Honorable Calvin K.Y. Say

Speaker, House of Representatives

Twenty-Third State Legislature

Regular Session of 2005

State of Hawaii

Sir:

Your Committee on Consumer Protection & Commerce, to which was referred H.B. No. 783 entitled:

begs leave to report as follows:

The purpose of this bill is to protect homeowners from unfair procedures under the power of sale, or nonjudicial foreclosure process, by, among other things:

(1) Repealing the 1874 power of sale process; and

Testimony in support of this bill was received from the Hawaii Association of Realtors and several concerned individuals. The Community Associations Institute, Hawaii Bankers Association, Hawaii Financial Services Association, Cendant Timeshare Resort Group, Inc., Fairfield Resorts, Inc., Hawaii Credit Union League, Legal Aid Society of Hawaii, and Old Republic Title Company opposed the bill. Pahio Resorts and Mortgage Bankers Association of Hawaii requested amendments. ARDA-Hawaii commented.

Your Committee finds that in 1874, Hawaii's original power of sale, or nonjudicial foreclosure process was enacted. In 1998, the Legislature enacted an alternate power of sale foreclosure process that increased the procedural due process afforded consumers whose mortgages were subject to foreclosure under a power of sale clause in their mortgage agreements. Among other things, the alternate power of sale process requires lenders to provide the borrower with more notice of their rights during the process of foreclosure, and gives the borrower the right to file an action to compel judicial foreclosure and automatically stay the power of sale proceedings.

Your Committee heard testimony that lenders have been ignoring this alternate process and are relying on the old power of sale procedure, which provides the average consumer with little notice of their rights, and which can quickly force a homeowner out of their home due to the substantial penalties and legal fees that may be added to the amount the borrower already owes.

Your Committee also recognizes that there are various provisions in the alternative power of sale foreclosure law that make the law unworkable for, and thus unattractive to, lenders.

In an effort to remove problems that prevented the alternative power of sale foreclosure process from being more frequently used by lenders, your Committee, instead of repealing the alternate power of sale foreclosure process, has amended the process by:

Technical, nonsubstantive amendments were also made for clarity, consistency, and style.

Your Committee recognizes that this bill is a work in progress, and that more discussion and amendment is necessary to produce a workable law. To that end, an effective date of July 1, 2099, has also been provided.

As affirmed by the record of votes of the members of your Committee on Consumer Protection & Commerce that is attached to this report, your Committee is in accord with the intent and purpose of H.B. No. 783, as amended herein, and recommends that it pass Second Reading in the form attached hereto as H.B. No. 783, H.D. 1, and be referred to the Committee on Judiciary.