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News Release Hawaii House of Representatives March 8, 2012 - For immediate release

Contact: Rep. Robert Herkes 808-586-8400Media Contact: Georgette Deemer 808-341-5043

House passes Mortgage Foreclosure bills

Honolulu, Hawaii. To complement the 2011 Legislature's reform of Hawaii's foreclosure lawsin Act 48, the House of Representatives has transmitted to the Senate several measures thatwould further offset the negative effects of the national foreclosure crisis in Hawaii.

HB1875 HD2:Over the interim, the legislatively-created Mortgage Foreclosure Task Force convened for its

second year, focusing its efforts on reviewing and refining the provisions of Act 48. Theirrecommendations are included in HB1875 HD2 with some amendments.

Everett Kaneshige, formerly the Deputy Director of the Department of Commerce and ConsumerAffairs and Chair of the task force, explained in his testimony that the task force "focused onstreamlining the process enacted by the Legislature" and tried "to bring to the Legislaturesvision of a functional and fair non-judicial foreclosure process to fruition."

The task force's recommendations predominantly concentrated on the non-judicial foreclosureprocess for condominium and homeowner associations. They also suggested some revisions tothe Mortgage Foreclosure Dispute Resolution Program to: protect borrower's personalinformation; simplify and clarify some definitions and terminology; and refine certain proceduralissues.

The task force also suggested that an owner- occupants ability to convert her or his non -judicialforeclosure to one overseen by the courts would be made permanent. Under Act 48, this optionwould be repealed at the end of 2012.

Perhaps the task force's most potentially impactful recommendation is to amend Act 48's Unfairand Deceptive Act or Practice (UDAP) provision, which has been cited as the primary reasonwhy lenders have since decided to pursue all their foreclosures in court. The variousstakeholders on the task force reached a compromise by majority vote to support thisrecommendation, which seeks to retain strong protections for consumers while also providinglenders and title insurers more specific guidance as to what actions may constitute UDAPviolations. The compromise recommendation includes a 6 month time-frame on a borrower'sability to challenge the transfer of title of a home after such a foreclosure.

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The current draft of this measure further limits the application of UDAP so that lenders need notfear committing an automatic UDAP violation while the dispute resolution program is operative.This amendment was adopted to encourage use of the program so that more foreclosure actionsmay be resolved with the help of a trained third-party neutral. In 2014, when the program ends,the task force's recommendations would then take effect.

HB1875 HD2 also permanently repeals the non-judicial foreclosure law from 1874, which wasused to conduct the majority of foreclosures before Act 48 and is currently under moratoriumuntil July 1, 2012. If this bill is enacted, there would be just one non-judicial foreclosure processwith numerous consumer protections built in.

Also included in this bill is a requirement that a foreclosing lender's attorney sign an affirmationin judicial foreclosures indicating that they had reviewed and verified the accuracy of the lender'spaperwork and legal authority to foreclose.

The bill is 158-pages and predominantly deals with condominium and planned communityassociation liens and foreclosures. A number of these provisions are still being discussed byvarious stakeholders. These stakeholders have been encouraged by lawmakers to continueworking toward consensus so that the final draft's provisions are agreeable to all.

HB2018:Like HB1875 HD2, this measure adopts the mortgage foreclosure task force's recommendationsto temper Act 48's UDAP provision; however, HB2018 limits this recommendation until afterthe dispute resolution program is no longer operative in 2014. While the dispute resolutionprogram is in effect, Act 48's UDAP provision would be repealed to encourage use of theprogram so that more foreclosure actions may be resolved with the help of a trained third-partyneutral.

HB2375:One burgeoning enterprise that has emerged during this foreclosure crisis is the mortgageforeclosure rescue industry. These operations often defraud borrowers, taking their moneyand/or persuading homeowners to transfer to them title on their homes while falsely promising toprevent foreclosure. Homeowners often default on their mortgages to pay for these "services"and end up losing their property anyway. Their practices are dangerous and objectionable toborrowers and lenders alike.

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This bill makes these practices criminal felonies subject to $10,000 fines. A special fund wouldbe created from these and other fines to further enforce Hawaii's mortgage rescue fraud law andto educate the public on how to identify violators and avoid their traps.

HB2019:Act 48 ensured that owner-occupants would not be subject to deficiency judgments in non-

judicial foreclosures should the sale of their property fail to satisfy the full amount of theirindebtedness on a mortgage loan. Since lenders have filed all their foreclosures in the courtssince the passage of Act 48, this bill would extend these protections to owner-occupants in

judicial foreclosures, short sales, and in transactions transferring deeds-in-lieu of foreclosure.Similar anti-deficiency legislation has been enacted in various other states.

This measure would prevent double recovery for many lenders who often sell foreclosed homeson the open market at a profit, and then subsequently collect deficiencies from troubledborrowers. This would also reduce the amount of bankruptcy filings by borrowers seeking todischarge these debts giving them a chance at a fresh start. Sometimes these deficiency

judgments are sold at a great discount on the secondary market, inviting abusive third party debtcollection activities.

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