Two Systems, One Loan – Avoiding Pitfalls in Hawaii Real Estate Lending

By Lindsay D. Dragon, Esq.

Hawaii is one of the few jurisdictions that maintains a dual system for recording real property interests: the Land Court (or “Torrens”) system and the Regular (or “Abstract”) system. For lenders, understanding the distinction is more than academic, it directly impacts lien priority, enforceability, and underwriting risk.

The Land Court system, governed by Hawaii Revised Statutes Chapter 501, is based on the Torrens system of registration. Unlike traditional recording systems, Land Court property is “registered” through a judicial process, and ownership is evidenced by a Transfer Certificate of Title (“TCT”) issued by the State. For lenders, the key benefit is certainty: the TCT is considered conclusive as to ownership and encumbrances, and interests not noted on the certificate are generally ineffective against subsequent purchasers or mortgagees. This principle of indefeasibility reduces the risk of undisclosed liens and simplifies title review. However, that same rigidity creates complex compliance considerations. Any mortgage, assignment, or modification affecting Land Court property must be properly noted on the certificate of title to be enforceable against third parties. A failure to register the lien—even if the document is otherwise valid (or recorded)—can impair priority or render the security interest vulnerable. Accordingly, lenders must ensure that all Land Court requirements are strictly followed, including submission of appropriate documents and coordination with the Land Court for issuance of an updated TCT reflecting the lien.

By contrast, the Regular system, governed by Hawaii Revised Statutes Chapter 502, follows a traditional recording framework. Instruments affecting real property are recorded with the Bureau of Conveyances to provide notice to subsequent parties. While the Regular system offers flexibility and a familiar recording process, unlike Land Court, the State does not guarantee title. Instead, lenders rely on title searches and title insurance to confirm priority and mitigate risk. Because priority is generally determined by the order of recording (subject to notice principles), timely recordation of loan documents is critical.

A common complication for lenders in Hawaii is the existence of “double system” properties—parcels that are registered in Land Court but also have a history of Regular system recordings. In these cases, lenders must ensure that their security interest is both recorded in the Regular system and properly registered in Land Court. Recording in only one system can create gaps in enforceability and expose the lender to priority disputes. From a practical standpoint, lenders should confirm at the outset of any transaction which system governs the property and tailor their closing and post-closing processes accordingly. This includes working closely with title and escrow to ensure that all documents are routed through the correct channels and that evidence of registration (for Land Court property) is obtained and retained.

In summary, Hawaii’s dual recording framework offers lenders a choice between certainty and flexibility, but each system carries distinct risks if not properly navigated, particularly when dealing with double system properties. Given these nuances, lenders should remain proactive in confirming recording requirements and ensuring full compliance at both closing and post-closing.

For additional guidance, the following resources provide helpful overviews and procedural information:

• Hawaii Bureau of Conveyances website: Bureau of Conveyances – State of Hawaii – Overview of recording requirements, forms, and system distinctions
• State of Hawaii Judiciary Land Court website: Judiciary | Land and Tax Appeal Courts – Land Court procedures, FAQs, and guidance on registration
• Hawaii Revised Statutes Chapter 501 – Governing law for Land Court registration
• Hawaii Revised Statutes Chapter 502 – Governing law for the Regular recording system

Disclaimer: The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.