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July 30, 2012 fidelityhawaii

July 30, 2012 www.fidelityhawaii.com. Act 182 (New Foreclosure Law). Presented by William Tanaka, Esq., General Counsel. Act 182 (New Foreclosure Law). BRIEF OVERVIEW - Timeline Before ACT 48 (pre-May 5, 2011) ACT 48 (May 5, 2011) Act 182 (June 28, 2012). Act 182 (New Foreclosure Law).

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July 30, 2012 fidelityhawaii

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  1. July 30, 2012 www.fidelityhawaii.com

  2. Act 182 (New Foreclosure Law) Presented by William Tanaka, Esq., General Counsel

  3. Act 182 (New Foreclosure Law) BRIEF OVERVIEW - Timeline • Before ACT 48 (pre-May 5, 2011) • ACT 48 (May 5, 2011) • Act 182 (June 28, 2012)

  4. Act 182 (New Foreclosure Law) 1. Before ACT 48 (pre-May 5, 2011)

  5. Prior to Act 48, many lenders (mortgagees) proceeded with non-judicial foreclosure under the old Part I of Hawaii Revised Statutes 667-5. • Expeditious method for lenders (2 to 4 months to obtain title or sell to third-party) • No oversight by courts • Title insurers provided title insurance for both non-judicial auction sales and REO sales

  6. Before ACT 48 (pre-May 5, 2011) - Rewind Issues for Consumers • Lack of sufficient time to work out payment plan/loan modification agreement Ex. Bank of America • Foreclosure dept. in California • Loan mod. dept. in Texas • Difficult for homeowners to challenge non-judicial foreclosures because of expeditious nature • Lack of notice of mortgagee (no assignments recorded) • File lawsuit/bankruptcy to stay non-judicial foreclosure

  7. 2011 legislative session – provide owner-occupants an opportunity to work out loan agreements before facing non-judicial foreclosures 2. ACT 48 (May 5, 2011)

  8. ACT 48 (May 5, 2011) - Rewind • Act 48 – Governor Abercrombie signed into law on May 5, 2011 • Placed one-year moratorium on non-judicial foreclosures under Part I until July 1, 2012 • Implemented a Dispute Resolution Program for non-judicial foreclosures of owner-occupant* residential properties (started October 1, 2011) • *Owner-occupant means a person who has resided at the subject property as primary residence for at least 200 continuous days at time default notice was served.

  9. ACT 48 (May 5, 2011) - Rewind • Allowed owner-occupant of a residential property to covert non-judicial into judicial foreclosure • Added additional notice requirements under exiting Part II (HRS Chapter 667) • Under Part II, deleted requirement that the borrower sign the conveyance document after the public auction sale

  10. ACT 48 (May 5, 2011) - Rewind Condominiums • Increased special assessment amount under HRS 514A-90(h) and 514B-146 (h) to 12 months of regular monthly common assessments up to a maximum of $7,200 • Required Association to provide a condo unit owner a 60-day cure period (if owner complied with notice requirements) • Provided that Association shall not reject “reasonable payment plan” (but “reasonable” undefined)

  11. ACT 48 (May 5, 2011) - Rewind • Act 48 gave serious concerns for lenders, foreclosing attorneys and title insurers • Some process/provisions not clear • Liable for any minor violations • Any violation may invalidate non-judicial foreclosure • Relies on DCCA to do its job timely • Unfair or Deceptive Act or Practice (UDAP) “Any foreclosing mortgagee [lender] who violates this chapter shall have committed an unfair or deceptive act or practice under section 480-2” • Recovery of attorney’s fees, costs and treble damages

  12. ACT 48 (May 5, 2011) - Rewind Consequence of Act 48 • Stopped virtually all mortgage non-judicial foreclosures • Lenders instead filed all judicial foreclosures • Therefore, no dispute resolution programs utilized • Owner-occupants faced deficiency judgments in judicial foreclosures

  13. So didn’t Act 48 do its job of stopping all the non-judicial foreclosures? • Yes, in the short term, but: • In the long-term owners may still face judicial foreclosures • Deficiency judgment, attorney’s fees/costs • Overburden the state court system • 12-18 months –judicial foreclosure

  14. 3. ACT 182 • (June 28, 2012) 2012 Legislative Session • Goal to refine Act 48 to balance interests of consumer advocates, lenders and title insurers regarding the process of non-judicial foreclosures • Also, to provide condo and homeowner’s associations with statutory right to judicially or non-judicially foreclose

  15. Act 182 (New Foreclosure Law) Overview of Act 182 • Repealed non-judicial foreclosure process under Part I (Hawaii Revised Statutes 667) • No due process for homeowners • Repeal provides opportunity and time for homeowners to communicate with lenders and keep their homes

  16. Act 182 (New Foreclosure Law) Overview of Act 182 • Makes permanent the dispute resolution program (DRP) • DRP – in place since October 1, 2011 • Non-judicial foreclosures of owner-occupant residential properties by lenders • Single family • Condos • HOAs

  17. Act 182 (New Foreclosure Law) To better understand how Dispute Resolution Program works, let’s review the general process for lenders to proceed with non-judicial foreclosure under Act 182

  18. Non-Judicial Foreclosure – Act 182 Continued Non-judicial foreclosure under Part II cont’d • When owner-occupant defaults, lenders must provide 60-day cure period • Lenders file notice of non-judicial foreclosure with DCCA within 3 days of notifying owner-occupant, plus $250 filing fee • DCCA notifies owner-occupant within 10 days • Owner-occupant has 30 days to: • Require lenders to participate in dispute resolution program (owner and lender each pays $300 fee) - OR • Convert non-judicial into judicial foreclosure (owner pays $250 fee) - OR • If neither, then non-judicial foreclosure will continue.

  19. Non-Judicial Foreclosure – Act 182 Continued If Dispute Resolution Program is elected by owner-occupant: • DRP scheduled 40 to 70 days from date of case opening • Upon agreement by the parties and neutral (mediator), this can be changed • Owner-occupant has to meet with approved counselor 30 days before DRP • 15 days prior to DRP: • Lenders submit financial documents (note, mortgage, correspondences) • Owner-occupant submits income qualification, W-9s • At DRP – lender’s authorized rep to negotiate loan mod. • Up to two 3-hour DRP sessions Neutral (mediator) has 60 days to determine that the parties have reached or failed to reach an agreement

  20. Non-Judicial Foreclosure – Act 182 Continued So how long can a non-judicial foreclosure under Act 182 take to complete against owner-occupant of residential property? 4 - 8 months Depends on owner-occupant’s response to non-judicial • DRP • Judicial foreclosure • Allow non-judicial

  21. Act 182 (New Foreclosure Law) Overview of Act 182 • Makes permanent the process for converting non-judicial foreclosures of owner-occupant property by lenders into judicial foreclosures • Owner-occupant has 30 days from service of non-judicial foreclosure to convert • $250 fee

  22. Act 182 (New Foreclosure Law) Overview of Act 182 • Establishes a separate non-judicial foreclosure and assessment lien process for AOAO and HOAs • Added more substance for HOA Law • Now more comparable to Condominium law • Example: For owner-occupied units, the HOA (like the AOAO) may terminate the delinquent units access to the common areas and cease supplying all services normally supplied or paid for by the HOA!! (until full payment – 60-day cure period)

  23. Act 182 (New Foreclosure Law) Condominium & Homeowners Associations (“Associations”) • Recorded liens by Associations for unpaid assessments expire 6 years after recordation • Liens may be foreclosed judicially or non-judicially • But, if the liens include only fines, penalties, legal fees and/or late fees, then judicial foreclosure only.

  24. Associations’ Special Assessments – Act 182 • Act 182 – reduces amount that Associations may be entitled to specially assess for unpaid regular periodic assessments to: 6 MONTHS!! • NO LIMIT on amount of this regular assessments • But, Associations cannot specially assess for late charges, fines, penalties, interest, attorney’s fees and court costs • Note: 6 months is the time period when the defaulting borrower owned the condo unit

  25. Associations’ Special Assessments – Act 182 After a foreclosure, when is the new owner (either lender or 3rd party buyer) deemed to acquire title and is responsible to start paying the regular common expenses? • Judicial: either 36 days after confirmation order filed or 60 days after confirmation hearing (whichever 1st) • Non-Judicial: 30 days after public auction sale • Note: If the foreclosure sale is challenged by court action, including bankruptcy, then new owner acquires title when conveyance document recorded

  26. Associations’ Special Assessments – Act 182 Example 1 – Judicial foreclosure – lender buys back (Association fees $2,000/mo. – unit owner delinquent entire 2011 for a total of $24,000) • Nov. 1, 2011 – Confirmation sale hearing held • Dec. 15, 2011 – Confirmation order filed • When is lender responsible to start paying Assoc. fees? Jan. 1, 2012 (60 days after confirmation hearing) • Sept. 30, 2012 – lender sells property to new buyer (REO sale) • Can Association still specially assess the new buyer for previous owner’s delinquency? YES • How much? $12,000 (Yikes!) July 1, 2011 – Jan. 1, 2012 (6 months)

  27. Associations’ Special Assessments – Act 182 Example 2 – Non-judicial foreclosure – new buyer (Association fees $100/mo. – unit owner (Rene) delinquent entire 2011 through May 2012, with late penalties and interest – total $2,500) • Nov. 1, 2011 – Public auction sale held • Dec. 10, 2011 – Affidavit recorded • Dec. 31, 2011 – Deed recorded conveying to new buyer • When is new buyer responsible to start paying Assoc. fees? Dec. 1, 2011 (30 days after public auction) • Jan. 15, 2012 –new buyer sells to his friend, Matt • Can Association still specially assess Matt for previous owner’s (Rene) delinquency? NO • Special assessments only against 1st buyer at foreclosure/REO sale • But, could have assessed new buyer for $600 during his ownership

  28. Associations’ Special Assessments – Act 182 • Association may specially assess the unpaid common expenses against new buyer (3rd party buyer)! • But, lender whose mortgage was recorded before filing of Association’s notice of lien shall NOT be liable for the special assessment • BUT 3rd party buyer (foreclosure or REO sale) “shall be obligated to make, and shall be liable for” the special assessment

  29. Associations’ Special Assessments – Act 182 So who is responsible for paying the 6 months of delinquent regular assessments – if the Association decides to specially assess? • Under the law, the new 3rd party buyer at a foreclosure/REO sale is responsible • However, many lenders are paying the entire delinquency. • Payoff demand sometimes include special assessments What if the lenders do not pay the delinquency at closing? • Then the new 3rd party buyer will be responsible under the law.

  30. Associations’ Special Assessments – Act 182 Practice Pointers • In any condominium/HOA purchase at a REO/Foreclosure Sale, the buyer should be informed that they may be responsible for paying the prior owner’s (borrower) delinquency - up to 6 months • Don’t assume that the lenders will pay the entire amount • Even after closing, Associations can come after new buyer for the delinquency! So, notice to the buyer that they could be responsible for the previous owner’s delinquency is important • Buyer should consider the discount that they are purchasing the unit at REO/Foreclosure sale and the potential liability for up to 6 months of unpaid regular assessments

  31. Non-Judicial Foreclosures by Associations **No Dispute Resolution Program** **No conversion into judicial foreclosure** • Associations also may foreclose judicially or under Part II • 60-days cure period for unit owners • 30-days for unit owner to submit payment plan • Reasonable payment plan – up to 12 months

  32. Associations’ Non-Judicial Foreclosure • Notice of Default & Intention to Foreclosure may be recorded (same effect as Lis Pendens) • If not cured or agreed to payment plan, Associations may proceed non-judicially • Public auction must take place either: • At least 60 days after public notice distributed, or • At least 14 days after the third publication • Successful bidder • Association – credit bid • Third-party buyer – at least 10% down • Complete purchase within 45 days or forfeit down payment

  33. Associations’ Non-Judicial Foreclosure • Affidavit recorded 10 to 45 days after public auction sale • Sale of unit complete when both affidavit and conveyance document are recorded

  34. So how long can the Associations’ non-judicial foreclosure take? 4 - 6 Months

  35. Act 182 (New Foreclosure Law) Overview of Act 182 • Attempts to temper lenders concerns about Unfair Deceptive Acts or Practices (UDAP) liability for minor violations

  36. Unfair and Deceptive Act or Practice (UDAP) • Act 182 “limits” UDAP claim to 13 provisions • Ex. – failing to post information on property • Ex. – failing to inform borrower of dispute resolution program • Borrower has 60 days from filing of affidavit to challenge non-judicial foreclosure • After 60 days, title to the property is vested in buyer free and clear

  37. Act 182 (New Foreclosure Law) Overview of Act 182 • Lender’s public notice requirement for loan applicants • Information on “What is Foreclosure?” must be provided to residential loan applicants and all owners of property within 3 business days after written loan application is submitted. • “What is Foreclosure?” notice provides general foreclosure process for judicial and non-judicial • Purpose: inform borrowers that in the event of a default, the lenders have option of pursuing either judicial or non-judicial foreclosure

  38. Act 182 (New Foreclosure Law) Overview of Act 182 • Requires lenders’attorneys filing judicial foreclosures on residential property to sign an affirmation verifying the lenders’ legal standing and accuracy of the documents

  39. Update on Act 48 – 2012 Legislative Session Attorney Affirmations • 667-O: Attorneys filing judicial foreclosures on residential properties sign affirmation stating they have verified accuracy of the documents under penalty of perjury! (expires July 1, 2017) • 667-P: Attorneys filing judicial foreclosures sign affirmation stating that the lawsuit is warranted and have evidentiary support under penalty of perjury! (effective July 1, 2017)

  40. Non-Judicial Foreclosure of Residential Property Under Act 182– Lenders are Not Entitled to Deficiency Judgments Against Owner-Occupant Note: unless the debt is secured by other collateral

  41. So how will lenders and foreclosure attorneys likely proceed under Act 182? Most likely continue with only judicial foreclosures

  42. Thank you for your time & attention www.fidelityhawaii.com

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