76-6247 Kupuna St. - An 'error' with the bank's credit bid, a tied-up insurance payment, and a burned-out house with squatters!

As you know, I love these interesting ones with their twists and turns.  On 10-14-23 I posted the foreclosure notice for 76-6247 Kupuna St., and you may have noticed that on 12-19-23 I posted it again with a new auction date.  

This is a really unique one!  The home is a burned-out mess with squatters.  There are cars and trucks everywhere and people coming and going all the time.  It's so scary that I didn't even want to get out of the car to take a picture.  These photos and video are from a quick drive by!  

Kupuna is one of the main drags to get from the highway down to Alii Dr. so I'm on that road often and was very familiar with this house.  Because of the burned out condition and all the squatters, I was absolutely not interested in pursuing this at auction so I didn't do my usual research on it.  I had no idea what was owed.  However, I was curious, so on November 16th, I attended the auction.  I had expected there would be many bidders, but only 3 third-party bidders and the bank showed up.   There was another agent there representing a buyer client and she and I got to talking.  She told me only $18k was owed!  What?!  I rushed over to the commissioner and asked to see the Findings of Fact and Conclusion of Law.  Sure enough, the bank was owed $495,633.67 but was holding an escrow account of insurance money from the fire worth $486,842.01 so their net amount owed was only $18,061.23.  I was kicking myself for not doing the research sooner and was trying to remind myself that even at $18k, I didn't want to take on this burned out mess of a home with squatters in it, but the deal was sure enticing!!  

However, when the bidding started, the bank shocked everyone by bidding way up in the $400s.  None of the third party bidders outbid the bank, and the commissioner closed the auction.  While the other agent was squawking about how crazy it was that the bank would bid so high when they were only owed $18k, I quietly asked the commissioner how the bank was able to credit bid that much.  If they are only owed $18k, that is the amount of their "credit", which is their 10% that everyone else has to bring in a cashier's check.  If the bank's credit was only $18k, their max bid would be $180k.  They bid well over that.  The commissioner looked flustered and said it was for the court to decide, but I think he realized he should not have accepted the bank's bid.  I emailed him later that day to ask to be informed of when court confirmation was - since I wanted to hear if they would get away with their bid - and he responded that the bank messed up their bid and it would likely be reauctioned.  

So the court scolded both the bank and the commissioner and it has been re-advertised for auction.  I still haven't pulled a preliminary title report because I'm still not interested in this property at any price, but the 2nd auction could be very interesting.  The bank could still bid well over $180k if they send their representative with a cashier's check for the difference of their 10%.  I wonder if the insurance funds in the escrow account remain in limbo if a 3rd party bidder takes the property.  It seems there is a 2nd mortgage and it is possible the insurance funds cannot be touched because they are also tied to the 2nd mortgage?  If those funds were easily releasable to the lender, you would think they would just write off the additional $18k and be done rather than potentially take on this nightmare property, so I don't think it is that simple.  I suspect those insurance funds will be tied up in litigation well after this foreclosure is complete.  This will be a fun one to watch, but definitely one to stay far away from.