BY JIM DOOLEY – Honolulu’s monopoly newspaper has again slashed advertising rates in the face of new government objections to the charges as well as competition from a newcomer to the market.

Star Advertiser publisher Dennis Francis notified lawmakers Friday that the newspaper has halved the $90 per-column-inch charge it has been assessing for publication of non-judicial foreclosure notices. The ads are a lucrative source of income for the newspaper.

“In our meetings with legislators, some have expressed concerns regarding the cost of non-judicial foreclosure ads,” Francis said in a letter to lawmakers.

“Effective immediately, we have reduced our rate from $90 per-column-inch (pci) to $45 pci,” the letter said.

The notices must be published by parties pursuing foreclosure actions via out-of-court proceedings. Costs of the ads are paid by the foreclosers.

State law now effectively requires publication of the Honolulu notices in the Star Advertiser but a bill now pending at the Legislature would amend that statute in ways that could benefit a new weekly and online publication here called Island Sun Weekly.

The letter from Francis was sent to Senate and House members of a conference committee now considering the bill. A member of the committee, Sen. Sam Slom, provided a copy of the letter to Hawaii Reporter. Slom is a supporter of, and occasional columnist for, Hawaiii Reporter.

Accompanying the rate reduction announcement was a request from Francis for changes to the pending bill, HB1875, that would protect his newspaper’s foreclosure ad business.

Francis invoked the U.S. Constitution in making the request.

“When the state of Hawaii places constraints on the publication of notices concerning the taking of real property such as allowing notice of foreclosure sales on the Internet only, the state essentially uses its power to inhibit the due process protections guaranteed by the U.S Constitution,” the letter said.

“The purpose of notification should be to reach as many people as possible,” the letter said.

“Among other things, the notice serves to provide the owner and others that the property will be sold at auction. If such notice is limited to the Internet or newspapers that are not of general circulation, there is a strong likelihood that the person who stands to lose their house or potential buyers of the property may not see the notice,” Francis asserted.

Legal challenges to the process could follow and a successful one “would chill the entire foreclosure process in Hawaii,” the publisher said.

Francis warned against what he called “conflicts of interest” in other states where “small weekly newspapers” which publish foreclosure notices are affiliated with companies involved in “the foreclosure service business.”

That description appears to fit Island Sun Weekly and its owner, Rim Publications, incorporated here last year by Washington attorney Stephen Routh, who is active in the foreclosure business in several western states.

Routh and his businesses were the subjects of lengthy reports posted earlier this year on local blog site ilind.net, another in Washington state, Crosscut.com, and the Portland Oregonian newspaper.

Attempts to reach Routh and Island Sun Weekly editor Dena Cassella this weekend via email were unsuccessful.

Francis did not immediately respond to emailed questions.

HB175 is a multi-purpose bill meant to enact numerous changes to Hawaii’s mortgage foreclosure system that were recommended by a state task force created by the Legislature in 2010.

The publication requirements are a small part of the measure.

Earlier versions of the bill gave the Honolulu foreclosure business to the Star Advertiser by requiring publication “in a daily newspaper having the largest circulation” in the county where the foreclosed property is located.

But Michael Wong, an attorney for a Routh law firm here, RCO Hawaii LLLC, recommended changes to the measure in legislative testimony that cited “a dramatic increase in the costs for publishing (a foreclosure) notice on Oahu in the largest and only daily newspaper on Oahu.”

Wong said average publication costs rose from $800 in 2008 to $2,000 this year and predicted that they could top $4,000, if other anticipated changes to foreclosure laws are enacted.

Wong recommended changes which have been incorporated into the current version of the bill.

As written now, publication is required in a newspaper “of general circulation.”

The bill now defines a general circulation newspaper as one that is distributed at least weekly to at least one per cent of the county population.

Wong said nothing in his written testimony about the ties between his law firm, Routh and Island Sun Weekly.

He said his law firm is “dedicated to the representation of the mortgage banking and default servicing industry” and serves companies in Alaska, Idaho, Arizona, Washington, Oregon, California, Nevada and Hawaii.

Francis, in his letter to lawmakers, warned of possible conflicts of interest when parties or participants in a foreclosure “have a financial interest in a newspaper” that publishes foreclosure notices.

“A number of western states, including Washington, Oregon and Idaho, have experienced challenges with conflict of interests with the ownership of small weekly newspapers” that publish foreclosure notices, said Francis.

There have also been “recent complaints regarding the practice of rates being inflated for the publication of mortgage foreclosure notices by vertically integrating the foreclosure service business,” said Francis.

In emailed questions to Francis, Hawaii Reporter asked how much income the newspaper realizes from publication of foreclosure notices and if the business will still be profitable now that ad rates have been cut in half.

He was also asked if the changes he has suggested to HB175 were aimed at blocking Island Sun Weekly and Rim Publications from publishing the ads.

Francis has not responded to the inquiries.

Francis wants lawmakers to re-define a general circulation newspaper as one that:

  • Has a circulation “equal to or greater than twenty per cent of the county population.”
  • Has no financial ties to “an agent, employee, trustee, commissioner or representative of a lender conducting a foreclosure sale.”
  •  “Carries news of a general nature and not just news of interest primarily to an organization, group or class.”
  • Is published “at least weekly.”

The Star Advertiser is owned by Oahu Publications, Inc., which also publishes Midweek, a free weekly tabloid shopper that is distributed to more than 270,000 households in Hawaii and publishes its own classified ads.

The rate rollback announced by Francis Friday is the second such reduction the Star Advertiser has undertaken since the publication boosted ad rates after becoming the only large newspaper in Hawaii in 2010.

The first reduction occurred after the Star Advertiser imposed a 200 per cent increase in the prices of legal advertisements – a category of ads separate from foreclosure notices whose costs must be paid by government agencies.

Last year, after protests from state officials, the newspaper agreed to lesser increases of 125 per cent above 2010 prices, with another 50 per cent jump this year.

Much higher rate increases charged to the public for classified and display ads by the Star Advertiser remain in effect.

Earlier in this year’s legislative session, the newspaper won a temporary reprieve from state plans to allow electronic publication of legal ads.

The state is still developing plans to post those ads on Internet sites, perhaps in conjunction with print publications.

Star Advertiser official Dave Kennedy told state Senators this year the newspaper receives nearly $1 million in annual revenue from legal ads. He called that figure “a very small proportion of our overall revenue.”

He declined to discuss with senators the revenues generated by mortgage foreclosure ads.

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Jim Dooley joined the Hawaii Reporter staff as an investigative reporter in October 2010. Before that, he has worked as a print and television reporter in Hawaii since 1973, beginning as a wire service reporter with United Press International. He joined Honolulu Advertiser in 1974, working as general assignment and City Hall reporter until 1978. In 1978, he moved to full-time investigative reporting in for The Advertiser; he joined KITV news in 1996 as investigative reporter. Jim returned to Advertiser 2001, working as investigative reporter and court reporter until 2010. Reach him at Jim@hawaiireporter.com