HAWAI'I LIFEAct 48 – Hawaii Real Estate Values to Decline
The Hawaii Legislature just passed Act 48, which was signed by Governor Abercrombie on May 8, 2011, thus becoming law.
The intent was to try to give owner occupants of Hawaii properties an opportunity to sit down with the lender in a non-judicial foreclosure to attempt to negotiate the terms of the loan. It also allows either the borrower or lender to convert the non-judicial foreclosure to the judicial process. For details read Maui News article from Associated Press on Act 48.
Temporary rules on how this process is to be implemented were put into place May 18, 2011 by the Hawaii Supreme Court. The process, the forms, and the filing rules are contained in the following, Hawaii Supreme Courts Rules for Act 48.
The problem really is that the courts are already buried with work, understaffed, underfunded, and Act 48 will just bring the circuit court system to a stop. Act 48 created no additional funding for the court system to be able to handle the additional work load that they will now be faced with. Furloughs and budget cuts negatively affect the court system.
Presently, it takes about a year for a lender in a judicial foreclosure in Hawaii to complete the process. The Stice Team has been working with several Hawaii banks that do only judicial foreclosures and we have seen through the experiences that the courts are already clogged up. Getting the hearing date for the foreclosure takes 4 or 5 months and the confirmation hearing that is supposed to follow 30 days later is taking over 60 days most of the time.
The following data comes from Realty Trac for May 21, 2011. By zip code, these are the numbers of either bank owned, or pending foreclosures on Maui:
- 96732 Kahului: 195 properties
- 96793 Wailuku: 332 properties
- 96761 Lahaina: 450 properties
- 96779 Paia: 17 properties
- 96753 Kihei: 581 properties
- 96708 Haiku: 75 properties
- 96790 Kula: 54 properties
- 96713 Hana: 8 properties
For a total of 1,712 properties.
Of these 1,712 properties, more than 80% represent non-judicial foreclosures that could possibly be added to the court docket under Act 48. Realtors Association of Maui April, 2011 Statistics show that for the entire past calendar year 832 homes have sold, 1,121 condos, and 121 vacant land parcels have sold for a total of 2,074 properties. Presently on the market are 3,068 properties, or a little more than a 10 month supply.
While well intended, this bill is going to have a detrimental long term effect on the real estate market. Considering the present backlog of 1,712 unsold properties (many of them presently not even on the market) stopping the process of non-judicial foreclosures, and throwing all of that inventory into an under-funded and under-staffed court system is a disaster. More and more owners are going to quit paying their mortgage, hoping that the judicial system will bail them out and that will just not happen.
The HAMP program has been a disaster for most homeowners because it was just not a logical program. The amount of paperwork and requirements buried most homeowners expecting to get a loan modification despite declining values. It gave them false hope, in most cases, and unrealistic expectations. Most homeowners applying owned a lot more than their homes are worth.
More programs and moratoriums is not what Hawaii, or the United States needs. We need lenders to sit down at the table, help work short sales with all borrowers, homeowners, or investors and expedite getting the properties sold. We need lenders to cooperate with people who want to keep paying, even if they are upside on their loans. Personal pride is huge in our community and many people just don’t want to lose their homes, at any price, if they can possibly hang on.
Social engineering may seem great and our democratic legislature certainly has given us a great taste of it with this bill, but obviously, we don’t have a whole lot of economists or business people in the legislature. Look out, because the train is just picking up steam.
Should you have any questions, contested points, or opinions, I welcome you to comment on this blog, or contact me for a private conversation.
Here are a couple of galleries with the Stice Team’s pics of the best bank owned/REO/foreclosed properties on the market right now:
More government intervention is DEFINITELY not going to solve the problem, HAMP and the home buyer tax credit of 2009/2010 best illustrate how these governmental efforts are a temporary fix that simply will not going bring market stability and long-term growth. It may not be a popular option (specially as there are so many out there with a sense of entitlement, both as institutions and individuals), but letting the market correct itself may prove to be the best course of action. Thanks for sharing, Tracy.
Well done article Tracy; I appreciate your statistical approach and agree with your overall summary of our present situation.
What a mess…Thanks for the update…
Alex , Corey, Tara
If you read today’s Maui News page C9 ( June 1,2011 ), the national picture is finally feeling what most agnets know intuitively. There has been 9 straight months of price declines and according to the article, not many places in the country are immune. If we just keep sweeping the foreclosures in to the closet, who is going to take out the trash? We have to clean out all of this inventory before builders can start building again and our construction industry can get re-started.
Tracy – we are actually finally seeing building and construction pick up again here on the Big Island – after about a two year period of complete stagnation. That being said, most of the construction is on the high end, and is for personal use, not spec homes or new building for resale. But that’s another topic about the continued tightening of the lending market.
I have to say although I agree this makes a messy situation even worse from an inventory perspective (but what isn’t a mess when it comes to the government?) I have spoken with several owner-occupants who already sat down with Bank of America – they were in town specifically to do so the last two weeks of May. What they told me is that while they had tried to negotiate a loan modification for the past 18 months with their lender with no success (to the point about HAMP being a joke, above) this time they actually felt hopeful that something would get done and they would be approved for a loan modification – and they really deserve it!
Let me point out – these are not people who were investors, flipping houses for profit, trying to make a quick buck during the upswing, nor did they take equity out of their homes to buy a new boat. These are hardworking small business owners whose businesses and lives were devastated when the worldwide economy collapsed. While it might work on the mainland to have 6 months in cash reserves to get through tough times, here in Hawaii multiply that by 5 times at least, for this last downturn. These are not people “working the system,” these are people in our community who would otherwise lose their homes literally through no fault of their own. From my viewpoint, this is what HAMP was supposed to do – and failed.
I’d like to see your numbers, above, filtered for owner-occupants, who are the only ones eligible for this program. Obviously you have to remove all the bare land and majority of condo properties from the statistics. Certainly, not all the 1,712 properties you quote above would be eligible?
Just my two cents… looking forward to the Grand Opening next weekend!! See you on Maui!!
Great points both Tracy and Katie, I have to say I am a bit ambivalent about it at this point. My anger at seeing high profits and huge bonuses for bankers despite the mess is tempered by the fact that my neighbors, those small business owners Katie mentioned, are, using the money they should be paying a mortgage with to instead keep food on the table and gas in the tank instead. Kind of welfare from the banks. Better the banks than the taxpayer. With luck the economy will come back, the hotels will fill and pay checks will rise before they get thrown into the streets by the banks because if not at that point when money has to go for rent or mortgages again we could see local serving restaurants, grocery stores, doctors, dentists etc going out of business. So although the current status hurts the construction and real estate economy here on the Island it might actually be preserving the community.
What I am hoping Act 48 does is provide Hawaii some time. Since our economy always lags behind the mainland we need some extra time. That of course assumes that they figure it out and get moving on the mainland which is a whole other story.
Katie and Erik,
Thanks for you comments and your empathy for struggling homeowners throughout Hawaii.
I would love to be able to sift those numbers cleaner Katie, but to try to dredge it out of Realty Trac is not real easy. My point is a lot more about the plug in the hole than anything else. Our court system just can’t support the additional load.
Homeowners may actually get an audience with Bank of America in what I suspect is more “show” than “go” with their current statewide dog and pony show. If the lenders will sit down and truly offer short sale options, then this law is a good thing. They may now be backed in to that corner.
In any case, we are going to have more foreclosures backed up in the pipeline for a very long time.
Very good and insightful comments on Act 48.
Here’s Civil Beat on the courts’ capacity http://www.civilbeat.com/articles/2011/06/29/11923-hawaii-judiciary-we-cant-handle-foreclosure-flood/
Thanks Matt,
It looks like we share the same conclusions. With just the Fannie Mae load dumped on top of the present court load, it seems pretty obvious that the courts will soon be on double over-load. Mahalo to Ron Margolis for presenting a practitioners point of view to all the legislators and lenders.