Requires mortgagors and mortgagees to explore options to avoid foreclosure, including modification or restructuring of loans; effective on approval and repeals 12/31/2012. Requires notice of foreclosure be given to a tenant of the foreclosed property with the option to keep rental agreement in full force or vacate premises in 60 days.
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 facing an unprecedented threat to its state and local economies because of skyrocketing residential property foreclosure rates in Hawaii. Residential property foreclosures increased two hundred thirty per cent in 2008. In 2008, more than three thousand two hundred properties were lost to foreclosure in Hawaii. Further, according to the Pew Charitable Trust, one in twenty-nine Hawaii homeowners are expected to experience foreclosure by the end of 2010, exceeding the United States average of one in thirty-three homeowners. The ripple effects of these foreclosures are projected to hit more than half of Hawaii's homeowners and cost more than $4,000,000,000 in lost property value.
Under specified circumstances, mortgage lenders and servicers are authorized under their pooling and servicing agreements to modify mortgage loans when the modification is in the best interests of investors. Generally, that modification may be deemed to be in the best interests of investors when the net present value of the income stream of the modified loan is greater than the amount that would be recovered through the disposition of the real property security through a foreclosure sale.
It is essential to the economic health of Hawaii for the State to ameliorate the deleterious effects of continued foreclosures of residential properties by temporarily modifying the foreclosure process to require mortgagees, successors, and their authorized agents to contact borrowers and explore options that could avoid foreclosure.
This Act is a temporary measure that will require early contact and communications between mortgagees, successors, and their authorized agents and certain borrowers to explore options that could avoid foreclosure by facilitating the modification or restructuring of loans in appropriate circumstances. This Act shall also provide necessary and appropriate notices to renters who are unintended victims of the foreclosure crisis.
SECTION 2. Chapter 667, Hawaii Revised Statutes, is amended by adding three new sections to part III, to be appropriately designated and to read as follows:
"§667-A Avoidance of foreclosure. (a) Sections 667-5 and 667-21 notwithstanding, a mortgagee, as defined in section 667-21(b), may not give notice of the mortgagee's intention to foreclose the mortgage, pursuant to section 667-5(a)(1), or serve a notice of default, pursuant to section 667-22(c), until thirty day after satisfying the requirements of this section.
(b) The mortgagee shall contact the mortgagor, as defined in section 667-21(b), in person or by telephone in order to assess the mortgagor's financial situation and explore options for the mortgagor to avoid foreclosure.
During the initial contact, the mortgagee shall advise the mortgagor that the mortgagor has the right to request a subsequent meeting and, if requested, the mortgagee shall schedule the meeting to occur within fourteen days. The assessment of the mortgagor's financial situation and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose.
The mortgagor shall be provided the toll-free telephone number made available by the United States Department of Housing and Urban Development to contact a United States Department of Housing and Urban Development certified housing counseling agency.
Any follow up meeting, at the request of the mortgagor, may occur telephonically.
(c) Any subsequent notice of the mortgagee's intention to foreclose or a notice of default filed, pursuant to section 667-5 or 667-22, shall include a declaration from the mortgagee that:
(1) It has contacted the mortgagor as required by this section;
(2) Has tried with due diligence to contact the mortgagor as required by this section without success; or
(3) The mortgagor has surrendered the property to the mortgagee.
(d) If a mortgagee has already given its notice of its intention to foreclose or recorded a notice of default prior to the effective date of this Act, and did not subsequently file a notice of rescission, then the mortgagee, as part of the notice of sale filed pursuant to section 667-5(d), or the affidavit after public sale recorded pursuant to section 677-33, shall include a declaration that either:
(1) States that the mortgagor was contacted to assess the mortgagor's financial situation and to explore options for the mortgagor to avoid foreclosure; or
(2) Lists the efforts made, if any, to contact the mortgagor in the event no contact was made.
(e) A mortgagee's loss mitigation personnel may participate by telephone during any contact required by this section.
(f) A mortgagor may designate a United States Department of Housing and Urban Development certified housing counseling agency, attorney, or other advisor to discuss with the mortgagee, on the mortgagor's behalf, options for the mortgagor to avoid foreclosure. Contact made at the direction of the mortgagor shall satisfy the contact requirements of this section. Any loan modification or workout plan offered at the meeting by the mortgagee shall be subject to approval by the mortgagor.
(g) A notice of intention to foreclose may be filed or notice of default may be recorded, pursuant to section 667-5 or 667-23, when a mortgagee has not contacted a mortgagor as required by this section; provided that the failure to contact the mortgagor occurred despite the due diligence of the mortgagee. For purposes of this section, "due diligence" shall require and mean all of the following:
(1) A mortgagee shall have first attempted to contact a mortgagor by first-class mail that includes the toll-free telephone number made available by the United States Department of Housing and Urban Development to find a certified housing counseling agency;
(2) After the letter has been sent:
(A) The mortgagee shall have attempted to contact the mortgagor by telephone at least three times at different hours and on different days. Telephone calls shall have been made to the primary telephone number on file;
(B) The mortgagee may use an automated system to dial mortgagors; provided that, if the telephone call is answered, the call shall be connected to a live representative of the mortgagee; or
(C) The mortgagee shall have satisfied the telephone contact requirements of this paragraph if it determines, after attempting contact pursuant to this paragraph, that the mortgagor's primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected;
(3) The mortgagee shall have provided a means for the mortgagor to contact it in a timely manner, including a toll-free telephone number that would have provided access to a live representative during business hours;
(4) The mortgagee has posted a prominent link on the homepage of its internet website, if any, with the following information:
(A) Options that may be available to mortgagors who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to mortgagors advising them on steps to take to explore those options;
(B) A list of financial documents mortgagors should collect and be prepared to present to the mortgagee when discussing options for avoiding foreclosure;
(C) A toll-free telephone number for mortgagors who wish to discuss options for avoiding foreclosure with their mortgagee; and
(D) The toll-free telephone number made available by the United States Department of Housing and Urban Development certified housing counseling agency.
(h) The provisions of this section shall cease to apply upon the occurrence of the following:
(1) The mortgagor has surrendered the property as evidenced by either a letter confirming the surrender, or delivery of the keys to the property to the mortgagee;
(2) The mortgagor has contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to mortgagees; or
(3) The mortgagor has filed for bankruptcy, and the proceedings have not been finalized.
(i) This section shall apply only to loans made from January 1, 2003, to December 31, 2008, inclusive, that are secured by residential real property and are for owner-occupied residences. For purposes of this section, "owner-occupied" means that the residence is the principal residence of the mortgagor.
§667-B Notice to resident. (a) Upon posting a notice of intention to foreclose on the premises pursuant to section 667-5(b)(2), and recording the notice of default pursuant to section 667-23, the mortgagee shall also mail the following notice, in the manner and at the time required for posting the notice of intention to foreclose or record the notice of default to the mortgagor, or the mortgagor's agent, if any, at the address of record concerning the premises that is the subject of the foreclosure action containing substantially the following:
"Resident of Property Subject to Foreclosure Sale a foreclosure process has begun on this property, that may affect your right to continue to live in this property. Twenty-one days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a sixty-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have."
(b) This section shall only apply to loans secured by residential real property, and if the billing address for the mortgage note is different than the property address.
§667-C Tenant's rights. (a) Chapter 521 notwithstanding, a tenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given sixty days written notice to vacate the premises pursuant to this section before the tenant or subtenant may be removed from the property as prescribed by the provisions of chapter 521.
(b) This section shall not apply if any party to the promissory note or mortgage that is being foreclosed remains on the property as a tenant, subtenant, or occupant."
SECTION 3. Section 521-45, Hawaii Revised Statutes is amended to read as follows:
"§521-45 Limitation of landlord and
management liability. (a) Unless otherwise agreed, a landlord who conveys
which] that include a dwelling unit subject to a rental
agreement, in a good faith sale to a person not connected with the
landlord, discloses[ ,] in writing[ ,] in any form, [ of]
the contract for the sale of [ such] the premises,
is relieved of liability under the rental agreement and under this chapter as to
events occurring subsequent to the conveyance.
(b) The new owner who purchases the premises referred to in subsection (a) is liable under the rental agreement and under this chapter.
(c) In the event of a foreclosure of the premises subject to a rental agreement, the successor in interest of the prior landlord shall give the tenant a notice that, at the option of the tenant to be exercised within seven days:
(1) The rental agreement may remain in full force and effect; or
(2) The tenant shall vacate the premises within sixty days of the notice.
(c)] (d) Unless otherwise
agreed, a person who is a manager of premises [ which] that
include a dwelling unit subject to a rental agreement is relieved of liability
under the rental agreement and under this chapter as to events occurring
subsequent to the termination of the person's management."
SECTION 4. The provisions of this Act are severable. If any provision of this Act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect upon its approval, provided that Section 667-A contained in section 2 this Act shall be repealed on December 31, 2012.