Foreclosures fell off in March

Hawaii foreclosure filings remained subdued last month by a problematic year-old law, which the Legislature hopes to improve before the end of this year’s session.

The number of foreclosure filings statewide in March totaled 600, or 13 percent fewer than the 691 in the same month last year, according to real estate research firm RealtyTrac.

Filings have ranged between about 300 and 600 per month since the foreclosure law overhaul took effect last May. By comparison, the total had generally been 900 to 1,600 per month in the two years before the Legislature changed the law.

That law, Act 48, reformed rules for nonjudicial foreclosures, which used to be how lenders handled the vast majority of Hawaii foreclosures because it was cheaper and quicker than going through the court.

Lawmakers tried to give qualified homeowner-occupants facing foreclosure the option of taking their case before a mediator as a way to curb what consumer advocates said were lender abuses.

But lenders sidestepped mediation by filing all new cases in court because they feared a provision in Act 48 could render nonjudicial foreclosure sales void if they made even the slightest mistake.

The added time, cost and other factors for pursuing foreclosure in court have depressed foreclosure filings, industry observers say.

Last month, 356 foreclosure filings likely reflected mostly new cases filed in court, according to RealtyTrac.

A definite count of new cases filed in court last month won’t be available from the state Judiciary until later this month.

Another 30 filings counted by RealtyTrac were auction notices, reflecting foreclosures started in previous months or years. And 214 filings were repossessions by lenders.

Hawaii’s decline in March foreclosure filings was close to a nationwide decline of 17 percent, though the number of national filings in March was the lowest for any month since July 2007.

RealtyTrac attributed the national decrease largely to states where restrictions have inhibited nonjudicial foreclosures.

Brandon Moore, RealtyTrac’s chief executive officer, warned in the report that a “massive reservoir” of distressed properties has built up and eventually will burst.

“Everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short-sale activity,” he said.

Hawaii’s Act 48 had intended to protect homeowners through mediation while also allowing nonjudicial foreclosures to proceed in cases involving investors, other nonoccupant owners or even primary occupants if they had no reasonable hope of keeping their home

A task force representing mortgage lenders and borrowers submitted draft legislation to lawmakers in December recommending changes to Act 48, including specifying a list of violations subject to stiff penalties.

But lawmakers have added other changes going beyond task force recommendations in House Bill 1875 and Senate Bill 2429, and this has complicated efforts to pass a bill modifying the law.

The Senate passed a version of HB1875 last week, but the House isn’t expected to agree to the changes. SB2429 was changed by House committees, but time ran out to amend a final version offered as a compromise. So a conference committee is expected to be tasked with reaching a compromise via one of the bills.

Both the chair and co-chair of the task force expect Act 48 will be amended this year.

“All we can do is sort of sit tight,” said Everett Kaneshige, task force chairman and former deputy director of the state Department of Commerce and Consumer Affairs. “Both sides are well briefed.” 

Added Marvin Dang, co-chair and representative of the Hawaii Financial Services Association: “There’s probably going to be something passing. It’s just a matter of whether from the lenders’ perspective it will be what we see as having negative impacts on the local economy.”