Foreclosure Facts

In Hawai'i, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

  1. The notice of intent to foreclose must be published once a week for three (3) successive weeks, the last publication to be not less than fourteen (14) days before the day of sale, in a newspaper having a general circulation in the county in which the mortgaged property is located.

    Copies of the notice must be mailed or delivered to the mortgagor, the borrower, any prior or junior creditors, the state director of taxation and any other person entitled to receive notice. Additionally, the notice must be posted on the premises not less than twenty-one (21) days before the day of sale.

     Said notice must state: 1) The date, time, and place of the public sale; 2) The dates and times of the two (2) open houses of the mortgaged property, or if there will not to be any open houses, the public notice shall so state; 3) The unpaid balance of the moneys owed to the mortgagee under the mortgage agreement; 4) A description of the mortgaged property, including the address or description of the location of the mortgaged property, and the tax map key number of the mortgaged property; 5) The name of the mortgagor and the borrower; 6) the name of the lender; 7) The name of any prior or junior creditors having a recorded lien on the mortgaged property before the recordation of the notice of default; 8) The name, the address in the State, and the telephone number in the State of the person in the State conducting the public sale; and 9) The terms and conditions of the public sale.

    Additional wording, as required by the State of Hawai'i, may be found here.

  2. Up until three (3) days before the sale, the borrower may cure the default and stop the sale by paying the lien debt, costs and reasonable attorney's fees, unless otherwise agreed to between the lender and the borrower.

  3. The sale, which may be held no earlier than fourteen (14) days after the last ad is published, is to be made at auction to the highest bidder.

  4. Any sale, in which notice has been given, may be postponed from time to time by public announcement made by the lender or their representative.

There are no rights of redemption in Hawai'i.


What is a Distressed Property?

The Mortgage Rescue Fraud Prevention Act ("MRFPA") was passed by the Hawai'i State Legislature as Act 137 during the 2008 legislative session. The Act's intent is to protect homeowners who are in financial difficulty from unscrupulous persons who essentially "steal their equity" under the guise of rescuing them from foreclosure.

Under the Act, a "Distressed Property" is defined as:

Any residential real property that:

(1) Is in foreclosure or at risk of foreclosure because payment of any loan that is secured by the residential real property is more than sixty days delinquent;

(2) Had a lien or encumbrance charged against it because of nonpayment of any taxes, lease assessments, association fees, or maintenance fees;

(3) Is at risk of having a lien or encumbrance charged against it because the payments of any taxes, lease assessments, association fees, or maintenance fees are more than ninety days delinquent;

(4) Secures a loan for which a notice of default has been given; or

(5) Secures a loan that has been accelerated.

What Does It Mean to Me?

In very general terms, the Act protects Distressed Property homeowners by requiring that whenever a residential real estate transaction involves a Distressed Property, as defined by the Act, any person providing any of the services described with respect to assisting the owner with any foreclosure, liens or encumbrances on the property will be considered to be a Distressed Property Consultant, which carries specific disclosures, requirements, and rescission protection.

Persons exempt as a Distressed Property Consultant include REALTORS®, accountants, attorneys, non-profit counseling organizations, and those authorized by HUD


What happens in a foreclosure?
A foreclosure occurs when payments have not been made on a mortgaged property. The lender can legally redeem or take the property away from the owner. Lenders typically begin the foreclosure process after three months of defaulted payments. Homeowners receive a letter from their lender notifying them of the lender's intentions.

What is a deficiency payment?
A deficiency payment is required from the borrower when a home sold through the foreclosure process fails to recoup enough to cover the loan balance. A court will enter a deficiency judgment against the former homeowner at the conclusion of the foreclosure sale process.

What is a forbearance?
Forbearance is an agreement to temporarily let you pay less than the full amount of your mortgage payment, or pay nothing at all, during the forbearance period. Mortgage companies may consider forbearance when you can show that funds from a bonus, tax refund, or other source will let you bring the mortgage current at a specific time in the future.

What is a loan modification?
A loan modification is a written agreement between you and your mortgage company that permanently changes one or more of the original terms of your mortgage to make the payments more affordable. Common loan modifications include:
Adding missed payments to the existing loan balance
Making an adjustable-rate mortgage into a fixed-rate mortgage
Extending the number of years you have to repay

How does a short sale work?
In a short sale, the lender accepts a discounted payoff because proceeds from the sale of the home do not fully cover the value of an existing loan. Although the lender may be left with a loss, many are willing to work with borrowers and accept a discounted payoff on a mortgage.

From a lender's perspective, short sales limit the time and costly paperwork associated with the foreclosure process.  From the borrower's perspective, although you will lose any equity in the home, the lender covers virtually all sales costs including commissions, escrow and title fees, and repair costs.  Your loan is paid off, the damage to your credit rating may be less than that of a completed foreclosure and you are able to move on more quickly.

What is a Foreclosure Consultant?
If a property owner's home is in foreclosure, he or she may want help in understanding the foreclosure process and his or her options. Some may contact real estate agents or foreclosure attorneys for assistance, but some may be attracted to mortgage foreclosure consultants. Unfortunately there are many so-called foreclosure consultants who are nothing but scam artists looking for easy profits. These scam artists have made it difficult for homeowners to distinguish them from legitimate foreclosure consultants or loss mitigation specialists.

Basically, a mortgage foreclosure consultant is any person who offers to help homeowners resolve their foreclosure problems by stopping or postponing the foreclosure sale, obtaining a forbearance of mortgage obligations, helping the owner obtain a loan or an advance of funds, avoiding any impairment of the owner's credit resulting from the foreclosure or saving the home from foreclosure.

Are there any tax implications as a result of the debt that is forgiven?
The Mortgage Forgiveness Debt Relief Act of 2007 allows borrowers to exclude debt forgiven in the sale of a principal residence from taxable income.

How can I avoid foreclosure scams?
There are several resources that can help you avoid foreclosure scams including:

Foreclosure Rescue Scams: Another Potential Stress for Homeowners in Distress

Avoiding Mortgage Fraud

Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams

Five Tips for Avoiding Foreclosure Scams