SB651.DOC

SECTION 1. Chapter 487, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§487-A Foreclosure mediation special fund. (a) There is created in the state treasury a special fund to be known as the foreclosure mediation special fund to be expended by the executive director of the office of consumer protection. All filing fees collected from foreclosing mortgagees under section 667-C or 667-D to initiate foreclosure proceedings under section 667-5 or 667-22, respectively, shall be deposited into the special fund. The executive director may use the moneys in the special fund to defray the costs of foreclosure mediation under section 667-C or 667-D, as the case may be, including the costs of reimbursing the services of mediators.

(b) The executive director shall prepare and submit an annual report to the governor and the legislature on the use of the foreclosure mediation special fund, no later than twenty days prior to the convening of each regular session.

§487-B Foreclosure mediation; duties of the executive director. With regard to foreclosure mediation under chapter 667, the executive director shall:

(1) Maintain a list of mediators to assist mortgagors and mortgagees in the voluntary resolution of a breach of the mortgage agreement;

(2) Appoint a mediator or mediators from the list of mediators upon request by either the mortgagee or mortgagor upon a breach of the mortgage agreement;

(3) Reimburse the costs of the mediator or mediators from the foreclosure mediation special fund; and

(4) Prepare a form for the affidavit required for submission by the mortgagee under section 667-5(a)(3) or 667-22(d)."

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

"§667-C Mediation; required prior to a foreclosure under power of sale; filing fees. (a) No mortgagee may institute a foreclosure under power of sale under section 667-5 unless the mortgagee has engaged in and exhausted mediation efforts with the mortgagor.

(b) When the mortgagor has breached the mortgage agreement, the mortgagor or foreclosing mortgagee shall request the executive director of the office of consumer protection to appoint a mediator or mediators from the list of mediators maintained by the office of consumer protection to assist in the voluntary resolution of the breach of the mortgage agreement, including loan modification and loss mitigation.

(c) The mediator may compel the parties to attend mediation, reasonable in time and frequency, for sixty days following the breach of the mortgage agreement.

(d) If the mortgagee and the mortgagor have not resolved the breach of the mortgage agreement after the sixty days of mediation, the mortgagee and the mortgagor may resort to other remedies that are not prohibited by the mortgage agreement, including the instituting of foreclosure proceedings under section 667-5."

SECTION 3. Chapter 667, Hawaii Revised Statutes, is amended by adding a new section to part II to be appropriately designated and to read as follows:

"§667-D Mediation; required prior to a foreclosure under power of sale; filing fees. (a) No mortgagee may institute a power of sale foreclosure under section 667-22 unless the mortgagee has engaged in and exhausted mediation efforts with the mortgagor.

(c) The mediator may compel the parties to attend mediation, reasonable in time and frequency, for sixty days following the breach of the mortgage agreement.

SECTION 4. Section 667-5, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) When a power of sale is contained in a mortgage, and where the mortgagee, the mortgagee'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[,] and the failure of mediation to resolve the breach of the condition of the mortgage, the mortgagee, successor, or person shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State. The attorney shall:

(1) Give notice of the mortgagee's, successor's, or person's intention to foreclose the mortgage and of the sale of the mortgaged property, by publication of the notice once in each of three successive weeks (three publications), the last publication to be not less than fourteen days before the day of sale, in a newspaper having a general circulation in the county in which the mortgaged property lies; [~~and~~]

(2) Give any notices and do all acts as are authorized or required by the power contained in the mortgage[.]; and

(3) File an affidavit with the executive director of the office of consumer protection in order to initiate each foreclosure proceeding under this section; provided that:

(A) Each affidavit shall be accompanied by a filing fee of not less than $1,000; and

(B) The costs of the filing fee shall not be added to the unpaid balance of the moneys owed to the mortgagee under the mortgage agreement."

SECTION 5. Section 667-22, Hawaii Revised Statutes, is amended to read as follows:

"§667-22 Notice of default; contents; distribution[.]; affidavit and filing fees. (a) When the mortgagor or the borrower has breached the mortgage agreement[,] and mediation has failed to resolve the breach of the mortgage agreement, and when the foreclosing mortgagee intends to conduct a power of sale foreclosure under this part, the foreclosing mortgagee shall prepare a written notice of default addressed to the mortgagor, the borrower, and any guarantor. The notice of default shall state:

(1) The name and address of the current mortgagee;

(2) The name and last known address of the mortgagor, the borrower, and any guarantor;

(3) The address or a description of the location of the mortgaged property, and the tax map key number of the mortgaged property;

(4) The description of the default, and if the default is a monetary default, an itemization of the delinquent amount shall be given;

(5) The action that must be taken to cure the default, including the amount to cure the default, together with the estimated amount of the foreclosing mortgagee's attorney's fees and costs, and all other fees and costs estimated to be incurred by the foreclosing mortgagee related to the default by the deadline date;

(6) The date by which the default must be cured, which deadline date shall be at least sixty days after the date of the notice of default;

(7) That if the default is not cured by the deadline date stated in the notice of default, the entire unpaid balance of the moneys owed to the mortgagee under the mortgage agreement will be due, that the mortgagee intends to conduct a power of sale foreclosure to sell the mortgaged property at a public sale without any court action and without going to court, and that the mortgagee or any other person may acquire the mortgaged property at the public sale; and

(8) The name, address, including electronic address, and telephone number of the attorney who is representing the foreclosing mortgagee; provided that the attorney shall be licensed to practice law in the State and physically located in the State.

(b) The notice of default shall also contain wording substantially similar to the following in all capital letters:

"IF THE DEFAULT ON THE LOAN CONTINUES AFTER THE DEADLINE DATE IN THIS NOTICE, THE MORTGAGED PROPERTY MAY BE FORECLOSED AND SOLD WITHOUT ANY COURT ACTION AND WITHOUT GOING TO COURT.

YOU MAY HAVE CERTAIN LEGAL RIGHTS OR DEFENSES. FOR ADVICE, YOU SHOULD CONSULT WITH AN ATTORNEY LICENSED IN THIS STATE.

AFTER THE DEADLINE DATE IN THIS NOTICE, TWO PUBLIC SHOWINGS (OPEN HOUSES) OF THE PROPERTY BY THE LENDER WILL BE HELD, BUT ONLY IF ALL MORTGAGORS (OWNERS) OF THE PROPERTY SO AGREE. TO SHOW THAT ALL OWNERS AGREE TO ALLOW TWO OPEN HOUSES BY THE LENDER, ALL OWNERS MUST SIGN A LETTER SHOWING THEY AGREE. ALL OWNERS MUST SEND THE SIGNED LETTER TO THIS OFFICE AT THE ADDRESS GIVEN IN THIS NOTICE.

THIS OFFICE MUST ACTUALLY RECEIVE THE SIGNED LETTER BY THE DEADLINE DATE IN THIS NOTICE. THE SIGNED LETTER MUST BE SENT TO THIS OFFICE BY CERTIFIED MAIL, REGISTERED MAIL, OR EXPRESS MAIL, POSTAGE PREPAID AND RETURN RECEIPT REQUESTED.

IF THE SIGNED LETTER IS NOT RECEIVED BY THIS OFFICE BY THE DEADLINE DATE, THE PROPERTY WILL THEN BE SOLD WITHOUT ANY OPEN HOUSES BEING HELD.

EVEN IF THIS OFFICE RECEIVES THE SIGNED LETTER TO ALLOW THE LENDER TO HOLD TWO OPEN HOUSES OF THE PROPERTY, IF ALL OWNERS LATER DO NOT COOPERATE TO ALLOW THE OPEN HOUSES, THE PROPERTY WILL BE SOLD WITHOUT ANY OPEN HOUSES BEING HELD.

ALL FUTURE NOTICES AND CORRESPONDENCE WILL BE MAILED TO YOU AT THE ADDRESS AT WHICH YOU RECEIVED THIS NOTICE UNLESS YOU SEND WRITTEN INSTRUCTIONS TO THIS OFFICE INFORMING THIS OFFICE OF A DIFFERENT ADDRESS. THE WRITTEN INSTRUCTIONS MUST BE SENT TO THIS OFFICE BY CERTIFIED MAIL, REGISTERED MAIL, OR EXPRESS MAIL, POSTAGE PREPAID AND RETURN RECEIPT REQUESTED."

(1) The mortgagor and the borrower;

(2) Any prior or junior creditors having a recorded lien on the mortgaged property before the recordation of the notice of default under section 667-23;

(3) The state director of taxation;

(4) The director of finance of the county where the mortgaged property is located; and

(5) Any other person entitled to receive notice under section 667-5.5.

(d) The foreclosing mortgagee shall file an affidavit with the executive director of the office of consumer protection to initiate each foreclosure proceeding under this section; provided that:

(1) Each affidavit shall be accompanied by a filing fee of not less than $1,000; and

(2) The costs of the filing fee shall not be added to the unpaid balance of the moneys owed to the mortgagee under the mortgage agreement."

SECTION 6. In codifying the new sections added by sections 1 to 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

THE SENATE	S.B. NO.	651
TWENTY-SIXTH LEGISLATURE, 2011
STATE OF HAWAII