloon payment.
- Total closing costs.

The new form will make it easier for borrowers to compare their HUD-1 settlement statement with their GFE because each designated line on the HUD-1 will reference to the identical line from their GFE. Also, borrowers will be able to shop around to compare different loan products quicker and easier with the new GFE.

The escrow company will also prepare all other closing documents that are necessary to be signed by both parties. The escrow company will coordinate the handling and signing of the buyer's loan documents prior to the closing as well, and make arrangements for the lender to wire the balance of the loan proceeds. Once everything is signed, all the funds have been received and the deed is recorded, the closing is complete.

Maui is an island and the state capitol of Honolulu is on Oahu, a different island. Closing and recording may happen within 24 to 48 hours of each other. Records are kept by the Escrow companies but will be recorded in Honolulu.

If off-island lenders or banks are involved, this is important to understand and to be on top of document and money transfers pertaining to your Maui Real Estate purchase. Aloha and congratulations to your purchase in paradise.

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