‘Deceptive Practices’ Penalty Hindering Mortgage Foreclosure Law
Hawaii homeowners have yet to benefit from the state’s new foreclosure dispute resolution program intended to force lenders to meet face-to-face with homeowners before foreclosing on a property.
The online dispute resolution program launched earlier this month as part of a sweeping law aimed at reforming Hawaii’s foreclosure process is not being used.
Because of the way the law is currently written, lenders are steering away from the program over fear of being sued.
“The big issue from the lenders’ standpoint is the unfair and deceptive practices provision in the law,” said Everett Kaneshige, deputy director for the Department of Commerce and Consumer Affairs, which is in charge of overseeing the mediation program.
states: “Any foreclosing mortgagee who violates this chapter shall have committed an .”
The lenders’ fear is that “when it’s not clear, any violation, no matter how manini it is, puts them in violation of that,” Kaneshige said.
Kaneshige said the penalty is significant so lenders don’t want to risk it and are avoiding the process.
DCCA hasn’t received any filings, which Kaneshige called “unfortunate.”
The goal of the law, which is based on a similar 2009 Nevada law, is to have lenders and homeowners come up with a compromise for a modified mortgage. For the more than 5,000 Honolulu residents alone whose homes were foreclosed in 2010, the impact of the law could be substantial.
The dispute resolution program applies only to non-judicial foreclosures, which are handled outside of court. Non-judicial foreclosures had previously been viewed as an easier — and quicker — option for lenders. Since Act 48 took effect on May 5, the total number of judicial filings between May and August of this year is up by almost 82 percent, compared with last year’s May-August filings.
Lawmakers are relying on a task force to recommend ways to clarify the law in the upcoming legislative session. Kaneshige chairs the Mortgage Foreclosure Task Force, and said the group is trying to adhere to the legislature’s intent when it created the program.
Most of the recommended changes have been minor or technical changes such as revising definitions and fixing typos. But members have not yet been able to reach a consensus on how to best address the “unfair or deceptive act or practice” penalty.
Task force members had been working on recommendations in three smaller subgroups, one of which had taken up the unfair or deceptive practices issue. At a monthly meeting Wednesday, that subgroup said it could not come to an agreement and has been asked to lay out their disagreements at the next meeting for the full board to discuss. That meeting is scheduled for Nov. 16.
The task force is working toward a Dec. 31 deadline to complete a full report to the Legislature.
