Foreclosure Reform Bill Passes Final Floor Vote

House Bill 1875 HD2 SD2 CD1, amending the mortgage foreclosure law to provide additional protections for Hawaii’s homeowners, passed its final floor vote before the full House and Senate today with a combined vote of 73 Ayes and 3 Noes.

"Once again, we won one for the homeowners, and I couldn't be more pleased," said Rep. Robert Herkes (District 5 – Puna, Ka'u, South Kona, North Kona) who serves as the Chair of the House Committee on Consumer Protection and Commerce.  "The bill we passed last year had its critics, but our primary focus was always on helping and protecting the homeowner."

Last Session, Governor Abercrombie signed Senate Bill 651 into law as Act 48 to protect Hawaii owner-occupants from predatory tactics of financial lending institutions.

The mortgage foreclosure task force – a legislatively created group composed of stakeholders with diverse interests including consumer advocates and professionals representing and affected by the mortgage industry, did a thorough, comprehensive analysis of Act 48.  Their recommendations to refine Act 48 and to otherwise preserve the intent and spirit of the law were presented in HB1875.

The task force recommended that the legislature:  (1) temper the provision relating to the Unfair Deceptive Acts or Practices (UDAP) law so lenders need not fear UDAP liability for minor violations;  (2) make permanent the process allowing owner-occupants to convert their non-judicial foreclosure to a judicial foreclosure; (3) establish a separate non-judicial foreclosure and lien collection process for associations; (4) give similar rights and obligations to planned community associations; (5) provide specific language for informational notices to the public on the foreclosure process; and (6) provide technical clarifications and improvements of various provisions in Act 48.

The legislature adopted virtually all of the task force recommendations – with a few modifications and further amendments. 

The bill fully repeals the Part I non-judicial process which was the mechanism used to non-judicially foreclose on homeowners before its moratorium under Act 48.

Under HB1875, a comprehensive lien collection and foreclosure process for condominium, homeowner, and planned community associations is established, which is in harmony with Hawaii's mortgage foreclosure process.

The bill also calls for lenders' attorneys filing judicial foreclosures on residential property to sign an affirmation stating that she or he verified the bank's legal standing as well as the accuracy of the documents submitted to court.  This requirement is akin to a court rule that has been applied to all judicial foreclosures in New York State. 

The publication requirements for auction notices will also be revised to encourage competitive pricing while balancing the need for broad dissemination of auction information. 

State agencies will also be authorized to publish auction notices electronically for a significantly lower price than print notices; so long as one print notice (as opposed to three) is published at least two weeks prior to an auction sale.  The DCCA will spearhead this effort by creating a website for property subject to the dispute resolution program. 

House Bill 1875 also makes the dispute resolution program permanent.

HB1875 may be viewed at:

http://www.capitol.hawaii.gov/measure_indiv.aspx?billtype=HB&billnumber=1875

Act 48 - What's it all about?

The following is provided by the Office of Rep. Robert Herkes, Chair, House Committee on Consumer Protection & Commerce

Act 48 (SB 651) – Executive Summary

Act 48 (SB 651) provides comprehensive amendments to Hawaii's foreclosure processes that provide greater protection and fairness for owner-occupants of homes.

The following summarizes the major provisions concerning mortgage foreclosures.

Temporary Mortgage Foreclosure Dispute Resolution Program

· A 3-year Mortgage Foreclosure Dispute Resolution Program will be in operation no later than October 1, 2011, for nonjudicial foreclosures of residential real property occupied by mortgagors who have been owner-occupants for at least 200 days immediately before the initiation of a foreclosure proceeding.

· The purpose of the program is to reach an agreement that avoids foreclosure or mitigates damages in cases where foreclosure is unavoidable. The program is not intended to provide a bail-out for owner-occupants or prevent all foreclosures.

· If an owner-occupant elects to participate in the Program, the foreclosing mortgagee must participate.

· Under the program, the owner-occupant and mortgagee, or their representatives, must meet in at least one dispute resolution session with a neutral.

· Initial funding for the Program will be provided from the Compliance Resolution Special Fund which amounts will be reimbursed from various filing fees. The Program will then be sustained by continuous funding from these filing fees.

· The DCCA must report to the Legislature prior to the 2012 and 2013 Regular Sessions on the operations and outcomes of the Program.

· Owner-occupants who elect to participate in the Program cannot also convert their nonjudical foreclosure to a judicial foreclosure.

· The Program will sunset on September 30, 2014.

· More information is available on the DCCA website at: http://hawaii.gov/dcca/oah/mfdr/mortagage-foreclosure-dispute-resolution-mfdr-program.

Temporary Conversion Option from Nonjudicial to Judicial Foreclosure

· Until December 31, 2012, there is a stream-lined procedure for an owner-occupant of a residential property subject to nonjudicial foreclosure to convert to a judicial foreclosure except:

o In cases of foreclosures of association liens for condominiums; and

o If the mortgagor has elected to participate in the Mortgage Foreclosure Dispute Resolution Program.

· A phase-in period until August 15, 2011, will allow owner-occupants currently undergoing a nonjudicial foreclosure to convert to a judicial foreclosure provided that the nonjudicial foreclosure has not been completed.

Temporary Moratorium on Certain Nonjudicial Foreclosures

A moratorium on new nonjudicial foreclosures under the old nonjudicial process (Chapter 667 Part I) will be in effect until July 1, 2012.

Permanent Amendments to the Nonjudical Foreclosure Process

· Personal service of a nonjudicial mortgage foreclosure notice is required.

· The public sale of foreclosed properties may only take place at certain state facilities that are not under the administration of the Judiciary.

· Deficiency judgments are prohibited for most nonjudicial foreclosures.

· Egregious conduct by a foreclosing mortgagee is prohibited. Such conduct includes:

o Completing a nonjudicial foreclosure during the pendency of a bona fide short sale where the offer meets minimum price criteria and escrow is opened and closed during a specified time frame surrounding the noticed public sale;

o Holding a public sale on a date or time or in a place not properly noticed;

o Specifying a fictitious place for the public sale; and

o Completing nonjudicial foreclosure proceedings during loan modification negotiations with the mortgagor or while the mortgagor is being evaluated for entry into a federal loan modification program.

· Nonjudicial foreclosures by junior lienholders will be barred or suspended during the pendency of a nonjudicial foreclosure by a mortgagee in certain circumstances.

Tighter Regulation of Mortgage Servicers

· Mortgage foreclosure actions taken by an unlicensed nonexempt mortgage servicer will be void.

· Starting July 1, 2012, certain large mortgage servicers must maintain an office in Hawaii staffed by at least one agent to address consumer inquiries or complaints and to accept service of process. Mortgage servicers may comply with this requirement by contracting with local entities.