News Release Hawaii House of Representatives

March 8, 2012 - For immediate release

Contact: Rep. Robert Herkes 808-586-8400 Media Contact: Georgette Deemer 808-341-5043

House passes Mortgage Foreclosure bills

Honolulu, Hawaii. To complement the 2011 Legislature's reform of Hawaii's foreclosure laws in Act 48, the House of Representatives has transmitted to the Senate several measures that would further offset the negative effects of the national foreclosure crisis in Hawaii. HB1875 HD2: Over the interim, the legislatively-created Mortgage Foreclosure Task Force convened for its second year, focusing its efforts on reviewing and refining the provisions of Act 48. Their recommendations are included in HB1875 HD2 with some amendments. Everett Kaneshige, formerly the Deputy Director of the Department of Commerce and Consumer Affairs and Chair of the task force, explained in his testimony that the task force "focused on streamlining the process enacted by the Legislature" and tried "to bring to the Legislatures vision of a functional and fair non-judicial foreclosure process to fruition." The task force's recommendations predominantly concentrated on the non-judicial foreclosure process for condominium and homeowner associations. They also suggested some revisions to the Mortgage Foreclosure Dispute Resolution Program to: protect borrower's personal information; simplify and clarify some definitions and terminology; and refine certain procedural issues. The task force also suggested that an owner-occupants ability to convert her or his non-judicial foreclosure to one overseen by the courts would be made permanent. Under Act 48, this option would be repealed at the end of 2012. Perhaps the task force's most potentially impactful recommendation is to amend Act 48's Unfair and Deceptive Act or Practice (UDAP) provision, which has been cited as the primary reason why lenders have since decided to pursue all their foreclosures in court. The various stakeholders on the task force reached a compromise by majority vote to support this recommendation, which seeks to retain strong protections for consumers while also providing lenders and title insurers more specific guidance as to what actions may constitute UDAP violations. The compromise recommendation includes a 6 month time-frame on a borrower's ability to challenge the transfer of title of a home after such a foreclosure. -more-

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The current draft of this measure further limits the application of UDAP so that lenders need not fear committing an automatic UDAP violation while the dispute resolution program is operative. This amendment was adopted to encourage use of the program so that more foreclosure actions may be resolved with the help of a trained third-party neutral. In 2014, when the program ends, the task force's recommendations would then take effect. HB1875 HD2 also permanently repeals the non-judicial foreclosure law from 1874, which was used to conduct the majority of foreclosures before Act 48 and is currently under moratorium until July 1, 2012. If this bill is enacted, there would be just one non-judicial foreclosure process with numerous consumer protections built in. Also included in this bill is a requirement that a foreclosing lender's attorney sign an affirmation in judicial foreclosures indicating that they had reviewed and verified the accuracy of the lender's paperwork and legal authority to foreclose. The bill is 158-pages and predominantly deals with condominium and planned community association liens and foreclosures. A number of these provisions are still being discussed by various stakeholders. These stakeholders have been encouraged by lawmakers to continue working toward consensus so that the final draft's provisions are agreeable to all.

HB2018: Like HB1875 HD2, this measure adopts the mortgage foreclosure task force's recommendations to temper Act 48's UDAP provision; however, HB2018 limits this recommendation until after the dispute resolution program is no longer operative in 2014. While the dispute resolution program is in effect, Act 48's UDAP provision would be repealed to encourage use of the program so that more foreclosure actions may be resolved with the help of a trained third-party neutral.

HB2375: One burgeoning enterprise that has emerged during this foreclosure crisis is the mortgage foreclosure rescue industry. These operations often defraud borrowers, taking their money and/or persuading homeowners to transfer to them title on their homes while falsely promising to prevent foreclosure. Homeowners often default on their mortgages to pay for these "services" and end up losing their property anyway. Their practices are dangerous and objectionable to borrowers and lenders alike. -more-

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This bill makes these practices criminal felonies subject to $10,000 fines. A special fund would be created from these and other fines to further enforce Hawaii's mortgage rescue fraud law and to educate the public on how to identify violators and avoid their traps.

HB2019: Act 48 ensured that owner-occupants would not be subject to deficiency judgments in nonjudicial foreclosures should the sale of their property fail to satisfy the full amount of their indebtedness on a mortgage loan. Since lenders have filed all their foreclosures in the courts since the passage of Act 48, this bill would extend these protections to owner-occupants in judicial foreclosures, short sales, and in transactions transferring deeds-in-lieu of foreclosure. Similar anti-deficiency legislation has been enacted in various other states. This measure would prevent double recovery for many lenders who often sell foreclosed homes on the open market at a profit, and then subsequently collect deficiencies from troubled borrowers. This would also reduce the amount of bankruptcy filings by borrowers seeking to discharge these debts giving them a chance at a fresh start. Sometimes these deficiency judgments are sold at a great discount on the secondary market, inviting abusive third party debt collection activities.
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