Signed into law by Governor Abercrombie on June 29, Act 182 received little media coverage yet its effect on the foreclosure process in Hawaii is sure to have significant ramifications. The new Act is meant to resolve unintended consequences (‘flaws’, as scrutinized by the media and public) of Act 48. To provide a brief background, Act 48 was intended as a solution to protect owner-occupants at default from facing what was widely considered to be antiquated non-judicial foreclosure procedures. However, lienholders chose to skirt the new protections afforded by Act 48 by implementing policies whereby all new foreclosures were processed judicially. Hence, although some owner-occupants were ‘saved’ from non-judicial foreclosure, now through judicial foreclosure they can face deficiency judgments – not to mention that under-staffed, under-funded courts are now backlogged by the wave of judicial foreclosures.
With that said, the 2012 legislative session included efforts to address/remedy concerns from consumers, lenders, title companies, and HOA’s. As such, let us look at what Act 182 encompasses:
- Act 48 had placed a one-year moratorium on Part I of the non-judicial foreclosure law, now Act 182 has been completely eliminated Part I.
- Mediation, which is only available for non-judicial foreclosures of owner-occupant residential properties by lenders, has now become permanent.
- Borrowers can convert a non-judicial foreclosure to judicial. This protection becomes permanent under Act 182, whereas it was temporary under Act 48.
- Establishes a separate non-judicial foreclosure and assessment lien process for AOAO and HOAs. Very critical.
- Reduces the amount that AOAOs and HOAs may be entitled to specially assess for unpaid regular assessment to 6 months (no limit). Only the regular common maintenance fees can be specially assessed (not court costs, attorney’s fees, fines, etc.). Under Act 48 condo associations could charge the new buyer up to 12 months of common assessments up to a maximum of $7,200 – there was not a similar entitlement for Home Owner Associations of single-family residences. Now, under Act 182, both condo and homeowner associations can assess the new buyer for the previous owner’s delinquency up to 6 months – no limit on amount.
- When a foreclosure is initiated by a HOA/AOAO, the dispute resolution program is not applicable nor is the conversion available from non-judicial to judicial foreclosure.
- Act 182 “limits” the greater lender liability to 13 enumerated provisions, thereby addressing concerns from lenders of unlimited liability for what may be perceived as ‘minor’ infractions. In addition, the borrower has 60 days from filing of affidavit to challenge the non-judicial foreclosure, after which title is deemed to pass free and clear. That is a key element in insurability.
- On all judicial foreclosures, the lender’s attorney must sign a statement verifying the lenders’ legal standing and accuracy of the documents. This ensures a higher level of scrutiny by lender’s prior to filing and said affirmation will be required in order to determine insurability.
The Hawaii real estate landscape continues to evolve quickly and it can be extremely daunting to keep abreast of all new developments. It will be interesting to see how these new legislation will impact the real estate market, both short-term and long-term.
Aloha Mr Alex Cortez
I occupy and own my only home outright in Hawaii. I put the house in a qualified domestic trust. I am the sole trustee. If I default on my Home Owner Association fees and they decide to go through the process of a non-judicial foreclosure, would the association need my consent in order to exercise the right to foreclose my own home?
Thank you for your time,
January 2nd, 2013 at 8:25 am