Hawaii’s legislature has been very active this season, with three pieces of legislation nearly ready for enrollment before being sent to the Governor’s desk for signature. This year’s session is scheduled to adjourn on May 7, 2010. Conferees from the House and Senate will meet soon to resolve differences in Senate Bill 2603, amendments to Hawaii’s Secure and Fair Mortgage Licensing Act, House Bill 2132, requiring foreclosing lenders to notify their mortgagors about credit counseling prior to foreclosure, and Senate Bill 2910, prohibiting foreclosing mortgagees from requiring that buyers of property in foreclosure purchase title insurance or escrow services from a particular vendor.
In addition, Senate Bill 2472, which would require a mortgage foreclosure task force to analyze Hawaii’s foreclosure law and recommend legislative changes, appears headed for passage.
Senate Bill 2603 would add to Hawaii’s SAFE Act licensing requirements for mortgage loan originator companies (individuals who, as sole proprietors, and any other firms, companies or partnerships that employ or use the services of one or more licensed mortgage loan originators) to be licensed under the Nationwide Mortgage Licensing System (NMLS) and regulated under the Act. Persons, including insured depository institutions, that are required to be licensed under any other state or federal law, and subject to licensing under NMLS, are exempt. Mortgage loan originator companies would be required to establish a principal place of business in Hawaii and designate a manager. The bill would also establish the licensing fee schedule, move the mandatory licensing date from August 1, 2010, to January 1, 2011, (with conforming changes to the repeal date for the existing Mortgage Brokers and Solicitors law), and would require independent contractors engaged in loan processing and underwriting to be licensed, among other things.
The new law would establish a mortgage loan recovery fund for the benefit of persons subjected to fraud, misrepresentation or deceit in connection with mortgage loans originated by mortgage loan originators and companies.
A new section would be added to Chapter 667, Hawaii Revised Statutes, by Senate Bill 2910 (effective July 1, 2010), which would prohibit a foreclosing mortgagee or a mortgagee that acquires property through a foreclosure proceeding to require, directly or indirectly, as a condition of selling the property, that the buyer purchase an owner’s title insurance policy covering the property or use an escrow service in connection with the sale from a particular title insurer or escrow depository. This section would not prohibit a buyer from agreeing to accept the services of a title insurer or escrow depository recommended by the mortgagee if a written notice of the buyer’s right to make an independent selection is first provided to the buyer. The penalties for violating the prohibition would be an amount equal to three times the charges incurred by the buyer for these services.
House Bill 2132 would also add a new section to Chapter 667, Hawaii Revised Statutes, to provide that no later than 30 days prior to initiating any power of sale foreclosure under Haw. Rev. Stat. § 667-5 (standard power of sale foreclosure) a foreclosing mortgagee must give an owner-occupant of residential mortgaged property a written notice of the availability of credit counseling through credit counseling agencies approved by the U.S. Department of Housing and Urban Development, and of the toll-free telephone number maintained by HUD for that purpose. This bill would also require a mortgagee, prior to initiating foreclosure, to provide an owner-occupant of the mortgaged property, upon written request, a copy of the promissory note and mortgage document, by certified, registered or express mail, postage prepaid and return receipt requested, within 15 days after the date of the credit counseling notice. One other provision that would have set a “fair and reasonable” sale price of 70% of an appraisal or broker’s price opinion of the foreclosed property was deleted in the most recent Senate version of the bill.
In the coming legislative session (2011-2012), we expect to see further changes to Hawaii’s mortgage foreclosure law. Currently Senate Bill 2472 would establish a mortgage foreclosure task force consisting of members from the Department of Commerce and Consumer Affairs Office of Consumer Protection, a HUD-approved mortgage counseling organization, the Legal Aid Society of Hawaii, the Hawaii Financial Services Association and the Hawaii Bankers Association, the Hawaii Council of Associations of Apartment Owners, and the Hawaii State Bar Association Collection Law Section. The task force would undertake a study to develop both general and specific policies and procedures necessary to improve Hawaii’s mortgage foreclosure law.
Elizabeth (Liz) Huber is a partner in the California office of Hudson Cook, LLP. Basis Points readers can reach Liz at 714-263-0424 or by email at lhuber@hudco.com.