HB1332

SECTION 1. This Act shall be known as the "Mortgage Rescue Fraud Prevention Act."

SECTION 2. The Hawaii Revised Statutes is amended by adding to title 26 a new chapter to be appropriately designated and to read as follows:

"CHAPTER

MORTGAGE RESCUE FRAUD PREVENTION ACT

§ -1 Purpose. The purpose of this chapter is to protect Hawaii consumers from persons who prey on homeowners facing property foreclosures, liens, or encumbrances. Consumers facing foreclosures, liens, or encumbrances are often in desperate financial situations that can have severe negative consequences for individuals and families even if the consumers have significant equity in their residential real property. The consumers' desperation can make the consumers vulnerable to persons who claim they can stop, prevent, or delay foreclosures, liens, or encumbrances. Persons who make such claims often use the consumers' desperation to foster unequal bargaining positions and withhold or misrepresent vital information and details. As a result, consumers may be convinced to give up their real property interests and valuable equity to such persons while receiving little in return. Requiring full and complete disclosure of vital information will better enable consumers to make informed decisions when dealing with persons claiming to be able to stop foreclosures, liens, or encumbrances. The Mortgage Rescue Fraud Prevention Act addresses possible misrepresentations by compelling persons offering assistance to spell out their services in written contracts and giving the homeowners the right to cancel at any time before a rescuer has performed all services called for in the contracts.

§ -2 Definitions. As used in this chapter, unless the context otherwise requires:

"Consideration" means any payment or thing of value provided to the owner of a distressed property, including reasonable costs paid to independent third parties necessary to complete the distressed property conveyance or payment of money to satisfy a debt or legal obligation of the owner of the distressed property. "Consideration" shall not include amounts imputed as a down payment or fee to the distressed property purchaser, or a person acting in participation with the distressed property purchaser.

"Distressed property" means any residential real property that:

(1) Is in foreclosure or at risk of foreclosure because payment of any loan that is secured by the residential real property is more than ninety days delinquent;

(2) Had a lien or encumbrance charged against it because of nonpayment of any taxes, lease assessments, association fees, or maintenance fees; or

(3) Is at risk of having a lien or encumbrance charged against it because the payment of any taxes, lease assessments, association fees, or maintenance fees are more than ninety days delinquent.

"Distressed property consultant" means any person who makes any solicitation, representation, or offer to or does perform any of the following:

(1) Stop or postpone the foreclosure sale or loss of any distressed property due to the nonpayment of any loan that is secured by the distressed property;

(2) Stop or postpone the charging of any lien or encumbrance against any distressed property or eliminate any lien or encumbrance charged against any distressed property for the nonpayment of any taxes, lease assessments, association fees, or maintenance fees;

(3) Obtain any forbearance from any beneficiary or mortgagee, or relief with respect to a tax sale of the property;

(4) Assist the owner to exercise any cure of default arising under Hawaii law;

(5) Obtain any extension of the period within which the owner may reinstate the owner's rights with respect to the property;

(6) Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a distressed property or contained in the mortgage;

(7) Assist the owner in foreclosure, loan default, or post-tax sale redemption period to obtain a loan or advance of funds;

(8) Avoid or ameliorate the impairment of the owner's credit resulting from the recording of a notice of default or the conduct of a foreclosure sale or tax sale; or

(9) Save the owner's residence from foreclosure or loss of home due to nonpayment of taxes.

A "distressed property consultant" does not include any of the following:

(1) A person or the person's authorized agent acting under the express authority or written approval of the Department of Housing and Urban Development;

(2) A person who holds or is owed an obligation secured by a lien on any distressed property, or a person acting under the express authorization or written approval of such person, when the person performs services in connection with the obligation or lien, if the obligation or lien did not arise as the result of or as part of a proposed distressed property conveyance;

(3) Banks, savings banks, savings and loan associations, credit unions, trust companies, depository, and nondepository financial service loan companies, and insurance companies organized, chartered, or holding a certificate of authority to do business under the laws of this State or any other state or under the laws of the United States;

(4) Licensed attorneys engaged in the practice of law;

(5) A Department of Housing and Urban Development approved mortgagee and any subsidiary or affiliate of these persons or entities, and any agent or employee of these persons or entities, while engaged in the business of these persons or entities; or

(6) A nonprofit organization that, pursuant to Hawaii Revised Statutes 446, offers counseling or advice to an owner of a distressed property, if the nonprofit organization has no contract or agreement for services with lenders, distressed property purchasers, or any person who effects loans or distressed property purchases.

"Distressed property consultant contract" means any agreement or obligation between an owner or agent of an owner of a distressed property and a distressed property consultant.

"Distressed property purchaser" means any person who acquires any interest in a distressed property directly or indirectly through a distressed property conveyance or distressed property conveyance contract.

"Distressed property conveyance" means the transfer of any interest in a distressed property effected directly or indirectly by or through a distressed property consultant.

"Distressed property conveyance contract" means any agreement or obligation effecting a distressed property conveyance.

"Distressed property lease" means any agreement or obligation regarding the lease or rental of a distressed property effected directly or indirectly by or through a distressed property consultant or distressed property purchaser.

"Person" means any individual, partnership, corporation, limited liability company, association, or other group or entity, however organized.

§ -3 Distressed property consultant contract. (a) A distressed property consultant contract shall be in writing and shall fully disclose all services to be performed by the distressed property consultant, the exact terms of the agreement between the distressed property consultant and all owners of the distressed property and the total amount and terms of compensation to be directly or indirectly received by the distressed property consultant.

(b) A distressed property consultant contract shall contain on its first page in a type size no smaller than fourteen-point boldface type:

(1) A description of the distressed property;

(2) The name, street address, and telephone number of the distressed property consultant; and

(3) The name and address of the distressed property consultant to which notice of cancellation is to be mailed.

(c) A distressed property consultant contract shall be dated and signed by the distressed property consultant. If the distressed property consultant is a person other than an individual, the individual executing the distressed property consultant contract on behalf of the distressed property consultant shall identify the title and office held by the individual.

(d) A distressed property consultant contract shall be dated and signed by all owners of the distressed property. The following notice in a type size no smaller than fourteen-point boldface type shall appear immediately before the space reserved for each owners' signature:

"YOU, THE OWNER, MAY CANCEL THIS TRANSACTION AT ANY TIME BEFORE THE DISTRESSED PROPERTY CONSULTANT HAS FULLY PERFORMED EACH AND EVERY SERVICE THE DISTRESSED PROPERTY CONSULTANT CONTRACTED TO PERFORM OR REPRESENTED WOULD BE PERFORMED. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT."

(Name or anyone working for the distressed property consultant) CANNOT:

(1) Take any money from you or ask you for money until (Name) has completely finished doing everything the distressed property consultant said they would do; or

(2) Ask you to sign or have you sign any lien, encumbrance, mortgage, assignment, or deed unless the lien, encumbrance, mortgage, assignment, or deed is fully described including all disclosures required by this chapter.

(e) A distressed property consultant contract shall be accompanied by a completed form in duplicate, captioned "NOTICE OF CANCELLATION," which shall be attached to the contract, shall be easily detachable, and shall contain, in a type size no smaller than fourteen-point boldface type, the following statement written in the same language as used in the contract:

NOTICE OF CANCELLATION

(Enter date of transaction)

(Date)

YOU MAY CANCEL THIS TRANSACTION, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE THE DISTRESSED PROPERTY CONSULTANT HAS FULLY PERFORMED EACH AND EVERY SERVICE THE DISTRESSED PROPERTY CONSULTANT CONTRACTED TO PERFORM OR REPRESENTED WOULD BE PERFORMED.

TO CANCEL THIS TRANSACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE, OR ANY OTHER WRITTEN NOTICE TO (Name of distress property consultant) Address of distressed property consultant's place of business.

I HEREBY CANCEL THIS TRANSACTION.

________________________________

(Date)

_____________________________

(Owner's signature)

(f) The distressed property consultant shall provide all distressed property owners with a copy of a distressed property consultant contract and the attached notice of cancellation immediately upon execution of the contract.

§ -4 Cancellation of distressed property consultant contract. (a) In addition to any other legal right to rescind a contract, an owner has the right to cancel a distressed property consultant contract at any time before the distressed property consultant has fully performed each and every service the distressed property consultant contracted to perform or represented would be performed.

(b) Cancellation occurs when any owner of the distressed property delivers, by any means, written notice of cancellation to the address specified in the distressed property consultant contract.

(c) Notice of cancellation, if given by mail, is effective when deposited in the mail with postage prepaid. Notice by certified mail, return receipt requested, addressed to the address specified in the distressed property consultant contract, shall be conclusive proof of notice of cancellation.

(d) Notice of cancellation given by any owner of the distressed property need not take the particular form as provided with the distressed property consultant contract and, however expressed, is effective if it indicates the intention of an owner not to be bound by the contract.

§ -5 Distressed property conveyance contract. (a) A distressed property conveyance contract shall be in writing and shall fully disclose all rights and obligations of the distressed property purchaser and all owners of the distressed property and the exact terms of the agreement between the distressed property purchaser and all owners of the distressed property.

(b) Every distressed property conveyance contract shall specifically include the following terms:

(1) The total consideration to be given by the distressed property purchaser or tax lien payor in connection with or incident to the sale;

(2) A complete description of the terms of payment or other consideration including, but not limited to, any services of any nature that the distressed property purchaser represents will be performed for the owner of the distressed property before or after the sale;

(3) A complete description of the terms of any related agreement designed to allow the owner of the distressed property to remain in the home such as a rental agreement, repurchase agreement, contract for deed, or lease with option to buy;

(4) A notice of cancellation as provided in this chapter;

(5) The following notice in a type size no smaller than fourteen-point boldface type, if the contract is printed, or in capital letters, if the contract is typed, and completed with the name of the distressed property purchaser, immediately above the statement required this chapter:

"NOTICE REQUIRED BY HAWAII LAW

UNTIL YOUR RIGHT TO CANCEL THIS CONTRACT HAS ENDED, (Name of distressed property purchaser) OR ANYONE WORKING FOR (Name of distressed property purchaser) CANNOT ASK YOU TO SIGN OR HAVE YOU SIGN ANY DEED OR ANY OTHER DOCUMENT. YOU ARE URGED TO HAVE THIS CONTRACT REVIEWED BY AN ATTORNEY OF YOUR CHOICE WITHIN FIVE BUSINESS DAYS OF SIGNING IT;"

and

(6) If title to the distressed property will be transferred in the conveyance transaction, the following notice in a type size no smaller than fourteen-point boldface type, if the contract is printed, or in capital letters if the contract is typed, and completed with the name of the distressed property purchaser, immediately above the statement required by this chapter:

"NOTICE REQUIRED BY HAWAII LAW

AS PART OF THIS TRANSACTION, YOU ARE GIVING UP TITLE TO YOUR HOME."

(c) A distressed property conveyance contract shall contain on its first page in a type size no smaller than fourteen-point boldface type:

(1) A description of the distressed property;

(2) The name, street address, and telephone number of the distressed property purchaser; and

(3) The name and address of the distressed property purchaser to which notice of cancellation is to be mailed.

(d) A distressed property conveyance contract shall be dated and signed by the distressed property purchaser. If the distressed property purchaser is a person other than an individual, the individual executing the distressed property conveyance contract on behalf of the distressed property purchaser shall identify the title and office held by the individual.

(e) A distressed property conveyance contract shall be dated and signed by all owners of the distressed property.

(f) The distressed property purchaser shall provide all distressed property owners with a copy of a distressed property conveyance contract immediately upon execution of the contract.

(g) Pursuant to chapter 501 or 502, the distressed property purchaser shall record the distressed property conveyance contract no earlier than five days after its execution but no later than ten days of its execution, provided that the contract has not been canceled.

§ -6 Cancellation of a distressed property conveyance contract. (a) In addition to any other right of rescission, the owner of the distressed property has the right to cancel any contract with a distressed property purchaser until midnight of the fifth business day following the day on which the owner of the distressed property signs a contract or until 8:00 a.m. on the last day of the period during which the owner of the distressed property has the right to cure the default under Hawaii law.

(b) Cancellation occurs when any owner of the distressed property delivers, by any means, written notice of cancellation to the address specified in the distressed property conveyance contract.

(d) Notice of cancellation given by any owner of the distressed property need not take the particular form as provided with the distressed property conveyance contract and, however, expressed, is effective if it indicates the intention of an owner not to be bound by the contract.

(e) Within ten days following receipt of a notice of cancellation given in accordance with this section, the distressed property purchaser shall return, without condition, any original contract and any other documents signed by the owner of the distressed property.

§ -7 Notice of right of cancellation of a distressed property conveyance contract. (a) The contract shall contain in immediate proximity to the space reserved for the owner of the distressed property's signature a conspicuous statement in a type size no smaller than fourteen-point boldface type, if the contract is printed, or in capital letters, if the contract is typed, as follows:

"YOU MAY CANCEL THIS CONTRACT FOR THE SALE OF YOUR HOUSE, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE (Date and time of day). SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT."

The distressed property purchaser shall accurately enter the date and time of day on which the cancellation right ends.

(b) The contract shall be accompanied by a completed form in duplicate, captioned "NOTICE OF CANCELLATION" in a type size no smaller than fourteen-point boldface type, if the contract is printed, or in capital letters, if the contract is typed, followed by a space in which the distressed property purchaser shall enter the date on which the owner of the distressed property executes any contract. This form shall be attached to the contract, shall be easily detachable, and shall contain in a type size no smaller than fourteen-point boldface type, if the contract is printed, or in capital letters, if the contract is typed, the following statement written in the same language as used in the contract:

NOTICE OF CANCELLATION

(Enter date contract signed)

(Date)

YOU MAY CANCEL THIS CONTRACT FOR THE SALE OF YOUR HOME, WITHOUT ANY PENALTY OR OBLIGATION, AT ANY TIME BEFORE (Enter date and time of day). TO CANCEL THIS TRANSACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE TO (Name of distressed property purchaser) AT (Street address of purchaser's place of business) NOT LATER THAN (Enter date and time of day).

I HEREBY CANCEL THIS TRANSACTION.

_________________________

(DATE)

_____________________________

(Seller's signature)

(c) The distressed property purchaser shall provide all owners of the distressed property with a copy of the contract and the attached notice of cancellation immediately at the time the contract is executed by all parties.

(d) The five business days during which an owner of the distressed property may cancel the contract shall not begin to run until all parties to the contract have executed the contract and the distressed property purchaser has complied with all the requirements of this section.

§ -8 Distressed property lease. (a) A distressed property lease shall be in writing and shall fully disclose all rights and obligations of the distressed property lessor and distressed property lessee, the exact terms of the agreement between the distressed property lessor and distressed property lessee, the exact period of time the distressed property lease is to be in effect and the total amount and terms of compensation to be directly or indirectly received by the distressed property lessor.

(b) Distressed property lessees shall be afforded all rights under the landlord-tenant code of the State. No distressed property lease shall provide a distressed property lessee with rights less than that provided by the State's landlord-tenant code as set forth in chapter 521.

(c) A distressed property lease shall contain on its first page in a type size no smaller than fourteen-point boldface type:

(1) A description of the distressed property;

(2) The name, street address, and telephone number of the distressed property lessor; and

(3) The name and address of the distressed property lessor to which lease or rental payments, correspondence or notices are to be mailed.

(d) A distressed property lease shall be dated and signed by the distressed property lessor. If the distressed property lessor is a person other than an individual, the individual executing the distressed property conveyance contract on behalf of the distressed property purchaser shall identify the title and office held by the individual.

(e) A distressed property lease shall be dated and signed by all lessees of the distressed property.

(f) The distressed property lessor shall provide all distressed property lessees with a copy of a distressed property lease immediately upon execution of the contract.

§ -9 Prohibitions. (a) It is a violation of this chapter for a distressed property consultant, distressed property purchaser, or distressed property lessor to:

(1) Claim, demand, charge, collect, or receive any compensation until after the distressed property consultant has fully performed each service the distressed property consultant contracted to perform;

(2) Claim, demand, charge, collect, or receive any fee, interest, or any other compensation for any reason that exceeds two monthly mortgage payments of principal and interest or the most recent tax installment on the distressed property, whichever is less;

(3) Take a wage assignment, a lien of any type on real or personal property, or other security to secure the payment of compensation. Any such security is void and unenforceable;

(4) Receive any consideration from any third party in connection with services rendered to an owner unless the consideration is first fully disclosed to the owner;

(5) Acquire any interest, directly or indirectly, or by means of a subsidiary or affiliate in a distressed property from an owner with whom the distressed property consultant has contracted;

(6) Take any power of attorney from an owner for any purpose, except to inspect documents as provided by law;

(7) Induce or attempt to induce a distressed property owner to waive any of the provisions of this chapter;

(8) Induce or attempt to induce a distressed property owner to waive any of the owner's rights; or

(9) Induce or attempt to induce an owner to enter a contract that does not comply in all respects with this chapter.

(b) A distressed property purchaser, in the course of a distressed property conveyance, shall not:

(1) Enter into, or attempt to enter into, a distressed property conveyance unless the distressed property purchaser verifies and can demonstrate that the owner of the distressed property has a reasonable ability to pay for the subsequent conveyance of an interest back to the owner of the distressed property and to make monthly or any other required payments due prior to that time;

(2) Fail to make a payment to the owner of the distressed property at the time the title is conveyed so that the owner of the distressed property has received consideration in an amount of at least eighty-two per cent of the property's fair market value, or, in the alternative, fail to pay the owner of the distressed property no more than the costs necessary to extinguish all of the existing obligations on the distressed property, as set forth in this chapter, provided that the owner's costs to repurchase the distressed property pursuant to the terms of the distressed property conveyance contract do not exceed one hundred twenty-five per cent of the distressed property purchaser's costs to purchase the property. If an owner is unable to repurchase the property pursuant to the terms of the distressed property conveyance contract, the distressed property purchaser shall not fail to make a payment to the owner of the distressed property so that the owner of the distressed property has received consideration in an amount of at least eighty-two per cent of the property's fair market value at the time of conveyance or at the expiration of the owner's option to repurchase;

(3) Enter into repurchase or lease terms as part of the subsequent conveyance that are unfair or commercially unreasonable, or engage in any other unfair conduct;

(4) Represent, directly or indirectly, that the distressed property purchaser is acting as an advisor or a consultant, or in any other manner represent that the distressed property purchaser is acting on behalf of the homeowner, or the distressed property purchaser is assisting the owner of the distressed property to "save the house", "buy time", or do anything couched in substantially similar language;

(5) Misrepresent the distressed property purchaser's status as to licensure or certification;

(6) Do any of the following until after the time during which the owner of a distressed property may cancel the transaction:

(A) Accept from the owner of the distressed property an execution of any instrument of conveyance of any interest in the distressed property;

(B) Induce the owner of the distressed property to execute an instrument of conveyance of any interest in the distressed property; or

(C) Pursuant to chapter 501 or 502, record any document signed by the owner of the distressed property, including but not limited to any instrument of conveyance;

(7) Fail to reconvey title to the distressed property when the terms of the conveyance contract have been fulfilled;

(8) Induce the owner of the distressed property to execute a quit claim deed when entering into a distressed property conveyance;

(9) Enter into a distressed property conveyance where any party to the transaction is represented by power of attorney;

(10) Fail to extinguish all liens encumbering the distressed property, immediately following the conveyance of the distressed property, or fail to assume all liability with respect to the lien in foreclosure and prior liens that will not be extinguished by such foreclosure, which assumption shall be accomplished without violations of the terms and conditions of the lien being assumed. Nothing herein shall preclude a lender from enforcing any provision in a contract that is not otherwise prohibited by law;

(11) Fail to complete a distressed property conveyance through:

(A) An escrow depository licensed by the department of commerce and consumer affairs;

(B) A bank, trust company, or savings and loan association authorized under any law of this State or of the United States to do business in the State;

(C) A person licensed as a real estate broker in the State who is the broker for a party to the escrow, provided the person does not charge any escrow fee; or

(D) A person licensed to practice law in the State who, in escrow, is not acting as the employee of a corporation, provided the person does not charge any escrow fee.

(12) Cause the property to be conveyed or encumbered without the knowledge or permission of the distressed property owner, or in any way frustrate the ability of the distressed property owner to complete the conveyance back to the distressed property owner; or

(13) To make any promises or guarantees that are not included in a distressed property consultation contract, distressed property purchaser contract, or distressed property lease.

(c) There is a rebuttable presumption that an appraisal by a person licensed or certified by the State or the federal government is an accurate determination of the fair market value of the property.

(d) An evaluation of "reasonable ability to pay" under this chapter shall include debt to income ratio, fair market value of the distressed property, and the distressed property owner's payment history.

§ -10 Violation, penalties. Any person who violates any provision of this chapter shall be deemed to have engaged in an unfair or deceptive act or practice in the conduct of trade or commerce within the meaning of section 480-2."

SECTION 3. This Act shall take effect upon its approval.

INTRODUCED BY:

_____________________________

BY REQUEST

HOUSE OF REPRESENTATIVES	H.B. NO.	1332
TWENTY-FOURTH LEGISLATURE, 2007
STATE OF HAWAII