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
Non-Judicial Foreclosures
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.
Judicial Foreclosures
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.
Aloha…
Diane Chavez
Hawaii Life Real Estate Brokers
diane@hawaiilife.com
Ron Margolis
November 5, 2011
While it is true what you say, that if the affidavit was filed prior to May 5, 2011 the non-judicial foreclosure can move forward, I have not seen a single non-judicial foreclosure since that date. Have you seen them on the Big Island?
Ron Margolis
November 5, 2011
While it is true what you say, that if the affidavit was filed prior to May 5, 2011 the non-judicial foreclosure can move forward, I have not seen a single non-judicial foreclosure since that date. Have you seen them on the Big Island?
Katie Minkus, R(BIC)
November 5, 2011
@Ron – nope, haven’t seen any over here. The REO market is disappearing and the short sale market has picked up significantly again. I’m guessing by the end of January if a buyer wants a “screaming deal” they’re going to have to either build a time machine, or buy a short sale….
Katie Minkus, R(BIC)
November 5, 2011
@Ron – nope, haven’t seen any over here. The REO market is disappearing and the short sale market has picked up significantly again. I’m guessing by the end of January if a buyer wants a “screaming deal” they’re going to have to either build a time machine, or buy a short sale….
Beth Thoma Robinson, R(B)
November 7, 2011
@Ron, Katie-absolutely correct. Everyone one of my sellers who was facing non-judicial…and one of our key tasks as short sale agents is to track and make sure they get postponed…has now had their sales postponed indefinitely or simply canceled. Fannie and Freddie insisted and most of the larger banks just decided to do it across the board on all their loans in Hawaii.
Beth Thoma Robinson, R(B)
November 7, 2011
@Ron, Katie-absolutely correct. Everyone one of my sellers who was facing non-judicial…and one of our key tasks as short sale agents is to track and make sure they get postponed…has now had their sales postponed indefinitely or simply canceled. Fannie and Freddie insisted and most of the larger banks just decided to do it across the board on all their loans in Hawaii.
Diane Chavez
November 7, 2011
@Ron, Beth and Katie,
Don’t you find it odd how many Banks refuse to refinance borrowers into a reasonable loans but are willing to sell a home for half the price to someone else as a short sale or foreclose and settle in some instances much less than was owed on the property? I hope this act 48 helps the people who want desperately to stay in their homes. We will stay tuned.
Diane Chavez
November 7, 2011
@Ron, Beth and Katie,
Don’t you find it odd how many Banks refuse to refinance borrowers into a reasonable loans but are willing to sell a home for half the price to someone else as a short sale or foreclose and settle in some instances much less than was owed on the property? I hope this act 48 helps the people who want desperately to stay in their homes. We will stay tuned.
Peter Klika
December 16, 2011
Dont expect lenders to act rationnally or even in their own self interest. I represented Bank of America for many years. They are clueless. Their corporate culture rewards inaction and delay and punishes people who make the right economic decision quickly. I have a right to say this because I watched it happen for over twenty five years.
Also, realtors and other commentators should stop scaring borrowers about the possibility of a deficiency judgement. Banks rarely pursue them because they know there are few or no assets or the borrower just wipes out the judgement in bankruptcy. In the real world it just doesnt happen very often.
Last, if you are faced with a judicial foreclosure: file a General Denial and file a counterclaim for fraud against the bank for failure to make the proper disclosures under Reg. Z and then demand a jury trial. This should buy you about 6 months to a year. Just do it and ignore all the advice thats says you cant do this. Peter Klika, Esq.
Peter Klika
December 16, 2011
Dont expect lenders to act rationnally or even in their own self interest. I represented Bank of America for many years. They are clueless. Their corporate culture rewards inaction and delay and punishes people who make the right economic decision quickly. I have a right to say this because I watched it happen for over twenty five years.
Also, realtors and other commentators should stop scaring borrowers about the possibility of a deficiency judgement. Banks rarely pursue them because they know there are few or no assets or the borrower just wipes out the judgement in bankruptcy. In the real world it just doesnt happen very often.
Last, if you are faced with a judicial foreclosure: file a General Denial and file a counterclaim for fraud against the bank for failure to make the proper disclosures under Reg. Z and then demand a jury trial. This should buy you about 6 months to a year. Just do it and ignore all the advice thats says you cant do this. Peter Klika, Esq.
Beth Thoma Robinson R(B)
December 16, 2011
@ Peter- I can’t speak for other realtors, but it is never my intent to “scare” borrowers. I am obligated to provide accurate information but not to influence a borrowers decision about whether or not to pursue a short sale or how to respond to the threat of foreclosure. That is beyond the scope of an agent’s expertise. Our Hawaii Association of Realtors Short Sale Addendum does encourage borrowers to consult with an attorney and/or accountant about the potential ramifications of a short sale. My objective when I represent a seller in a short sale is to try to get an approval letter with language releasing possibility of deficiency judgment. When that isn’t possible, as a standard of practice I can only suggest that they consult with appropriate professionals. Although I agree that in my experience I have not seen the deficiency pursued, the danger is that the statement might be heard as a promise, which could leave me and the firm open to future complaint or legal action.
Beth Thoma Robinson R(B)
December 16, 2011
@ Peter- I can’t speak for other realtors, but it is never my intent to “scare” borrowers. I am obligated to provide accurate information but not to influence a borrowers decision about whether or not to pursue a short sale or how to respond to the threat of foreclosure. That is beyond the scope of an agent’s expertise. Our Hawaii Association of Realtors Short Sale Addendum does encourage borrowers to consult with an attorney and/or accountant about the potential ramifications of a short sale. My objective when I represent a seller in a short sale is to try to get an approval letter with language releasing possibility of deficiency judgment. When that isn’t possible, as a standard of practice I can only suggest that they consult with appropriate professionals. Although I agree that in my experience I have not seen the deficiency pursued, the danger is that the statement might be heard as a promise, which could leave me and the firm open to future complaint or legal action.
Diane Chavez
December 17, 2011
@Peter- I can think of infinite situations where a borrower has other assets including a second home and may be facing foreclosure on one property. If we as Realtors can make borrowers “aware” of any ramifications we see looming in the distance then we try to do our best but Beth is right the best advice is to consult an attorney. Thank you for your input and comments.
Diane Chavez
December 17, 2011
@Peter- I can think of infinite situations where a borrower has other assets including a second home and may be facing foreclosure on one property. If we as Realtors can make borrowers “aware” of any ramifications we see looming in the distance then we try to do our best but Beth is right the best advice is to consult an attorney. Thank you for your input and comments.