Somehow the Star-Advertiser has consistently been turning concern over home foreclosures on its head, bemoaning the drop in foreclosures over the past year as a “problem” needing to be dealt with.
It happened again with an editorial a few days ago.
After an overwhelming number of foreclosures of Hawaii residences had been decided without going to court, last year’s Legislature changed the law to give owner-occupants the right to have a mediator be involved in the out-of-court process. But lenders have declined to use the new process where trivial violations could void the foreclosure. Lawmakers this session should enact changes to avoid negative effects on the housing market that have been created by the newly lopsided rules.
It’s been the newspaper’s perspective for some time now. They take the position that foreclosures without benefit of judicial oversight are faster and cheaper, therefore preferable despite the miserable track record of abuses.
By coincidence, another foreclosure report arrived in my email just about the same time from Ken Pinsky, former publisher of Haleakala Times and Moon Over Haleakala.
Ken wrote:
I am writing to ask if you are looking at the way foreclosures are handled in Hawaii. I had a weird personal experience today which opened up for me a whole horrible world of possibilities that lots of people I don’t know personally might be going thru.
Here’s what happened. The house I am renting was foreclosed on today in the following manner. (And my landlord says its a mistake that he will clear it up.) Anyway, I came home to a locksmith and a secretary from some lawyers office just setting up to change the locks on the house. No paperwork had gone out to anyone, and they had none with them. Nor had they business cards to give me.
I refused entry, they left and I then called to cops and filed a complaint.
Now I am ever so curious why anyone would start the process with lock changing, even if the process is valid. Why do it that way and is that typical? Do you know.
Can that be true? No paperwork in advance of a locksmith? Renters caught in the middle? It sounds to me like a good argument for the judicial process rather than a newly streamlined nonjudicial approach.
Maybe others have additional experience to share?
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Since only a handful of people have went the “arbritation” option available to them that leave’s thousands and thousands of people who have been foreclosed on for at least two years now that are not paying ANYTHING to live in their home. Seems like a pretty sweet deal. I doubt very much there are enough of those locksmiths around the islands to keep up with those numbers. Also, LOL, “my landlord says it was a mistake and he will clear it up”….yup. sure. I’m afraid ole Ken was the only paying customer in this sad tale saga……
Having said my piece, it is an interesting point on what happens to renters and their rights (if any) in these situations.
…seems like “da cyst ’em” relies on the common sense of a locksmith?
By forcing everything through the judicial process we effectively never allow the market to reflect the true value of housing. Let the foreclosures go through; let the new property comparables reflect the new values.
I agree with Richard. I believe that was the point that the SA edit was trying to make as well.
My limited research of foreclosure without a court action demonstrated Hawaii was not only unusual but is considered arcane nationally.
My residence is fully paid off and shall stay that way.
There is a huge ‘shadow inventory’ of unowned homes driving down home prices. Sometimes banks will foreclose on a home, try to sell it, and find that there are no buyers (the banks find out the hard way that they would have been better off just modifying their loan). The bank then gives the property away for free on the condition that the house be destroyed and nothing built in its place. Nevertheless, new homes are being built by an industry on autopilot. Anecdotally, I’ve heard about neighborhoods in the Puna district that are abandoned and being reclaimed by the jungle — but right next door new houses are being built. To a certain degree, whether it is deliberate or not, Act 48, which allows for greater access to judicial foreclosure, actually serves the interest — that is, the enlightened self-interest — of the banks by slowing down the flow of houses onto the market. Indeed, when Act 48 was first passed, on the comment board of Civil Beat, the greatest support for it was expressed by real estate agents. This might have been public relations, but they might have also assumed that falling home prices would have been staunched by slowing the foreclosure process. However, even if this was true, Act 48 would not necessarily be in the immediate interest of the banks or of the home building and real estate industry. That is, Act 48 would pit those in the industry who have a big picture view against those who do not. Here is an “article” in Hawaii Reporter. http://www.hawaiireporter.com/hawaii%E2%80%99s-act-48-%E2%80%93-new-law-flounders/123
The “article” laments that all foreclosures on Kauai, for example, are switching to judicial, making borrowers vulnerable to deficiency judgments, where borrowers may lose their homes to the banks yet still owe the banks the balance of the original mortgage. Yet allmortgage borrowers in Hawaii were previously always subject to deficiency judgments, and Act 48 actually provides immunity to deficiency judgments via the path of non-judicial mediation. Why the misinformation? The author of the “article” is Hawaii Life.
There is a tendency to see the issue in moral terms, as “greedy banks” versus the “little guy”. But ‘greed’ is not desire or self-interest, it is when people get carried away and stop thinking. Desire and self-interest are ever-present, the issue is whether they is being balanced with rational thought. In a sense, Act 48 actually reflects the rational interest of the banks and the economy, it is not some virtuously pure altruistic legislation. Act 48 could be understood to reflect the long-term self-interest of the banks versus their short-term desire to acquire and (try to) sell houses that in some cases no one wants. There is also a countervailing moralistic tendency to demonize those who bought homes that they cannot afford. But the same bankers and real estate people who seek to speed up the foreclosure process against such delinquent borrowers not only encouraged such borrowers to buy homes they could not afford in the first place, but they continue to do so.
An entire book was written to prove that non-judicial foreclosure was the reason why “native Hawaiians” “lost” their land in Kahana Valley (the next ahupua’a over from where Ian Lind lives!). The book, by Dr. Robert Stauffer, is “Kahana: How the Land Was Lost.” Stauffer’s research covered primarily the period from 1850 to 1900, so it’s interesting to see how foreclosure techniques used back then are similar to the techniques used today. Stauffer’s book is filled with errors of fact and additional errors of interpretation, so I wrote a very detailed book review poking fun at it while doing serious analysis of historical issues.
http://tinyurl.com/a69tax
My book review includes some exploration of the fact that non-judicial foreclosure is the most commonly used process in most other states as well as Hawaii. I might also mention here that non-judicial foreclosure has been used against millions of Caucasians and Asians, so it is not a weapon of oppression against “Native Hawaiians.” Indeed, many of the Hawaiians in Kahana Valley, described by Stauffer, were well-educated and fully literate business owners.
What’s important in economic issues like these is to fully understand what the tradeoffs are. You can’t just advocate for solely judicial foreclosures and not think that there will be negative consequences.
In this issue, by making foreclosures more difficult, we stall the market recovery, thereby keeping prices lower, longer.
Lower prices might be OK for buyers, but they also create more foreclosures because “borderline” homeowners that are holding on by a thin line, waiting for the market to recover end up running out of time. Because their house stays underwater, they foreclose.
So if we’re all OK with a slower market recovery and more homes going into foreclosure, then by all means keep the current laws on the books.
If we would prefer a faster recovery with fewer foreclosures, then perhaps today’s laws need to be reformed to fix the “1%” of problem cases.
Let’s at least be clear on the consequences before advocating one position over another.
Misunderstandings. There are a lot of them. For instance, the economist Paul Krugman began his career as a columnist by pointing out to the astonishment of everyone but his fellow economists that countries do not compete against one another economically, firms do. Countries compete in terms of power and prestige, not economically. Corporations compete against one another, and corporations today are multinational (as Ralph Nader has always pointed out, there is no such thing as an American car any longer). Krugman was illustrating that economics is not a zero-sum game, a basic assumption of economics; economic competition benefits everyone by “lifting all boats”. Krugman is a liberal economist, but he believes in capitalism. Liberals are capitalists, but they want an enlightened capitalism. There is this misperception that liberals are anti-capitalists. No, this is why radicals have always hated liberals.
Massive misunderstanding all around.
Likewise, there seem to be some misunderstandings about real estate and judicial foreclosure. On the east coast and west coast of the US, and in urban areas around the world generally, there was a massive housing bubble in 2005, with home prices rising on average to 200% of the historical norm.
http://www.ritholtz.com/blog/2011/04/case-shiller-100-year-chart-2011-update/
Nationally, there is this sense that real estate markets are artificially depressed and will eventually come back. Wrong. This is the return to the norm.
Second, if judicial foreclosures do slow down the foreclosure process, this has nothing to do with the market price of houses. In the 1950s, half of American households had children; today, only one-third of US households have kids, and in fifteen years that will fall to one-fourth. There is less demand for houses. Boomers are retiring and moving into the city, as are rich people (there is more poverty in the suburbs as of 2010 than there is in the urban core). Subsequently, urban public schools, at least from K to 8 (not high school) are now generally ranked better than suburban public schools; families in the city now wait until the high school years to make that move into the suburbs. Since the oil price hikes of 2008, people have wised up and are bailing out of fringe suburbs before post-peak oil hits in 2015. Also, suburban home sizes have doubled since the 1950s (while lot sizes have actually declined by 10 percent) largely because people needed big houses to store all there stuff. With the pervasive debt Americans have now and with new technology (iPads, etc.), people no longer have a pack rat mentality of shopping and hoarding.
Judicial foreclosures have nothing to do with the price of houses.
Also, the price of real estate has not fallen in Hawaii, it has risen.
http://www.deptofnumbers.com/affordability/hawaii/
Getting back to Ken’s question about renters, I do remember a bill that came before the legislature last year or the year before that provided more rights to renters. I’m not sure what happened to it, however.