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Hawai‘i’s Foreclosure Law

Did the means justify the ends?

August 18, 2011
Josh Jerman

In May, Gov. Neil Abercrombie signed a groundbreaking piece of legislation, Senate Bill 651, a measure intended to help homeowners who are in foreclosure or at risk of foreclosure. The new law, called Act 48, intended to assist homeowners by reforming the state’s non-judicial foreclosure law and creating an equal footing between lenders and borrowers.

I, for one, held out hope that Act 48 would assist distressed homeowners seeking loan modifications, as it would provide the option of mediation (the Mortgage Foreclosure Dispute Resolution Program, slated to commence in October) to settle disputes, and hopefully, reach a mutually beneficial solution. Unfortunately, though, a growing number of real estate professionals and legal experts say Act 48 is not only flawed, but also potentially useless.

At a recent Hawai‘i State Bar Association conference, a panel of attorneys cited excessive liabilities for violating trivial provisions of the law as the No. 1 reason why the new law is considered to be idle. While the non-judicial process may have been the easier route to take in the past, many predicted that lenders would avoid the new law and opt for the judicial foreclosure process.

This prediction became a reality in June, when Freddie Mac and Fannie Mae both announced that all foreclosures in the State of Hawai‘i must “be commenced as judicial foreclosures.” Fannie Mae issued a statement saying: “Effective immediately, all pending Fannie Mae non-judicial foreclosures in Hawai‘i that have not proceeded to sale should be dismissed and converted to judicial foreclosures.”

So, how will this impact Maui County? The full effects may not be seen for several years, but I’ve witnessed an emerging trend: as anticipated foreclosures are withdrawn from the market, there is less inventory (particularly bank-owned properties) for buyers to choose from. This is bad news for an increasingly hungry marketplace that is experiencing a surge of activity. In effect, the law—which intended to level the playing field for lenders and borrowers—may create greater inequity. Only time will tell. For more information about Act 48, visit the state Department of Commerce and Consumer Affairs’ Website at or call (808) 586-7582.



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