Act 48 was passed into law May 6th 2011 by the Hawaii Legislature and signed by Governor Abercrombie. The intent of the law was to give lenders and property owner occupants the opportunity to negotiate the terms of the loan when payments exceed the ability to pay. The reality of what the law has brought is more congestion to an under-staffed, over-worked and under-funded court system. By example, effective immediately upon the passing of Act 48, Fannie Mae directed that all its foreclosures must be commenced as judicial foreclosures, and any non-judicial foreclosures that have not proceeded to sale are to be dismissed and converted to judicial foreclosures. as one can imagine, this immediately caused the backlog to grow, and it will only become worse as the days move forward.
There are two types of foreclosures a lender may pursue: Judicial and Non-Judicial. The main difference between judicial and non-judicial foreclosure proceedings is that a deficiency judgment against the borrower can happen, but this would not be the case under a non-judicial foreclosure process. Non-judicial foreclosures have two forms, Part 1 and 2. Part 1 is a fast, low cost option for lenders that does not require court or judicial proceedings. Unfortunately, Act 48 has put the brakes on Part 1 until at least July 1st 2012. Part 2 non-judicial also bypasses the need for a judicial proceeding but was not widely used as it required the borrower to sign and return a conveyance document. However, Act 48 did away with this signature requirement, and Part 2 non-judicial proceedings may still go ahead.
The immediate issue with respects to the fallout of Act 48 will be the sudden reduction in bank-owned property available to the market. We have already seen a huge reduction in the number of such listings in the Hawaii MLS and this will only become more so. Existing inventory will be bought up by those buyers looking for bottom of the market pricing. As the inventory becomes more scarce, the prices will go up for the available bank-owned properties.
Act 48 was a good idea on paper that felt apart in a real world application. An already over-taxed court system has now become even more plugged up, delaying judicial foreclosures by up to 5 years. Delinquent homeowners can rest easy knowing it will be a long time before anyone comes knocking to make them pay or leave. The options for lenders to collect on their dues have been limited by Act 48 and will be further hampered by the court system’s backlog. With no budget to remedy the staffing issues of the courts, foreclosures will sit stagnant for years on end until a proper solution to this present situation is figured out and put into action.
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Hawaii June 2011 foreclosures are down a whopping 66% compared to June 2010. One year ago, Hawaii was faced with 1000 foreclosures, but June 2011 saw only 344 filings for foreclosures, the lowest foreclosure rate in Hawaii since January 2009, a dramatic drop by any assessment.
January 2009 saw the paperwork filed for a total of 337 foreclosures, at a time when the hill of troubled mortgages was growing into a mountain. Well, it seems the mountain has peaked and, thanks largely to Hawaii’s new foreclosure law, Act 48, which was put into action this past May, lenders are now required to make every effort to negotiate loan modification plans with borrowers. Lenders and borrowers will be able to negotiate these loan modification plans with the state Department of Commerce and Consumer Affairs’ mediation program, a program that will be operational October 1st. Until then, the state Department of Commerce and Consumer Affairs will not be accepting any new out-of-court (non-judicial) filings. Being the majority of Hawaii foreclosures are routed through the faster and less-expensive non-judicial process (when compared to the cost and lack of speed through the court system), Act 48 has effectively stalled any more foreclosures from being filed through the non-judicial process. Instead, lenders have started to file more cases in Circuit Court. However, even with the filings in judicial foreclosures having increased, the total number of foreclosures in Hawaii is down by over 45% when compared to the same month last year.
Judicial foreclosures numbers are derived from new foreclosure filings. Due to the fact that the data numbers include residential and commercial property foreclosures, the numbers do not reflect the exact number of home foreclosures. Of the 344 foreclosures filings for June 2011, almost half were lender repossessions which occur when the property fails to secure a buyer at auction.
The drop in foreclosures have had the added benefit of moving Hawaii from a nationally “12th worst” (May) for foreclosures to the much more palatable “16th best” (June). Nationally, according to RealtyTrac, there is 1 foreclosure filing per 584 households. In Hawaii, the number is at 1 foreclosure per 1500 households, a significant difference against the national average. Also helping the foreclosure numbers is the processing and procedural delays that are causing delays of a year, or even more, against foreclosure filings. “Recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number.” James Saccacio, RealtyTrac chief executive officer, said. Thus, anything that can help space out foreclosure filings to allow the process to work through the pile is a good thing with respects to helping get the market back under control.
By facilitating more loan modifications to prevent foreclosures while still allowing lenders to repossess where there is no chance of payment at even with a reduced mortgage, Act 48 will go a long way with helping resolve the foreclosure mess that Hawaii is managing to get control of.
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The Ritz Carlton Kapalua is going to be auctioned on May 4th, 2011.
Lehman Brothers received approval in March to put the oceanfront Ritz Carlton Maui up for auction. The foreclosure suit, originally filed in September against Gencom Group, Maui Land & Pineapple Company and other institutional investors, is one of the largest foreclosures in West Maui history.
Originally Lehman Brothers issued $232 million in loans to finance an extensive renovation and condominium conversion plan. The Ritz’s owners planned to repay the loan to Lehman through sales of 107 residential condos, all in one wing of the hotel.
Gencom Group, a Miami-based hotel investment and development company led the renovation and condo-conversion efforts. Between July 2007 and December 2007, the Ritz was closed for renovations. At the beginning of 2008, Gencom announced that 93 binding condo sales contracts had been signed at an average of $1.9 million each.
Most of these projected sales failed to be completed. Of the 93 contacts, only 34 sales were completed. The owners of the Ritz Carlton Kapalua then defaulted on the Lehman Brothers loan in early 2009.
So next month, in May, the 73 unsold residential condos, 297 rooms, common area, commercial property, and 21 undeveloped acres of land will go up for auction collectively as one sale.
Will someone step forth and outbid Lehman on May 5th? We’ll see in less than 30 days.
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Last week we listed Kihei Shores E-301—currently the lowest priced 3 bedroom condo in South Kihei. Priced at $179k, this condo presents an awesome opportunity to purchase in South Maui for less than $200k. Located directly across from Kamaole Beach III, Kihei Shores is just minutes from Wailea and Makena.
There have already been nearly a half dozen showings. By the looks of it, this condo won’t be around long.
Kihei Shores E-301 represents one of many great opportunities to purchase Maui Real Estate today. To setup a showing to see this condo or any other property on Maui, call The Smith Team at (808)572-0866.
Have a terrific week!
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According to the Mortgage Bankers’ Association economists existing-home sales, which are expected to be about 8 percent lower this year than last, are expected to grow by less than 2 percent next year before increasing by 16 percent in 2012.
New-home sales, which will probably drop 13 percent this year from last, are expected to bottom out in the third quarter of this year and grow by 20 percent in 2011 and 40 percent in 2012.
Mortgage rates are probably headed up, but may still be below 6 percent in two years, the forecast said. MBA economists expect fixed-rate mortgages to average about 4.4 percent in the fourth quarter of this year, increasing to 5.1 percent by the end of 2011 and reaching 5.7 percent in 2012.
Have a wonderful week!
Mahalo Nui Loa,
The Smith Team
P.S. In discussion with a client this morning, he reminded us of Warren Buffet’s philosophy. He doesn’t try to buy at the bottom. He buys on the way down. Likewise, he isn’t greedy and sells on the way up. Here are more Buffet witticisms. How do we relate this to real estate? Well, we can’t say it is the bottom, but we do feel it is a good time to buy. He also said, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
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Since the middle of 2008, the Maui real estate market has experienced its share of woes. In just about every measurable real estate statistic, the market in Maui took some blows but recent findings show that sales and prices are making positive moves recently. Indeed, comparing the first three quarters of 2010 with the same period in 2009 we see that sales jumped 33% from 462 in 2009 to 616 Maui County.
In addition, property prices also seem to be on the rise. While there are still some bargains to be found around Maui, the overall picture is certainly looking brighter. Average prices in Maui grew 10% to $779,769 suggesting real estate is trending upwards.
Nevertheless, the availability of foreclosure properties represents real opportunities for savings for interested buyers. In a recent Maui foreclosure auction, the auction of a Harbor Lights Condominium unit saw no bids despite a default amount of just $4,373. Similar stories appear to be commonplace, even if the bargain isn’t so substantial, but local experts are concerned that the availability of foreclosure properties at a considerable discount is doing little to buoy the market.
In fact, many experts cannot even agree as to whether the Maui market has reached bottom. Some predict prices will continue to fall, despite evidence to the contrary. Many economists feel that the market in Maui has no way to move but up, but local agents claim otherwise.
Another factor that is making the market difficult to read is the fact that many major banks have stayed foreclosure operations. Nevertheless, Maui is seeing unprecedented interest from international buyers. Local buyers are certainly returning to the market, likely to take advantage of the seemingly endless numbers of foreclosure notices. Indeed, it seems as though banks are acquiring repossessed homes more often than selling them.
To return to the Harbor Lights example, the MLS showed 15 units were recently up for sale. One of those units was bank-owned, and 12 were short sales. To add to the concern, the current supply of condos and properties is likely enough to satisfy demand for up to 15 months. Listed condos are usually sold within 130 days while houses sell in about 122 days.
The current real estate conditions suggest that the market for single-family homes is looking more favorable than the market for condos, while median prices are down for all properties. So, while single-family home prices have risen 10 percent the median has fallen 8 per cent. With regards to condos, average prices are down 9 per cent and the median has dropped a staggering 21 per cent. Subsequently, there is also an increased volume of available condos.
Still, the bad news continues to be tempered by good news as far as Maui real estate goes. The turnover for single-family transactions has risen 47 per cent to $480 million, while the turnover for condo sales is also up 36 per cent to $624 million in 2010.
Some experts point to the fact that just a few large sales can inflate averages in different communities. Take Kapalua as an example where there have been 7 closings through September of this year, while the same period last year saw just 4 closings. Still, in this community average prices leaped 81 per cent to $4 million while the median price rose only 28 per cent to $3 million. The variability in these statistics suggests that the sale of a few large homes drove up the average price while having a less significant effect on the median. Meanwhile in Kapalua, condo prices are down while sales are up.
In short, there is certainly cause for optimism in Maui but the story is yet to be completed. Certain communities are starting to report gains again while others continue to struggle. At the very least, there are some great foreclosure and distressed properties available at considerable bargains but the real estate forecast is far from clear.
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According to Fannie Mae, there are 75 Fannie Mae bank owned properties in the pipeline on Maui. Currently, there are a total of 35 active listings in the MLS. Click here for full list.
Interestingly, there is special financing that you are eligible to receive when acquiring a Fannie Mae home. There is HomePath Mortgage Financing where you can put as little as 3% down (besides your own savings, it can also be a gift, grant, or loan from a non-profit organization), available to both owner occupants and investors, no mortgage insurance, no appraisal fees and low competitive interest rates.
There is also the HomePath Mortgage Renovation Mortgage Financing that allows you to fund both your purchase and light renovation. Email us if you have any questions and would like a lender recommendation on Maui that specializes in this type of financing.
Have a wonderful week!
Mahalo Nui Loa,
The Smith Team
P.S. We featured the Tuscan Villa this week because it must be sold to satisfy Estate Taxes. So even though the previous owner had over $8 Million in hard costs in to this property, don’t be afraid to make an offer.
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Here are five smart reasons to buy a home now.
1. Low Mortgage Rates
2. Houses are in move-in condition
3. Terrific houses are coming on the market
4. Appraisal regulations are finally aligned with market realities
5. Plenty of programs
So, if you are looking for a home, please allow us the opportunity to work with you to find the perfect property to match your needs and budget.
As a reminder, you can search all MLS listings from our website. After you have selected your criteria, and done a search, hit Save Search. Then, whenever there is a new listing matching those criteria, you will be automatically notified.
Have a wonderful week!
Mahalo Nui Loa,
The Smith Team
P.S. Ken will be on vacation for 4 weeks beginning August 6th. Follow his exploits on Facebook, or check out his progress during the National Scrabble Championships. He is entered in the Intermediate Division.
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What the Mortgagor Needs to Know
As a mortgagor facing possible foreclosure you are probably feeling a lot of pressure. The stress of losing a home through foreclosure is also usually compounded by a variety of other life stresses and therefore can be an extremely difficult time in your life. Indeed, it’s important to understand that although you may be looking at foreclosure, you have some rights.
First of all, you have until 3 days before the sale to prevent default by paying the debt and other costs associated with foreclosure. Hawaii foreclosure law attempts to protect the borrower by ensuring that you receive ample notice about an impending foreclosure. Even when a power of sale clause exists, the bank must give you what constitutes a minimum of 4 weeks notice before they can attempt to auction your property.
More importantly, when your lender has provided you with a notice of intent to foreclose, you are free to sell your property on your own. In many cases of foreclosure, the mortgagor often gets less than the value of the property. By selling your property before foreclosure, you are more likely to get a fair price.
What the Foreclosure Home Buyer Needs to Know
Foreclosure home buyers need to understand that the process is fraught with loopholes and these sales are rarely straightforward. Nevertheless, when you purchase a foreclosed property, you often save a great deal of money.
Still, home buyers who are interested in foreclosure properties must often accept a property without having seen it and you must also accept that other parties are going to be interested in bidding on the property. Non-judicial foreclosures are usually more straightforward for home buyers as with judicial foreclosures bidding doesn’t stop until a court confirms sale. This means you may win the auction and still lose the property in the end.
The timeline for foreclosure sales is usually around 60 to 90 days but depending on the property and the legal matters involved a foreclosure sale can take up to a year to finalize. Legal complications with foreclosure sales are simply a part of the process and you must be prepared and patient when you’re shopping for foreclosure properties.
Nevertheless, foreclosure properties are fairly common throughout Maui because of the current economic climate and you may find a great deal on a beautiful property if you follow the foreclosure route.
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According to noted economist, Paul Brewbaker, “If Maui real estate prices haven’t already hit bottom, they’re not going to get much lower.”
He further stated that it wasn’t worth looking for the last 5 dollars, and if you want a bargain, the time to act is now.
In addition, even if prices do drop further, the likelihood is that interest rates will more than offset any possible savings for those who are financing their purchases.
The uptick in housing prices in California, fortells an uptick here, as Maui closely follows the trends in California; although normally with a lag time. Read the full article.
Next week, we will put up a link to the video, so you can see for yourself the data which Mr. Brewbaker is using for his forecast.
Have a wonderful week!
Mahalo Nui Loa,
The Smith Team
P.S. Ho’onanea at Lahaina is a brand new D.R. Horton project with terrific pre-construction pricing. Here are three representative Listings.
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