The foreclosure mess spreading through Hawaii’s housing market is hitting condo projects especially hard, contributing to depressed property values and forcing many associations to raise monthly maintenance fees.

Some foreclosed condos are selling for $1 at auction—less than the price of a Costco hot dog and soda.

"It’s like being in a madhouse, and things are happening and you don’t know why," said attorney John Morris, whose law firm represents dozens of condo associations, including some that have purchased units in their projects for $1 at so-called nonjudicial foreclosure auctions.

Although residential foreclosures represent only a fraction of Hawaii’s overall condo inventory, their numbers are growing and the fallout is causing major budget problems for many projects already facing steep increases in maintenance, utility, insurance and other bills, according to real estate professionals and condo owners.

"I’ve never seen it this bad," said Hawaii First Inc. President Richard Emery, who has been managing isle condo properties for more than 20 years. His company oversees nearly 200 projects statewide.

The foreclosure crisis is especially worrisome, real estate officials say, because Hawaii has the highest concentration of homes in condo and community associations of any state in the country. Roughly 30 percent of Hawaii’s housing stock is in such associations, according to state and federal data.

While no one compiles reliable condo foreclosure statistics, anecdotal evidence suggests the problem is widespread, affecting low-end and upscale properties, especially those with a high percentage of investor-owners.

RealtyTrac, a real estate research firm, last week reported that home foreclosures in Honolulu jumped 72 percent in the first half of the year, compared with the same period a year earlier. It didn’t break out condo statistics. Honolulu’s rate of one foreclosure for every 121 homes was the 112th highest ratio of 204 cities surveyed.

Adding to the growing foreclosure problem are financially strapped condo owners who have mounting delinquent maintenance fees but are not yet in foreclosure.

Many projects are seeing a surge in such delinquencies, even though the associations have the authority to foreclose on homeowners because of unpaid fees. Sometimes just starting the foreclosure process is enough to get homeowners to work out a resolution.

Attorneys and property managers who represent condo associations say most projects are struggling to find ways to offset foreclosure-related budget shortfalls, deferring maintenance, raiding reserve accounts or increasing monthly fees, essentially making the paying homeowners pay more.

"If all owners don’t contribute their share, then their neighbors are left holding the bag," said attorney Bryson Chow, whose firm is handling about a dozen recently advertised nonjudicial auctions for the 400-unit Palm Court in Ewa Beach.

Some projects have raised fees by double-digit percentages or are planning to do so in the next budget cycle. When fees are increased, more homeowners tend to fall behind because of the higher payments, putting additional pressure on condo boards to raise fees again. That can trigger a snowball effect.

"Foreclosures are the No. 1 issue," said attorney Chris Goodwin, who represents 88 condo associations, half of which have raised fees—some as much as 30 percent—because of the delinquency problem. "At 90 percent of our projects, that will be the only issue discussed."

At one Maui beachfront project, which has a lot of mainland investor-owners, roughly 25 percent of the units are in foreclosure, according to Emery, the Hawaii First president. The foreclosure problem has been a factor in home prices there falling about 50 percent since 2008, he added.

Emery, like others who talked to the newspaper, didn’t want to identify their projects facing foreclosure problems, partly out of concern that the unflattering publicity might exacerbate the situation.

Many of the mainland investor-owners in the Maui project walked away from their units because the homes were "under water," a term used when a property is worth less than what is owed on the mortgage.

The majority of condo units statewide that went into foreclosure over the past year likely were under water, real estate professionals say.

To help offset the Maui project’s budget shortfall, the association approved a special assessment, adding $200 to the homeowners’ monthly fee of about $700, Emery said. Because of the property’s continuing financial predicament, bankruptcy is being discussed as a potential option, he added.

"You just can’t keep raising fees," Emery said.

The foreclosure crisis in Hawaii’s condo world has hit especially hard because of the timing. Many projects, built in the late 1960s or 1970s, are at an age when major renovations, such as costly structural repairs, are needed. Yet just when the money is needed to do the work, more homeowners are not paying their bills, the condo groups say.

Although some owners say Hawaii’s nonjudicial process is unfair because homes can be sold relatively quickly without adequate due process, condo associations generally have a different take.

From their perspective, the foreclosures can’t happen quick enough.

While some nonjudicial cases can be completed within 90 days, others last months, with each delay adding to the delinquency tab, according to condo groups. Some cases aren’t resolved for a year or two.

"When it drags out, we get hurt," said attorney Jane Sugimura, president of the Hawaii Council of Associations of Apartment Owners. Like other association representatives, Sugimura would like to see the nonjudicial process happen quicker.

A state task force is examining the process to recommend to the Legislature whether changes are needed.

Condo associations in Hawaii were given the authority in the late 1990s to use the nonjudicial process, which occurs without court oversight. But they didn’t start aggressively using it until the last few years.

Some condo attorneys, such as Pamela Schell, prefer to do judicial foreclosures, even though they take longer and cost more.

"We like the court oversight," Schell said. "The court is going to make sure everything is fair."

For some associations, though, nonjudicial is the only way to go. One reason is price.

In a phenomenon unique to this downturn, associations have purchased foreclosed units for $1, according to attorney Morris.

In a judicial process, the court likely would not agree that $1 represents fair market value, Morris and others said.

When condo groups foreclose on units that are under water, no one other than the association typically will bid at the auction because of the negative equity of the homes.

In a nonjudicial process, the association usually bids $1 to get ownership and, after making repairs, rents the foreclosed condo to a short-term tenant. Until the lender initiates its own foreclosure action to take back the home, the association is able to generate revenue from a property that otherwise would be a financial drain.

But because the association may be unable to recoup its costs before the lender claims the property, purchasing a unit for even $1 is a gamble, Morris said. "It’s like rolling the dice in Las Vegas," he said.

Property appraisers say one or two $1 sales in a given project wouldn’t affect property values. But if enough happened to establish a trend, values likely would suffer, they said.

While other attorneys who do nonjudicial cases say condo associations usually benefit when they purchase foreclosed units, Morris is more skeptical.

"Most of the time it ends in disaster," he said. "The best we can do is minimize the screwing."