There was a new foreclosure development late last week as Hawaiian Governor Neil Abercrombie signed a bill that requires lenders to meet with delinquent homeowners prior to foreclosing on their home. Said the governor:
“We want to try and avoid if we can, to put the consumer, the homeowner, in a position where they feel the entire institutional establishment is lined up against them. Quite the opposite… We’re trying to move from the consumer, up.”
The bill is considered by consumer advocates to be one of the toughest such measures in the nation. It is based upon a similar Nevada law, and it requires lenders to sit down with borrowers in a face-to-face meeting mediated by a third party if the borrower requests the meeting. Additionally, the law requires mortgage servicers to submit proof of an intact chain-of-title and promissory note to the mediators two weeks prior to the meeting. The law also puts a moratorium on new non-judicial foreclosure actions until July 1st. Any ongoing non-judicial foreclosure would be converted to a judicial foreclosure. If the servicer or lender is not negotiating in good faith, penalties can be imposed.
The chain-of-title requirements give a lot of leverage to beleaguered homeowners. For hundreds of years, titles were transferred through county recording offices in the United States. With the advent of the Mortgage Electronic Registration System (MERS), this frequently did not happen. Additionally, many mortgages were originated, sold, and packaged into mortgage backed securities. These practices caused the original notes for many mortgages to be lost or destroyed, which lead in part to the robo-signing scandals that have occurred over the past few years (click here for the recent 60 Minutes report on this issue). Lenders and servicers are far more likely to acquiesce to a mortgage modification if they believe they cannot prove the right to foreclose on the property due to missing documentation.
It will be interesting to see if the new processes are effective, and what impact they will have on foreclosure rates in Hawaii. If the law works, I could see other consumer-friendly states adopting similar legislation. There were more than 5,000 foreclosures in Hawaii in 2010. Foreclosures in Honolulu were up almost 40% from 2009 to 2010.
Loading ...
RSS feed for comments on this post.
Leave a comment