By COLIN M. STEWART
By COLIN M. STEWART
Tribune-Herald Staff Writer
Big Island state Rep. Bob Herkes, D-Puna, Ka‘u, Kona, is working to temper legislation that was enacted last spring to curtail the high rate of home foreclosures in Hawaii.
Herkes and other supporters of Act 48 have hailed it as a highly successful attempt to stanch what they referred to as the “hemorrhaging” of home foreclosures in the state after the economy took a nosedive in 2008. Indeed, since it was first enacted in May, lenders have filed far fewer foreclosure proceedings, leading to an estimated 52 percent drop in foreclosures statewide for 2011 compared to 2010, according to foreclosure listing service RealtyTrac. In a January report, RealtyTrac found that the number of homes involved in foreclosure fell to 6,012 in 2011 from 12,425 in 2010.
Mortgage lenders, however, claim that the law — which allows for them to either pursue a judicial foreclosure under the purview of a judge, or a non-judicial foreclosure through a state-run mediation process — is too restrictive. They say that, as the law is written, the potential for being forced to pay excessive damages for minor infractions is too high if they opt to go the non-judicial route. As a result, many of the big lenders have instead focused on judicial foreclosures in the last year.
That decision by lenders to forego the state’s mediation process has turned out to be a big disappointment for the architects of Act 48, said Herkes.
“That’s been one of the most important issues,” he said. “They (banks) are not using the mediation process … they say it’s too big a risk. So they’ve decided to go with judicial foreclosures.”
Herkes said that he believes that the big lenders aren’t being honest about why they are opting to avoid the mediation process, so he wants to do away with one aspect of Act 48 that has been under fire from the banks. Currently, the law requires that any violations discovered in the nonjudicial foreclosure paperwork filed by a lender would count as a “UDAP,” or Unfair of Deceptive Acts or Practices, violation. Such UDAP violations can carry very hefty fines and other legal repercussions.
By removing that possibility, or limiting the potential UDAP violations to a small list, Herkes said he hopes to remove any excuse for avoiding nonjudicial foreclosure.
“Then, if they still don’t use the mediation process, then we know there is another issue: The problem is that many of the lenders, the big, off-shore banks, can’t show title, because they’ve cut them all up and don’t know where the title is,” Herkes said.
One of the requirements for entering into Hawaii’s mediation process is that the lender must be able to present for inspection the paperwork proving that the bank holds the title for the property.
But, as has been revealed in the last several years, many banks have had serious problems with the chain of title as a result of the practice of breaking mortgages up and selling them in pieces to investors.
Just last month, for instance, an audit by San Francisco county officials of about 400 recent foreclosures found that “almost all involved either legal violations or suspicious documentation, according to a Feb. 15 report in the New York Times.
“About 84 percent of the files contained what appear to be clear violations of law … and fully two-thirds had at least four violations or irregularities,” the report said.
House Bill 1875, which currently awaits hearing by the Senate Judicial and Labor committee, is an attempt to remove lenders’ stated reasons for avoiding mediation, Herkes said. Ultimately, the goal is to provide an opportunity for Hawaii families to save their homes by renegotiating the terms of their mortgages with their lenders, he said.
Email Colin M. Stewart at cstewart@hawaiitribune-herald.com.