Foreclosure Thoughts on New Hawaii Law Act 182 – Hawaii’s Reparations and the Foreclosure Mediation Program

Just about a year and a month after the Hawaii Legislation passed Act 48 to reform foreclosure in the state, Act 182, a 183 page attempt to improve Act 48, became law on June 28th, 2012. I recently attended an all day workshop produced and presented by the Collection Law Section of the Hawaii State Bar Association.

I found the workshop interesting to hear perspectives from various legal entities including the Hawaii Attorney General, David M. Louie, who presented his perspective and information regarding the National Mortgage Settlement., the landmark ruling where the five largest lenders, Bank of America, Wells Fargo, JP Morgan Chase, Ally/GMAC, and Citimortgage agreed to provide some $26 billion in reparation to homeowners who were either harmed by foreclosures in the “robosigning era”, or who are underwater in their mortgages whether current or not.

Hawaii’s Reparations

According to AG David M. Louie, the banks have estimated that Hawaii will receive about $71 million from the settlement. $7.9 million, which has already been received, is earmarked to assist homeowners through mediation, education, counseling and other programs.

Three REALTORS® from the newly formed Kauai Foreclosure Assistance Task Force attended the meeting to increase our understanding of this new 183 page law which was signed and became effective on June 28th, 2012. I have been asked to chair the “Kauai Foreclosure Assistance Task Force” and have agreed to do so.

Foreclosure Mediation Program

The panel “The View from the Bench,” featured Federal Judge Michael Seabright, Oahu Bankruptcy Judge Robert Faris, and Third Circuit Court Judge Ronald Ibarra from Hilo, Big Island. Interestingly enough, on the Big Island, Judge Ronald Ibarra has instituted a “Foreclosure Mediation Program.” So, when a foreclosure case is filed, the Plaintiff (that’s the party that is filing the foreclosure action) attaches a notice of mediation form to the complaint for summons for the foreclosure.

This process is only available for owner occupants and the owner must sign that they are both the borrower and that they reside in the home. Judge Ibarra then reviews the case; if there is a good prognosis for a mediation, the Judge orders one. The Judge checks in with the parties every thirty days for updates. Similar to the Mortgage Foreclosure Dispute Resolution program that was initiated as part of Act 48 back in October 2011. The idea is for the parties, that is the borrower, the attorneys, and a representative from the lender, to explore options to foreclosure that are a better solution for the homeowner.

Unfortunately for homeowners, the number of homeowners that have participated in the Act 48’s dispute resolution program is a big ZERO. That’s simply because the banks aborted their non-judicial foreclosure proceedings in favor of doing everything through the judicial system/circuit courts.

From January to July of this year, 600 foreclosure cases were filed; 272 were recommended for mediation. Of the 77 mediations that were eventually ordered, 14 arrived at a mediation settlement. 14 out of 600 may not seem like a good number, but from Judge Ibarra’s point-of-view, it’s 14 families that were helped to avoid foreclosure.

The Judge expressed the value in helping to “get the parties together.” Even if it is not successful, “mediation allows the debtor to leave with dignity” the Judge noted. In a small community, that is important. The state has been allowing each circuit court to make this decision on their own.

To my knowledge, no program currently exists like this on Kauai, nor is the effort underway to create one. Of course, there are opposing points of view from the legal side of the fence, where Attorney’s like Gary Dubin state that “Foreclosure Mediation is not enough,” yet not every homeowner has the resources to pay the retainer fees of foreclosure experts such as Mr. Dubin and his staff.

What is Going to Happen to the Foreclosure Process?

The panel of attorneys who represent the banks in foreclosure expressed the opinion that the new Act 182 might ultimately speed up the foreclosure process. The new law requires an “attorney affirmation statement” which requires the foreclosing bank to provide a lot more proof and evidence that the bank has proper standing to perform the foreclosure.

The Hawaii attorneys felt this requirement would force the banks to pay more attention to their paperwork. Often times, the lender files the initial foreclosure complaint, but then has to file one or more motions to extend because the lender does not have their documents and their case in order. That’s one of many reasons the foreclosures seem to linger in the courts.

Despite changes in non-judicial foreclosure part II, Attorney David Rosen noted, “Lenders will not be doing non-judicial Part II foreclosure. It’s still too complex and there’s still too much liability and too much that is uncertain. It’s not a viable vehicle for lenders to utilize.”

While Act 182 originally had a provision that would prevent deficiency judgements in judicial foreclosures, that provision did not make it into this version of the law. So, a big reason for a homeowner or family to avoid foreclosure would be to avoid the deficiency judgement that may indeed accompany the judicial proceeding.

Each of the islands has been dealing with the sluggishness of the foreclosure process since the passing of Act 48. As you can see in the graphic, there has been a dramatic increase in the number of judicial foreclosure filings, yet no increase in the judiciary staff to process all the foreclosures. This is an outcome many had predicted when Act 48 passed, but the legislators rejected that notion.

Judicial Foreclosure Filings have risen greatly since Act 48 passed last year; these are numbers for the entire Hawaiian island chain

Overview

While the National Mortgage Settlement may not seem like stringent punishment for the major lenders’ egregious behavior and robo-signing shenanigans, it will provide some relief for some distressed homeowners. Some of the monies in the settlement will be used to reduce mortgage principal and some to reduce interest rate.

Additionally, around 1,800 homeowners in the State of Hawaii who were foreclosed on during the “robo-signing era” will receive approximately $1,800-$2,000 for their loss. The “crown jewel” of this settlement, according to Attorney General Louie, are the wide-reaching changes to the lending standards and conduct of the mortgage servicers.

The lenders are now being held to higher standards when processing mortgage business: having a single point of contact, strict guidelines on response times, and a mandate that lenders establish a “loan portal” where borrowers can electronically submit their files to the banks.

Fannie Mae and Freddie Mac own 40% of the mortgages in America. The BIG 5 lenders involved in the national mortgage settlement service 80% of the remaining 60% of the loans. Now if we can just get Shaun Donovan, the Secretary of HUD, to get Fannie Mae and Freddie Mac enrolled in some of these types of homeowner assistance programs, more homeowners could get some help climbing out of this mortgage morass that is still weighing down our country’s economy.

Solving the housing crisis is a problem way too big for any one entity, even the federal government. It is slowly and painfully being solved one step at a time and while some will receive help from the National Mortgage Settlement, many who expect it to be the panacea of their underwater existence may still be disappointed. Time will tell!

Have a question about a mortgage challenge, or a difficult lender? Email me for a free consultation.