Understanding The Unique Hawaii Closing Timelines

Understanding The Unique Hawaii Closing Timelines

by Jay Miller

In the State of Hawaii, there is a lot of confusion surrounding the “closing date” for a real estate purchase transaction. The official closing date is more technically known as the settlement date/recording date in Hawaii and does not occur until the date the transaction records with the State of Hawaii Bureau of Conveyances, 2 business days after all loan proceeds (if applicable) and home buyer closing funds have been deposited and cleared with the escrow company handling the transaction.

This leads to a lot of misunderstandings between home buyers, realtors, escrow companies, and mortgage lenders (especially those that primarily do business on the mainland). In almost all other US States, the official closing/settlement typically happens the same day the loan proceeds are funded into escrow. As a result, many lenders use the terms “closing” and “funding” synonymously which leads to a bit of confusion when the transaction is taking place in Hawaii where the actual closing date is 2 full business days after the loan funding date. Why is Hawaii unique in this regard?

The reason for the 2 business day closing difference is Hawaii’s “Good Funds” Law. Escrow companies in Hawaii are prohibited from disbursing funds deposited into escrow “until final settlement of the item (good funds) has been received by the financial institution to which the term (deposit) has been submitted for collection.” (HRS §449-16). The Hawaii Association of Realtors standard form purchase contract provides that “closing shall be the date when all appropriate conveyance documents are recorded” at the State Bureau of Conveyances. If the closing date falls on the weekend, State or Federal holiday, or any other day that the State Bureau of Conveyances is closed, “closing will be on the next day when documents can be recorded.”

What this all means for you is that ALL funds necessary to close the transaction, including your closing funds (cash to close) and loan proceeds, must be received and verified as “good funds” by escrow 2 business days prior to recordation of the documents at the State of Hawaii Bureau of Conveyances. Good funds simply mean that the funds held at escrow are immediately available for withdrawal and disbursement. This explains why escrow companies in Hawaii will require home buyer closing funds in the form of a Fed funds wire or cashier’s check drawn on a local Hawaii Bank. A personal check, electronic (EFT) transfer or bank/cashier’s check drawn on a mainland bank can take up to 7 business days to clear and become “good funds”.

Here are some typical closing timeline examples (assuming there are no holidays, weekend days, or days the Bureau of Conveyances are closed between funding and recording).

• If the closing date per the purchase contract falls on a Friday, then all closing funds and lender loan proceeds, if applicable, must be received and verified in escrow no later than Wednesday. Most lenders will need 24-48 hours to review signed loan closing documents and order the Fed funds wire of loan proceeds to escrow. Typically, the signing of all closing documents will occur on Monday or Tuesday at the latest for a closing on Friday.
• If the closing date per the purchase contract falls on a Wednesday, then all closing funds and lender loan proceeds, if applicable, must be received and verified in escrow no later than Monday. Most lenders will need the buyer(s) to sign all closing documents on Thursday or Friday of the previous week to make the closing date of Wednesday.
• If the closing date per the purchase contract falls on a Tuesday, then all closing funds and lender loan proceeds, if applicable must be received and verified in escrow no later than Friday of the previous week. Most lenders will need the buyer(s) to sign all closing documents by Wednesday or Thursday of the previous week to make the closing date of Tuesday.

Keep in mind that you as the home buyer start paying interest on your loan the date your lender funds your loan proceeds to escrow. This is also the date your homeowners and hurricane insurance policy, if applicable, must be in effect, not the actual closing date 2 business days later when you get the keys to your new home.

Since home buyers start paying interest on the day of loan funding, the majority of purchase closings happen in Hawaii on Wednesdays, Thursdays, and Fridays so that you, as the home buyer are only paying 2 days of interest in advanced of taking ownership of your new home. If your closing date is on a Monday or Tuesday, then you are paying 4 days of interest upfront (the 2 business days for good funds, plus Saturday and Sunday), as funding occurs on Thursdays for a Monday closing and Fridays for a Tuesday closing.

Additionally, Hawaii is as much as 6 hours behind Eastern Standard Time (5 hours behind during non-Daylight Savings Time as Hawaii does not change time during the year), the window for lenders to order Fed funds wires usually closes at around 10:30am. This is primarily why signing of the closing documents typically occurs 1-2 days prior to loan funding. The only way to sign and have loan funds sent to escrow the same day is to sign all closing documents early enough in the morning for the lender to receive the fully executed and notarized documents and order the wire prior to the 10:30am cutoff time.

Most real estate agents and good lenders in Hawaii will explain all these closing timelines to you as the home buyer so that you completely understand what is expected for signing, funding, and recording (official closing) dates. If you choose to work with a mainland lender for your Hawaii purchase, you will need to explain this to your lender in such a way that they completely understand your closing timelines to prevent a delay in your purchase closing.

Remember, for the mortgage lender, the “closing” date is the day they fund loan proceeds to escrow. In Hawaii, the “closing date”, the day you receive the keys to your new home and become the official owner, is actually 2 business days later. It is in your best interest to ensure your lender completely understands this so you can both plan your loan approval, closing document signing and loan funding according to Hawaii’s required closing timeline.

Jay Miller

Compass Home Loans LLC

Phone: (808) 429-0811

Email: jaym@compasshawaii.com