Hawai’i Supreme Court ruling has community groups worried about banks coming after old mortgage debts

In 2015, an O‘ahu resident landed an apartment that the previous owner had stopped making payments on years earlier. 

The apartment association had foreclosed on the unit for unpaid maintenance fees, according to court documents, and the new owner, Gabi Collins, acquired it through a quitclaim deed, a legal document that transfers ownership but doesn’t always guarantee the title is clear of legal issues. 

Two years later, the bank came calling. It wanted to foreclose on Collins’ apartment because the previous owner, Brenda White, hadn’t paid off the mortgage. 

Collins challenged the bank in court, saying the statute of limitations for mortgage foreclosures under state law was six years, and that expired in 2014 because White’s loan had been accelerated in 2008. The bank, also citing state law, said it was 20 years, and the courts agreed. 

The decision, which was upheld by the Hawai‘i Supreme Court in a ruling earlier this month, has the potential to revive old mortgages and impact residents who missed payments years ago, according to a coalition of community groups — about half of whom are from Maui — and a state representative from O‘ahu.

“Giving lenders 20 years to act invites delay and uncertainty,” Maui attorney Lance Collins said. “Families shouldn’t live under a cloud for two decades.”

Lance Collins, who has no relation to Gabi Collins, is an attorney for the 17 community groups and state Rep. Tina Nakada Grandinetti, who filed an amicus brief on Monday asking the court to reconsider its decision.

Already, one Maui resident, Michael Szymanski, had his case against a bank denied five days after Gabi Collins because of the recent ruling, Lance Collins said. 

Szymanski, who entered into a mortgage with Homecomings Financial Network in 2005, stopped making payments in 2008, according to court documents. Over the years, the mortgage was assigned to multiple different companies, until Deutsche Bank filed for foreclosure in 2018 in Maui’s 2nd Circuit Court.  

Szymanski tried to argue that the deadline had passed, but the courts disagreed.

At the heart of the issue is whether a mortgage foreclosure counts as debt recovery or a real property action — the latter has a longer statute of limitations. The courts said it was “more like a real property action.”

The community groups worry there will be more cases like this, saying “the consequences will be felt statewide.” 

“Thousands of Hawai‘i homeowners — many with loans from the 2000s housing boom and foreclosure crisis — could face revived enforcement of mortgages tied to obligations long time-barred,” the groups said in the brief. “These impacts will fall disproportionately on Native Hawaiian, Pacific Islander, and Filipino communities heavily targeted by subprime lending during the last crisis.” 

High-risk mortgages shot up in the early 2000s as lenders started offering them to borrowers who previously would have had a hard time getting them. As demand grew, housing prices went up, and when the bubble eventually burst, prices and demand fell and eventually made it hard for struggling homeowners to sell and pay off their mortgages. 

Lance Collins pointed out that there are a lot of reasons people stop making their payments — for some, especially those who got loans shortly before the Great Recession of 2008 and 2009, they may have lost their jobs or been a victim of a predatory loan and struggled to pay it off. 

Before the Hawai‘i Supreme Court’s recent ruling, if a homeowner got a predatory loan in the early 2000s and ended up unable to pay, but the banks took no action for six years, they would have missed the deadline to foreclose, Lance Collins explained. At that point, he said, “there’s no debt to enforce anymore.”

“People make life choices and changes, and that’s why we have statutes of limitations on debt,” he said. “Because even if it’s valid, if you basically abandon your claim, at some point people have the right to move on with their lives.”

Now, years later, lenders could file a lawsuit foreclosing on the mortgage, forcing homeowners to either pay up their debts or lose their house. Some could stand to make “a windfall” off unpaid mortgages they long wrote off in their books as “bad debt,” Lance Collins said.

After two decades, it may be difficult for homeowners to even find the original paperwork to prove that they received a predatory loan, he said.

He added that the recent ruling is more likely to affect people living in condos because apartment associations have the power to foreclose a unit and recover maintenance fees and other uncovered costs from the resident who stopped paying. 

But, he said, it could also impact a family trying to rebuild a burned-down home if they received a predatory loan in the early 2000s and had unpaid debts. They could find it hard to get a construction loan to rebuild if the bank is coming for an unpaid mortgage 20 years later.   

Autumn Ness, executive director of the Lahaina Community Land Trust that also joined the filing, worries about how banks and lenders will respond because of what she’s seen in the aftermath of the 2023 wildfires. She said even before the ruling, residents have struggled to convince their mortgage servicers to defer their payments, and she’s concerned about what some companies will do now that they have a much longer period to act on old debts. 

“If one mortgage company decides they’re going to go back in the records and they’re going to go after all of these people, we don’t stand a chance,” she said. 

Lahaina’s situation is different from the mortgage meltdown of the early 2000s, she said, but the response of some companies is what concerns her. She said no one is trying to get out of their mortgages; they just need a chance to get back on their feet.

The community groups hope that if the court does agree to hear arguments on the ruling, that they’ll get a chance to participate and discuss how the ruling will impact the community.

Also joining the land trust in the brief are Nā Aikane o Maui; Molokai Community Service Council; De-Occupy Hawaiʻi; Honolulu Tenants Union; Hawaiʻi Filipinos for Truth, Justice and Democracy; Kōkua Council for Senior Citizens of Hawaiʻi; Maui Housing Hui; Maui Medic Healers Hui; Hawaiʻi Alliance for Progressive Action; Share Your Mana; Mutual Aid Lāhui; Maui Tomorrow Foundation; Food Not Bombs Hawaiʻi; Hoʻopae Pono Peace Project; and the West Maui Preservation Association.