THE SENATE

S.B. NO.

651

TWENTY-SIXTH LEGISLATURE, 2011

S.D. 2

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO MORTGAGE FORECLOSURES.

 

 

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

 


SECTION 1. The legislature finds that the number of residential mortgage foreclosures in Hawaii has increased so rapidly during this current period of economic recession that Hawaii has gained the unfortunate distinction of having one of the highest foreclosure rates in the nation. The legislature finds that, all too often, homeowners who try to take steps to avoid foreclosure through negotiations with lenders are stymied by mortgage lenders or servicers who may not have a local presence to enable direct communication and who employ strategic delay tactics or other unfair practices to thwart good faith negotiations. Federal programs do exist to assist homeowners in avoiding foreclosure. However, the federal programs create a dual-track process that does not compel compliance by lenders and allows the foreclosure process to continue while negotiations or loan modifications are ongoing. In many instances, homeowners may still lose their homes even while they are in compliance with the terms of a foreclosure avoidance or mitigation program.

The legislature further finds that several other states and municipalities have enacted mandatory foreclosure dispute resolution programs to respond to their own high rates of foreclosure. Many of these programs have been successful in allowing families to stay in their homes or to reach some agreement that mitigates damages in the cases where foreclosure is inevitable. Nevada's foreclosure mediation program is widely seen as one example of such a successful program. Since the start of the Nevada program in September 2009, approximately 4,200 mediations have been conducted between homeowners and foreclosing mortgagees. In forty-six per cent of these mediations, homeowners have been able to reach an agreement to remain in the home and in an additional sixteen per cent of cases, homeowners have been able to reach an agreement that mitigates damage and preserves their dignity. The legislature finds that Nevada's foreclosure mediation program serves as a useful model for a similar program in Hawaii.

The purpose of this Act is to authorize a mortgagor to require a foreclosing mortgagee to engage in dispute resolution prior to a judicial or nonjudicial mortgage foreclosure.

SECTION 2. Chapter 667, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"Part     . Mandatory foreclosure dispute resolution

667-A Definitions. As used in this part:

"Association" has the same meaning as in sections 514B-3 and 421J-2.

"Dispute resolution" means a facilitated negotiation between a mortgagor and mortgagee for the purpose of reaching an agreement for mortgage loan modification or other agreement in an attempt to avoid foreclosure or to mitigate damages in the event that foreclosure is unavoidable.

"Facilitator" means the person assigned to facilitate the dispute resolution process required by this part.

667-B Dispute resolution required before foreclosure. (a) Before a circuit court may order a judgment of foreclosure pursuant to section 667-1 or before a public sale may be conducted pursuant to section 667-5 or 667-25 for a residential property that is occupied by the mortgagor as a primary residence, the foreclosing mortgagee shall, at the election of the mortgagor, participate in dispute resolution pursuant to this part to attempt to reach a negotiated agreement to avoid foreclosure or to mitigate damages where foreclosure is unavoidable.

(b) Dispute resolution required by this part shall be conducted through the center for alternative dispute resolution established by section 613-2.

667-C Notice of dispute resolution required. (a) Notice of a foreclosure action in circuit court pursuant to section 667-1, notice of a power of sale foreclosure given, filed, or posted pursuant to section 667-5, or notice of default served pursuant to section 667-22(c) shall include notice that the foreclosing mortgagee is required, at the election of the mortgagor, to participate in dispute resolution pursuant to this part for the purpose of attempting to avoid foreclosure.

(b) The notice required by subsection (a) shall include:

(1) The name and contact information of a person or entity with the authority to negotiate a loan modification on behalf of the mortgagee;

(2) Contact information for at least one local housing counseling agency approved by the United States Department of Housing and Urban Development;

(3) A form for the mortgagor to use to elect or to waive dispute resolution pursuant to this part that shall contain the mailing address of the center for alternative dispute resolution and instructions for the return of the form to the center for alternative dispute resolution; and

(4) A description of the information that the mortgagor is required to provide to the center for alternative dispute resolution.

667-D Election of dispute resolution; stay of foreclosure proceedings. (a) No later than thirty days after receipt of notice of dispute resolution under section 667-C, a mortgagor shall contact the center for alternative dispute resolution to indicate whether or not the mortgagor elects to pursue dispute resolution pursuant to this part.

(b) Upon receipt of notice that a mortgagor has elected to pursue dispute resolution, the center for alternative dispute resolution shall process the notice, assign the matter to a facilitator, and schedule the dispute resolution no later than one hundred thirty-five days after receipt of the mortgagor's election to pursue dispute resolution according to rules adopted by the supreme court. All foreclosure proceedings shall be stayed effective upon the center for alternative dispute resolution's receipt of notice of election to pursue dispute resolution pending the outcome of the dispute resolution process.

(c) If a mortgagor elects to waive dispute resolution or fails to give notice within the time specified to the center for alternative dispute resolution of the mortgagor's election to pursue dispute resolution, the center for alternative dispute resolution shall notify the court, the bureau of conveyances, or the land court, as appropriate, and the foreclosure process shall proceed pursuant to statute.

667-E Dispute resolution process; requirements. (a) Parties to a dispute resolution process conducted pursuant to this part shall consist of the mortgagor or the mortgagor's representative and the mortgagee or the mortgagee's representative; provided that any representative of the mortgagee who participates in the dispute resolution shall be authorized to negotiate a loan modification on behalf of the mortgagee or shall have direct access by telephone or other immediately available communications medium at all times during the dispute resolution process to a person who is so authorized. All parties may be represented by counsel in the dispute resolution process; provided that the mortgagor may be represented by a housing counselor who is certified by the United States Department of Housing and Urban Development.

(b) Prior to a dispute resolution process scheduled pursuant to this part, the mortgagor and the mortgagee shall provide the center for alternative dispute resolution with any information that the center may request. Information required by this subsection shall include financial and employment information to be provided by the mortgagor and loan information, including the original or a certified copy of the mortgage instrument and promissory note, provided by the mortgagee.

(c) A dispute resolution pursuant to this part shall take place at a community mediation center or other site specified by the center for alternative dispute resolution and shall consist of one four-hour meeting of the parties and the facilitator during which the parties shall present the dispute and attempt to conclude the dispute resolution process. The facilitator may extend the time allowed for the dispute resolution at the facilitator's discretion.

(d) If the mortgagee fails to attend the dispute resolution, fails to comply with the requirements of this part or the rules of the supreme court adopted pursuant to this part, or participates through a representative that does not meet the requirements of subsection (a), the facilitator shall notify the court, the bureau of conveyances, or the land court, as appropriate. After receipt of notice pursuant to this subsection, the court shall not issue a judgment of foreclosure and neither the land court nor the bureau of conveyances shall record a notice of sale or other conveyance document for the subject property; provided that in the case of a judicial foreclosure, the court may order a loan modification according to terms determined proper by the court.

(e) If the mortgagor fails to attend the dispute resolution or fails to comply with the requirements of this part or the rules of the supreme court adopted pursuant to this part the facilitator shall notify the court, the bureau of conveyances, or the land court, as appropriate, that the requirements of this part have been met and the foreclosure process shall proceed pursuant to statute.

(f) If, despite both parties' participation in the dispute resolution process and compliance with the requirements of this part and the rules of the supreme court adopted pursuant to this part, the parties are not able to come to an agreement, the facilitator shall notify the court, the bureau of conveyances, or the land court, as appropriate, that the requirements of this part have been met. Upon receipt of notice pursuant to this subsection, the foreclosure process shall proceed pursuant to statute.

(g) If the parties to a dispute resolution come to an agreement to resolve the matters at issue in the dispute resolution before the dispute resolution scheduled pursuant to this section, the parties shall notify the facilitator of the resolution no later than two business days before the scheduled dispute resolution. No fees shall be refunded if the parties come to an agreement prior to or outside of a dispute resolution conducted pursuant to this part.

667-F Outcome of dispute resolution. (a) When the parties to dispute resolution have complied with the requirements of this part and the rules of the supreme court adopted pursuant to this part and have reached an agreement, the agreement shall be memorialized in a resolution document which shall be filed with the circuit court, the land court, or the bureau of conveyances, as appropriate. The resolution document shall be a contract between the parties and shall be enforceable in a private contract action in a court of appropriate jurisdiction in the event of breach by either party. If the resolution document allows for foreclosure or other transfer of the subject property, the court shall order foreclosure and the land court or bureau of conveyances shall record a notice of sale or other conveyance document upon presentation by the mortgagee, as appropriate.

(b) The parties to a dispute resolution may enter into a temporary modification agreement as an outcome of a dispute resolution conducted pursuant to this part; provided that any temporary modification agreements shall include an expiration date, which shall be a date certain upon which the parties shall have complied with their respective obligations under the agreement. A temporary modification agreement shall be a private contract memorialized, filed, and enforceable according to subsection (a).

667-G Confidentiality. Personal financial information and other sensitive personal information disclosed in the course of foreclosure dispute resolution pursuant to this part shall be confidential and not subject to public disclosure.

667-H Facilitator qualifications. The supreme court shall adopt rules for qualifications and training of facilitators for foreclosure dispute resolution pursuant to this part; provided that facilitators shall possess sufficient knowledge in the areas of law, real estate, or finance and shall receive sufficient training to be able to effectuate the purposes of this part.

667-I Fee. The center for alternative dispute resolution may charge a fee not to exceed $400 for dispute resolution services provided pursuant to this part. Any fee for dispute resolution services shall be divided equally between the mortgagee and the mortgagor. All fees collected pursuant to this section shall be deposited into the foreclosure dispute resolution special fund established by section 667-L.

667-J Applicability. This part shall apply to foreclosures, whether by action or by power of sale, of residential real property that is occupied by the mortgagor as a primary residence; provided that this part shall not apply to actions by an association to foreclose on a lien for amounts owed to the association.

667-K Rules. The chief justice of the supreme court may adopt rules for the administration of this part including rules to:

(1) Ensure that dispute resolution occurs in an orderly and timely manner;

(2) Require each party to provide any information that the facilitator deems necessary;

(3) Protect the dispute resolution process from abuse and ensure that each party complies with this part and the rules adopted by the supreme court pursuant to this part;

(4) Establish qualifications and training requirements for facilitators; and

(5) Protect personal financial information and other sensitive personal information obtained in the course of foreclosure dispute resolution from disclosure.

667-L Foreclosure dispute resolution special fund. (a) There is established outside of the state treasury a special fund to be known as the foreclosure dispute resolution special fund to be administered by the judiciary to implement the mandatory dispute resolution in foreclosure proceedings required by this part. The fund shall consist of contributions from the sources identified in subsections (c) and (d). Interest earned from the balance of the fund shall become a part of the fund. The judiciary shall adopt rules regarding the distribution of moneys from the fund.

(b) The judiciary may allow expenditure of moneys from the fund directly by the center for alternative dispute resolution.

(c) All persons who bring an action in the circuit court for foreclosure pursuant to section 667-1, who record an affidavit in the land court pursuant to section 501-118, or who record a conveyance document in the bureau of conveyances for a property subject to a nonjudicial power of sale foreclosure shall pay a fee of $           for deposit into the foreclosure dispute resolution special fund. The fee established pursuant to this subsection shall be assessed only one time for each subject property, regardless of the number of filings related to the subject property.

(d) Fees for foreclosure dispute resolution charged pursuant to section 667-I shall be deposited into the foreclosure dispute resolution special fund."

SECTION 3. Section 613-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) There is established within the judiciary the center for alternative dispute resolution. The center shall facilitate the effective, timely, and voluntary resolution of disputes[. Through these resolutions, it shall] in order to help reduce public and private costs of litigation and increase satisfaction with the justice system. The center shall accomplish its purposes by:

(1) Providing, where feasible and agreed to by the parties, the consultative resources and technical assistance needed to achieve voluntary resolutions for cases that affect the public interest or the work of state and county agencies[. These cases shall include but not be limited to:], including:

(A) Public disputes involving actual or threatened court actions over the allocation or management of public resources or the siting of public facilities;

(B) Complex litigation cases in which a court or a regulatory or administrative agency has determined that the dispute involves multiple parties or formidable technical, procedural, or factual issues, or both;

(C) Policy roundtables in which the center, at the request of an executive, legislative, or judicial decisionmaker, convenes and chairs advisory discussions on matters pertaining to standards or rules; [and]

(D) Other cases directly referred by judges, legislators, agency heads, or appointed government officials; and

(E) Foreclosures subject to part       of chapter 667;

(2) Promoting in a systematic manner the appropriate use of alternative dispute resolution; and

(3) Disseminating to government agencies and to the community at large up-to-date information on the methods and applications of alternative dispute resolution."

SECTION 4. Section 667-1, Hawaii Revised Statutes, is amended to read as follows:

"667-1 Foreclosure by action. The circuit court may assess the amount due upon a mortgage, whether of real or personal property, without the intervention of a jury[,] and, subject to the requirements of part      , 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."

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

1. By amending subsection (a) to read:

"(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 of the mortgagee's, successor's, or person's intention to foreclose the mortgage, the notice of the mortgagor's right to elect to participate in dispute resolution as required by section 667-C, and of the sale of the mortgaged property, by publication of the notice once in each of three successive weeks [(], constituting three publications[),] with 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 the mortgaged property lies; and

(2) Give any notices and do all acts as are authorized or required by the power contained in the mortgage."

2. By amending subsection (e) to read:

"(e) [The] Subject to the requirements of part      , the affidavit and copy of the notice shall be recorded and indexed by the registrar, in the manner provided in chapter 501 or 502, as the case may be."

SECTION 6. Section 667-22, Hawaii Revised Statutes, is amended to read as follows:

"667-22 Notice of default; contents; distribution. (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]; provided that if the default is a monetary default, an itemization of the delinquent amount shall be given;

(5) The action [that must be taken] required to cure the default, including the delinquent 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 the default must be cured, which [deadline date] shall be at least sixty days after the date of the notice of default;

(7) [That] A statement 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] become 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; [and]

(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[.]; and

(9) Notice of the mortgagor's right to elect to participate in a dispute resolution process as required by section 667-C.

(b) The notice of default shall also contain wording substantially similar to the following in all capital letters:

"IF THE DEFAULT ON THE LOAN CONTINUES AFTER THE DEADLINE DATE IN THIS NOTICE, THE MORTGAGED PROPERTY MAY BE FORECLOSED AND SOLD WITHOUT ANY COURT ACTION AND WITHOUT GOING TO COURT.

YOU MAY HAVE CERTAIN LEGAL RIGHTS OR DEFENSES. FOR ADVICE, YOU SHOULD CONSULT WITH AN ATTORNEY LICENSED IN THIS STATE.

AFTER THE DEADLINE DATE IN THIS NOTICE, TWO PUBLIC SHOWINGS (OPEN HOUSES) OF THE PROPERTY BY THE LENDER WILL BE HELD, BUT ONLY IF ALL MORTGAGORS (OWNERS) OF THE PROPERTY SO AGREE. TO SHOW THAT ALL OWNERS AGREE TO ALLOW TWO OPEN HOUSES BY THE LENDER, ALL OWNERS MUST SIGN A LETTER SHOWING THEY AGREE. ALL OWNERS MUST SEND THE SIGNED LETTER TO THIS OFFICE AT THE ADDRESS GIVEN IN THIS NOTICE.

THIS OFFICE MUST ACTUALLY RECEIVE THE SIGNED LETTER BY THE DEADLINE DATE IN THIS NOTICE. THE SIGNED LETTER MUST BE SENT TO THIS OFFICE BY CERTIFIED MAIL, REGISTERED MAIL, OR EXPRESS MAIL, POSTAGE PREPAID AND RETURN RECEIPT REQUESTED.

IF THE SIGNED LETTER IS NOT RECEIVED BY THIS OFFICE BY THE DEADLINE DATE, THE PROPERTY WILL THEN BE SOLD WITHOUT ANY OPEN HOUSES BEING HELD.

EVEN IF THIS OFFICE RECEIVES THE SIGNED LETTER TO ALLOW THE LENDER TO HOLD TWO OPEN HOUSES OF THE PROPERTY, IF ALL OWNERS LATER DO NOT COOPERATE TO ALLOW THE OPEN HOUSES, THE PROPERTY WILL BE SOLD WITHOUT ANY OPEN HOUSES BEING HELD.

ALL FUTURE NOTICES AND CORRESPONDENCE WILL BE MAILED TO YOU AT THE ADDRESS AT WHICH YOU RECEIVED THIS NOTICE UNLESS YOU SEND WRITTEN INSTRUCTIONS TO THIS OFFICE INFORMING THIS OFFICE OF A DIFFERENT ADDRESS. THE WRITTEN INSTRUCTIONS MUST BE SENT TO THIS OFFICE BY CERTIFIED MAIL, REGISTERED MAIL, OR EXPRESS MAIL, POSTAGE PREPAID AND RETURN RECEIPT REQUESTED."

(c) The foreclosing mortgagee shall have the notice of default served on:

(1) The mortgagor and the borrower;

(2) Any prior or junior creditors having a recorded lien on the mortgaged property before the recordation of the notice of default under section 667-23;

(3) The state director of taxation;

(4) The director of finance of the county where the mortgaged property is located; and

(5) Any other person entitled to receive notice under section 667-5.5.

(d) As used in this part, unless the context clearly indicates otherwise, the "notice of default" shall also include any amended notice of default that results from a failure of dispute resolution under section 667-E(e) or (f)."

SECTION 7. Section 667-24, Hawaii Revised Statutes, is amended to read as follows:

"[[]667-24[]] Cure of default. (a) If the default is cured as required by the notice of default[,] or if the parties have reached an agreement to avoid foreclosure pursuant to part     , the foreclosing mortgagee shall rescind the notice of default. Within fourteen days of the date of the cure[,] or an agreement reached by the parties through a dispute resolution process pursuant to part     , the foreclosing mortgagee shall so notify any person who was served with the notice of default. If the notice of default was recorded, a release of the notice of default shall be recorded.

(b) If the default is not cured as required by the notice of default[,] or if the parties have not reached an agreement to avoid foreclosure pursuant to part     , the foreclosing mortgagee, without filing a court action and without going to court, may foreclose the mortgage under power of sale to sell the mortgaged property at a public sale."

SECTION 8. Section 667-25, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) [The] Subject to the requirements of part      , public sale of the mortgaged property shall take place on the later of the following:

(1) At least sixty days after the public notice of the public sale is distributed under section 667-27; or

(2) At least fourteen days after the date of the publication of the third public notice advertisement under section 667-27."

SECTION 9. There shall be a moratorium on foreclosure actions for property located in this State. No foreclosure by action or by power of sale shall proceed, no court shall issue an order for foreclosure pursuant to section 667-1, Hawaii Revised Statutes, the registrar of the land court shall not record an affidavit pursuant to section 501-118, Hawaii Revised Statutes, and the registrar of the bureau of conveyances shall not record a conveyance document with the bureau of conveyances following a power of sale foreclosure during the moratorium period established by this Act.

SECTION 10. There is appropriated out of the general revenues of the State of Hawaii the sum of $           or so much thereof as may be necessary for fiscal year 2011-2012 to pay for the initial costs associated with establishing a dispute resolution program for use by mortgagors and mortgagees to attempt to avoid or mitigate the damages of foreclosure in the center for alternative dispute resolution.

The sum appropriated shall be deposited into the foreclosure dispute resolution special fund established pursuant to section 667-L and shall be expended by the judiciary for the purposes of this Act; provided that upon receipt of sufficient moneys to sustain its purpose, the foreclosure dispute resolution special fund shall reimburse the general fund for the appropriation made pursuant to this Act.

SECTION 11. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 12. This Act shall take effect on July 1, 2050; provided that section 9 of this Act shall be repealed six months after its effective date.

 


 


 

Report Title:

Mortgage Foreclosures; Dispute Resolution; Appropriation

 

Description:

Requires foreclosing mortgagees to engage in a dispute resolution process at the election of a mortgagor before carrying out a judicial or nonjudicial power of sale foreclosure; authorizes the supreme court to adopt rules for dispute resolution; establishes a special fund for foreclosure dispute resolution to be expended by the judiciary; imposes a moratorium on foreclosures for 6 months after effective date; makes appropriation. Effective 7/1/2050. (SD2)

 

 

 

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