POSTED: 1:30 a.m. HST, Jul 14, 2011
LAST UPDATED: 2:26 p.m. HST, Aug 5, 2011
Effects of Hawaii's new foreclosure law severely curtailed activity against delinquent borrowers in June.
The number of foreclosure filings against borrowers plummeted by two-thirds last month.
There were 344 foreclosure filings in June, down 66 percent from 1,000 in the same month last year, real estate research firm RealtyTrac reported today.
The June figure was the lowest for any month since January 2009, when there were 337 filings and the wave of troubled mortgages was still building.
Hawaii's new foreclosure law, Act 48, was enacted in May. It was primarily intended to force lenders to make better efforts at negotiating loan modification plans with borrowers through a mediation program overseen by the state Department of Commerce and Consumer Affairs.
The new law resulted in a de facto moratorium on out-of-court, or nonjudicial, foreclosures because DCCA won't accept any new nonjudicial foreclosure filings until the mediation program is running. The program is expected to be running by Oct. 1.
In recent years, the vast majority of Hawaii foreclosures have been conducted out of court through the nonjudicial process because it was quicker and cheaper than going through court.
But with the freeze on nonjudicial cases, lenders have begun to file more cases in Circuit Court.
The number of judicial foreclosures in June nearly doubled to 200 from 109 in the same month last year, according to state Judiciary data.
The Judiciary figures are for new foreclosure cases only. RealtyTrac counts judicial and nonjudicial cases in various stages of foreclosure — default notices, auction notices and lender repossessions.
Steven Guttman, a local bankruptcy attorney, said he's not surprised that judicial foreclosures are beginning to offset the decline in nonjudicial foreclosures.
"Every indication is that the number (of judicial foreclosures) is going to keep rising," he said.
Close to half of the June filings counted by RealtyTrac — 167 of the 344 filings — were lender repossessions. Repossessions occur if no third party buys a home at auction.
Both RealtyTrac and Judiciary data include residential and commercial property foreclosures, so the figures are not exact counts of home foreclosures.
According to RealtyTrac, the artificial cutback in Hawaii foreclosure filings propelled the state from the 12th worst nationally in May to 16th best in June.
Hawaii's rate was 1 foreclosure filing per 1,499 households, just ahead of Kansas with 1 filing per 1,503 households and just behind Alabama with 1 filing per 1,497 households.
Vermont had the best rate with 1 filing per 39,281 households. Nevada had the worst rate with 1 filing per 114 households. Nationally, there was 1 filing per 584 households.
James Saccacio, RealtyTrac chief executive officer, said in a statement that processing and procedural delays around the country — due to changes in state laws, lender actions or other issues — will push an estimated 1 million foreclosures that should have taken place this year to next year or perhaps even later.
"This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number," Saccacio said.
In Hawaii, some lender attorneys are saying that they will no longer file judicial foreclosures — even when it's possible to do so again after the mediation program starts — because of severe penalties for not properly following the complicated law.
If that scenario plays out, it could create an even bigger backlog of foreclosures in Hawaii by overwhelming an already overloaded court system.
Some state leaders involved in passing and implementing the law insist the new nonjudicial foreclosure process under the law will better help resolve the foreclosure mess by facilitating more loan modifications that avoid foreclosure while still allowing lenders to repossess homes where homeowners have no reasonable hope of making even reduced mortgage payments.