Legislative watch: foreclosures

Last week, the State House of Representatives passed a series of bills relating to mortgage foreclosures, as well as to make changes to Act 48 passed in 2011.  The following bills have now crossed over and are now being considered by the Senate.

HB2019 prohibits deficiency judgments—the difference between the amount of the sale price and the outstanding mortgage when a property in foreclosure has been sold by the original lender. The deficient amount is considered grounds for the lender to file suit against the homeowner to recover the amount.

Hawaii currently allows deficiency judgments, but this measure would prevent double recovery for many lenders who often sell foreclosed homes on the open market at a profit, and then subsequently collect deficiencies from troubled borrowers. This would also reduce the amount of bankruptcy filings by borrowers seeking to discharge these debts, giving them a chance at a fresh start.  Sometimes these deficiency judgments are sold at a great discount on the secondary market, inviting abusive third party debt collection activities.

In addition, HB1875 and HB2018 both adopt recommendations of the Mortgage Foreclosure Task Force and refine the provisions of Act 48 passed in 2011.

During this foreclosure crisis, the mortgage foreclosure rescue industry has boomed.  These operations often defraud borrowers, taking their money and/or persuading homeowners to transfer the title on their homes while falsely promising to prevent foreclosure.  Homeowners often default on their mortgages to pay for these "services" and end up losing their property anyway.

HB2375 makes this practice a criminal felony subject to $10,000 fines. A special fund would be created from these and other fines to further enforce Hawaii's mortgage rescue fraud law and to educate the public on how to identify violators and avoid their traps.

These bills are still subject to consideration by the State Senate. If you have a concern with these issues, be sure to contact your senator to find out more about the hearings for them.

Next week: We talk to the FBI to get tips to help you avoid mortgage fraud.