Report Title:

Foreclosure of Government-Assisted Properties

Description:

Strengthens foreclosure notification requirements for affordable housing properties subject to buyback restrictions, clarifies the priority of a housing agency's liens in a foreclosure, and authorizes the agency to purchase a foreclosed property by credit bid at public auction. Effective 7/1/2020. (SD2)

THE SENATE

S.B. NO.

2927

TWENTY-SECOND LEGISLATURE, 2004

S.D. 2

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO FORECLOSURES OF GOVERNMENT-ASSISTED PROPERTIES.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The purpose of this Act is to enable the state and county housing agencies to collect the value of the shared appreciation equity lien, deferred sales price mortgage, or excess proceeds in lieu of buyback imposed on the sale of affordable housing properties when there is a non-judicial foreclosure. The Act also authorizes government entities, including state and county housing agencies, to utilize a credit bid at the public sale of the affordable housing property.

SECTION 2. Section 201G-127, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) The following restrictions shall apply to the transfer of real property developed and sold under this chapter, whether in fee simple or leasehold:

(1) For a period of three years after the purchase, whether by lease, assignment of lease, deed, or agreement of sale, if the purchaser wishes to transfer title to the real property, the corporation shall have the first option to purchase the real property at a price that shall not exceed the sum of:

(A) The original cost to the purchaser, as defined in rules adopted by the corporation;

(B) The cost of any improvements added by the purchaser, as defined in rules adopted by the corporation; and

(C) Simple interest on the original cost and capital improvements to the purchaser at the rate of one per cent a year.

(2) The corporation may purchase the real property either:

(A) By conveyance free and clear of all mortgages and liens; or

(B) By conveyance subject to existing mortgages and liens[.]; or

(C) By offset or credit bid at a public sale.

If the real property is conveyed in the manner provided in subparagraph (A), it shall be conveyed to the corporation only after all mortgages and liens are released. If the real property is conveyed in the manner provided in subparagraph (B), the corporation shall acquire the property subject to any first mortgage created for the purpose of securing the payment of a loan of funds expended solely for the purchase of the real property by the seller; and any mortgage or lien created for any other purpose; provided that the corporation has previously consented to it in writing.

The corporation's interest created by this subsection shall constitute a statutory lien on the real property and shall be superior to any other mortgage or lien except for:

(i) Any first mortgage created for the purpose of securing the payment of a loan of funds expended solely for the purchase of the real property by the seller;

(ii) Any mortgage insured or held by a federal housing agency; and

(iii) Any mortgage or lien created for any other purpose; provided that the corporation has previously consented to it in writing.

The amount paid by the corporation to the seller shall be the difference, if any, between the purchase price determined by paragraph (1)(A) to (C), and the total of the outstanding principal balances of the mortgages and liens assumed by the corporation.

(3) A purchaser may refinance real property developed and sold under this chapter; provided that the purchaser shall not refinance the real property, within three years from the date of purchase, for an amount in excess of the purchase price as determined by paragraph (1)(A) to (C).

(4) After the end of the third year from the date of purchase, or execution of an agreement of sale, the purchaser may sell the real property and sell or assign the property free from any price restrictions; provided that the purchaser shall be required to pay to the corporation the sum of:

(A) The balance of any mortgage note, agreement of sale, or other amount owing to the corporation;

(B) Any subsidy or deferred sales price made by the corporation in the acquisition, development, construction, and sale of the real property, and any other amount expended by the corporation not counted as cost under section 201G-125 but charged to the real property by good accounting practice as determined by the corporation whose books shall be prima facie evidence of the correctness of the costs;

(C) Interest on the subsidy or deferred sales price, if applicable, and any other amount expended at the rate of seven per cent a year computed as to the subsidy or deferred sales price, if applicable, from the date of purchase, or execution of the agreement of sale, and as to any amount expended, from the date of expenditure; provided that the computed interest shall not extend beyond thirty years from the date of purchase, or execution of the agreement of sale, of the real property; and provided further that if any proposed sale or transfer will not generate an amount sufficient to pay the corporation the sum as computed under this paragraph, the corporation shall have the first option to purchase the real property at a price which shall not exceed the sum as computed under paragraphs (1) and (2); and

(D) The corporation's share of appreciation in the real property as determined under rules adopted pursuant to chapter 91 when applicable; and

(5) Notwithstanding any provision above to the contrary, pursuant to rules adopted by the corporation, the subsidy or deferred sales price described in paragraph (4)(B) and any interest accrued pursuant to paragraph (4)(C) may be paid, in part or in full, at any time."

SECTION 3. Section 201G-127, Hawaii Revised Statutes, is amended by amending subsection (e) to read as follows:

"(e) The restrictions prescribed in this section and sections 201G-129 to 201G-131 shall be automatically extinguished and shall not attach in subsequent transfers of title when a mortgage holder or other [party] person becomes the owner of the real property pursuant to a mortgage foreclosure, foreclosure under power of sale, or a conveyance in lieu of foreclosure [after a foreclosure action is commenced;], or when a mortgage is assigned to a federal housing agency. Any law to the contrary notwithstanding, a mortgagee under a mortgage covering real property or leasehold interest encumbered by the first option to purchase in favor of the corporation[, prior to commencing mortgage foreclosure proceedings,] shall notify the corporation in writing of[:

(1) Any default of the mortgagor under the mortgage within ninety days after the occurrence of the default; and

(2) Any] any intention of the mortgagee to foreclose the mortgage [under chapter 667;] thirty days prior to commencing mortgage foreclosure proceedings;

provided that the mortgagee's failure to provide written notice to the corporation shall not affect the holder's rights under the mortgage. The corporation shall be a party to any foreclosure action, and shall be entitled to all proceeds remaining in excess of all customary and actual costs and expenses of transfer pursuant to default, including liens and encumbrances of record; provided that the person in default shall be entitled to an amount which shall not exceed the sum of amounts determined pursuant to subsection (a)(1)(B) and (C). Notwithstanding any law to the contrary, any governmental entity with a superior lien for shared appreciation equity, deferred sales price mortgage, or excess proceeds in lieu of buyback shall be entitled to payment of its right of recovery."

SECTION 4. Section 667-2, Hawaii Revised Statutes, is amended to read as follows:

"667-2 Other mortgagees joined. All prior and subsequent mortgage creditors, whose names are or can be discovered by the party foreclosing a mortgage, shall be made parties to the action. For the purposes of this section, "mortgage creditors" includes governmental entities with a lien to shared appreciation equity, deferred sales price mortgage, or excess proceeds in lieu of buyback."

SECTION 5. Section 667-3, Hawaii Revised Statutes, is amended to read as follows:

"667-3 Proceeds, how applied. Mortgage creditors shall be entitled to payment according to the priority of their liens, and not pro rata; and judgments of foreclosure shall operate to extinguish the liens of subsequent mortgages of the same property, without forcing prior mortgagees to their right of recovery. The surplus after payment of the mortgage foreclosed, shall be applied pro tanto to the next junior mortgage, and so on to the payment, wholly or in part, of mortgages junior to the one assessed. For the purposes of this section, "mortgage creditors" includes governmental entities with a lien to shared appreciation equity, deferred sales price mortgage, or excess proceeds in lieu of buyback."

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, 2020.