Have you noticed the number of foreclosures on Maui lately?
A few weeks ago my partner, Barbara Potts, noticed something curious - lots of foreclosure announcements listed in The Maui News. We wondered, why all the foreclosures?
My thought was that since Hawaii is essentially a judicial foreclosure state, and due to the lack of enough judges to hear cases and the nature of the judicial system. But according to one of the leading Maui attorneys who also serves as a commissioner to foreclosures, there is much more to it than that.
According to our friend, there are 2 bigger factors at work.
First, I said that Hawaii is "essentially" a judicial foreclosure state. Actually, non-judicial foreclosures are allowed, but, back in 2010 the Hawaii legislature felt that foreclosures were out of control, so they put a moratorium on foreclosures for about a year. Then then law was changed to impose a severe penalty on the foreclosing party if there happened to be an error in the non-judicial process. The result was that virtually no one uses non-judicial foreclosures anymore. The aforementioned penalty is that the foreclosing party could lose their right to take the property back, and the debtor could potentially keep the property!
However, non-judicial used to be the predominant method of foreclosure. Now, several hundred of those non-judicial foreclosures are being challenged by the parties who lost their properties. As a result, the lien holders are going back and pursuing judicial foreclosures to protect themselves, and properties are working their way back into the system and to the market. Hundreds of them, I'm told.
The second factor are the folks who were fortunate enough to get loan modifications, or loan mods, and who now still can't afford to make their payments. The benefit of a load mod was that it temporarily lowered the borrower's interest rate. So, a borrower who was paying, perhaps 6%+, could get their rate set to something in the 2% or lower range.
That reduction, however, was temporary. Part of the deal with a load mod is that the rate goes back up over time, usually back to the original rate. Many of those borrowers who benefited from the low rate and were able to save their properties now find themselves back in the same place, unable to make payments and back in foreclosure.
What's next? Short sales? Who knows, but stay tuned. We'll keep you informed. The next article will be what you need to know about buying a foreclosure in Hawaii.
With warm aloha,