Since the recession began two years ago, many Hawaii residents have lost their homes by foreclosure, but some maintain their property was auctioned away by lenders without justification. How frequently that occurs is unknown, but once is too many. Judicial oversight of the process is needed to protect homeowners and prevent court battles they cannot afford.
Hawaii is among 30 states that allow mortgage holders to bypass courts to foreclose on homes and in a short time put them up for auction. An 1874 Hawaii law allows such a move without protection for the homeowner except to file suit after the damage has been done.
"This denies homeowners due process protection comparable to that given many tenants," a study by the Boston-based National Consumer Law Center observed of such laws in Hawaii and other states last year. "It also places upon homeowners the heavy burden to get a judge to review the mortgage holder’s claims and stop the foreclosure."
"It’s one of the most lacking in protections of all the laws," Geoff Walsh, co-author of the study, told the Star-Advertiser’s Rob Perez.
The antiquated Hawaii law allows a lender to move to foreclose without discussing with the homeowner ways to avoid loss of the home. A law enacted by the Legislature in 1998 provided an alternative process for non-judicial foreclosures, but lenders have ignored it as unworkable.
A task force consisting of representatives of a broad range of interest groups, including associations of homeowners and mortgage lenders, was created by this year’s Legislature. It is to begin meeting today to discuss changes, especially to the rules for lenders foreclosing outside of court.
The trick will be protecting homeowners without scaring away the lenders, as the 1998 legislation appears to have done. Before then, nearly all mortgage foreclosures were sought through state court. More than 80 percent now are processed outside of court, according to industry officials.
The court path is more cumbersome, taking eight to 13 months to complete, while the non-judicial process can take only 2 1/2 months. Lenders prefer the fast track and ought to agree to certain requirements to maintain this option.
Those should include allowing homeowners to catch up on missed payments without penalty for a two-month period before the lender demands full payment of the entire mortgage. The lender should be required to halt foreclosure once the owner catches up on payments, penalties and fees. The state should have the authority to require mediation in certain circumstances.
Hawaii also should join about half the states that presently allow a homeowner to regain title to the home after a foreclosure sale by paying the sale price, interest and costs of the sale.
Many of the people faced with foreclosure have themselves to blame for buying property they could not afford from the outset. Others have been hit by job loss or other financial hardships. None should be victims of a system without consumer safeguards.