On May 5, 2011, Hawaii Governor Neil Abercrombie signed into law SB 651 which is being called the nation’s toughest foreclosure bill on record, putting a supposed to end to robotic and other forms of unlawful or inappropriate foreclosures on Hawaii’s real estate property owners. Provisions of SB 651 enact a moratorium on all new non-judicial foreclosures through July 1, 2012 (owner-occupants only – does not apply to second homes). The new legislation gives owners the option to meet face to face with their lender before a foreclosure can occur.
“The credit for this today is, in fact, a reflection of what we try to be in Hawaii, which is good neighbors and good friends to one another,” said the Hawaii governor. “We want to try and avoid if we can, to put the consumer, the homeowner, in a position where they feel the entire institutional establishment is lined up against them.”
The primary objective of the mediated in-person meetings between mortgagor and mortgagee is that a compromise can hopefully be reached. This is a direct aim at the local notion that Hawaii’s high foreclosure rate (11th in the nation according to recent figures) can largely be attributed to a mental disconnect between Hawaii homeowners and mainland lenders.
However, residents currently in preforeclosure should not jump for joy just yet. This is not a free pass to avoid foreclosure in Hawaii. Homeowners will still be required to bring all documentation to mediation and prove that they can financially pay a modified loan, if that is their goal. At the other end of the table, the lender must show that it has the legal authority to foreclosure upon the mortgagee. This means demonstration of proof of chain of title.
How SB 651 Affects YOU
So what does this mean for the Hawaii homeowner currently in preforeclosure or in general trouble with their mortgage? Well, you might be able to take a deep breath and relax – a bit. You still need to do some legwork yourself to increase your odds of a successful loan modification, but you can also take some comfort under the umbrella of a new law designed for your protection.
If you’re a Hawaii real estate investor, then you may want to consider a change in your marketing strategy a bit since there may be fewer homeowners seeking a short sale and opting for loan mod’s instead. If you’re a foreclosure buyer, then it seems you’ll have to focus on judicial foreclosures instead – not the norm here in the Aloha State but they do happen.
And for the general resident, does this affect you? Do you expect to somehow share in the cost of this new program via new taxes? Is it worth it? How do you feel this will affect real estate prices in your neighborhood? Are you in favor of SB 651 or not?
peter klika says
Foreclosure moratoriums were common during the Great Depression of the 1930s especially in the farm belt. Contrary ot initial misgivings, the moratorium stabilzed a land market that was in a free fall. Consider that when the SEC halts trading in the stock market (like in the recent “flash crash”) it is really just a short tern moratorium.
I think the moratorium is a good (but not perfect) program. There is a tremendous disconect between clueless mainland banks and Hawaii homeowners. The basi problem is that the people you deal with are either loan servicers who only get rewarded for collecting money or junior bank personnel who have no decision making authority to modfy your loan or approve a repayment program. I have two mortgages I have tried to modify. In both cases the loans were repackaged as
mortgage backed securites in a large pool of thousands of loans. The dirty little secret is that the loan servicer or trustee usually has no power to mody an individual loan without the consent of the investors, who won’t consent as long as the aggregate income from the pooled loans is above a minimum threshhold. They won’t tell you this. I just did. I was a banking and real estate attorney for 30 years. So, negotiate in good faith but don’t expect your “lender” to be reasonable or even act in its own self interest. Last, the housing market is going to get a lot worse, even a credit worthy buyer has trouble getting a loan, and for many people renting is the best option and home ownership is not necessarily the American dream anymore. Nightmare is more like it. Peter Klika, Esq
Kevin says
This would be a great idea if housing were affordable here. But it is not. By delaying the inevitable foreclosures, prices remain artificially high and locals will remain priced out of the market. Loan modifications are a bit of a joke. Either you got the money or you don’t and with a struggling economy, not everyone will be able to buy gas, let alone pay a mortgage. And I’m sorry but a job at Aulani isn’t going to come close to paying the mortgage on a 500k crackerbox in Kapolei.
This will have the opposite effect of what they government wants. People will use this process to delay the inevitable, housing prices will remain high, and people who can afford a house will be priced out of the market while free loaders continue living rent free.
Nicholas says
I agree with Kevin. The limited east side inventory is a joke, a moratorium removed 60% of the inventory from the market and it is only piling up. Abercrombie is pushing a disaster under the rug, I hope in july the floodgates open and people who are saving and hoping to buy a home for their family will get a break.
Today the real estate market is still at 2006 prices with strict lending standards and a terrible economy. I am losing hope. Politicians need to face the music and let the forclosures happen so more people dont get lured in to inflated home prices and lose their large down payments. If people lose their 20% down payment after the market correct later on, the people should have the politicians heads. The prices need to be the same as before the real estate boom,2003 or earlier. The prices after 2003 are artificially inflated and have neither down payment, income, or mothly payment as their formative factors of the people who hold these mortgages. I voted for Abercrombie but doublt his logic on this very important decision to forgoe forclosures.