Well, it’s been 32 days since I published a blog post with my initial thoughts about Act 48, the 101 page bill (formerly Senate Bill 651) which was signed into law by Governor Neil Abercrombie on May 5th, 2011.
How is this new legislation going to effect homeowners (the act’s intention is to help Hawaiian homeowners stay in their homes if at all possible), effect how the banks deal with foreclosure on a go-forward basis, and effect the overall Hawaii real estate market?
For those homeowners already in the foreclosure process, and with court sale dates already published, these homeowners will be getting more time. More time to complete a loan mod in progress, complete a short sale, or stay in the home if they are choosing to be foreclosed on. How much time? Nobody can really say.
Since May 5th on Kauai, every non-judicial auction has been either postponed or canceled. In fact, there seem to be a higher rate of cancellations than usual. Perhaps this notice in the graphic below from Fannie Mae, one of the largest investors of home loans, indicates the direction things are going to go.
So, some foreclosures will be canceled and restarted as judicial proceedings. While Act 48 provides a process of dispute mediation meant to facilitate successful dialogue to give homeowners a chance to stay in their homes, this is not required in the judicial proceeding, according to my understanding.
The switch to the judicial foreclosure process may prove to burden our judiciary where we have a limited supply of judges to hear these cases as well. I’ll be at an update on Oahu at month’s end where presentations will be given by the Hawaii Foreclosure Task Force, the DCCA, the Judiciary, and many others. This notice to servicers from Fannie Mae from Friday is the first indication of how the lenders may respond to Act 48.
The combination of stretching out the foreclosure process and redoing the foreclosure on properties that the lenders already own, will allow future inventory to buildup, but how will the buildup of distressed properties ultimately effect values of property on Kauai? I believe the trend of market contraction will continue knowing that these short sold, or foreclosed properties will eventually be put up for sale, just with some delays in the process.
If a homeowner is not able to modify their mortgage, a short sale is a much more dignified exit than going through a judicial foreclosure. Remember, in the judicial proceeding the lien holder has a right to pursue a deficiency judgment. Got further questions or thoughts on the matter? Please let me know…
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Rod Easterly
June 13, 2011
Thanks for the update Ron. This is big news because all lenders, with the exception of a possible few, will follow Fannie Mae in the conversion to judicial foreclosures. The conversion to judicial foreclosures effectively nullifies the help that Act 48 intends to provide to homeowners. Act 48 only helps homeowners in the non-judicial foreclosure process. As you correctly stated, the lenders will get recorded deficiency judgements against the homeowners in the judicial foreclosure process. The deficiency judgements can follow the former homeowners around for up to 20 years and the lender will have the right to garnish their wages, seize current and future bank accounts and other assets. Fannie Mae’s response to Act 48 clearly indicates that our Hawaii legislator over-shot their objective and it’s blowing up in the face of homeowners, the very ones they intended to protect.
Rod Easterly
June 13, 2011
Thanks for the update Ron. This is big news because all lenders, with the exception of a possible few, will follow Fannie Mae in the conversion to judicial foreclosures. The conversion to judicial foreclosures effectively nullifies the help that Act 48 intends to provide to homeowners. Act 48 only helps homeowners in the non-judicial foreclosure process. As you correctly stated, the lenders will get recorded deficiency judgements against the homeowners in the judicial foreclosure process. The deficiency judgements can follow the former homeowners around for up to 20 years and the lender will have the right to garnish their wages, seize current and future bank accounts and other assets. Fannie Mae’s response to Act 48 clearly indicates that our Hawaii legislator over-shot their objective and it’s blowing up in the face of homeowners, the very ones they intended to protect.
Ron Margolis
June 13, 2011
I’m afraid you may be right. Didn’t take Fannie Mae to long to develop their response either.
Ron Margolis
June 13, 2011
I’m afraid you may be right. Didn’t take Fannie Mae to long to develop their response either.
Randy Brummett, RA
June 14, 2011
Ron, Thanks for providing us with this update. It is nice to hear this from a professional who is staying on top of these important developments concerning Act 48. I find myself confused by the simpler aspect of all this; home ownership is and always has been a privilege, not a right. The short sale process should be valued as a precious gift. I know people right now who are “upside down” on their mortgage. Fortunately for them, they have a fixed interest rate and have maintained their income so they do not have to sell right now. On the flip side, I know others who have benefited from the short sale process. It may be a cold hard fact, but in life, if you can’t pay, you can’t stay.
Randy Brummett, RA
June 14, 2011
Ron, Thanks for providing us with this update. It is nice to hear this from a professional who is staying on top of these important developments concerning Act 48. I find myself confused by the simpler aspect of all this; home ownership is and always has been a privilege, not a right. The short sale process should be valued as a precious gift. I know people right now who are “upside down” on their mortgage. Fortunately for them, they have a fixed interest rate and have maintained their income so they do not have to sell right now. On the flip side, I know others who have benefited from the short sale process. It may be a cold hard fact, but in life, if you can’t pay, you can’t stay.
Marcy
June 14, 2011
I have little doubts that other banks will follow Fannie Mae.
They know that going judicial is not going to be faster
The reason Fannie Mae is doing this is because if they go through Dispute Resolution, they are required to show proof of ownership..proper chain of title.
Strange as it seems , they are not required to do this for a Judicial Foreclosure.
Hawaii is the first state to require showing proper chain of title prior to mediation and non judicial foreclosure.
Their actions say volumes about what is really going on here.
Marcy
June 14, 2011
I have little doubts that other banks will follow Fannie Mae.
They know that going judicial is not going to be faster
The reason Fannie Mae is doing this is because if they go through Dispute Resolution, they are required to show proof of ownership..proper chain of title.
Strange as it seems , they are not required to do this for a Judicial Foreclosure.
Hawaii is the first state to require showing proper chain of title prior to mediation and non judicial foreclosure.
Their actions say volumes about what is really going on here.
sahibinden
June 29, 2011
thanks for the post nice ideas and tips for me, your blog is awesome
sahibinden
June 29, 2011
thanks for the post nice ideas and tips for me, your blog is awesome
Cary
August 8, 2011
Rod and Ron,
I thought that filing chapter 7 bankruptcy would relieve the borrower from any deficiency after foreclosure. Most borrowers facing foreclosure are in other financial distress as well. I think that rather seeing Fannie Mae chasing around homeowners for 20 years for a deficiency, we’ll see a surge in bankruptcy filings as more non judicial foreclosures are converted to judicial.
Thanks for keeping us informed Ron.
Cary
August 8, 2011
Rod and Ron,
I thought that filing chapter 7 bankruptcy would relieve the borrower from any deficiency after foreclosure. Most borrowers facing foreclosure are in other financial distress as well. I think that rather seeing Fannie Mae chasing around homeowners for 20 years for a deficiency, we’ll see a surge in bankruptcy filings as more non judicial foreclosures are converted to judicial.
Thanks for keeping us informed Ron.