Signed into law on May 5, 2011 by Governor Neil Abercrombie, Hawaii’s Act 48 was touted as one of the strongest foreclosure laws in America. Its intent was clear and definite; provide additional protections to individuals facing foreclosure by reforming the process by which lien holders effectively foreclose on a property. Of key note:
- Act 48 imposed a moratorium on Chapter 667, Part I Non-judicial Foreclosures effective until July 1, 2012. Known as ‘Part I’ of non-judicial foreclosures, this was the method previously used most by lien holders as it proved to be the fastest and least expensive.
- Act 48 ‘fixed’ Chapter 667, Part II Non-Judicial Foreclosures to eliminate the requirement that the mortgagor sign the deed after foreclosure. In its original form, ‘Part II’ was inherently flawed by requiring that the mortgagor (who was being foreclosed on) to sign the deed. With lack of cooperation by the mortgagor being prevalent, Part II was not used very often in the past.
- Act 48 created a Mortgage Foreclosure Dispute Resolution (MFDR) program. In essence, this program is offered to all owner-occupants whose property is being foreclosed on through non-judicial procedures and allows a platform to mediate with the lender. Lenders are required to participate if the owner chooses to go through this program’s mediation and will share in some of the expenses. This program will be administered by the Department of Consumer and Commerce Affairs, it is to be functional by October 1, 2011 and set to expire on September 30, 2014.
- Owners can elect to convert a non-judicial to a judicial foreclosure, provided that they have not already participated in MFDR. Therefore, owner occupants are strongly encouraged to give proper thought to which venue is most beneficial to their particular circumstances.
While Act 48′s intent was noble, the execution thereof is proving to be problematic, at best. For example, shortly after this law was passed, Fannie Mae (by far one of the largest holders of mortgages) announced that all their foreclosure proceedings would be through the judicial process, thereby skirting the possibility of mediation. Many other lien holders are following in changing their policies as well. In addition, clogging up the court system, which is not adequately prepared or funded for the onslaught of cases to follow this new law, is not conducive towards long-term market stability.
Government programs (i.e. HAMP) have already proven to be temporary fixes, at best, to very permanent systemic flaws in the system that led to the market collapse.
Furthermore, the new measures enacted by Act 48 allow for owner occupants to somewhat delay their foreclosures by requiring additional loops for lien holders to jump through, such as mediation, or the time/cost of switching to judicial proceedings. While some owners will surely benefit from being able to sit down at a table with their lender and try to work out agreeable arrangements, it also opens the door for irresponsible owners to continue taking advantage of the system. Looking forward, Act 48 may prove to be a step in the right direction in resolving the foreclosure crisis in Hawaii, albeit it may fall short of its mighty objectives.