For the layman, Act 48 (passed on May 5, 2011) was put in place to assist homeowners with saving their homes. It is a last ditch effort to help individuals to negotiate a possible solution with their lender prior to being foreclosed upon. Results may vary, but the DCCA helps facilitate a meeting between lender and borrower, so this may be a valuable tool to help homeowners try to keep their home.
A distressed homeowner who has not made mortgage payments may face two types of foreclosure:
- Non-Judicial Foreclosure
- Judicial Foreclosure
Currently, the real estate market has about a 22% volume related to foreclosures in Hawaii and this number may go down significantly. Many people who ask the question, “Do I qualify for the program if I received notice of foreclosure prior to May 5, 2011?” The answer given was, “If your affidavit is dated prior to May 5, 2011 then you are not benefited by the Act 48. If you received notice from a bank directing your property through the non-judicial process, the DCCA will mail a certified letter asking if you want to participate.” The borrower will have to confirm they are interested in participating and also fund a $300 fee to the DCCA. You will also have to agree to waive your future right to a judicial foreclosure process.
The bank also has to match the fee of $300 and the borrower will have the option to meet with the lender representative one time for a period of 1 to 3 hours. A second meeting may be negotiated, but the emphasis is to get it done in one meeting. A “neutral” individual is present and the borrower will have had a mandatory meeting with a financial adviser prior to the session with their lender. They must be prepared to negotiate a settlement.
If a borrower can not establish a case, or does not qualify according to the individual bank’s stipulations, or does not have the income criteria, the lender may agree to a short sale. The lender may do a loan modification, or the lender may proceed to foreclose. It seems that the act just suspends the non-judicial foreclosure until a meeting and negotiation is attempted. The big benefit for a borrower who owes more than the house is worth on the market is that the “deficiency amount is waived.” If the house does sell as a short sale, the borrower will not have to pay back the difference between market price and loan amount. Please verify facts with your attorney.
Looking from the lender’s prospective, the bank will have to initially fund a $200 fee to DCCA when it issues notice to do a non-judicial foreclosure. Then, more cost is incurred when the borrower agrees to participate. There are fines assessed to the bank if the “neutral” determines something was done out of line. There is a general feeling that banks faced with the extra cost to participate with DCCA and facing possible retribution fines may avoid the non-judicial route all together. This may have been the expeditious way to resolve non-paying loans prior to Act 48, but the take away for the borrower may be a costly settlement for the banks.
If banks now opt to do the judicial foreclosure route, which might give them recourse to collect “deficiencies” owed on loans in default, this may trigger a back log in the court systems and cause a delay anywhere from 18 months to 3 years to effectively foreclose on a home. The current rate is approximately 8 months. This may impact the “available” REO foreclosure inventory. Also note: the new law passed also will reflect the bank’s intent to foreclose on a homeowner’s Title Report, which will give Realtors a heads up on properties in this category.
The important thing to remember is there is no singular loan modification program per say. Whomever owns the loan will determine the modification. FHA loans are required by HUD to negotiate with the homeowner to save loans. These loans are backed by the Government and insured. One thing a troubled borrower might do is to ask for a “special forbearance,” which may suspend payment on a loan for a designated amount of time due to possible job loss, or other resolving situation. Some lenders will agree to re-instate loans by paying back the deficient payments and putting a second loan on the property.
This second loan does not have payments until the original loan is paid in full. When the original loan is paid in full then the outstanding balance of the second loan can be paid back. Maybe the delay in foreclosure time frames will drag out and drive up the property values again. As the relative prices go upward, the comps may just gain some headway. The sellers who are not sinking yet might have a chance now to sell their homes! Contact me for a listing appointment, or let me be your Buyer Representative on the Big Island of Hawaii.
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