Hawaii - Preliminary Report of the Mortgage Foreclosure Task Force, 2011

8/7/2019 Hawaii - Preliminary Report of the Mortgage Foreclosure Task Force, 2011

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PRELIMINARY REPORT OF THE

MORTGAGE FORECLOSURE TASK FORCETO THE LEGISLATURE FOR

THE REGULAR SESSION OF 2011

In Accordance with Act 162,Session Laws of Hawaii 2010

Prepared by theLEGISLATIVE REFERENCE BUREAU

On Behalf of theDEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS

STATE OF HAWAII

December 2010


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PRELIMINARY REPORT OF THEMORTGAGE FORECLOSURE TASK FORCE

TO THE LEGISLATURE FORTHE REGULAR SESSION OF 2011

Executive Summary

Act 162, Session Laws of Hawaii, 2010, established a mortgage foreclosure task forcewithin the Department of Commerce and Consumer Affairs to undertake a study to develop bothgeneral and specific policies and procedures necessary to improve the manner in which mortgageforeclosures are conducted in the State.

The Act directed the task force submit reports of its findings and recommendations,including any proposed legislation, to the Legislature for the regular sessions of 2011 and 2012.

Pursuant to the Act, the task force was formed, consisting of seventeen membersrepresenting public and private interests. Stephen Levins, representing the Office of ConsumerProtection of the Department of Commerce and Consumer Affairs, served as Chair of the task force. Marvin Dang, representing the Hawaii Financial Services Association, served as Vice-Chair.

The task force held several public meetings over the legislative interim of 2010 to discussthe various items for review raised under the Act. The task force also created investigativegroups that met apart from the task force but reported their recommendations to the task force atthe public meetings.

Based upon its discussions and actions taken, the task force adopted severalrecommendations, including proposed legislation, in its report to the Legislature for the regularsession of 2011. The proposed legislation primarily involved the nonjudicial foreclosure processauthorized under part I of chapter 667, Hawaii Revised Statutes. Specifically, the proposedlegislation dealt with the issues of service of notice, conversion to foreclosure by action,deficiency judgments, notice of pendency of action, and extinguishment of the mortgagor'sinterest. The task force also adopted a recommendation that did not involve proposed legislation,which was related to the issue of statutory bidding thresholds.


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PRELIMINARY REPORT OF THEMORTGAGE FORECLOSURE TASK FORCE

TO THE LEGISLATURE FORTHE REGULAR SESSION OF 2011

Act 162, Session Laws of Hawaii, 2010

Act 162, Session Laws of Hawaii 2010, established a mortgage foreclosure task force toundertake a study to develop both general and specific policies and procedures necessary toimprove the manner in which mortgage foreclosures are conducted in the State. The Act listed anumber of issues for the task force to study.

As the rationale for the Act, the Legislature found that number of mortgage foreclosuresof residential property in the State had reached an alarming level, prompting numerous

legislative proposals during the regular session of 2010. The Legislature, however, concludedthat a comprehensive evaluation of Hawaii's mortgage foreclosure laws would be necessarybefore meaningful legislation could be enacted that, on balance, addressed the concerns of bothborrowers and lenders, without further overburdening the courts.

The Act placed the mortgage foreclosure task force within the Department of Commerceand Consumer Affairs for administrative purposes. The Act furthermore mandated the task force, with the assistance of the Legislative Reference Bureau, to submit reports of its findingsand recommendations, including any proposed legislation, to the Legislature for the 2011 and2012 regular sessions. In other words, the Act required a preliminary report for 2011 and a finalreport for 2012.

This report constitutes the task force's preliminary report for 2011. 1

Materials distributedat the public meetings of the task force are attached in the appendix to the report.

The Task Force

Pursuant to Act 162, the task force was formed, consisting of seventeen members.Eleven of the members were from organizations whose representation was expressly required bythe Act. The remaining six members were administratively added to the task force in orde r forthe task force to maintain a balanced representation of interests, as authorized under the Act. 2

At

its initial public meeting held on July 27, 2010, the task force elected Stephen H. Levins as itschairperson and Marvin S.C. Dang as its vice-chairperson.

1 At its final public meeting of 2010, held on December 15, 2010, the task force approved this report for submissionto the Legislature.2 Section 2(a) of the Act provides that "[t]he chairperson of the task force shall seek to maintain a balancedrepresentation of interests and may select additional task force members at the chairperson's discretion."


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The seventeen members are listed below, generally in the order in which theirorganizations were listed under the Act, with the eleven required members followed by the sixadditional members:

(1) Stephen H. Levins, task force chairperson, Department of Commerce and

Consumer Affairs, Office of Consumer Protection;(2) Marvin S.C. Dang, task force vice-chairperson, Hawaii Financial ServicesAssociation;

(3) Michelle Kauhane, Hawaiian Community Assets (i.e., the mortgage counselingorganization approved by the United States Department of Housing and UrbanDevelopment);

(4) Ryker J. Wada, Legal Aid Society of Hawaii;(5) Neal Okabayashi, Hawaii Bankers Association of Hawaii;(6) Linda Nakamura, Mortgage Bankers Association of Hawaii;(7) Stefanie Sakamoto, Hawaii Credit Union League; 3

(8) Jane Sugimura, Hawaii Council of Associations of Apartment Owners;

(9) Steven Guttman, Hawaii State Bar Association Collection Law Section;(10) Jerrold K. Guben, Hawaii State Bar Association Bankruptcy Law Section; 4

(11) Julia H. Verbrugge, State of Hawaii Judiciary;(12) D.B. Griffin, Department of Commerce and Consumer Affairs, Division of

Financial Institutions;(13) Lorrin Hirano, Title Guaranty of Hawaii, Inc.;(14) Joan Takano, Hawaii Government Employees Association;(15) Steven Tam, AARP Hawaii Volunteer;(16) Colin Yost, an attorney representing borrower mortgagors in the foreclosure

process; and(17) George J. Zweibel, an attorney representing borrower mortgagors in the

foreclosure process.

The task force held several public meetings between July and December of 2010,specifically on July 27, August 31, September 22, October 12, October 18, November 17,December 7, and December 15. All public meetings were held in downtown Honolulu. Aquorum of the members was present at each meeting. 5

3 Beginning with the public meeting of December 7, 2010, Francis Hogan replaced Stefanie Sakamoto as therepresentative for the Hawaii Credit Union League.

During these meetings, the task forcenarrowed the scope of the items to be studied, established a methodology to study those items,and developed recommendations for those items.

4At the public meeting of December 7, 2010, Chair Levins informed the task force that a vacancy currently existed

on the task force because the Hawaii State Bar Association ceased to have a bankruptcy law section. Section2(a)(10) of Act 162 requires the task force to have at least one member to represent either "[t]he Hawaii State BarAssociation Bankruptcy Law Section or the Bankruptcy Court of the United States District of Hawaii."5 The quorum for this seventeen-member task force appears to be nine members. Since Act 162 itself does notspecify a number for the quorum, the Sunshine Law, specifically, section 92-15, Hawaii Revised Statutes, isinvoked, and section 92-15 provides that:

...a majority of all the members to which the board or commission is entitled shall constitute a quorum todo business, and the concurrence of a majority of all the members to which the board of commission isentitled shall be necessary to make any action of the board of commission valid...


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Scope of Study

The task force implicitly narrowed the scope of their study of mortgage fore closure by

focusing upon the items that section 2 of Act 162 requires, or mandates, them to study.6

The mandatory items are set forth in sections 2(b), (d)(4) to (6), and (e) of the Act. These

subsections and subparagraphs of section 2 require the task force to perform certain specifiedtasks. The following is the relevant text of section 2 of the Act that forms the focus of the task force's review:

[(2)] (b) The mortgage foreclosure task force shall undertake a study to developboth general and specific policies and procedures necessary to improve the manner inwhich mortgage foreclosures are conducted in the state. In particular, the task forceshall consider the following areas for possible improvements:

(1) The adequacy of notice given to mortgagors of available mortgagecounseling programs and the optimal timing for such notification and counseling;

(2) The availability of loan documentation to mortgagors from mortgageesprior to and during the foreclosure process;

(3) The establishment of statutory bidding thresholds for properties sold viaforeclosure;

(4) The statutory timeline for power-of-sale foreclosures;(5) Further regulation of distressed property consultants; and (6) Revisions to part II of chapter 667, Hawaii Revised Statutes, to make it a

viable vehicle for power-of-sale foreclosures.

... (d) The mortgage foreclosure task force shall analyze the effectiveness and any defects of the foreclosure procedures currently set in statute for both judicial and power-of-sale foreclosures. In this analysis, the task force:

...(4) Shall comment on the extent to which the existing law does or does not

comply with state and federal constitutional due process guarantees;(5) Shall comment on any effect proposed legislative changes will have on

borrowers who are current on their mortgage loans; and (6) Shall seek to maintain and not erode existing consumer protections.(e) The mortgage foreclosure task force shall comment on the feasibility of

establishing a state entity or administrator to focus on addressing the concerns of mortgagors, disseminating information, and otherwise engaging in consumer education.The task force shall propose funding mechanisms to enable the operation of this entity.

6 In the text of the Act, these mandatory items are signaled by the phrases "shall consider," "shall analyze," "shallcomment on," "shall seek," and "shall propose." In contrast to the mandatory items are the discretionary items, oritems that the task force may study. The discretionary items are signaled by the phrases "may take into account,""may consider and recommend," and "may propose."


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Based upon the agenda for the September 22, 2010, public meeting, the task forceappears to have interpreted section 2 of the Act to require them to consider possible changes toHawaii law concerning eight items. These eight items, cross-referenced to the relevantsubsections and subparagraphs of section 2 of the Act, are listed below as follows:

(1) The adequacy of notice to mortgagors, section 2(b)(1);(2) The availability of loan documentation, section 2(b)(2);(3) The establishment of statutory bidding thresholds, section 2(b)(3);(4) The statutory timeline for power-of-sale foreclosures, section 2(b)(4);(5) Further regulation of distressed property consultants, section 2(b)(5);(6) Possible revisions to part II of chapter 667 of the Hawaii Revised Statutes, section

2(b)(6);(7) The effectiveness and any defects of the foreclosure procedures currently set in

statute for both judicial and power of sale foreclosures, section 2(d) first sentence;and

(8) The feasibility of establishing a state entity or administrator to focus on

addressing the concerns of mortgagors, disseminating information, and otherwiseengaging in consumer education, and proposing funding mechanism to enable theoperation of this entity, section 2(e).

Apparently, a ninth item was added later at the October 18, 2010, public meeting througha draft of a set of motions prepared and distributed by the lender investigative group (to bediscussed later). This ninth item is the first sentence of section 2(b):

(9) Developing both general and specific policies and procedures necessary toimprove the manner in w hich mortgage foreclosures are conducted in the State,section 2(b) first sentence. 7

Section 2(b) first sentence, on general and specific policies and procedures, and section

2(d) first sentence, on the effectiveness and any defects of the foreclosure procedures currentlyset in statute, can be construed as miscellaneous categories for the discussion of topics andconcerns that were not expressly enumerated among the other mandatory items set out in section2 of the Act. The difference between the two miscellaneous categories seems to be that withregard to the current foreclosure procedures, section 2(b) first sentence addresses improvementswhile section 2(d) first sentence addresses the removal of defects.

The mandatory items relate primarily to parts I and II of chapter 667, Hawaii RevisedStatutes, on mortgage foreclosures. Part I of chapter 667 authorizes both foreclosure by action(or, the judicial foreclosure process), which has been in the statutes since at least 1859, andforeclosure by power of sale (or, the "old" nonjudicial foreclosure process), which has been in

7 Prior to the setting of the agenda for the September 22, 2010, public meeting, the task force appears to have hadtwo other interpretations of the number and identity of the items that section 2 of Act 162 sets out for them toreview. At the initial public meeting of July 27, 2010, six items were identified by Chair Levins, specifically:sections 2(b)(1), 2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5), and 2(b)(6). At the next public meeting, held on August 31, 2010,ten items were identified by Vice-Chair Dang, specifically: sections 2(b)(1), 2(b)(2), 2(b)(3), 2(b)(4), 2(b)(5),2(b)(6), 2(d)(4), 2(d)(5), 2(d)(6), and 2(e).


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statutes since at least 1874. Specifically, foreclosure by action comprises sections 667-1 through667-4, while foreclosure by power of sale comprises sections 667-5 through 667-10. Part II of chapter 667, on the other hand, authorizes the alternate power of sale foreclosure process (or, the"new" nonjudicial foreclosure process), which has been in the statutes since 1998 and comprisessections 667-21 through 667-42.

Methodology

To study the items presented to the task force under Act 162, the task force created threeinvestigative groups. At the public meetings, the task force defined the investigative groups'scopes of investigation and limited their memberships to constitute less than a quorum.Specifically:

(1) The borrower investigative group was created to discuss borrower concerns andwas comprised of the following six members: Michelle Kauhane; Joan Takano; Steven Tam; Ryker Wada; Colin Yost; and George Zweibel;

(2) The lender investigative group was created to discuss lender concerns and wascomprised of the following six members; Jerrold Guben; Linda Nakamura; Neal Okabayashi; Stefanie Sakamoto; Jane Sugimura; and Marvin S.C. Dang;

and(3) Investigative group #3 was created to explore possible points of consensus

between the borrower investigative group and the lender investigative group andwas comprised primarily of members who were representatives from the othertwo groups. Specifically, investigative group #3 was comprised of the followingseven members, five of whom were also on one of the other two investigativegroups: Steven Guttman; Lorrin Hirano; Jane Sugimura (lender investigative group); Linda Nakamura (lender investigative group); Stefanie Sakamoto (lender investigative group); Ryker Wada (borrower investigative group); and George Zweibel (borrower investigative group).


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The investigative groups met apart from the task force and from each other, butsubseque ntly reported their recommendations to the task force as a whole at the publicmeetings. 8

In addition to the reports of the investigative groups, the task force also received

overviews or comments at the public meetings by individual task force members and membersfrom the general public on agenda items relating to the mortgage foreclosure process.Specifically, the task force heard overviews or comments on the following agenda items:

(1) An overview of the judicial foreclosure process and the two nonjudicialforeclosure processes was presented at the August 31, 2010, public meeting byPeter Stone, Esq. In his written report, Mr. Stone indicated that part II of chapter667, Hawaii Revised Statutes, relating to the alternate power of sale foreclosureprocess, is considered by lenders and their counsel to be too cumbersome to bepractical. He further noted that the Hawaii Supreme Court has ruled that a lenderproceeding with a power of sale foreclosure under part I need not comply with the

power of sale provisions under part II;(2) An overview of the effect of foreclosures upon condominium associations waspresented at the September 22, 2010, public meeting by task force member JaneSugimura. In her written report, Ms. Sugimura indicated that condominiumassociations file foreclosures against unit owners in order to recover delinquentmaintenance fees, however, association liens do not have priority over securedcreditors. She also recommended an increase in the lien priority payment andreimbursement of maintenance fees by the secured creditor to the association if foreclosures are not completed within six months;

(3) Overviews on Hawaii's regulatory framework for mortgage servicers wereprovided at the September 22, 2010, public meeting by task force member D.B.Griffin III. In his written comments, Mr. Griffin indicated that chapter 454M,Hawaii Revised Statutes, on mortgage servicers, is a registration statute that took effect in July 2010 and authorizes the commissioner to collect data on non-financial institution servicers operating in Hawaii;

(4) An overview of problems associated with distressed property consultants waspresented at the September 22, 2010, public meeting by Michael Moriyama, anattorney with the Office of Consumer Protection. In his written comments, Mr.

8 Under the Sunshine Law, boards are authorized to create investigative groups that meet "outside the realm of apublic meeting," section 1, Act 267, Session Laws of Hawaii 1996, which established section 92-2.5, HawaiiRevised Statutes, on permitted interactions of board members. In particular, section 92-2.5(b)(1) provides that:

(b) Two or more members of a board, but less than the number of members which would constitute a

quorum for the board, may be assigned to:(1) Investigate a matter relating to the official business of their board; provided that:

(A) The scope of the investigation and the scope of each member's authority are defined at ameeting of the board;

(B) All resulting findings and recommendations are presented to the board at a meeting of theboard; and

(C) Deliberation and decisionmaking on the matter investigated, if any, occurs only at a dulynoticed meeting of the board held subsequent to the meeting at which the findings and recommendations of the investigation were presented to the board; or

... .


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Moriyama indicated that chapter 480E, Hawaii Revised Statutes, on mortgagerescue fraud prevention, regulates distressed property consultants. He furtherstated that the chapter provides sufficient protection, and no changes are neededor recommended; and

(5) Comments, as part of the Chair's report, accompanied by copies of

correspondence between the Office of the Administrative Director of the Courtsand the Hawaii State Bar Association, Collection Law Section, on the locationswhere nonjudicial foreclosure auctions are conducted, were presented at theOctober 12, 2010, public meeting by Vice Chair Dang, with the assistance of Lester Leu, Esq. Mr. Dang stated that although nonjudicial foreclosure actions inHawaii have traditionally been held at court locations, the Administrative Directorof the Courts recently took the position that the courts will no longer approve theuse of court facilities for the conducting of nonjudicial foreclosure actions. Thecourts were reportedly concerned that such a use of court facilities might confusethe public about whether or not nonjudicial foreclosures are court-sanctioned.

Developing Recommendations to the Legislature

As stated earlier, Act 162 directed the task force to submit findings andrecommendations, including any proposed legislation, to the Legislature. Pursuant to thismandate, the task force focused upon developing recommendations to the Legislature, anddeveloping them with regard to the nine items for review under the Act.

The task force proceeded to develop its recommendations to the Legislature in twogeneral stages. At the first stage, the task force received the initial recommendations from thethree investigative groups regarding the items for review under Act 162.

Specifically, at the September 22, 2010, public meeting, the task force received the initialrecommendations from the first two groups, specifically, the borrower investigative group andthe lender investigative group. Subsequently, at the October 12, 2010, public meeting, the task force received the initial recommendations of the third group, investigative group #3, which hadmet to find areas of consensus between the initial recommendations of the borrower investigativegroup and the lender investigative group.

The table below highlights the respective initial recommendations of the threeinvestigative groups as of the October 12, 2010, public meeting. The recommendations of theinvestigative groups are organized around the particular items for review under Act 162. Several

recommendations related to topics and concerns discussed under the two miscellaneouscategories of item 2(b) first sentence, on general and specific policies and procedures relating tomortgage foreclosures, and item 2(d) first sentence, on the effectiveness and any defects of theforeclosure procedures currently set in statute. The recommendations under the twomiscellaneous categories have been set out and numbered in a point-counterpoint manner:


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Table I

INITIAL RECOMMENDATIONS OF THE THREEINVESTIGATIVE GROUPS REGARDING

NINE ITEMS FOR REVIEW UNDER SECTION 2, ACT 162,SESSION LAWS OF HAWAII 2010

Act 162Items forReview

Lender Group9/08/10 Report

Borrower Group9/13/10 Report

Group #310/11/10 Report

General andspecific policiesand procedures2(b) 1 st sentence

Opposes:(1) Giving the borrower

the right to redeemproperty afterforeclosure iscompleted

(2) A blanket eliminationof deficiencyjudgments

(3) A statutoryestablishment of adelay period prior toinitiating foreclosureproceedings

(4) --(5) The suspension of

foreclosureproceedings whileloan modifications arepending

(6) --(7) Requiring personal

service on theborrower innonjudicialforeclosures

Recommends:(8) Requiring that

nonjudicialforeclosures bedeemed final whenthe mortgagee'saffidavit is recorded atthe Bureau of Conveyances

Recommends:(1) Giving the borrower

the right to redeemproperty after aforeclosure sale

(2) Amending part I, inconformity with partII, of chapter 667, toprohibit mortgageholders from seekingdeficiency judgments

(3) Requiring lenders togive borrowers atleast ninety days tocure a default beforethe mortgage isaccelerated

(4) Requiring the lenderto engage in lossmitigation or loanmodification with theborrower

(5) Suspendingforeclosureproceedings pendingthe outcome of lossmitigation or loanmodification efforts

(6) Authorizingborrowers to convertnonjudicialforeclosures tojudicial foreclosures

(7) Requiring personalservice on theborrower andmortgagor of both thenotice of default andthe foreclosure salenotice

Recommends:(1) --(2) Expressly forbidding

deficiency judgmentsin nonjudicialforeclosures underpart I of chapter 667as to only owner-occupants of residential property

(3) --(4) --(5) --(6) Clarifying that part I

of chapter 667 givesthe borrower the rightto convert anonjudicialforeclosure to ajudicial foreclosure,but that the borrowerhas an affirmativeduty to exercise thatright

(7) Amending the noticerequirements fornonjudicialforeclosures in part Iof chapter 667, inconformity with thenotice requirementsapplicable in servingcivil complaints, torequire that parties ontitle are served withactual notice of anintent to foreclose

(8) --(9) Amending the

nonjudicial


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Group #310/11/10 Reportforeclosure process inpart I of chapter 667,in conformity with thejudicial foreclosureprocess, to require theuse of the courtpleading entitled"Notice of Pendencyof Action"

(10) Amending chapter454M to requiremortgage serviceproviders to have aHawaii agent

Notice tomortgagorsabout counseling2(b)(1)

Opposes any additionalstatutory provisions -- --

Availability of loandocumentation2(b)(2)

-- -- --

Biddingthresholds2(b)(3)

Opposes the establishmentof statutory biddingthresholds

--Recommends that nostatutory thresholds beenacted

Timeline forpower-of-saleforeclosures2(b)(4)

Opposes a statutorytimeline -- --

Distressedpropertyconsultants2(b)(5)

-- --Recommends adequatelevels of funding andstaffing for governmentoversight

Revisions to partII, chap 667

2(b)(6)

Recommends deferringthis very complex subject

matter until the 2012legislature

Recommends repealingsections 667-34 on

conclusive presumptionsand 667-35 on circuit courtappeals

--


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Group #310/11/10 Report

Effectivenessand any defectsof theforeclosureprocedures2(d) 1 st sentence

Opposes:(1) The statutory

establishment of aredemption periodwhile foreclosure ispending

(2) Authorizing aborrower to challengea nonjudicialforeclosure in court

(3) --(4) --

Recommends:(1) --(2) --(3) Giving borrowers the

right to reinstate themortgage until thedate of the foreclosuresale

(4) Repealing nonjudicialforeclosures underboth parts I and II of chapter 667, or atleast under part I

State entity oradministrator2(e)

Recommends instead thatthe Department of Commerce and ConsumerAffairs use itsadministrative powers toorganize a loanmodification fair

-- --

As indicated in the table above, the task force was informed by investigative group #3that the group had reached a consensus for section 2(b)(3), on statutory bidding thresholds,section 2(b)(5), on the regulation of distressed property consultants, and several topics andconcerns discussed under section 2(b) first sentence, on general and specific policies andprocedures. Specifically, these topics and concerns related to a prohibition against deficiency

judgments, the conversion to a judicial foreclosure, the use of the court pleading entitled "Noticeof Pendency of Action" in nonjudicial foreclosures, the manner of service of notice innonjudicial foreclosures, and Hawaii agents of mortgage service providers.

At the second stage in its development of recommendations to the Legislature, the task force received from the investigative groups a set of proposed motions comprised of the task force's taking either of two types of actions on the motions with regard to the items for reviewunder Act 162:

1) An action taken on a motion that does not result in the adoption of a recommendationto the Legislature, including:

a. Deferring the adoption of a recommendation on an item for review or a topicor concern until the regular session of 2012;b. Not making any recommendation at all on a particular topic or concern; 9

c. Making a recommendation directed to a different branch of government;and

10

9 This particular proposal involved mortgage servicers and was found only in the set of motions submitted by thelender investigative group. It was not included in the set of motions submitted by investigative group #3.

or

10 This particular proposal involved the task force's request to the Judiciary to consider creating and adopting a formfor the conversion complaint. It was eventually recast as a legislative request to the Judiciary.


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2) An action taken on a motion that results in the adoption of a recommendation to theLegislature, including:

a. Recommendations in opposition to the making of certain amendments to thestatutes relating to mortgage foreclosures; and

b. Recommendations in support of making certain amendments to the statutes

relating to mortgage foreclosures.Specifically, at the October 18, 2010, public meeting, the task force received an initial set

of proposed motions that had been prepared by the lender investigative group. Apparently, thelender investigative group had used the October 11, 2010, report of investigative group #3 as itsstarting point in drafting the set of motions. Generally, the motions were to makerecommendations where investigative group #3 had reached a consensus and to defer the makingof recommendations where investigative group #3 had not reached a consensus.

Thereafter, over the course of the public meetings held on November 17, December 7,and December 15, 2010, the task force received three successive revisions of the initial set of

motions. At the November 17, 2010, meeting, the first revision was submitted by the lenderinvestigative group, in response to changes to the initial set of motions suggested byinvestigative group #3. At the December 7 and December 15, 2010, meetings, respectively, asecond and a third revision were submitted by investigative group #3.

For the motions that involved adopting recommendations to the Legislature to amend theforeclosure laws, a difference in form evolved between the motions submitted by the lenderinvestigative group and those subsequently submitted by investigative group #3. Therecommendations contained in the proposed motions submitted by the lender investigative groupwere descriptions of the desired amendments to be made to the statutes. In contrast, therecommendations contained in the proposed motions submitted by investigative group #3 set outthe actual amendments themselves, in other words, the language for proposed legislation.

The third revision of the initial set of motions, submitted by investigative group #3,constituted the final version of the set of proposed motions. This final version of the proposedmotions was incorporated into the draft report submitted to the task force at the December 15,2010, meeting. The task force took a brief recess to review the draft report and the motionscontained therein and reconvened to consider the report and motions. After a brief discussion,the task force voted to approve the draft report and the proposed motions, as stated therein, andthen proceeded to consider motions for further revision.

The table below presents the substance of the final version of the set of proposed motionsas adopted and further revised by the task force at the December 15, 2010, public meeting. Themotions have been reorganized around the particular items for review under Act 162:


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Table II

ACTIONS TAKEN BY THE TASK FORCE UPON THE FINAL SET OFMOTIONS

PERTAINING TO THE NINE ITEMS FOR REVIEW UNDERSECTION 2, ACT 162, SESSION LAWS OF HAWAII 2010

Act 162Items for Review

Motions for the Task Forceto Take Action Upon

Actions Takenby the Task

ForceGeneral and specificpolicies and procedures2(b) 1st sentence

(Involves the adoption of recommendations to theLegislature)

The task force submits and recommends proposedlegislation that accomplishes the following:(1) Amends section 667-5, on foreclosures under power of

sale, to: (A) require that the notice of intent toforeclose be served on all persons entitled to noticeunder chapter 667 in like manner as the service of acivil complaint under chapter 634, on civil actions andproceedings, and the Hawaii Rules of Civil Procedure;and (B) define an "owner-occupant" and prohibit amortgagee who completes a foreclosure upon amortgage on residential property from subsequentlypursuing or obtaining a deficiency judgment againstcertain owner-occupants of that residential property;but provides that the completed foreclosure upon amortgage on that residential property does not prohibitsubordinate lienholders whose liens are extinguishedby the foreclosure sale from pursuing a monetaryjudgment against an owner-occupant.

Adopted andfurther revised

(2) Amends part I of chapter 667 to: (A) authorize anowner-occupant of residential property that is beingforeclosed upon under a power of sale to convert theaction into a foreclosure by action, under specifiedconditions, beginning with the filing of a complaintwith the appropriate circuit court; (B) require certaininformation to be included in the complaint; and (C)require that if a notice of intent to foreclose under apower of sale relates to residential property, then thenotice of intent to foreclose under a power of sale shallcontain a statement to notify the owner-occupant of the right of conversion.


(3) Amends part I of chapter 667 to: (A) authorize themortgagee who forecloses under a power of sale torecord a copy of the notice of intent to foreclose withthe Land Court or the Bureau of Conveyances; and (B)give the recorded copy of the notice the same effect asa notice of pendency of action.


(4) Amends section 501-151, on the recording of noticesof pending actions, to authorize the recording of anotice of intent to foreclose.

Adopted


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Force(5) Amends part I of chapter 667, in conformity with a

recent Hawaii bankruptcy ruling, to specify that for aforeclosure under power of sale, the mortgagor'sinterest shall be extinguished upon the recordation of the affidavit in the Bureau of Conveyances or in theOffice of the Assistant Registrar of the Land Court, asthe case may be, within thirty days of the date of sale .

Adopted

(6) The Legislature requests the Judiciary of the State of Hawaii to consider creating and adopting a form forthe complaint to convert a nonjudicial foreclosure intoa judicial foreclosure.


--continued--2(b) 1st sentence

(Does not involve theadoption of recommendations to theLegislature)

(1) The task force is in the process of reviewing andconsidering amendments to chapter 454M, onmortgage servicers, in more depth, but did not havesufficient time to consider and make specificrecommendations and is therefore making nostatements on the merits of this matter. Furthermore,the task force will address this issue as part of itsreport to the 2012 Legislature and requests that theLegislature defer action on this and related mattersuntil the 2012 regular session.

Adopted

(2) The task force intends to review and make specificrecommendations regarding the foreclosure of condominium association liens and will address theseissues as part of its report to the 2012 legislature, asthis is a complex area of law involving variouschapters of the Hawaii Revised Statutes.

Adopted

Notice to mortgagorsabout counseling2(b)(1)

The task force is in the process of reviewing andconsidering the item in more depth, but did not havesufficient time to consider and make specificrecommendations, and is therefore making no statementson the merits of this item. Furthermore, the task force willaddress this item as part of its report to the 2012Legislature and requests that the Legislature defer action onthis item and related matters until the 2012 regular session.

Adopted

Availability of loandocumentation2(b)(2)

[Same as 2(b)(1)] Adopted

Bidding thresholds2(b)(3)

The task force opposes the setting of statutory biddingthresholds for properties sold via foreclosure and, therefore,recommends against any statutory amendments in thisregard.

Adopted


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ForceTimeline for power-of-sale foreclosures2(b)(4)


Distressed propertyconsultants2(b)(5)


Revisions to part II, chap6672(b)(6)


Effectiveness and any

defects of the foreclosureprocedures2(d) 1 st sentence


State entity oradministrator2(e)


Stated otherwise, with reference to the items for review under Act 162, the task forcetook either of the following two resulting types of actions upon the motions:

(1) Actions taken on the motions that resulted in deferring the adoption of arecommendation on an item for review or a topic or concern until the regularsession of 2012--a. Section 2(b) first sentence, on general and specific policies and procedures,

with regard to:i. Amending chapter 454M, Hawaii Revised Statutes, regarding mortgage

servicers; andii. Reviewing and making specific recommendations regarding the

foreclosure of condominium association liens;b. Section 2(b)(1), on the adequacy of notice to mortgagors;c. Section 2(b)(2), on the availability of loan documentation;d. Section 2(b)(4), on the statutory timeline for power-of-sale foreclosures;e. Section 2(b)(5), on further regulation of distressed property consultants;f. Section 2(b)(6), on possible revisions to part II of chapter 667 of the Hawaii

Revised Statutes;g. Section 2(d), first sentence, on the effectiveness and any defects of the

foreclosure procedures currently set in statute for both judicial and power of sale foreclosures; and

h. Section 2(e); on the feasibility of establishing a state entity or administrator tofocus on addressing the concerns of mortgagors, disseminating information,


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and otherwise engaging in consumer education, and proposing fundingmechanism to enable the operation of this entity;

(2) Actions taken on the motions that resulted in the adoption of recommendations tothe Legislature, including:a. Recommendations in opposition to the making of certain amendments to the

statutes relating to mortgage foreclosures--i. Section 2(b)(3), on bidding thresholds. The task force opposed thesetting of statutory bidding thresholds for properties sold via foreclosureand, therefore, recommended against any statutory amendments in thisregard;

b. Recommendations in support of making certain amendments to the statutesrelating to mortgage foreclosures--i. Section 2(b) first sentence, on general and specific policies and

procedures, with regard to the following five topics or concerns:1. The mortgagee's service of notice of the intent to foreclose in a

foreclosure under power of sale;

2. Conversion by an owner-occupant of residential property of aforeclosure under power of sale to a foreclosure by action;3. The mortgagee's pursuit of a deficiency judgment against an

owner-occupant of residential property following the completionof a foreclosure under power of sale relating to that residentialproperty;

4. The recording of a notice of intent to foreclose in a foreclosureunder power of sale as the equivalent of the recording of a noticeof pendency of action in a civil action; and

5. The extinguishment of the mortgagor's interest in a foreclosureunder power of sale upon recordation of the affidavit; and

c. Recommendations in support of requesting the Judiciary to consider creatingand adopting a form for the conversion complaint.

Recommendations to the Legislature

In summary, the task force adopted several recommendations to the Legislature relatingto section 2(b)(3), on statutory bidding thresholds, and section 2(b) first sentence, on general andspecific policies and procedures at its December 15, 2010, public meeting.

Under section 2(b)(3), on statutory bidding thresholds, the task force recommended that

statutory bidding thresholds not be established.Under section 2(b) first sentence, on general and specific policies and procedures, the

task force recommended amendments to the old nonjudicial foreclosure process under part I of chapter 667, Hawaii Revised Statutes. The recommendations were cast in the form of languagefor proposed legislation. Specifically, the language for proposed legislation involved the issuesof service of notice, conversion, deficiency judgments, notice of pendency of action, andextinguishment of the mortgagor's interest.


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A description of the recommendations embodied within the language for proposedlegislation, as adopted and further revised by the task force at its December 15, 2010, publicmeeting, is as follows:

(1) Amend section 667-5, on foreclosures under power of sale, to:a. Require that the notice of intent to foreclose be served, not less than twenty-one days before the date of sale, on all persons entitled to notice under chapter667 in the same manner as the service of a civil complaint under chapter 634,on civil actions and proceedings, and the Hawaii Rules of Civil Procedure;and

b. Prohibit a mortgagee who completes a foreclosure upon a mortgage onresidential property from subsequently pursuing or obtaining a deficiencyjudgment against certain owner-occupants of that residential property; buti. Provides that the completed foreclosure upon a mortgage on that

residential property does not prohibit any subordinate lienholders whose

liens are extinguished by the foreclosure sale from pursuing a monetaryjudgment against those certain owner-occupants.(2) Amend part I of chapter 667 to:

a. Authorize an owner-occupant of residential property that is being foreclosedupon nonjudicially to convert the action into a judicial foreclosure, underspecified conditions, beginning with the filing of a complaint with theappropriate circuit court; but

i. Provides that the authorization to convert the action into a judicialforeclosure does not apply to nonjudicial foreclosures of association liensthat arise under a declaration filed pursuant to chapters 514A or 514B;

b. Require certain information to be included in the complaint; andc. Require that if a notice of intent to foreclose nonjudicially relates to property

that is improved and used for residential purposes, the notice of intent toforeclose nonjudicially shall contain a statement to notify the owner-occupantof the right of conversion;

(3) Amend part I of chapter 667 to:a. Authorize the foreclosing mortgagee or lienor to record a copy of the notice of

intent to foreclose with the Land Court or the Bureau of Conveyances; andb. Give the recorded copy of the notice the same effect as a notice of pendency

of action in a civil action;(4) Amend section 501-151, on the recording of notices of pending actions, to authorize

the recording of a notice of intent to foreclose;(5) Amend part I of chapter 667 to specify that, for a foreclosure under power of sale,

the mortgagor's interest shall be extinguished upon the recordation of the affidavitin the Bureau of Conveyances or in the Office of the Assistant Registrar of the LandCourt, as the case may be, within thirty days of the date of sale; and

(6) Request the Judiciary to consider creating and adopting a form for the conversioncomplaint.


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Language for Proposed Legislation

The resulting language for proposed legislation, as adopted by the task force, is set outbelow:

Proposed Legislation Relating to Mortgage Foreclosures

SECTION 1. The legislature finds that Act 162, Session Laws of Hawaii 2010, created amortgage foreclosure task force to undertake a study to develop both general and specificpolicies and procedures necessary to improve the manner in which mortgage foreclosures areconducted in the State. The legislature further finds that the Act directed the task force to submittwo reports, a preliminary report for the regular session of 2011 and a final report for the regularsession of 2012.

The legislature finds that in the preliminary report for the regular session of 2011, thetask force recommended proposed legislation that amends the old nonjudicial foreclosureprocess, which is established as the foreclosure by power of sale process under part I of chapter

667, Hawaii Revised Statutes. The legislature further finds that implementing the task forcerecommendations will help modernize the present law, by providing it with increased clarity,certainty, efficiency, and fairness to both borrowers and lenders.

The purpose of this Act is to implement the recommendations for proposed legislationthat were adopted by the mortgage foreclosure task force and submitted in the preliminary reportto the legislature for the regular session of 2011.

More specifically, the purposes of this Act are to accomplish the following:(1) Require that for a foreclosure under power of sale, the notice of intent to foreclose

be served, not less than twenty-one days before the date of sale, on all personsentitled to notice in the same manner as the service of a civil complaint underchapter 634, Hawaii Revised Statutes, and the Hawaii rules of civil procedure;

(2) Prohibit a mortgagee who completes a foreclosure under power of sale upon amortgage on residential property from subsequently pursuing or obtaining adeficiency judgment against certain owner-occupants of that residential property;

(3) Authorize an owner-occupant of residential property that is being subjected to aforeclosure under power of sale to convert the action into a foreclosure by action;

(4) Authorize the mortgagee conducting a foreclosure under power of sale to recordwith the land court or the bureau of conveyances a copy of the notice of intent toforeclose, and to furthermore give the recorded copy of the notice the same effect asa notice of pendency of action in a civil action, such as the foreclosure by action;

(5) Authorize the land court to record the notice of intent to foreclose; and(6) Adopt a portion of the 2005 ruling of the United States Bankruptcy Court for the

District of Hawaii in In re Hoopai , 2005 WL 1156091 (Bankr. D. Hawaii January12, 2005) (No. 04-02511), order affirmed by In re Hoopai , 2005 WL 2864748 (D.Hawaii October 14, 2005) (No. CV.05-00186 DAE-KSC, CV.05-00187 HG-BMK),by specifying that for a foreclosure under power of sale, the mortgagor's interest isextinguished upon the recordation of the affidavit in the bureau of conveyances orin the land court, as the case may be, within thirty days of the date of sale.


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SECTION 2. Chapter 667, Hawaii Revised Statutes, is amended by adding five newsections to part I to be appropriately designated and to read as follows:

"667-A Definitions. As used in this part, unless the context requires otherwise:"Association" has the same meaning as the term is defined in section 514B-3."Nonjudicial foreclosure" means foreclosure under power of sale.

"Owner-occupant" means a person who, at the time that a notice is served of the intent toforeclose under the power of sale:(1) Owns an interest in the residential property, and the interest is encumbered by the

mortgage being foreclosed; and(2) The residential property is and has been the person's primary residence for a continuous

period of not less than one-hundred eighty days immediately preceding the date onwhich the notice is served.

"Residential property" means real property that is improved and used for residentialpurposes.

667-B Conversion; residential property; conditions. (a) An owner-occupant of a

residential property that is being foreclosed nonjudicially under this part may convert the actionto a judicial foreclosure under the following conditions:(1) A complaint conforming to section 667-C shall be filed with the circuit court in the

circuit where the residential property is located, stating that the owner-occupant of the property elects to convert the nonjudicial foreclosure to a judicial foreclosureproceeding;

(2) The complaint described in paragraph (1) shall be filed with the circuit court nolater than twenty days after the notice of the nonjudicial foreclosure action is servedon the owner-occupant as required by section 667-5(a)(1)(A);

(3) Within ninety days of the filing of the complaint, all owners of an interest in theresidential property whose interests are pledged or otherwise encumbered by themortgage that is being foreclosed and all persons who have signed the promissorynote or other instrument evidencing the debt secured by the mortgage that is beingforeclosed, including without limitation co-obligors and guarantors, shall file astatement in the circuit court action that they agree to submit themselves to thejudicial process and the jurisdiction of the circuit court. If this condition is notsatisfied, the circuit court action shall be dismissed with prejudice as to any owner-occupant's right to convert the action to a judicial proceeding, and the mortgageemay proceed nonjudicially;

(4) The filing of the complaint shall automatically stay the nonjudicial foreclosureaction unless and until the judicial proceeding has been dismissed;

(5) The person filing the complaint shall have an affirmative duty to promptly notifythe Hawaii attorney who is handling the nonjudicial foreclosure about the filing of the conversion;

(6) All parties joined in the converted judicial proceeding may assert therein any claimsand defenses that they could have asserted had the action originally beencommenced as a judicial foreclosure action; and

(7) Notwithstanding chapter 607, the fee for filing the complaint shall be not more than$ .


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(b) This section shall not apply to nonjudicial foreclosures of association liens that ariseunder a declaration filed pursuant to chapters 514A or 514B.

667-C Complaint; residential property; required contents. The complaintauthorized under section 667-B shall contain at a minimum the following:

(1) A caption setting forth the name of the court, the title of the action, and the filenumber. The title of the action shall include the names of the filing party asplaintiff and the foreclosing party as the defendant;

(2) The name, mailing address, and telephone number of the filing party;(3) The address or tax map key number of the property subject to the foreclosure

action;(4) A statement identifying all other owners of an interest in the residential property

whose interests are pledged or otherwise encumbered by the mortgage that is beingforeclosed and all persons who have signed the promissory note or other instrumentevidencing the debt secured by the mortgage that is being foreclosed, includingwithout limitation co-obligors and guarantors;

(5) A certification under penalty of perjury that the filing party is an owner-occupant of the subject property and seeks to convert the nonjudicial foreclosure to a judicialproceeding;

(6) A statement certifying that the filing party served a copy of the complaint on theattorney identified in the notice of intent to foreclose either by personal delivery at,or by postage prepaid United States mail to, the address of the attorney as set forthin the notice of intent to foreclose; and

(7) A copy of the notice of intent to foreclose that was served on the filing party and forwhich the filing party is seeking to convert to a judicial proceeding.

667-D Notice of intent to foreclose; residential property; required statement onconversion. (a) The notice of intent to foreclose nonjudicially that is served and posted asrequired under sections 667-5(a)(1)(A) and 667-5(b)(2) shall include, in addition to the contentsrequired under section 667-7, a statement printed in not less than 14-point font as follows:

"IF THE PROPERTY BEING FORECLOSED IS IMPROVED AND USED FORRESIDENTIAL PURPOSES, AN OWNER-OCCUPANT OF THE PROPERTY(DEFINED UNDER PART I OF CHAPTER 667 OF THE HAWAII REVISEDSTATUTES, AS A PERSON WHO, AT THE TIME THIS NOTICE IS SERVED,OWNS AN INTEREST IN THE RESIDENTIAL PROPERTY THAT IS SUBJECT TOTHE MORTGAGE BEING FORECLOSED AND THE RESIDENTIAL PROPERTYHAS BEEN THE PRIMARY RESIDENCE CONTINUOUSLY FOR NOT LESS THANONE-HUNDRED EIGHTY DAYS) HAS THE RIGHT TO CONVERT ANONJUDICIAL FORECLOSURE PROCEEDING TO A JUDICIAL FORECLOSUREWHERE CLAIMS AND DEFENSES MAY BE CONSIDERED BY A COURT OFLAW. TO EXERCISE THIS RIGHT, THE OWNER-OCCUPANT SHALLCOMPLETE AND FILE THE ATTACHED FORM WITH THE CIRCUIT COURT INTHE CIRCUIT WHERE THE PROPERTY IS LOCATED WITHIN TWENTY DAYSAFTER SERVICE OF THIS NOTICE.


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IN ADDITION, ALL OWNERS OF AN INTEREST IN THE RESIDENTIALPROPERTY WHOSE INTERESTS HAVE BEEN PLEDGED OR OTHERWISEENCUMBERED BY THE MORTGAGE THAT IS BEING FORECLOSED AND ALLPERSONS WHO HAVE SIGNED THE PROMISSORY NOTE OR OTHERINSTRUMENT EVIDENCING THE DEBT SECURED BY THE MORTGAGE THAT

IS BEING FORECLOSED, INCLUDING, WITHOUT LIMITATION, CO-OBLIGORSAND GUARANTORS, SHALL FILE A STATEMENT IN THE CIRCUIT COURTACTION THAT THEY AGREE TO SUBMIT THEMSELVES TO THE JUDICIALPROCESS AND THE JURISDICTION OF THE CIRCUIT COURT WITHIN NINETYDAYS OF THE FILING OF THE ATTACHED FORM. FAILURE TO SATISFY THISCONDITION WILL RESULT IN DISMISSAL OF THE CIRCUIT COURT ACTION.

AN OWNER-OCCUPANT SHALL PROMPTLY NOTIFY THE HAWAIIATTORNEY LISTED IN THIS NOTICE ABOUT THE FILING OF THECONVERSION FORM.

A FORECLOSING LENDER WHO COMPLETES A NONJUDICIALFORECLOSURE OF RESIDENTIAL PROPERTY SHALL BE PROHIBITED UNDER

HAWAII LAW FROM PURSUING A DEFICIENCY JUDGMENT AGAINST ANOWNER-OCCUPANT WHO DOES NOT OWN A FEE SIMPLE OR LEASEHOLDINTEREST IN ANY OTHER RESIDENTIAL REAL PROPERTY. IF THIS ACTIONIS CONVERTED TO A JUDICIAL PROCEEDING, HOWEVER, THEN ALLREMEDIES AVAILABLE TO A LENDER MAY BE ASSERTED, INCLUDING THERIGHT TO SEEK A DEFICIENCY JUDGMENT."

(b) The statement required by this section shall not be required to be included in thenotice of sale published pursuant to section 667-5(a)(1)(B). Nothing in this section shall beconstrued to set a minimum font size for the published notice of sale.

667-E Recordation of notice of intent to foreclose. The foreclosing mortgagee mayrecord a copy of the notice of intent to foreclose with the office of the assistant registrar of the landcourt or the bureau of conveyances, as the case may be, in a manner similar to recordation of notices of pendency of action under section 501-151 or section 634-51, or both, as applicable.The recorded notice shall have the same effect as a notice of pendency of action. From and after therecordation of the notice, any person who becomes a purchaser or encumbrancer of the mortgagedproperty shall be deemed to have constructive notice of the power of sale foreclosure and shall bebound by the foreclosure.

"

SECTION 3. Section 501-151, Hawaii Revised Statutes, is amended to read as follows:"501-151 Pending actions, judgments; recording of, notice. No writ of entry, action

for partition, or any action affecting the title to real property or the use and occupation thereof orthe buildings thereon, and no judgment, nor any appeal or other proceeding to vacate or reverseany judgment, shall have any effect upon registered land as against persons other than the partiesthereto, unless a full memorandum thereof, containing also a reference to the number of certificate of title of the land affected is filed or recorded and registered. Except as otherwiseprovided, every judgment shall contain or have endorsed on it the State of Hawaii general excisetaxpayer identification number, the federal employer identification number, or the last four digitsonly of the social security number for persons, corporations, partnerships, or other entities


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against whom the judgment is rendered. If the judgment debtor has no social security number,State of Hawaii general excise taxpayer identification number, or federal employer identificationnumber, or if that information is not in the possession of the party seeking registration of thejudgment, the judgment shall be accompanied by a certificate that provides that the informationdoes not exist or is not in the possession of the party seeking registration of the judgment.

Failure to disclose or disclosure of an incorrect social security number, State of Hawaii generalexcise taxpayer identification number, or federal employer identification number shall not in anyway adversely affect or impair the lien created upon recording of the judgment. This sectiondoes not apply to attachments, levies of execution, or to proceedings for the probate of wills, orfor administration in a probate court; provided that in case notice of the pendency of the actionhas been duly registered it is sufficient to register the judgment in the action within sixty daysafter the rendition thereof.

As used in this chapter "judgment" includes an order or decree having the effect of ajudgment.

Notice of the pendency of an action in a United States District Court, as well as a court of the State of Hawaii, may be recorded.

The party seeking registration of a judgment shall redact the first five digits of any socialsecurity number by blocking the numbers out on the copy of the judgment to be filed orrecorded."

A notice of intent to foreclose as provided in section 667-E may be recorded.

SECTION 4. Section 667-3, Hawaii Revised Statutes, is amended to read as follows:"667-3 Proceeds, how applied. Mortgage and other creditors shall be entitled to

payment according to the priority of their liens, and not pro rata; and judgments of foreclosureand foreclosures under power of sale that are conducted in compliance with this part and forwhich an affidavit is recorded as required under section 667-5 shall operate to extinguish theliens of subsequent mortgages and liens of the same property, without forcing prior mortgageesor lienors to their right of recovery. The surplus after payment of the mortgage foreclosed, shallbe applied pro tanto to the next junior mortgage[,] or lien, and so on to the payment, wholly or inpart, of mortgages and liens

junior to the one assessed."

SECTION 5. Section 667-5, Hawaii Revised Statutes, is amended to read as follows:"667-5 Foreclosure under power of sale; notice; affidavit after sale[.]; deficiency

judgments.

(1) Give notice of the mortgagee's, successor's, or person's intention to foreclose themortgage and of the sale of the mortgaged property[, by]

(a) When a power of sale is contained in a mortgage, and where the mortgagee, themortgagee's successor in interest, or any person authorized by the power to act in the premises,desires to foreclose under power of sale upon breach of a condition of the mortgage, themortgagee, successor, or person shall be represented by an attorney who is licensed to practicelaw in the State and is physically located in the State. The attorney shall:

as follows:(A) By serving, not less than twenty-one days before the date of sale, written

notice of the intent to foreclose on all persons entitled to notice under this partin the same manner as service of a civil complaint under chapter 634 and theHawaii rules of civil procedure, as they may be amended from time to time; and

(B) By publication of the notice once in each of three successive weeks (threepublications), the last publication to be not less than fourteen days before the


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day of sale, in a newspaper having a general circulation in the county in whichthe mortgaged property lies; and

(2) Give any notices and do all acts as are authorized or required by the powercontained in the mortgage.

(b) Copies of the notice required under subsection (a) shall be:

(1) Filed with the state director of taxation; and(2) Posted on the premises not less than twenty-one days before the day of sale.(c) Upon the request of any person entitled to notice pursuant to this section and

sections 667-5.5 and 667-6, the attorney, the mortgagee, successor, or person represented by theattorney shall disclose to the requestor the following information:

(1) The amount to cure the default, together with the estimated amount of theforeclosing mortgagee's attorneys' fees and costs, and all other fees and costsestimated to be incurred by the foreclosing mortgagee related to the default prior tothe auction within five business days of the request; and

(2) The(d) Any sale, of which notice has been given as aforesaid, may be postponed from time

to time by public announcement made by the mortgagee or by some person acting on themortgagee's behalf. Upon request made by any person who is entitled to notice pursuant tosection 667-5.5 or 667-6, or this section, the mortgagee or person acting on the mortgagee'sbehalf shall provide the date and time of a postponed auction, or if the auction is canceled,information that the auction was canceled. The mortgagee within thirty days after selling theproperty in pursuance of the power, shall file a copy of the notice of sale and the mortgagee'saffidavit, setting forth the mortgagee's acts in the premises fully and particularly, in the bureau of conveyances.

sale price of the mortgaged property once auctioned.

[(e)]

(e) The mortgagee or other person who completes, pursuant to this part, the nonjudicialforeclosure of a mortgage or other lien on residential property shall not be entitled to pursue orobtain a deficiency judgment against an owner-occupant of the residential property who, at the timethe notice of intent to foreclose is served, does not have a fee simple or leasehold ownershipinterest in any other residential real property; provided, however, that nothing herein shall prohibitany other mortgagee or person who holds a lien on the residential property subject to thenonjudicial foreclosure, whose lien is subordinate to the mortgage being foreclosed and isextinguished by the nonjudicial foreclosure sale, from pursuing a monetary judgment against thatowner-occupant.

(f)

[(f)]

The affidavit and copy of the notice shall be recorded and indexed by theregistrar, in the manner provided in chapter 501 or 502, as the case may be.

(g)

This section is inapplicable if the mortgagee is foreclosing as to personalproperty only."

SECTION 6. Section 667-8, Hawaii Revised Statutes, is amended to read as follows:"667-8 Affidavit as evidence, when. If it appears by the affidavit that the affiant has in

all respects complied with the requirements of the power of sale and the statute, in relation to allthings to be done by the affiant before selling the property, and has sold the same in the mannerrequired by the power, the affidavit, or a duly certified copy of the record thereof, shall beadmitted as evidence that the power of sale was duly executed. The interests of the mortgagor,and all those claiming under, by, or through the mortgagor, in the property being foreclosed byexercise of a power of sale under this part, including land whose title is not registered in the land


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court under chapter 501, shall be deemed extinguished upon the recordation of the affidavit inthe bureau of conveyances or in the office of the assistant registrar, as the case may be, withinthirty days of the date of sale of the property at public auction.

"

SECTION 7. Upon the effective date of this Act, the judiciary is requested to considercreating and adopting a form for the conversion complaint established under section 2 of thisAct.

SECTION 8. This Act does not affect rights and duties that matured, penalties that wereincurred, and proceedings that were begun before its effective date.

SECTION 9. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the newsections in this Act.

SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutorymaterial is underscored.

SECTION 11. This Act shall take effect on ; provided that the requirements underthis Act shall apply only to foreclosures initiated after the effective date of this Act.

Remaining Issues

The task force is aware that several items required for review under Act 162 were leftunresolved prior to the convening of the regular session of 2011. Accordingly, the task forcewill continue to meet in 2011 in order to resolve those remaining items. The task force intendsto present the remainder of its recommendations to the Legislature in its final report for 2012.


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APPENDIX TO THE PRELIMINARY REPORTOF THE MORTGAGE FORECLOSURE TASK FORCE

TO THE LEGISLATURE FOR THE REGULAR SESSION OF 2011

(Includes the Following Materials Distributed at thePublic Meetings as of December 15, 2010)

(1) Act 162, Session Laws of Hawaii 2010(2) List of Mortgage Foreclosure Task Force members

August 31, 2010

(3) Hawaii Judicial Foreclosure in a Nutshell, presented by Peter T. Stone, a member of thepublic, at the August 31, 2010, public meeting

(4) Hawaii Non-Judicial Foreclosures in a Nutshell, presented by Peter T. Stone, a memberof the public, at the August 31, 2010, public meeting

(5) "Losing Your Home," Honolulu Star-Advertiser, July 25, 2010, distributed by the Vice-Chair, Marvin Dang, at the August 31, 2010, public meeting

(6) "Facing Foreclosure," Honolulu Star Bulletin, March 22, 2009, distributed by the Vice-Chair, Marvin Dang, at the August 31, 2010, public meeting

September 22, 2010

(7) "Foreclosures hit all-time high," Honolulu Star-Advertiser, September 16, 2010,distributed at the September 22, 2010, public meeting

(8) How Foreclosures Affect Condominiums, dated September 21, 2010, presented by JaneSugimura, a task force member, at the September 22, 2010, public meeting

(9) Hawaii Regulatory Framework for Mortgage Servicers, dated September 22, 2010,presented by D.B. Griffin III, Commissioner, Division of Financial Institutions,Department of Commerce and Consumer Affairs, and task force member, at theSeptember 22, 2010, public meeting

(10) Mortgage Foreclosure Rescue Fraud Investigations, dated September 22, 2010, presentedby Michael Moriyama, Office of Consumer Protection, at the September 22, 2010, publicmeeting

(11) Report of the Borrower Investigative Group, dated September 13, 2010, presented at theSeptember 22, 2010, public meeting

(12) Report of the Lender Investigative Group, dated September 8, 2010, presented at theSeptember 22, 2010, public meeting


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October 12, 2010

(13) Correspondence between the Office of the Administrative Director of the Courts and theHawaii State Bar Association, Collection Law Section, dated June 23, July 26, andAugust 2, 2010, relating to Non-Judicial Foreclosure Auctions, distributed by the Vice

Chair, Marvin Dang, at the October 12, 2010, public meeting(14) Report of Investigatory Group #3 to the task force, dated October 11, 2010, presented atthe October 12, 2010, public meeting

October 18, 2010

(15) Motions pertaining to task force recommendations, distributed by the LenderInvestigative Group at the October 18, 2010, public meeting

November 17, 2010

(16) Report of Investigatory Group #3 to the task force, dated November 16, 2010, presentedat the November 17, 2010, public meeting

(17) Revised motions pertaining to task force recommendations, distributed by the LenderInvestigative Group at the November 17, 2010, public meeting

December 7, 2010

(18) Motions pertaining to task force recommendations, dated December 6, 2010, distributedby Investigative Group #3 at the December 7, 2010, public meeting

(19) Investigative Group #3 Discussion Draft Only, dated December 1, 2010, d istributed byInvestigative Group #3 at the December 7, 2010, public meeting

December 15, 2010

(20) Revised motions pertaining to task force recommendations, dated December 8, 2010,distributed by Investigative Group #3 at the December 15, 2010, public meeting


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THE SENATE"TWENTY-FIFTH LEGISLATURE, 2010STATE OF HAWAII

S.B. NO.

A BILL FORAN ACTRELATING TO MORTGAGE FORECLOSURES.

BE IT ENACTED BY TIlE LEGISLATURE OF TH E STATE OF HAWAII:

SECTION 1 . ,The l e g i s l a t u r e f i n d s t h a t t h e number o f

2472S.D. 2H.D.1C.D.1

2 m o r t g a g e f o r e c l o s u r e s o f r e s i d e n t i a l p r o p e r t y h a s reached a n

3 alarming l e v e l . Th e l e g i s l a t u r e acknowledges t h a t t h i s

4 s i t u a t i o n i s n o t u n i q u e t o H a w a i i a n d i s p a r t o f a n a t i o n w i d e

5 economic downturn and r e su l t i ng upheaval throughout the home

6 l end ing i n d u s t r y. Because of t h e s e c,oncerns, t h e r e have been

7 numerous m e a s u r e s proposed 'dur ing th e 2010 l e g i s l a t i v e sess ion

8 t o address foreclOSUre-re la ted i s sue s . However, i t i s unc lear

9 w h e t h e r a n y o f t h e s e approaches w i l l i m p r o v e t h e c o n d i t i o n s

10 r e l a t i n g to fo rec losures o r improve the cu r r en t foreclosure

11 laws.

12 The l e g i s l a t u r e fu r the r f inds t h a t a comprehensive

13 eva lua t ion o f Hawaii ' s mortgage fo rec losure laws i s necessary

14 before the enactment of meaningful l e g i s l a t i o n t ha t , on balance,

15 addresses th e concerns of both borrowers and l enders involved i n

16 mortgage fo rec losures without f u r t h e r overburdening the cour t s .

17 The purpose o f t h i s Act i s t o crea te a mortgage foreclosure

18 t a sk force to conduct an ex tens ive ana ly s i s of a l l fac tors

2010-2025 SB2472 COl SMA. d o c

I n l l ~ I I I H I U I W I ~ m U l l l l l l l m U l W l l l l l l l l m l ~ I D I ! 1


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Page 2 S.B. NO. 2472S.D. 2H.D.lC.D.l

1 a f ~ ~ G t i n g mortgage fcrecloeurea i a the s t a t e and : 0 r e c o ~ e n d

2 appropr i a : ' e l e g i e l a t i o r . .

3 S E C ' ~ I O N 2 . (a) There i 6 a e t a b l i s h e d a mortgage

4 f;:;.:::eclo::m:t"e t a s k fo rce withi:J. the. depart'\1lel1':. o f COn'l_merce a."1d

5 c o n s u m e ~ a ffa : " r s f o r admin i s t r a t i " r e purposes . The. d;;J:'ector of

6 c o m m e ~ c e and consumer a f : a i r s e h a l ~ se l ec t the i n i t i a l ~ e m b e r s

7 of the t ~ s k force ~ n d sha l l i n v ~ t e a t l e a s t Ope member !rom eacc

8 o f t h e f o l l o w i n g :

9 (l} The department of commerce an d consumer \;affairs'

10 o f f i c e o f consumer pro tec t ion :

11 {.2) A ttI.O:l:'tgtage c c u n g e l i ~ g o; r ;ganiza t ion approved by th e

12 United Sta t e s Department of HO"'J.sing an d Crban

13 : c : e v e ~ o p m e i l t , p r e f e r a b l y wi th expe;r.-;':'se ir.. consume;-

14 c red i t cOULseling;

15 (3) The Lesa1 Aid s o c ~ e t y of Hawaii;

16 (4) The Hawaii Financ ia l s e rv i ce s A s a o c i a t i o ~ ;

17 (5) 7h: Hawaii Bankers A 6 8 o c ~ a t i o n i

18 (6) ':'he M o = ~ g a g e Bankers Associat ion c f l Iawaii ;

19 (7) The Hawaii ~ r e d i ~ u n 1 o ~ League;

20 (8) The Hawaii Council of A a s o c i ~ t i o n 5 of A p a r t ~ e n ~

21 Owr.ers;

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Page a

S.B. NO.

1 (9) The Hawaii S t a t e Bar Assoc ia t ion Col lec t ion Law2 S e c t i o n ;

3 (10) The H?-waii S t a t e Bar A s s o c i a t i o n Bankruptcy Law

2472

5.0.2H.D.1C.O.1

4 S e c t i o n o r th e Bankruptcy Cour t o f th e Uni t ed s t a t e s -

5 D i s t r i c t o f Hawai i ; and

6 ( I I ) Th e Hawaii s t a t e , j u d i c i a r y.

7 Th e members of the mortgage fo rec losure t a s k fo rce s h a l l e l e c t a

8 cha i rpe rson from among i t s membership. Th e cha i rpe rson o f ~ h e

9 t a s k f o r c e s h a l l seek t o m a i n t a i n a ba lanced r e p r e s e n t a t i o n o f

10 i n t e r e s t s and may s e l e c t a d d i t i o n a l t a s k fo rce members a t th e

11 c h a i r p e r s o n 's d i s c r e t i o n .

12 (b) The m o r t g ~ g e fo rec losure t a sk force s h a l l undertake a

13 s tudy t o develop bo th genera l and s p e c i f i c p o l i c i e s and14 procedures necessary t o improve th e m a n n ~ r i n which mortgage

15 f o r e c l o s u r e s a re conducted i n th e s t a t e . In p a r t i c u l a r , th e

16 t ask fo rce s h a l l cons ider th e fol lowing areas fo r poss ib le

17 improvements:

18 (1) Th e ~ d e q u a c y o f n o t i c e given to mortgagors o f

19 ava i l ab l e mortgage counsel ing programs and th e opt imal20 t iming f o r such n o t i f i c a t i o n and counsel ingi


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S.B. NO.24728.D.2

H.D.1C.D.1

(2) The a v a i l a b i l i t y o f ~ o a n documenta t ion to mortgagors

from mortgagees p r i o r t o and during th e fo rec losure

p r o c e s s ;

(3) Th e es tab l i shment o f s t a t u t o r y bidding. th resho lds f o r

prope r t i e s so ld v ia fo rec losure ;

(4) Th e s t a t u t o r y t i m e l i n e fo r power-a f - sa le fo rec losures ;

(5) Further r egu l a t i on of d i s t r e s sed proper ty consu l tan t s ;

an d

(6 ) Revis ions t o p a r t I I of c h a p t e r 667, Hawaii Revised

Sta tu t e s , t o make i t a v iab l e veh i c l e fo r power-of-

sa l e fo rec losures .

(0) In under tak ing th e s tudy; th e mortgage fo rec losure

13 t a s k fo rce may t ake i n t o account any o f th e f o ~ l o w i n g f a c to r s :14 (1) Exis t ing r e g u l a t i o n , on both th e s t a t e ,and federa l

15 l e v ~ l s i

16 (2) Th e s t a t e o f t h e n a t i o n a l and l o c a l economYt mqrtgage

17 loan d e f a u l t r a t e s , an d unemployment r a t e s ;

18 (3 ) Local borrowing and lending p r a c t i c e s v i s - a -v i s

19 mainland p r a c t i c e s ;

20 (4) Standa rd mor tgage loan q u a l i f i c a t i o n s ;

21 (5) Language b a r r i e r s and o t h e r c u l t u r a l f a c to r s unique to

22 t h i s s t a t e ;

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S.B. NO.24728.0.2H.D.1C.D.1

(6) The ex ten t t o which predatory mortgage lending, abuse

of co l l ec t i on procedures , and otherwise unfa i r,

f raudulen t , and decept ive prac t i ce s have impacted

mortgagors;

(7') Th e e f f e c t o f var ious mortgage loan terms, i n t e r e s t

r a t e s r fees , r i sk -ba s ed p r i c i ng , Single-premium c red i t

insurance, f inancing, and payment s t ruc tu re s ;

(8) The ex t en t t o which mortgage loan te rms and condi t ions

a re disc losed t o and understood by borrowers;

(9) A bor rower ' s a b i l i t y t o negot ia te mortgage loan terms

and p r i c e s i

12 (10) The ' ro le o f mortgage se rv ic ing agen t s an d t h e i r

13 prac t i ce s ;

14 (11) The a v a i l a b i l i t y , consumer knowledge, and use of

15 mortgage counsel ing;

16 {12} The a v a i l a b i l i t Y t consumer, knowledge, an d use of loan

17 modi f ica t ion p rocesses ;

18 (13) The l eng th o f t ime and expense assoc ia ted with

19 completing the forec losure process;

20 {141 The ex t en t t o which mortgagees provide mortgagors with

21 mortgage documents when requested;

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1 (15) The impac.t on t h e s t a t e ' s j u d i c i a l sys tem and t h e

2 t i m e l y r e s o l u t i o n o f f o r e c l o s u r e d i s p u t e s ;

3 (lG) Th e ex t en t to which mortgage fo rec losures go

4 u n c o n t e s t e d ;

5 (17) The p r o o f r e q u i r e d t o e s t a b l i s h s t a n d i n g f o r

6 fo rec los ing mortgagees;

2472S.D.2H.D.lC.D.l

7 (18) Assoc ia t ion and maintenance f ees and other cos t s borne

8 by ne ighbor u n i t ho lde r s i n condominium o r community

9 a s soc i a t i ons when m o r t g a g o ~ s a r e i n de fau l t j

10 (19) Abuses o f th e e x i s t i n g law b y mortgagors and

11 mortgagees ;

12 (20) Th e e f f e c t o f c e r t a i n i n e f f i c i e n c i e s and b a r r i e r s

13 under the c u r r e n t la w r e l a t i n g t o fo rec losures , such

14 a s s e r v ~ n g process upon absen t o r deceased mortgagors ;

15 and

16 ( 2 1 ) The e x t e n t to which th e above f a c t o r s impact power-of-

17 s a l e v i s - a - v i s j u d i c i a l f o r e c l ~ s u r e s .

18 (d ) Th e mor tgage fo rec losure t a s k fo rce s h a l l analyze t h e

19 e f f e c t i v e n e s s and any defec t s of th e f o r e c l o s u r e procedures

20 c u r r e n t l y s e t i n s t a t u t e f o r b o t h j u d i c i a l and p o w e r- o f - s a l e

21 f o r e c l o s u r e s . I n t h i s a n a l y s i s , t h e task- fo rce :

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S.B. NO.24728 .0 .2

H.D.1C.D.1

(1 ) May c o n s i d e r and recommend a l t e r n a t i v e procedures f o r

t i m e s h a r ~ p r o p e r t y ;

(2) May c o n s i d e r and recommend a l t e r n a t i v e procedures f o r

fo rec losures sought by j un io r l i e n holders such as

condominiums, co-op apar tments , and community

a s s o c i a t i o n s c o l l e c t i n g maintenance fees ;

(3) May propose measures t o c l a r i fY t h e a p p l i c a t i o n of

c h a p t e r 667, Hawaii Revised S t a t u t e s , t o o t h e r

p r o p e r t y s t a t u t e s ; .

(4 ) S h a l l comment on t h e e x t e n t t o which e x i s t i n g law does

o r does no t comply with s t a t e and f e d e r a l

c o n s t i t u t i o n a l due process g u a r a n t e e s i

(5) Sha l l comment on any e f f e c t proposed l e g i s l a t i v e

changes w i l l have on borrowers who a r e c u r r e n t on

t h e i r mortgag_e l o a n s ; and

(6 ) S h a l l seek to main ta in and not erode e x i s t i n g consumer

p r o t e c t i o n s .

(e ) Th e mortgage fo rec losure t a s k fo rce shaLl comment on

19 th e f e a s i b i l i t y of e s t a b l i s h i n g a s t a t e e n t i t y o r a d m i n i s t r a t o r

20 t o focus on address ing t h e concerns of mortgagors , disseminat ing

21 informat ion, and o the rwise engaging i n consumer educat ion. Th e

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1 t a sk fo rce s h a l l propose funding mechanisms to enable th e

2 o p e r a t i o n of t h i s e n t i t y .

24728.D.2

H.D.1C.D.1

3 (f) Members of the mortgage fo rec losure t a sk force s h a l l

4 s e r v e without compensation and s h a l l not be reimbursed fo r

5 expenses .

6 (9) Th e mortgage fo rec losure t a sk force sha l l submit a

,7 repor t o f i t s f indings and recommendations, including any

8 p r opo se d l e g i s l a t i o n , t o t h e l e g i s l a t u r e no l a t e r t h a n twen t y

9 da y s p r i o r t o t h e convening o f t h e 2011 and 2012 r e g u l a r

10 sess ions , and s h a l l p a r t i c i p a t e i n a j o i n t informat ional sess ion

11 upon reques t o f the l e g i s l a t u r e .

12 (h) The l e g i s l a t i v e ' r e fe rence bureau sha l l a s s i s t the t ask

13 f o r c e i n p r e p a r i n g i t s f ind ings , recommendations, and proposed14 l e g i s l a t i o n ; provided t h a t th e chairperson of the t ask fo rce

15 sha l l submit th e t a sk fo rce ' s p r o p o s a l ~ to the l e g i s l a t i v e

16 re fe rence bureau fo r dra f t i ng no l a t e r than November I , 2010 fo r

17 the r epo r t t o th e 2011 regu la r sess ion and no l a t e r than,

18 November 1, 2011, fo r t h e r epo r t t o the 2012 regu la r s e s s ion .

19 ( i ) The mortgage foreolosure t ask force sha l l cease t o

20 e x i s t on June 3 0 , 2 0 1 2 .

21

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24728.D.2H.D.1C.D.1

1 SECTION 3 . .This Act s h a l l t ake e f f e c t upon i t s approva l .

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Repor t T:i.tle:Mortgage Foreclosures i Task Force

D e s c r i p t i o n :

S.B. NO.2472S.D. 2

H.D.1C.D.1

Estab l i shes a t a sk force t o analyze fac tors a f f e c t i n g mortgagefo rec losures i n Hawaii, inc lud ing re levan t laws. Effec t iveupon a p p r o v a l . (CD1) '

The l$ummarydescriptIOn of legialatfonappearing on thIs page is for Informational purposes only and isnot legisletlonor evidence of legislative Intent.

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MORTGAGE FORECLOSURE TASK FORCE

1. Stephen H. Levins, Chair MFTFExecutive Director. DCCA-OCP

2. Marvin S.C. Dang, Vice Chair MFTFHawaii Financial Services Association

3. D.B. Griffin III, CommissionerDivision of Financial Institutions, DCCA

4. Jerrold K. GubenChair, HSBA Bankruptcy Law Section

5. Steven Guttman

Chair, HSBA Collection Law Section

6. Larrin HiranoSr. Vice President & Legal CounselTitle Guaranty of Hawaii, Inc.

7. Michel le Kauhane. Executive DirectorHawaiian Community Assets

8. Linda NakamuraMortgage Bankers Association of Hawaii

9. Neal OkabayashiChair, Hawaii Bankers Association Legislative Committee

10 . Stefanie Sakamoto

Legislative OfficerHawaii Credit Union League

11 . Jane Sugimura, PresidentHawaii Council of Associations of Apartment Owners

12 . Joan TakanoField Support SpecialistHawaii Government Employees Association

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MORTGAGE FORECLOSURE TASK FORCE

13. Steven Tam, Advocacy ConsultantAARP Hawaii Volunteer

14 . Julia H. Verbrugge, Staff AttorneyFirst Circuit Court, State of Hawaii Judiciary

15. Ryker J . Wad aConsumer Unit Supervisor/Staff AttorneyLegal Aid Societ

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Hawaii - Preliminary Report of the Mortgage Foreclosure Task Force, 2011

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