Somewhere in the bowels of the Kalanimoku Building behind Honolulu Hale is a massive state government paperwork jam for certifying ownership of real estate in Hawaii.
About 180,000 property title certificates are caught up in processing, with the oldest cases stretching back six years, according to the state Department of Land and Natural Resources.
The backlog has mushroomed from what was a three-year lag in 2012 and a one-year delay in 2006 — despite complaints and efforts to resolve the issue over more than a decade.
Recently, state officials said they’re getting a handle on the problem, which they note does not delay the sale or transfer of property, but does bog down workers at DLNR’s Bureau of Conveyances while inconveniencing customers wanting timely title certificates.
Under a $1.3 million contract announced in August, a company will install a records management system with optical character recognition technology to improve bureau work.
“With the (optical character recognition) capability, this system will provide faster and more accurate inputs as well as more work-flow flexibility to help prevent errors,” Les Kobata, the bureau’s registrar, said in a statement. “This will be particularly effective in providing accuracy and expediency in finalizing Land Court certificates of title.”
The system from Minnesota- based West Central Indexing is expected to be ready in October 2020.
DLNR also said the Bureau of Conveyances is restructuring staff, has been digitizing documents, will upgrade its main database and is exploring ways to modernize Hawaii law governing real estate ownership as part of a broader effort to eliminate the chronic title certificate delay.
Some observers have long questioned the need and benefit for the state to issue title certificates, which give property owners a government-backed assurance of ownership often on top of real estate industry title insurance serving a similar purpose.
In Hawaii there are two systems for recording ownership of real property through the bureau, and some properties are recorded in both systems.
The more popular system, which the state refers to as its “regular” or “abstract” system, was adopted from English common law and is simply a repository where people can file documents that are kept on record. In this system, recording a deed doesn’t prove ownership, though most real estate transactions involve title companies that give buyers insurance guaranteeing their purchase.
About 60% to 65% of real estate transactions in Hawaii use the regular system, according to DLNR.
The other 35% to 40% use the “Land Court” or “Torrens” system established by Australian government official Robert Torrens and adopted in Hawaii in 1903.
Hawaii’s Land Court system serves as a public- records database like the regular system but also involves bureau staff validating every document. Upon full verification, which can involve time-consuming research, the bureau issues a certificate of title that provides a conclusion of ownership by the state.
In both systems a transfer of ownership is recognized when documents are accepted and recorded at the bureau. The backlog means new owners of Land Court property face a six-year wait to receive their title certificates.
Legacy of Land Court
Hawaii’s Land Court system was viewed as a useful tool to settle property ownership claims after the Great Mahele in 1848, in which the Hawaiian system of landownership shifted to a Western model. Property in Land Court also isn’t subject to adverse possession, in which someone may claim ownership by occupying land for a long time without objection from the owner.
In recent decades, however, some have questioned the merit of Land Court since property buyers have had access to title insurance in Hawaii since 1957 and the volume of title certificate processing has grown dramatically since condominium development was permitted in the state in 1961. Proliferation of timeshare projects has also contributed to the backlog in more recent years.
Traditionally, if a property was previously recorded in Land Court, then subsequent transactions pass through the same system. As such, owners of such property must comply with Land Court requirements that include presenting evidence of any changes relating to the property, including mortgage holders, easements and the marital status of an owner.
Past critics of Land Court have included Ben Cayetano, who as governor in 1996 proposed phasing out the system. Local estate planning attorney Ethan Okura describes Land Court as a less advantageous and more costly system on his firm’s website.
Officials with Title Guaranty of Hawaii Inc. and First American Title Co., which work with the bureau to execute property sales and transfers, declined to comment on the backlog.
Jeremy Yohe, a spokesman for the Washington, D.C.-based American Land Title Association, said not many U.S. jurisdictions still use versions of the Torrens system.
Problems with Hawaii’s Land Court system raised public concerns in 2006 as the Bureau of Conveyances’ then registrar, Carl Watanabe, was on indefinite leave amid a one-year backlog of title certificate processing.
At that time the bureau was being affected by a real estate market boom that boosted the volume of Land Court documents to 163,907 in 2005 from 85,966 in 2001.
“We may have a challenge now, but we’re on it,” Robert Masuda, a DLNR deputy director, was quoted in a Honolulu Advertiser story that year.
Efforts to improve the system in 2007 included upgrading technology, forming an industry working group and retaining a mediator to facilitate communication between Watanabe and other key bureau personnel.
In 2008, Nicki Ann Thompson replaced Watanabe.
DLNR backed a bill at the Legislature in 2009 to require that timeshare transactions be processed only in the regular system, that the bureau accept electronic documents and that property owners be allowed to withdraw their property from Land Court.
Some 36 bureau employees opposed the measure in written testimony, with some claiming that mismanagement was responsible for the backlog and that the state would lose $500,000 to $1 million in recording fees by passing the bill.
“Land Court is a viable and reliable system for recording,” the group of employees said in written testimony. “To allow landowners the option to remove their land from this system will further the erosion of the state’s ability to guarantee title.”
The Hawaii Government Employees Association also opposed the bill, which it said would not alleviate the backlog.
Lawmakers passed the bill, with the option for properties to be withdrawn from Land Court taking effect in 2011 and the timeshare provision taking effect in 2012.
Yet today the backlog is bigger.
DLNR said de-registering property from Land Court contributed to the current backlog along with past staffing issues and aftereffects of the subprime mortgage meltdown and foreclosure spike, in which companies that are no longer in business submitted flawed mortgage note transfer documents.
“The Land Court system requires the integrity and continuity of this chain of title, so finding the proper legal parties and process that could correct these missing chains was research-intensive, cumbersome and very time- consuming,” Kobata said in a statement.
Kobata, who became registrar in 2016 after serving as deputy registrar since 2011, said some staff realignment is proposed to help address the backlog. The bureau has 57 positions, of which seven are vacant, and jobs are divided roughly in half between the regular system and Land Court.
Under the proposed change, two workers would be dedicated to backlogged Land Court title certificates. Kobata said a bigger shift would be detrimental to the bureau’s overall work and that filling every position is difficult because of specialized skill and experience requirements.
DLNR also said officials are exploring ways to update what it called outdated procedures and requirements in Hawaii’s Land Court law to simplify title certificate work.
”The Bureau of Conveyances continues to keep its focus on (the) backlog issue and will work the plan diligently that it has laid out,” DLNR said in a statement.