If you default on your mortgage payments in Hawaii, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin a foreclosure. In the past, foreclosures in Hawaii were almost always nonjudicial. But after Hawaii implemented a mortgage foreclosure dispute resolution program as part of the nonjudicial process, lenders regularly began using the courts to foreclose so they don't have to participate in it.
With either type of foreclosure, Hawaii law specifies how foreclosure procedures work, and both federal and local laws give you rights and protections throughout the process.
If you get a loan to buy residential real estate in Hawaii, you'll likely sign two documents: a promissory note and a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The mortgage is the document that gives the lender a security interest in the property. If you fail to make the payments, the mortgage gives the lender the ability to sell the home at a foreclosure sale to recoup the money it loaned you.
If you miss a payment, the servicer can charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you skip a few mortgage payments, the servicer will probably send letters and call you to try to collect the overdue amounts. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many mortgages in Hawaii have a provision that requires the lender to send a breach letter if the borrower falls behind in payments. This notice tells you that the loan is in default. If you don't cure the default, like by getting caught up on the missed payments, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
In a judicial foreclosure, the lender files a complaint in circuit court and gives notice of the suit by serving you with a copy, along with a summons. (Haw. Rev. Stat. § 667-1.5). If you fail to answer the court action, the lender can get a default judgment from the court. The judgment will give the lender permission to hold a foreclosure sale.
If you respond to the lawsuit, however, the case will go through the litigation process. The lender might then request the court to grant summary judgment. A summary judgment motion asks that the court grant judgment in favor of the lender because there's no dispute about the case's critical aspects. If the court grants summary judgment for the lender—or you lose at trial—the judge will order the home sold at a foreclosure sale. Before the sale, the lender must publish a notice of sale in a newspaper once each week for three weeks and publish it on a state website at the discretion of the agency that maintains the site. (Haw. Rev. Stat. § 667-20).
In a nonjudicial foreclosure, the lender must comply with specific procedures detailed in the Hawaii statutes, including serving you a notice of default and intention to foreclose, and mailing or delivering a notice of sale to you. (Haw. Rev. Stat. § 667-22, § 667-27.) The notice of sale is also published in a newspaper. (Haw. Rev. Stat. § 667-27).
As part of the process, you can choose to participate in Hawaii's mortgage foreclosure dispute resolution program, a foreclosure mediation procedure. In this program, the owner-occupant meets with the lender or its representative to attempt to work out a way to prevent foreclosure. (Haw. Rev. Stat. § 667-71 and following).
Homeowners of residential real estate who are facing a nonjudicial foreclosure generally have the option to convert the proceeding to a judicial process. But you can't convert if you elected to participate in the mortgage foreclosure dispute resolution program. (Haw. Rev. Stat. § 667-53). To find out whether you should consider converting your foreclosure and learn about your options, consult with an attorney licensed in Hawaii.
With judicial and nonjudicial foreclosures, the process ends with a foreclosure sale, a public auction. The lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure. Under Hawaii law, you may reinstate your loan (and stop the foreclosure) in a nonjudicial foreclosure by paying all past-due payments plus fees and costs up to three business days before the sale. (Haw. Rev. Stat. § 667-27, § 667-28(d)).
Hawaii law, however, doesn't provide the borrower with the right to reinstate before the sale in a judicial foreclosure. But the terms of the mortgage you signed might give you a reinstatement right (most do), or your lender might agree to a reinstatement.
Sometimes, when a home sells at a foreclosure sale, the sale doesn't bring in enough money to pay off the full amount owed. The difference between the sale price and the total debt is called a "deficiency balance." Many states allow the lender to get a personal judgment, a "deficiency judgment," for this amount against the borrower.
Deficiency judgments aren't allowed after nonjudicial foreclosures if the property is residential and owner-occupied unless the debt is secured by collateral other than the home. (Haw. Rev. Stat. § 667-38). But they are allowed in judicial foreclosures.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Hawaii law doesn't provide a right of redemption after a judicial or nonjudicial foreclosure.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.