Hawaii: How to Refinance and Buy Out a Co-Owner — Process, Steps, and Checklist

Detailed Answer

This answer explains the typical process when one co-owner of real property wants to refinance in order to buy out the other owner under Hawaii law. It assumes a residential or investment property owned by two or more people and a goal of replacing the current loan with a new loan in one owner’s name so that owner pays the other owner for their interest. This is educational information only and not legal advice.

Step 1 — Confirm ownership, liens, and title status

Start by obtaining a current title report or performing a title search through the Hawaii Bureau of Conveyances or a title company (many searches are done through the Bureau’s online services). Confirm:

• Who is on title (names on the deed and how they hold title — joint tenants, tenants in common, etc.).
• Whether there is an existing mortgage and its payoff balance.
• Any other liens, judgments, or recorded interests.

Step 2 — Agree on the buyout price and structure

The co-owners must negotiate the buyout amount. Common approaches include:

• Using a market appraisal to set price and adjusting for outstanding mortgage and closing costs.
• Paying the selling co-owner cash at closing (typical when the refinancing borrower increases loan proceeds to cover the buyout).
• Seller financing, where the selling co-owner accepts a promissory note from the buyer instead of cash.
• Structured payments or a combination of cash and seller-held note.

Step 3 — Determine whether the refinance can cover the buyout

If the refinancing owner plans to use the refinance proceeds to buy out the co-owner, the new lender will underwrite the new loan based on the refinancing borrower’s credit, income, debt-to-income ratio, and the property’s appraised value. Key practical requirements:

• The new loan amount must be large enough to pay off the existing mortgage(s) and provide the buyout cash (plus closing costs and reserves the lender may require).
• Lenders typically require clear title and may insist the co-owner being bought out either sign a release, execute a quitclaim deed transferring title, or be otherwise removed from the title prior to or at closing.
• If the co-owner’s name remains on title after closing, many lenders will not approve the refinance unless the lender is satisfied the title and mortgage structure meet underwriting rules (this varies by lender and loan program).

Step 4 — Appraisal, underwriting, and mortgage approval

The lender will order an appraisal and complete underwriting. Expect requests for pay stubs, tax returns, bank statements, and documentation of the agreed buyout (purchase agreement, settlement statement, or payoff instructions). If the appraisal supports the refinance amount and the borrower qualifies, the lender will issue a loan commitment.

Step 5 — Prepare closing documents and clear title

At closing you will typically see these events:

• Old mortgage is paid off with refinance proceeds.
• Buyout payment is made to the selling co-owner according to the agreement (cash, check, wire, or payoff of an intercompany debt).
• If the selling co-owner is transferring full ownership, a deed (often a quitclaim or warranty deed) is executed and recorded to remove their ownership interest.
• The new mortgage is recorded against the property in the name of the refinancing borrower.
• Title insurer issues a new owner’s policy and lender’s policy if applicable.

Step 6 — Post-closing actions

• Confirm the prior mortgage satisfaction is recorded and that the co-owner’s deed transfer recorded as expected.
• Keep copies of the closing statement, deed, recorded mortgage, and satisfaction documents in a safe place.

If refinance is not possible: alternatives and remedies

If the person seeking to buy out cannot qualify for a refinance large enough to cover the buyout, common alternatives include:

• Seller financing: the selling co-owner accepts a note secured by the property.
• Partial transfer with co-signed loan: both owners refinance together, then the non-buying owner transfers later (risky for the buyer).
• Partition action to force sale: if co-owners cannot agree, Hawaii law allows a co-owner to ask a court to partition or force sale. See Hawaii’s partition statute: HRS §507‑1 et seq.

Costs, taxes, and other considerations

Consider:

• Closing costs for the refinance (origination fees, appraisal, title insurance, recording fees).
• Possible conveyance or documentary taxes — consult a title company or tax advisor about Hawaii transfer or conveyance charges that may apply to transfers of real property.
• Capital gains or other tax consequences for the selling co-owner — consult a tax professional.
• Whether a homestead or creditor claim affects the ability to transfer the interest.

When to get an attorney

Consult a Hawaii real property attorney when:

• Ownership or title is unclear.
• There are liens, judgments, or creditor claims against the property.
• Co-owners disagree on price or terms and you want a buy-sell agreement or a partition lawsuit may be necessary.
• There are tax or estate planning consequences you need to address.

Helpful Hints

• Get a current market appraisal early so you and the other owner use a neutral valuation when negotiating the buyout amount.
• Obtain a preliminary title report to identify any surprises (liens, easements, judgments) that could block refinancing or transfer.
• Talk to multiple lenders about loan limits and underwriting rules — different lenders and loan programs (FHA, VA, conventional) have different rules about removing co-owners and loan amounts.
• Document the buyout with a written agreement that covers price, payment method, and timing — don’t rely on oral promises.
• Use a licensed title company or attorney to handle the closing and recording to ensure lien satisfaction and deed recording happen correctly.
• If you can’t refinance, consider seller financing with a clear promissory note and security instrument drafted by counsel.
• If negotiations break down, remember Hawaii law provides a court remedy: partition or sale under HRS chapter 507 (HRS §507‑1 et seq.).

Disclaimer: This information explains general principles under Hawaii law and is for educational purposes only. It is not legal advice. For advice about your specific situation, consult a licensed Hawaii attorney.