What the New Mortgage Foreclosure Bill Means for Hawaii Homeowners

May 12, 2011, 9:56 PM HST · Updated September 2, 10:36 AM
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Opinion pieces, analyses and letters are intended to provide a diverse range of views from our community. They are not intended to represent the views of Maui Now.

By Lisa Teichner

Governor Neil Abercrombie signed Senate Bill 651 last week, which amends the Hawaii Revised Statutes Chapter 487, Section 667 as of Thursday, May 5, 2011. The bill/new law is lengthy (over 100 pages) and ambiguous, however there are some important points which Hawaii homeowners should be aware of.

Governor Abercrombie Signing Senate Bill 651, photo courtesy of hawaii.gov

The primary or general purpose of this bill was to create guidelines for foreclosing mortgagees, to establish a mediation special fund and require mortgagees (often referred to as lenders or banks) to engage in mediation with mortgagors (often referred to as borrowers) for sixty days, in order to attempt a voluntary resolution of the breach of the mortgage agreement. We have heard that mediations between mortgagees and mortgagors have already begun and that Bank of America among other lenders has scheduled “in person” meetings with borrowers this week in Hawaii.

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IN REGARD TO:

AUCTIONS:

An owner-occupant may elect to participate in the mortgage foreclosure dispute resolution program. “Dispute Resolution” means a facilitated negotiation between a mortgagor and mortgagee for the purpose of reaching an agreement for mortgage loan modification or other agreement in an attempt to avoid foreclosure or to mitigate damages if foreclosure is unavoidable. If an owner-occupant participates in the program, the department shall open a dispute resolution case. This case opening operates as a stay (suspension) of (non-judicial) foreclosure proceedings and may be filed or recorded at land court or bureau of conveyances.

Public sales following power of sale foreclosures must be held on grounds or at a facility under the administration of the State. Also, public sales of mortgaged properties located in Maui, must be held in Maui County. There have been previous cases where public sales for Maui mortgaged properties were held on Oahu, for example.

There is a provision where if an owner owes back Homeowner’s Association dues and would like to cure the default (following the proper steps), the Association shall allow 60 days for the owner  to cure default and cannot reject a “reasonable” payment plan.

JUDGMENTS:

It has been previously assumed that in the case of a nonjudicial foreclosure, the foreclosing lender could not pursue a deficiency judgment against the mortgagor however this Hawaii law finally makes it official by prohibiting it, unless the debt is secured by other collateral or as otherwise provided by law. For example, there have been some cases where a lender has not pursued a judgment for the deficiency but has filed a judgment against the mortgagor for breach of contract. In the case of a judicial foreclosure, all remedies available to a lender may be asserted including the right to seek a deficiency judgment. Under certain circumstances, an owner-occupant of a residential property that is subject to nonjudicial foreclosure may convert the action to a judicial foreclosure. We’re not sure why this was included in the bill or why an owner would choose to convert to judicial from nonjudicial unless it is merely a tactic to buy more time prior to sale/auction.

DELIVERY OF DEED/TRANSFER OF TITLE:

The law prohibits a foreclosing mortgagee to engage in delaying the delivery of the recorded, conformed copy of the conveyance document to a bona fide purchaser who purchases in good faith for more than forty-five days after the completion of the public sale. This has been creating problems for mortgagors in cases where there is a Homeowner’s Association. A public sale would be conducted, the bank “gets the property back” and title would not be transferred for months. Banks were not paying Association dues post-auction and the Homeowner’s Association would attempt to collect dues from whoever is “on title” which in many cases was still the prior owner.

SHORT SALES AND LOAN MODIFICATIONS:

The new law also prohibits:

– A foreclosing mortgagee to engage in completing nonjudicial foreclosure proceedings during short sale escrows with a bona fide purchaser if the short sale offer is at least five per cent greater than the public sale price; provided that escrow is opened within ten days and closed within forty-five days of the public sale; and provided further that a bona fide short sale purchaser shall have priority over any other purchaser;

– Completing nonjudicial foreclosure proceedings during bona fide loan modification negotiations with the mortgagor and;

-Completing nonjudicial foreclosure proceedings against a mortgagor who has been accepted or is being evaluated for consideration for entry into a federal loan modification program before obtaining a certificate or other documentation confirming that the mortgagor is no longer eligible or an active participant of that federal program.

MORATORIUM ON NONJUDICIAL FORECLOSURES

This is a big one so we’re putting the section below in its entirety (per summary):

{SECTION 40.  There shall be a moratorium on all new nonjudicial foreclosure actions under part I of chapter 667, Hawaii Revised Statutes, for property located in this State to begin on the effective date of this Act and to end on July 1, 2012.  No foreclosure by power of sale pursuant to section 667 5, Hawaii Revised Statutes, shall be initiated and the registrar of the bureau of conveyances shall not record an affidavit or notice of sale pursuant to section 667-5, Hawaii Revised Statutes, for a power of sale foreclosure under section 667-5, Hawaii Revised Statutes, initiated during the moratorium period established by this Act.}

There is still some question as to what is considered a “new” foreclosure so you should consult an attorney to be sure but it may be where the mortgagee has not yet issued a Notice of Default (NOD) and Intention to Foreclose prior to the signing of this bill. If you or someone you know has had a property in foreclosure prior to the signing of this bill (May 5, 2011), this may not be considered a new foreclosure and may proceed to sale at public auction as previously scheduled. Per part I of chapter 677, Hawaii Revised Statutes, you may wish to confirm whether this moratorium applies solely to owner-occupied properties.

Please keep in mind that this is a very limited synopsis of what is included in the bill and new law and we have just pulled a few items which may be applicable to our community and important to be aware of. Due to the sheer length of the new law and because there is currently no real indication of how it works in practice, we will have to wait a few more months before attorneys will come out of the woodwork to discuss it in a public forum. We were told that the Hawaii State Bar Association will meet to discuss the document further in July of this year.

A 58 page Summary of the Senate Bill 651 is available at – http://www.capitol.hawaii.gov/session2011/bills/SB651_CD1_.htm

If you have questions about how this information may affect your situation, you may wish to contact one of the attorneys listed below who specialize in real estate law on Maui:

Dave Jorgensen (Takitani, Agaran & Jorgensen) 808-242-4049, [email protected]

David Cain (Cain & Herren) 808-242-6139, [email protected]

James Fosbinder (Ivey, Fosbinder, Fosbinder, LLLC) 808-242-4956, [email protected]

Ryther Barbin (Law Offices of Ry Barbin) 808-242-9702, [email protected]

This article is for informational purposes only and is not legislation, evidence of legislative intent nor is it meant to be construed as legal advice. Please consult a licensed attorney for legal advice.

Lisa Teichner is a Realtor Broker with Maui Green Realty.

 

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