BY RON MARGOLIS, RA, ABR – Gov. Neil Abercrombie signed Senate Bill 651 last week, and Act 48 takes effect immediately in the State of Hawaii as of May 5th, when the bill was signed. Of course, since each island is a county in the State of Hawaii, this effects all islands and applies to the foreclosure process on a statewide level.
Driven by a desire for pro-consumer legislation that helps homeowners in what has been the adversarial style of the major lenders, the 102-page document offers hope for homeowners in trouble. I’m not sure if I agree with the state getting involved in the repair of a system that appears totally broken, but nobody asked me, so for now, I’ll do everything I can to continue to help homeowners and better understand this new law.
I’ve outlined some of the highlights of the program. One thing I noted in reading the bill, the new law disallows the bank to pursue a deficiency judgment in a non-judicial foreclosure action. Deficiency judgment in non-judicial proceedings have not been litigated as far as I know, but now it’s clear, the bank MAY NOT pursue a deficiency judgment in a non-judicial foreclosure action. While the dispute resolution process that is defined in the new legislation is an attempt to help homeowners have face-to-face communication with a representative of their lender in a mediation that will be overseen by a division of the DCCA (Department of Commerce and Consumer Affairs).
I’m keeping an open mind to this legislation knowing the intent was to help homeowners, like the many Hawaii homeowners who have gotten the runaround from banks in pursuing loan modification under the Making Home Affordable Program, and homeowners who have lost their homes to foreclosure where the bank may have violated laws, statutes, and who-knows-what in the process.
My concerns are several:
- Will the mainland lenders who have the majority of the loans in our state switch to doing everything judicially, which while legally solid, subjects the homeowners to potential deficiency judgments and responsibility for the interest, penalties, and legal fees incurred by the bank in this process?
- How will the DCCA improve on the loan modification process and select the mediator (the neutral in the dispute resolution), and be more successful at loan modifications than those who have been working in the field for several years now? One of the largest challenges in loan modification is that borrowers have a hard time getting all their documents in order to prove their income and expenses to the bank.
- What will the effect be on the overall real estate market from the slowdown of foreclosures when we already have a backup of distressed (short sale and foreclosed) properties that aren’t selling, and how will more stringent lending practices help the market move through this inventory? It won’t.
I’m interested to see how this all unfolds and hope the homeowners who meet the qualification to maintain their home ownership are more successful under this new law then borrowers have been in the last three years. Time will tell.
Below are the highlights of the law and an assortment of articles you may read if you are interested:
- Bloomberg BusinessWeek
- DCCA’s MFDR Program
- Senate Bill 651, Now ACT 48
- Hawaii News Now Article
- ACT 48 DETAILS
A key provision in Hawaii’s new foreclosure protection law is dispute resolution. Here’s how it works:
Who can participate?
- Owner occupants of residential property under non-judicial foreclosure (non-judicial foreclosures happen when lenders pursue a foreclosure outside of court, which is the case for most foreclosures in Hawaii).
- Owner-occupants must reside at the property for a minimum 200 consecutive days.
- Owners of time shares, vacation homes, and commercial property are not eligible.
- Owners of homes that have had Notices of Default filed in the last 30 days, prior to the enactment of Act 48, may switch their foreclosure to judicial if they wish. (Who is going to pay for these legal fees?)
What is the timing of the dispute-resolution program?
- Program will be ready to start accepting applications by Oct. 1
- Dispute resolution proceedings will start Jan. 1
- Program sunsets Sept. 30, 2014
How does the program work?
- No non-judicial foreclosures may be initiated until Oct. 1, when the program begins.
- Mortgage lenders who pursue non-judicial foreclosures after Oct. 1 will be required to file a notice with the State Department of Commerce and Consumer Affairs.
- Upon receiving a foreclosure notice, DCCA will send information to the homeowner about the dispute resolution program.
- Homeowner has 30 days after receiving DCCA’s notice to elect dispute resolution, which is optional.
- If homeowner does not elect dispute resolution, the foreclosure may proceed.
- If homeowner elects to participate in dispute resolution, lender must participate.
- Upon election to participate, DCCA will take no longer than 14 days to set a date, time, and place of dispute resolution session run by a neutral, trained professional. Session will be scheduled within 30 to 60 days unless an alternate date is agreed to mutually.
- Dispute resolution session shall be no more than three hours, but may be extended by one additional three-hour session at the facilitator’s discretion.
- If parties reach an agreement, foreclosure is terminated.
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