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.
Posted in Hawaii Foreclosures, Hawaii Real Estate, Maui Foreclosures, Maui Real Estate | 1 Comment »
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October 16th, 2011 at 3:49 am
Definitely agree, Act 48 was noble in its intent but was poorly executed. Legislators just didn’t take into account that lienholders would go the judicial route (plugging an overworked/underfunded court system).