REPORT TITLE:
Mortgage


DESCRIPTION:
Establishes residential mortgage foreclosure proceedings that
take financial hardship into account and preempt the alternate
power of sale foreclosure process.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2341
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO RESIDENTIAL MORTGAGE FORECLOSURES.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1.  The legislature finds that our citizens who
 
 2 reside on properties subject to a residential mortgage are among
 
 3 those of our citizens most vulnerable to the State's economic
 
 4 downturn.
 
 5      Nationally, most American families are two paychecks away
 
 6 from losing their homes through foreclosure.  In order to prevent
 
 7 such tragedies, most states throughout the nation have enacted
 
 8 procedural safeguards to permit families an opportunity to
 
 9 recover from financial setbacks and retain their homes and
 
10 dignity without prejudicing the rights or interests of financial
 
11 institutions who serve as residential mortgagees.
 
12      Because of Hawaii's stagnant economy, residential property
 
13 values have plummeted, family incomes have been reduced or
 
14 flattened, and unemployment or underemployment threaten thousands
 
15 of working responsible families.  The threat of economic
 
16 disaster, foreclosure, and bankruptcy is, therefore,
 
17 substantially greater than that on the mainland where the economy
 
18 is vibrant.  Yet, Hawaii's laws regarding foreclosure procedures
 
19 do not contain significant procedural protections for Hawaii's
 

 
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 1 homeowners.  Instead, Hawaii's homeowners in distress are largely
 
 2 left to the good graces of foreign lenders, local and foreign
 
 3 mortgage servicers, and their attorneys.  Patience and compassion
 
 4 probably cannot reasonably be anticipated from those sources.
 
 5      Accordingly, it is the purpose of this Act to establish
 
 6 procedural safeguards in the foreclosure process to insure that
 
 7 residential mortgage holders in financial distress through no
 
 8 reason of their own are afforded a reasonable opportunity to
 
 9 recover their financial footing and retain their homes.
 
10      SECTION 2.  Chapter 667, Hawaii Revised Statutes, is amended
 
11 by adding a new part to be appropriately designated and to read
 
12 as follows:
 
13           "PART  .  RESIDENTIAL MORTGAGE FORECLOSURES
 
14      §667-   Definitions.  As used in this part:
 
15      "Financial hardship due to circumstances beyond the
 
16 residential mortgagor's control" means a significant curtailment
 
17 of at least twenty-five per cent of aggregate family household
 
18 income which cannot be or could not have been alleviated by the
 
19 liquidation of assets by the mortgagor and is related to one or
 
20 more of the following:
 
21      (1)  Involuntary unemployment or underemployment of one or
 
22           more of the mortgagors;
 
23      (2)  A loss, reduction, or delay in receipt of such federal
 

 
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 1           or state benefits as Social Security, Supplemental
 
 2           Security Income, public assistance, and government
 
 3           pensions;
 
 4      (3)  A loss, reduction, or delay of such private benefits as
 
 5           pension, annuity, or retirement benefits;
 
 6      (4)  Divorce or a loss of support payments;
 
 7      (5)  Disability, illness, or death of a mortgagor;
 
 8      (6)  Uninsured damages to the mortgaged property which
 
 9           affect the livability and necessitate costly repairs;
 
10           or
 
11      (7)  Expenses related to the disability, illness, or death
 
12           of a member of the mortgagor's family, but is not
 
13           related to the accumulation of installment debt
 
14           incurred for recreational or nonessential items prior
 
15           to the occurrence of the alleged circumstances beyond
 
16           the mortgagor's control in an amount that would have
 
17           caused the mortgagor's total debt service to exceed
 
18           sixty per cent of aggregate family income at that time.
 
19      §667-   Power of sale inapplicable.  Part II shall not
 
20 apply to any foreclosure upon residential mortgages.
 
21      §667-   Notice before foreclosure.(a)  At least thirty
 
22 days and not more than ninety days before the commencement of any
 
23 action or proceeding for the foreclosure of a residential
 

 
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 1 mortgage, a written notice shall be served on the title owner of
 
 2 record of the real estate described in the mortgage.
 
 3      (b)  The notice before foreclosure shall contain:
 
 4      (1)  The description of the real estate;
 
 5      (2)  The date and amount of the mortgage;
 
 6      (3)  The amount owing for principal, interest, and taxes
 
 7           paid by the owner of the mortgage; and
 
 8      (4)  A statement that if the amount due is not paid within
 
 9           thirty days from the date of the mailing of service of
 
10           the notice, proceedings will be commenced to foreclose
 
11           the mortgage.
 
12      (c)  No notice shall be served until the residential
 
13 mortgagor is at least two months behind in the mortgagor's
 
14 payment obligations.
 
15      §667-   Default; cure.  If the residential mortgagor or
 
16 the administrator or personal representative of the mortgagor's
 
17 estate, within two days of any confirmation of sale, performs
 
18 conditions or complies with the provisions upon which default in
 
19 the mortgage shall have occurred, exclusive of any provision
 
20 providing for the acceleration of amounts due, the mortgage shall
 
21 be reinstated and shall remain in full force and effect as though
 
22 no default had occurred.
 

 
 
 
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 1      §667-   Continuance; financial hardship due to
 
 2 circumstances beyond the residential mortgagor's control.(a)
 
 3 In all actions for the foreclosure of residential mortgages, when
 
 4 the owner enters an appearance and files an answer admitting some
 
 5 indebtedness and breach of the terms of the designated
 
 6 instrument, which admissions cannot be withdrawn or denied after
 
 7 a continuance is granted, the owner may apply for a continuance
 
 8 of the foreclosure action based on financial hardship due to
 
 9 circumstances beyond the residential mortgagor's control.
 
10      (b)  The application must be in writing and filed at or
 
11 before a final decree is entered.  Upon the filing of the
 
12 application the court shall set a day for hearing of the
 
13 application and provide by order for notice to be given to the
 
14 plaintiff of the time fixed for the hearing.  If the court finds
 
15 that the application is made in good faith and is supported by
 
16 competent evidence showing that default in payment or inability
 
17 to pay is due to financial hardship due to circumstances beyond
 
18 the residential mortgagor's control, the court may continue the
 
19 foreclosure proceeding for one year.
 
20      (c)  The order shall provide for the appointment of a
 
21 receiver to take charge of the property and to rent the property.
 
22 The owner or persons in possession shall be given preference in
 
23 the occupancy of the property.  The receiver, who may be the
 
24 owner or person in possession, shall collect the rents and
 

 
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 1 distribute the proceeds as follows:
 
 2      (1)  For the payment of the costs of receivership;
 
 3      (2)  For the payment of taxes due or becoming due during the
 
 4           period of receivership;
 
 5      (3)  For the payment of insurance on the buildings on the
 
 6           premises; and
 
 7      (4)  The remaining balance shall be paid to the owner of the
 
 8           instrument upon which the foreclosure is based, to be
 
 9           credited on the instrument.
 
10      (d)  A continuance granted under this section may be
 
11 terminated if the court finds, after notice and hearing, all of
 
12 the following:
 
13      (1)  The party seeking foreclosure has made reasonable
 
14           efforts in good faith to work with the applicant to
 
15           restructure the debt obligations of the applicant;
 
16      (2)  The party seeking foreclosure has made reasonable
 
17           efforts in good faith to work with the applicant to
 
18           utilize state and federal programs designed and
 
19           implemented to provide debtor relief options; and
 
20      (3)  The applicant has failed to pay interest due on the
 
21           written instrument.
 
22      (e)  Only one continuance may be granted any residential
 
23 mortgagor, provided that a continuance may be extended for a
 

 
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 1 further period as the court deems just and equitable upon a
 
 2 showing of extraordinary circumstances.
 
 3      §667-   Deficiency judgments; limitation on liability.
 
 4 (a)  Except as provided in subsection (b), the judgment in action
 
 5 to foreclose a residential mortgage shall not extend to any other
 
 6 property of the judgement debtor, or may a general execution be
 
 7 issued against the judgment debtor to enforce such judgment, and
 
 8 if the proceeds of the mortgaged real property sold are
 
 9 insufficient to satisfy the judgment, the judgment may not
 
10 otherwise be satisfied against the person or property of the
 
11 judgment debtor, notwithstanding any agreement to the contrary.
 
12      (b)  The balance due after sale of property subject to a
 
13 residential mortgage shall constitute an award against the
 
14 judgment debtor if the court determines that the sale price was
 
15 less than the amount of the judgment because of diminution in the
 
16 value of the real property due to voluntary waste committed or
 
17 permitted by the judgment debtor.  The balance due shall not
 
18 exceed the amount of the diminution of value.
 
19      §667-   Redemption.(a)  All property sold pursuant to a
 
20 foreclosure upon a residential mortgage shall be subject to
 
21 redemption if upon application to the court, the judgment debtor
 
22 establishes that default on the residential mortgage was due to
 
23 financial hardship due to circumstances beyond the resident
 

 
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                                     S.B. NO.           2341
                                                        
                                                        

 
 1 mortgagor's control.
 
 2      (b)  Property sold subject to redemption may be redeemed by
 
 3 the judgment debtor, the judgment debtor's spouse, or the
 
 4 successor in interest in the whole or any part of the property.
 
 5 The property may be redeemed any time within one year after the
 
 6 sale by paying the purchaser:
 
 7      (1)  The amount of the purchase plus interest at a rate
 
 8           established by the judgment in the action;
 
 9      (2)  The amount of any assessment or taxes which the
 
10           purchaser may have paid; and
 
11      (3)  The amount of any repairs, maintenance expenses, or
 
12           other expenditures that the purchaser may reasonably
 
13           have made after purchase.
 
14      §667-   Possession of lands during redemption period.  The
 
15 purchaser of property subject to redemption shall not be entitled
 
16 to possession thereof as against the execution debtor during the
 
17 period of redemption while the residential mortgagor personally
 
18 occupies the property as a home.  The intention is to insure to
 
19 such debtor the possession of property during the year of
 
20 redemption."
 
21      SECTION 3.  This Act shall apply to all actions then
 
22 initiated or pending on its effective date.
 
23      SECTION 4.  This Act shall take effect on July 1, 2000.
 
24 
 
25                           INTRODUCED BY:  _______________________