Tax Lien Sales in Hawaii: How They Work, Risks, Title Insurance Issues, and When They Still Make Sense
Buying property through a tax lien sale in Hawaii can sound like a shortcut to acquiring real estate at a deep discount. Investors often hear stories about purchasing land for unpaid property taxes and ending up with property worth far more than the tax debt.
However, the reality of Hawaii tax lien and tax deed sales is more nuanced. While opportunities do exist, buyers need to understand the redemption period (buyback period), interest repayment rules, title insurance challenges, and legal risks before participating.
As a real estate professional working across the Big Island of Hawaii, particularly in Hilo, Honokaʻa, Waimea, and the Kohala areas, I often get questions from buyers and investors about how Hawaii’s tax sale system works. This article explains the basics, highlights the risks, and discusses situations where these purchases can still make sense.
How Tax Lien Sales Work in Hawaii
When property owners fail to pay county property taxes, the county government can place a tax lien against the property. If those taxes remain unpaid long enough, the county may eventually conduct a tax sale to recover the delinquent taxes.
In general, the process looks like this:
Property taxes become delinquent
The county places a tax lien on the property
The county schedules a public tax sale or auction
Investors bid to pay the outstanding taxes and associated costs
The buyer typically pays the delinquent taxes, penalties, interest, and administrative costs owed to the county.
However, purchasing a tax lien or tax-sale property does not automatically mean you own the property outright.
The Buyback (Redemption) Period in Hawaii
One of the most important concepts in Hawaii tax sales is the redemption period, sometimes called the buyback period.
In many Hawaii tax sale situations, the previous property owner still has up to one year to redeem the property after the tax sale occurs.
During this redemption period, the owner can reclaim the property by paying:
The delinquent taxes
Administrative costs and penalties
Interest owed to the tax lien buyer
This means that even after winning a tax lien at auction, the previous owner can still reclaim the property by paying back the amount owed.
For many investors, tax lien purchases function more like secured investments earning interest, rather than guaranteed property acquisitions.
Interest Paid Back to the Tax Lien Buyer
If the original property owner redeems the property during the redemption period, they must reimburse the tax lien purchaser.
This typically includes:
The amount paid at the tax sale
Interest determined by the county or auction terms
Administrative fees
In these situations, the tax lien buyer receives a return on their investment but does not take ownership of the property.
Why Title Insurance Is Often Unavailable for Tax Sale Properties
One of the biggest surprises for many investors is that title insurance companies frequently refuse to insure properties acquired through tax sales in Hawaii.
Title insurance protects buyers and lenders against issues like:
Ownership disputes
Recording errors
Undiscovered liens
Legal claims against the property
Without title insurance, it can be significantly harder to sell the property later or obtain financing.
The Notification Problem That Creates Title Risk
The biggest reason title insurance companies hesitate to insure tax sale properties involves proof that the previous owner was properly notified.
Before a property can legally be sold at a tax sale, the county must notify the property owner about:
The delinquent property taxes
The pending enforcement action
The scheduled tax sale
This notification is usually sent by certified mail.
However, in many cases:
The certified mail is never signed for, or
The letter is returned unclaimed, or
There is no clear evidence the owner actually received it
Because of this, there may be no definitive proof that the owner received notice.
If the previous owner later claims they were not properly notified, they may attempt to challenge the validity of the tax sale in court.
Because of this potential legal risk, many title companies choose not to issue title insurance policies on tax-sale properties unless additional legal steps are taken.
Additional Risks of Buying Property Through Hawaii Tax Sales
Existing Liens May Survive
Some liens may still attach to the property even after a tax sale, such as:
Federal tax liens
Certain court judgments
HOA liens or association claims
Without title insurance, determining what remains attached to the property can be difficult.
Property Condition Is Often Unknown
Most tax sale properties are purchased without inspections.
Buyers usually cannot:
Access the property
Inspect structures
Confirm whether someone is living there
The property may have structural damage, illegal construction, or occupants still on site.
Quiet Title Actions May Be Required
In some cases, buyers must file a quiet title lawsuit to establish clear ownership.
A quiet title action attempts to resolve competing ownership claims through the court system.
This process can:
Take months or years
Cost several thousand dollars in legal fees
Still not guarantee insurable title
There Are Still Situations Where Tax Sale Properties Make Sense
Despite the risks, tax sale properties can still serve practical purposes, particularly when the purchase price is very low.
Many tax-sale properties sell for significantly less than market value, which means the financial risk can sometimes be limited.
These types of properties can make sense if you plan to use them for purposes such as:
Agricultural use
Buffer land next to your existing property
Long-term speculative land holding
Access or expansion of neighboring land
If you are not planning to invest large amounts of money into improvements right away, the risk profile can be more manageable.
In reality, the chances of a former owner actually returning years later to challenge the tax sale are relatively low, though it is still a legal possibility investors should understand before purchasing.
A Real Example: A Hidden Lien That Almost Disrupted a Sale
I recently worked with a client who had previously purchased a property through a tax lien sale and later decided to sell it.
As part of the transaction, we ordered what is called a Property Status Report (PSR). This report is commonly used in Hawaii to identify liens, encumbrances, and other title-related issues before closing.
During the report review, we discovered there was a child support lien from a previous owner still attached to the property.
This nearly disrupted the sale.
Fortunately, the current owners—who had purchased the property through the tax sale—had paid more for the property than the amount owed in delinquent taxes.
Because of that excess payment, the county was able to apply the surplus funds to satisfy the child support lien, which ultimately allowed the transaction to proceed.
Situations like this illustrate why due diligence and professional guidance are critical when buying or selling tax sale properties.
Final Thoughts on Hawaii Tax Lien Sales
Tax lien sales in Hawaii can present unique investment opportunities, but they come with real legal and financial risks that buyers should understand before participating.
The key points to remember are:
Previous owners may still redeem the property during the redemption period
Buyers may receive interest repayment rather than ownership
Title insurance is often unavailable due to notification uncertainties
Additional legal steps such as quiet title actions may be required
However, when purchased strategically and used appropriately—especially for agricultural land, buffer parcels, or long-term land holds—tax sale properties can still represent affordable entry points into Hawaii real estate.
Questions About Buying or Selling Property on the Big Island?
If you are considering tax sale properties, vacant land investments, or traditional real estate purchases on the Big Island, having local expertise can help you avoid costly surprises.
I work with buyers and sellers across Hilo, Honokaʻa, Waimea, and the Kohala Coast, helping clients navigate everything from vacant land purchases to complex title situations.
If you have questions about tax lien sales in Hawaii, land investments, or selling property on the Big Island, feel free to reach out.
