by Bruce D. Voss

The Hawaii State Legislature’s new 100-page law governing mortgage foreclosures has created significant uncertainty and apprehension among mortgage lenders in Hawaii.

In brief, the new law establishes a temporary mortgage foreclosure dispute resolution process; permits owner-occupant borrowers to convert non-judicial foreclosures into judicial foreclosures; amends laws relating to mortgage servicers; and amends the non-judicial foreclosure process.

The new law contains extensive new requirements regarding notice, timeframes, and conduct of foreclosure sales and auctions. Failure to follow any of the new steps could prompt defaulting borrowers to claim a foreclosure sale is invalid. The law expressly states that any “foreclosing mortgagee who violates this chapter shall have committee an unfair or deceptive act or practice” under HRS Chapter 480-2. Such violations could expose lenders to liability for triple damages, and payment of borrowers’ attorneys fees and costs.

The not-too-subtle intent of the law appears to be to slow down the mortgage foreclosure process in Hawaii, and encourage-or strong-arm, as the case may be-lenders into agreeing to more loan modifications outside the foreclosure process. Lenders likely will move most if not all of their foreclosures to the circuit courts, rather than face the vagaries of the new non-judicial foreclosure provisions. In a judicial foreclosure, a court can award a deficiency judgment against a defaulting mortgagor, so it’s not clear how much this law will ultimately benefit delinquent borrowers.