Slowing Distress...Will Act 48 Help?

According to a recent  Standard & Poor’s report quoted in one of our professional publications**, “it  may take 49 months, or more than 4 years, to clear the supply of distressed properties that were on the market at the end of the fourth quarter of 2010.”  They estimate an increase of 40% over the fourth quarter of 2009. It is widely held that the economy follows the housing market. It follows then that the need to clear distressed properties (foreclosures and short sales) is critical and yet, Act 48, which stands to slow the process locally, is being applauded by many for the protections it offers to those currently facing foreclosure. Signed into law on May 5, 2011, Act 48 creates a “Mortgage Foreclosure Dispute Resolution” (MFDR) program which must be offered to Owner-occupants of residential property facing non-judicial foreclosure. An owner-occupant is someone who has called a home their primary residence for at least 200 days prior to receiving their foreclosure notice.

MFDR offers the homeowner an opportunity to meet face-to-face with their lender in order to negotiate a loan modification or to work out a payment plan. It also provides an owner-occupant the option of converting from a non-judicial to judicial foreclosure. Doing so insures judicial oversight regarding all the facts and circumstances of the foreclosure. With the number of serious errors surrounding hastily executed non-judicial foreclosures, having a judge review the facts of the case is probably a good thing. Judicial foreclosures expose the homeowner to a possible deficiency judgment for any forgiven debt. The MFDR goes into effect October 1, 2011 and ends September 30, 2014.  Once implemented, the Department of Commerce and Consumer Affairs (DCCA) must be notified and a $250 fee paid by the lender any time a non-judicial foreclosure notice is filed. After notification, owner-occupants have 30 days in which to submit the MFDR participation form along with a $300 fee. If the form is not returned, the lender is free to proceed with the foreclosure.

Proceedings are suspended during dispute resolution. If a resolution agreement is reached, the foreclosure terminates. A judicial foreclosure election, which was previously left completely up to the lender, must be made prior to participation in MFDR. Whether Act 48 will create an additional delay in the collective time to clear distressed properties through the system and whether the new MFDR process will overwhelm the court system remains to be seen. Remember, Act 48 applies only to owner-occupants. Many distressed properties in Hawaii will not be affected.

Because home-ownership rights are among the most fundamental rights we enjoy in this country, it really seems that slowing the process, at least for now, might be best. With over 120 pages of text, there is of course, much more to Act 48 than I can cover here. For addition assistance, call the Dept of Commerce and Consumer Affairs at 1-800-394-1902. 

*Thanks to the Hawaii Association of REALTORS® and Title Guaranty Escrow Services for information contained in this recap also, **”The Residential Specialist”, May/Jun 2011.