SECTION 1. The legislature finds that Act 48, Session Laws of Hawaii 2011, among other things established a mortgage foreclosure dispute resolution program to require mortgagees, at the mortgagor's election and prior to conducting a public sale of the subject residential property, to participate in dispute resolution to negotiate an agreement to avoid foreclosure or mitigate damages in cases where foreclosure is unavoidable. Application of the dispute resolution program is limited to nonjudicial foreclosures conducted by power of sale.

Following the commencement of the dispute resolution program, many mortgagees bypassed the program by instead pursuing foreclosures in court. Consequently, the rate of judicial foreclosures rose dramatically while the dispute resolution program remained dormant. The principal reason mortgagees cited for their refusal to use the nonjudicial foreclosure process and, as a result, the dispute resolution program, was the risk of incurring significant penalties under section 667-60, Hawaii Revised Statutes, relating to unfair or deceptive acts or practices, for any violation of the mortgage foreclosure law. Mortgagees expressed concern about potentially incurring penalties for minor violations of the mortgage foreclosure law, such as missed deadlines or using the wrong font sizes on printed materials. Hence, mortgagees largely opted to pursue foreclosures under the supervision of a court.

In response to the mortgagees' concerns and to ensure the availability of both the nonjudicial foreclosure process and the dispute resolution program, Act 182, Session Laws of Hawaii 2012, among other things specified the categories of conduct that expressly constitute an unfair or deceptive act or practice, in an effort to narrow the application of this provision in the foreclosures law. However, the legislature finds that more action should be taken to make the dispute resolution program available to all homeowners facing the prospect of losing their homes to foreclosure, including judicial foreclosures.

The purpose of this Act is to assist homeowners at risk of foreclosure and expand the availability of mandatory mortgage foreclosure dispute resolution by requiring mortgagees, at the mortgagor's election, to participate in the mortgage foreclosure dispute resolution program administered by the department of commerce and consumer affairs, to avoid foreclosure or to mitigate damages from foreclosure prior to filing a judicial foreclosure action for property that has been the mortgagor's primary residence for a specified period. This Act also applies to judicial foreclosure actions filed prior to the effective date of this Act and pending an initial court hearing. It is the intent of the legislature that nothing in this Act be construed as affecting the dispute resolution provisions for nonjudicial foreclosures, as provided in part V of chapter 667, Hawaii Revised Statutes, as those provisions existed on the day prior to the effective date of this Act.

SECTION 2. Section 667-1, Hawaii Revised Statutes, is amended by amending the definitions of "owner-occupant" and "serve" to read as follows:

""Owner-occupant" means a person, at the time that a notice of default and intention to foreclose is served on the mortgagor under the power of sale[:], or at the time a notice of dispute resolution availability is served on the mortgagor pursuant to section 667-75(b), as applicable:

(1) Who owns an interest in the residential property, and the interest is encumbered by the mortgage being foreclosed; and

(2) For whom the residential property is and has been the person's primary residence for a continuous period of not less than two hundred days immediately preceding the date on which the notice is served.

"Serve", when referring to providing notice of intention to foreclose or notice of default and intention to foreclose pursuant to a nonjudicial foreclosure, or when referring to providing notice of dispute resolution availability under section 667-75(b), means to have service of the notice of default and intention to foreclose made in accordance with the service of process or the service of summons under the Hawaii rules of civil procedure and under sections 634-35 and 634-36, excluding however, any return or affidavit of service obligations required therein."

SECTION 3. Section 667-60, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Any foreclosing mortgagee who engages in any of the following violations of this chapter shall have committed an unfair or deceptive act or practice under section 480-2:

(1) Failing to provide a borrower or mortgagor with, or failing to serve as required, the information required by section 667-22 or 667-55;

(2) Failing to publish, or to post, information on the mortgaged property, as required by section 667-27 or 667-28;

(3) Failing to take any action required by section 667-24 if the default is cured or an agreement is reached;

(4) Engaging in conduct prohibited under section 667-56;

(5) Holding a public sale in violation of section 667-25;

(6) Failing to include in a public notice of public sale the information required by section 667-27 or section 667-28;

(7) Failing to provide the information required by section 667-41;

(8) With regard to mortgage foreclosure dispute resolution under part V[:

~~(A)~~ ~~Failing~~], failing to provide notice of the availability of dispute resolution as required by section 667-75;

[~~(B)~~ ~~Participating in dispute resolution without authorization to negotiate a loan modification, or without access to a person so authorized, as required by section 667-80(a)(1);~~

~~(C)~~ ~~Failing to provide required information or documents as required by section 667-80(c); or~~

~~(D)~~ Completing a nonjudicial foreclosure if a neutral's closing report under section 667-82 indicates that the foreclosing mortgagee failed to comply with requirements of the mortgage foreclosure dispute resolution program;

~~(9)~~ ~~Completing a nonjudicial foreclosure while a stay is in effect under section 667-83;~~]

(9) Filing a foreclosure action under part IA without compliance with part V;

(10) Failing to distribute sale proceeds as required by section 667-31;

(11) Making any false statement in the affidavit of public sale required by section 667-32;

(12) Attempting to collect a deficiency in violation of section 667-38; and

(13) Failing to file a foreclosure notice with the department as required by section 667-76(a)."

SECTION 4. Section 667-71, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) This part shall apply to [~~nonjudicial~~]:

(1) Nonjudicial foreclosures conducted by power of sale under part II[~~, of~~]; and

(2) Mortgagees seeking to file a foreclosure action under part IA;

for residential [~~real~~] property that is occupied by one or more mortgagors who are owner-occupants."

SECTION 5. Section 667-74, Hawaii Revised Statutes, is amended to read as follows:

"§667-74 Availability of dispute resolution required before foreclosure. Before [a]:

(1) A public sale may be conducted pursuant to section 667-25; or

(2) A foreclosure action under part IA may be filed;

for a residential property that is occupied by an owner-occupant, the [~~foreclosing~~] mortgagee, at the election of the owner-occupant, shall participate in the mortgage foreclosure dispute resolution program under this part to attempt to negotiate an agreement that avoids foreclosure or mitigates damages in cases where foreclosure is unavoidable."

SECTION 6. Section 667-75, Hawaii Revised Statutes, is amended to read as follows:

"§667-75 Notice of dispute resolution availability required. (a) A foreclosure notice served pursuant to section 667-22(e) shall include notice that the mortgagee is required, at the election of an owner-occupant, to participate in the mortgage foreclosure dispute resolution program pursuant to this part to attempt to avoid foreclosure or to mitigate damages where foreclosure is unavoidable.

(b) A mortgagee seeking to file a foreclosure action under part IA against a residential property shall first serve notice to the owner-occupant that the mortgagee is required, at the election of the mortgagor, to participate in the mortgage foreclosure dispute resolution program pursuant to this part to attempt to avoid foreclosure or to mitigate damages where foreclosure is unavoidable.

[~~(b)~~] (c) The notice required by [~~subsection~~] subsections (a) and (b) shall be printed in not less than fourteen-point font and include:

(1) The name and contact information of the mortgagor and the mortgagee;

(2) The subject property address and legal description, including tax map key number and the certificate of title or transfer certificate of title number if registered in the land court;

(3) The name and contact information of a person or entity authorized to negotiate a loan modification on behalf of the mortgagee;

(4) A statement that the mortgagor shall consult with an approved housing counselor or an approved budget and credit counselor at least thirty days prior to the first day of a scheduled dispute resolution session;

(5) Contact information for all approved housing counselors;

(6) Contact information for all approved budget and credit counselors;

(7) A statement that the mortgagor electing to participate in the mortgage foreclosure dispute resolution program shall provide a certification under penalty of perjury to the department that the mortgagor is an owner-occupant of the subject property, including supporting documentation;

(8) A general description of the information that an owner-occupant electing to participate in the mortgage foreclosure dispute resolution program is required to provide to participate in the program as described under section 667-80(c)(2);

(9) A statement that the owner-occupant shall elect to participate in the mortgage foreclosure dispute resolution program pursuant to this part no later than thirty days after the department's mailing of the [~~notice~~] notification required under section 667-77 or the right shall be waived."

SECTION 7. Section 667-76, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) Within three days after a mortgagee serves [a]:

(1) A foreclosure notice on an owner-occupant pursuant to section 667-22[,]; or

(2) Notice of dispute resolution availability on an owner-occupant pursuant to section 667-75(b);

the mortgagee shall file the [~~foreclosure~~] notice with the department and pay a filing fee of $250, which shall be deposited into the mortgage foreclosure dispute resolution special fund established under section 667-86."

SECTION 8. Section 667-77, Hawaii Revised Statutes, is amended to read as follows:

"§667-77 Notification to mortgagor by department. Within ten days after the mortgagee's filing of a notice [~~of default and intention to foreclose~~] with the department[,] pursuant to section 667-76(a), the department shall mail a written notification by registered or certified mail to the mortgagor that [a] the notice [~~of default and intention to foreclose~~] has been filed with the department. The notification shall inform the mortgagor of an owner-occupant's right to elect to participate in the mortgage foreclosure dispute resolution program and shall include:

(1) Information about the mortgage foreclosure dispute resolution program;

(2) A form for an owner-occupant to elect or to waive participation in the mortgage foreclosure dispute resolution program pursuant to this part that shall contain instructions for the completion and return of the form to the department and the department's mailing address;

(3) A statement that the mortgagor electing to participate in the mortgage foreclosure dispute resolution program shall provide a certification under penalty of perjury to the department that the mortgagor is an owner-occupant of the subject property, including a description of acceptable supporting documentation as required by section 667-78(a)(2);

(4) A statement that the owner-occupant shall elect to participate in the mortgage foreclosure dispute resolution program pursuant to this part no later than thirty days after the department's mailing of the [~~notice~~] notification under this section or the owner-occupant shall be deemed to have waived the option to participate in the mortgage foreclosure dispute resolution program;

(5) A description of the information required under section 667-80(c)(2) that the owner-occupant shall provide to the mortgagee and the neutral assigned to the dispute resolution;

(6) A statement that the owner-occupant shall consult with an approved housing counselor or approved budget and credit counselor at least thirty days prior to the first day of a scheduled dispute resolution session;

(7) Contact information for all approved housing counselors;

(8) Contact information for all approved budget and credit counselors; and

(9) Contact information for the department.

The notification shall be mailed to the subject property address and any other addresses for the mortgagor as provided in the mortgagee's notice of dispute resolution availability under section 667-75 and, if applicable, the foreclosure notice under section 667-22(a)."

SECTION 9. Section 667-78, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:

"(b) If the completed form and fee are not received within the required time period, the owner-occupant shall be deemed to have waived any right to participate in the mortgage foreclosure dispute resolution program with respect to the subject property and the foreclosure notice filed with the department[.] pursuant to section 667-76(a)(1) or (2).

(c) If the owner-occupant does not elect to participate in dispute resolution pursuant to this part, the department shall notify the mortgagee within ten days of receiving an election form indicating nonelection or the termination of the thirty-day time period for election. After receiving the department's notification, the mortgagee may proceed with [~~the~~]:

(1) The nonjudicial foreclosure process according to the process provided in part II [~~of this chapter.~~]; or

(2) Filing a foreclosure action under part IA,

as applicable."

SECTION 10. Section 667-79, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) [~~The~~] For nonjudicial foreclosures, written notification of a case opening under this section shall operate as a stay of the foreclosure proceeding in accordance with section 667-83 and may be recorded."

SECTION 11. Section 667-80, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) The parties shall comply with all information requests from the department or neutral. No less than fifteen days prior to the first day of the scheduled dispute resolution session:

(1) The mortgagee shall provide to the department and the mortgagor:

(A) A copy of the promissory note, signed by the mortgagor, including any endorsements, allonges, amendments, or riders to the note evidencing the mortgage debt;

(B) A copy of the mortgage document and any amendments, riders, or other documentation evidencing the mortgagee's right of [~~nonjudicial~~] foreclosure and interest in the property including any interest as a successor or assignee; and

(2) The owner-occupant shall provide to the department and the mortgagee:

(A) Documentation showing income qualification for a loan modification, including any copies of pay stubs, W-2 forms, social security or disability income, retirement income, child support income, or any other income that the owner-occupant deems relevant to the owner-occupant's financial ability to repay the mortgage;

(B) Any records or correspondence available which may dispute that the mortgage loan is in default;

(D) Any records or correspondence available that indicate the parties are currently engaged in bona fide negotiations to modify the loan or negotiate a settlement of the delinquency;

(E) Names and contact information for approved housing counselors, approved budget and credit counselors, or representatives of the mortgagee, with whom the owner-occupant may have or is currently working with to address the delinquency; and

(F) Verification of counseling by an approved housing counselor or approved budget and credit counselor."

SECTION 12. Section 667-81, Hawaii Revised Statutes, is amended by amending subsections (b), (c), and (d) to read as follows:

"(b) If, despite the parties' participation in the dispute resolution process and compliance with the requirements of this part, the parties are not able to come to an agreement, the neutral shall file a closing report with the department that the parties met the program requirements. The mortgagee may record the report. Upon recording of the report pursuant to this subsection[~~, the~~]:

(1) The nonjudicial foreclosure process shall resume along the timeline as it existed on the date before the mortgagor elected dispute resolution, and may proceed as otherwise provided by law[.]; or

(2) The mortgagee may proceed with filing a foreclosure action under part IA,

as applicable. The mortgagee shall notify the mortgagor of the recording date and document number of this report and, in the case of nonjudicial foreclosure, the deadline date to cure default in an amended foreclosure notice. Nothing in this subsection shall be construed to require the neutral to wait the full sixty days allotted for dispute resolution to determine that the parties were unable to reach an agreement and file a report.

(c) If the parties have complied with the requirements of this part and have reached an agreement, the agreement shall be memorialized in writing and signed by the parties or their authorized representatives. The parties shall be responsible for drafting any agreement reached and enforcing the agreement. The agreement shall be a contract between the parties and shall be enforceable in a private contract action in a court of appropriate jurisdiction in the event of breach by either party. If the agreement allows for foreclosure or other transfer of the subject property, the stay of the foreclosure under section 667‑83, where applicable, shall be released upon the recordation of the neutral's closing report. Thereafter, the office of the assistant registrar of the land court or bureau of conveyances may record a notice of sale or other conveyance document, as appropriate.

(d) If the parties to a dispute resolution process reach an agreement [~~which~~] that resolves the matters at issue in the dispute resolution before the first day of the scheduled dispute resolution session scheduled pursuant to this section, the parties shall notify the neutral by that date. The neutral shall thereafter issue a closing report that the parties have reached an agreement prior to the commencement of a dispute resolution session. If the agreement provides for foreclosure, the parties shall memorialize the agreement in writing, which shall be signed by both parties. The parties may record the report. If the agreement authorizes foreclosure, the stay of the foreclosure under section 667-83, where applicable, shall be released upon the recordation of the report. Thereafter, the land court or bureau of conveyances may record a notice of sale or other conveyance document, as appropriate. No fees shall be refunded if the parties come to an agreement prior to a dispute resolution session conducted pursuant to this part."

SECTION 13. Section 667-82, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) If the neutral determines that the noncompliance was unjustified as a result of circumstances within a party's control, sanctions may be imposed on the noncompliant party as follows:

(1) Sanctions against a mortgagee for unjustified noncompliance with the program shall include [a]:

(A) A stay of the foreclosure under section 667-83; or

(B) Continuance of the bar against filing a foreclosure action under part IA for the subject property, pursuant to section 677-74(2), until the requirements of this part are met,

as applicable, and a fine payable to the owner-occupant not to exceed $1,500; or

(2) Sanctions against an owner-occupant for unjustified noncompliance with the program shall include [a]:

(A) A removal of the stay of the foreclosure pursuant to section 667-83(b); or

(B) Authorization for the mortgagee to proceed with filing a foreclosure action under part IA,

as applicable, and a fine payable to the mortgagee not to exceed $1,500."

SECTION 14. Section 667-83, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) [~~The~~] In the case of nonjudicial foreclosure, written notification of a case opening under section 667-79 shall operate as a stay of the foreclosure proceeding and may be recorded; provided that:

(1) The written notification shall not act as a stay on a foreclosure proceeding by an association; [~~and~~]

(2) The written notification shall not act as a stay on a foreclosure proceeding for the purpose of the date by which the default must be cured pursuant to section 667-22(a)(6)[.]; and

(3) In any proceeding brought by an owner-occupant to enforce the stay under this section, the court shall award the owner-occupant reasonable attorneys' fees together with the costs of the suit if the owner-occupant prevails."

SECTION 15. (a) This Act shall not apply to mortgagees who have filed a judicial foreclosure action under part IA of chapter 667, Hawaii Revised Statutes, at any time prior to December 1, 2015, except as provided in this section.

(b) The department of commerce and consumer affairs shall implement the amendments made to the mortgage foreclosure dispute resolution program pursuant to this Act no later than December 1, 2015, whereupon:

(1) All judicial foreclosure actions filed under part IA of chapter 667, Hawaii Revised Statutes, prior to December 1, 2015, for "residential property" occupied by "owner-occupants", as those terms are defined in section 667-1, Hawaii Revised Statutes, as amended by this Act, and for which no court hearing has been conducted as of December 1, 2015, nor will be conducted for at least the days immediately following that date, shall be immediately suspended; and

(2) All mortgagees who filed a judicial foreclosure action described in paragraph (1) shall comply with the requirements of part V of chapter 667, Hawaii Revised Statutes, as amended by this Act, in the same manner and under the same conditions, to the extent feasible, as prescribed by that part for a mortgagee seeking to file a judicial foreclosure action.

(c) A judicial foreclosure action shall remain suspended under subsection (b) until the satisfaction of any requirement or condition under part V of chapter 667, Hawaii Revised Statutes, as amended by this Act, entitling a mortgagee to file a judicial foreclosure action, including as provided under sections 667-78(c), 667-81, and 667-82(b), Hawaii Revised Statutes, as amended by this Act.

(d) All mortgagees to whom this section applies shall be subject to all penalties for noncompliance with part V of chapter 667, Hawaii Revised Statutes, as amended by this Act, including as provided under sections 667-60(a) and 667-82(b), Hawaii Revised Statutes, as amended by this Act.

SECTION 16. There is appropriated out of the general revenues of the State of Hawaii the sum of $ or so much thereof as may be necessary for fiscal year 2015-2016 to be deposited into the mortgage foreclosure dispute resolution special fund established pursuant to section 667-86, Hawaii Revised Statutes.

SECTION 17. There is appropriated out of the mortgage foreclosure dispute resolution special fund the sum of $ or so much thereof as may be necessary for fiscal year 2015-2016 and the same sum or so much thereof as may be necessary for fiscal year 2016-2017 for all expenses of the mortgage foreclosure dispute resolution program and to carry out the purposes of this Act, including the hiring of one full-time program specialist exempt from chapter 76, Hawaii Revised Statutes, and one full-time office assistant exempt from chapter 76, Hawaii Revised Statutes, within the department of commerce and consumer affairs office of consumer protection.

The sums appropriated shall be expended by the department of commerce and consumer affairs for the purposes of this Act.

SECTION 18. Except as provided in section 15 of this Act, this Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 19. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 20. This Act shall take effect on December 1, 2015; provided that sections 16 and 17 shall take effect on July 1, 2015.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	132
TWENTY-EIGHTH LEGISLATURE, 2015
STATE OF HAWAII