Mortgage Foreclosure, Real Estate
Grants owner-occupants of residential real property the right to engage in mediation with a mortgagee in order to prevent foreclosure of the residential property. Establishes notice requirements.
TWENTY-FIFTH LEGISLATURE, 2009
STATE OF HAWAII
A BILL FOR AN ACT
relating to foreclosures.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that Hawaii is experiencing a crisis due to an increasing number of residential foreclosures. On January 15, 2009, The Honolulu Advertiser reported that residential foreclosures in Hawaii increased by two hundred thirty per cent in 2008. Even this number may understate the magnitude of Hawaii's growing foreclosure crisis since most of the foreclosures occurred in the last half of 2008 and therefore may not have been fully reported yet.
In December 2008, the Pew Charitable Trusts determined that one out of twenty-nine Hawaii homeowners will experience foreclosure due to a high-cost loan by the end of 2010, exceeding the national average of one out of thirty-three. Additionally, more than half of Hawaii's remaining homeowners will see the value of their homes decline by a projected average of $24,786 as a result of these foreclosures.
Economic loss and other hardships resulting from foreclosures are not limited to individual homeowners. The projected loss to Hawaii's state and local tax base caused by declines in property values is $4,160,000,000. In a December 2008 speech, Federal Reserve System Board Chairman Ben Bernanke stated that recent losses to lenders on the defaulted subprime mortgages that account for most foreclosures have averaged between fifty and sixty per cent of the loan balance. The need to adjudicate a growing number of foreclosures will, for some time to come, increase the workload of Hawaii's courts and adversely affect all users of the justice system.
In other states, foreclosure mediation has produced better outcomes than adjudication for homeowners and lenders. Giving homeowners facing foreclosure the right to request mediation will help homeowners and lenders avoid unnecessary foreclosures and reduce lender losses while also benefitting other property owners, preserving the tax base, and keeping Hawaii's neighborhoods free of blight and crime associated with vacant houses. Early resolution and avoidance of foreclosure will additionally ease the burden on courts currently facing a growing number of foreclosure actions.
SECTION 2. Chapter 667, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§667- Foreclosure mediation. (a) A homeowner who is in default of the homeowner's mortgage agreement shall have the right to participate in mediation to give the homeowner and the lender an opportunity to negotiate in good faith in order to avoid foreclosure. This section shall apply to:
(1) Foreclosure by power of sale subject to part I;
(2) Alternate power of sale foreclosure subject to part II; and
(3) Foreclosure by action subject to sections 667-1 to 667-4, unless a comparable right to mediation in the action is available to the homeowner through the court.
(b) A lender shall notify the homeowner of the availability of foreclosure mediation in writing, on forms prescribed by the department of commerce and consumer affairs. The notice shall contain instructions for requesting mediation. The notice shall be delivered to the homeowner:
(1) In a foreclosure by action, prior to the entry of a default or the filing of any motion; or
(2) In a foreclosure by power of sale, prior to the notice required by section 667-5(a)(2) or 667-22.
(c) The homeowner shall request mediation within twenty‑one days of receiving the notice required by subsection (b) or the right to mediation under this section is waived.
(d) If the homeowner requests mediation, no action relating to foreclosure shall occur until after the mediator declares in writing to the parties that the mediation is terminated with no agreement reached.
(e) Throughout the mediation process, all parties shall negotiate in good faith and shall attempt to reach a mutually acceptable agreement in order to avoid foreclosure. The lender shall attempt to reduce the interest rate, reduce the remaining loan balance, extend the loan repayment period, or any combination of the foregoing, so that the homeowner's required monthly mortgage payment falls within affordability guidelines based on monthly household income established by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Federal Deposit Insurance Corporation.
(f) The director of commerce and consumer affairs shall adopt rules pursuant to chapter 91 to implement the provisions of this section.
(g) As used in this section:
"Homeowner" means an owner-occupant of a residential real property, used as a primary residence, in Hawaii, who is also a borrower under a mortgage encumbering the property.
"Lender" means the original lender under a mortgage, its successors or assigns, or the mortgage servicer."
SECTION 3. Section 667-1, Hawaii Revised Statutes, is amended to read as follows:
"§667-1 Foreclosure by action. (a)
The circuit court may assess the amount due upon a mortgage, whether of real or
personal property, without the intervention of a jury, and shall render
judgment for the amount awarded, and the foreclosure of the mortgage.
Execution may be issued on the judgment, as ordered by the court[
provided that a plaintiff in any foreclosure action shall fully comply
with section 667-52 before seeking an entry of default, filing any motion, or
requesting the entry of judgment."
SECTION 4. Section 667-5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) When a power of sale is contained in a mortgage, and where the mortgagee, the mortgagee's successor in interest, or any person authorized by the power to act in the premises, desires to foreclose under power of sale upon breach of a condition of the mortgage, the mortgagee, successor, or person shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State. The attorney shall:
(1) Give notice to the homeowner of the homeowner's right to mediation pursuant to section 667- .
(1)] (2) Give notice of the mortgagee's,
successor's, or person's intention to foreclose the mortgage and of the sale of
the mortgaged property, by publication of the notice once in each of three
successive weeks (three publications), the last publication to be not less than
fourteen days before the day of sale, in a newspaper having a general
circulation in the county [ in which] where the mortgaged property
(2)] (3) Give any notices and do all
acts as are authorized or required by the power contained in the mortgage."
SECTION 5. Section 667-22, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) When the mortgagor or the borrower has breached the mortgage agreement, and when the foreclosing mortgagee intends to conduct a power of sale foreclosure under this part, the foreclosing mortgagee shall prepare a written notice of default addressed to the mortgagor, the borrower, and any guarantor. The notice of default shall state:
(1) The name and address of the current mortgagee;
(2) The name and last known address of the mortgagor, the borrower, and any guarantor;
(3) The address or a description of the location of the mortgaged property, and the tax map key number of the mortgaged property;
(4) The description of the default, and if the default is a monetary default, an itemization of the delinquent amount shall be given;
(5) The action that must be taken to cure the default, including the amount to cure the default, together with the estimated amount of the foreclosing mortgagee's attorney's fees and costs, and all other fees and costs estimated to be incurred by the foreclosing mortgagee related to the default by the deadline date;
(6) The date [
by which] when the
default must be cured, [ which deadline date] that shall be at
least sixty days after the date of the notice of default;
(7) That if the default is not cured by the deadline
date stated in the notice of default, the entire unpaid balance of the moneys
owed to the mortgagee under the mortgage agreement will be due, that the
mortgagee intends to conduct a power of sale foreclosure to sell the mortgaged
property at a public sale without any court action and without going to court,
and that the mortgagee or any other person may acquire the mortgaged property
at the public sale; [
(8) The name, address, including electronic address,
and telephone number of the attorney who is representing the foreclosing
mortgagee; provided that the attorney shall be licensed to practice law in the
State and physically located in the State[
(9) A homeowner's right to mediation pursuant to section 667- ."
SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 7. This Act shall take effect on July 1, 2009.