Foreclosures reforged

A new Hawaii law signed last week makes it harder for lenders to confiscate people’s homes

By Andrew Gomes
Article from: Star-Advertiser

Sweeping new measures to help financially struggling Hawaii homeowners avoid foreclosure became law last week.

Some observers are hailing the bill signed Thursday by Gov. Neil Abercrombie as one of the strongest in the nation and possibly a model for other states.

The bill, Senate Bill 651, is being touted as one of the highlights of the recently concluded legislative session, which was largely consumed by work on balancing the state budget.

“Sometimes when you’re faced with a crisis, you have to respond — and I think that’s what the administration and the Legislature is trying to do,” said Stephen Levins, director of the state Office of Consumer Protection. “It dramatically changes the way (foreclosures) are going to be done in Hawaii.”

The 101-page bill, now known as Act 48, overhauls state law on nonjudicial foreclosures, which is how the vast majority of home foreclosures are done in Hawaii.

The bill was one of roughly 30 related to foreclosures introduced at the Legislature this year and was shepherded by Rep. Bob Herkes, chairman of the House Consumer Protection and Commerce Committee, and Sen. Rosalyn Baker, chairwoman of the corresponding committee in the Senate.

Community-support group Faith Action for Community Equity pushed hard for the legislation. Some elements in the law also were recommended by a legislative task force representing lender and borrower interests, though lenders strongly opposed other parts including what is regarded as the most important piece of the new law.

That piece gives many homeowners a new option to conduct foreclosure mitigation efforts directly with a lender representative in front of a neutral dispute-resolution professional.

The law also ensures that homeowners receive enhanced notice of foreclosure actions and allows borrowers who contend a lender is improperly foreclosing to bring the case before a state judge.

OTHER PROVISIONS OF THE NEW LAW
• A home owner occupant subject to nonjudicial foreclosure may convert to judicial foreclosure by filing a petition with the Circuit Court within 30 days after receiving a foreclosure notice.

• Conversion to judicial foreclosure is not available to homeowners who participate in dispute resolution.

• Condominium associations may collect past due association assessments of up to $7,200.

• Mortgage servicers with a 20 percent market share in the state must maintain a local office.

Advocates of the reform measure note that it won’t help everyone facing foreclosure. In cases where a homeowner has lost his or her job and has no prospect of paying a reasonably reduced mortgage payment, foreclosure will likely be the outcome.

But the law promises to help significant numbers of people caught up in an epidemic.

Close to 24,000 foreclosure actions have been initiated in Hawaii over the past two years, according to real estate research firm RealtyTrac. Last year, 12,425 foreclosure cases equated to one for every 41 residences in the state, which was the 11th-highest rate nationally.

People in similar circumstances to city worker Wayne Salas stand to benefit from the new law.

Salas, whose wife works for the state, was concerned that double-barrel furloughs (city and state) would cut too deep into income they needed to maintain mortgage payments on their Ahuimanu house.

Salas sought help from his mortgage holder, Bank of America, in September 2009.

The waste-water treatment plant supervisor figured all he needed was a reduction in his 6.25 percent interest rate, which was set to rise next year. But bank representatives told him they couldn’t help because he hadn’t defaulted on his loan.

Salas, squeezed by the furloughs and the loss of some military pay, ended up defaulting. He sought to enter a loan modification program last year, but he said BofA put him on a waiting list because of a backlog and told him not to worry about foreclosure.

“The very next week, they posted an eviction notice on the house,” Salas recalled. Scared and belabored by the lender’s debt collection agents, Salas arranged to borrow money from his retirement account to cure the delinquency plus penalties.

BofA relented on the foreclosure, Salas said, and enrolled him last July in the federal Making Home Affordable loan modification program for six months. After disputes over missing paperwork and proper payment amounts, nonprofit organization Hawaiian Community Assets began to negotiate for Salas.

Earlier this month — 20 months and four foreclosure notices after Salas reached out for help — BofA agreed to lower his interest rate to 4.125 percent.

“I broke down in tears,” said Salas, who prays that more complications don’t arise.

Salas said no one should have to endure what his family has been through. “Nobody should be treated that way,” he said.

Salas’ ordeal speaks to a chief complaint of many borrowers: that federally sponsored loan modification programs offered by out-of-state lenders and loan servicers are plagued by overwhelmed staff prone to losing documents and providing inconsistent or inadequate instructions to homeowners.

Hawaii’s new law allows borrowers to force lenders or mortgage servicers to engage in face-to-face, or teleconferenced, dispute resolution overseen by a professional facilitator before a foreclosure can be completed.

The dispute resolution process was modeled after a roughly 18-month-old program in Nevada that claims 46 percent of mediated cases kept homeowners in their homes. A sunset date for the program is set for Sept. 30, 2014.

Levins, the Office of Consumer Protection director, said borrowers shouldn’t be at the mercy of ineffective loan agents, which he said in some cases involve loan servicers that stand to financially benefit more from foreclosure than from loan restructuring.

“If someone can stay in their home and it makes economic sense for the lender, it’s something that should happen,” he said. “It shouldn’t be something that falls through the cracks.”

Baker said it wasn’t uncommon for borrowers, who were working with lenders on what appeared to be hopeful loan modification plans, to be informed a foreclosure auction had been scheduled — or that, in rarer instances, their home had been sold.

“That’s not right,” she said. “You just don’t treat people that way. We understand not everybody is going to be able to stay in their home, but at least give people some dignity and an opportunity to explore all their options in a fair way.”

Mortgage industry representatives opposing the bill claimed that all the new requirements will make loans harder to obtain and more expensive, thereby hurting home buyers and sellers, and stifling Hawaii’s housing market in the midst of a fragile recovery.

Sen. Baker called that claim “baloney.”

Levins noted that no opponent of the bill presented any study attempting to support the claim.

Carl Bonham, director of the University of Hawaii Economic Research Organization, said it would be too hard to speculate on the veracity of the mortgage industry’s claim short of a study.

Another fear the mortgage industry raised was that the options for dispute resolution or court oversight would allow deadbeat borrowers to live mortgage-free in their homes for longer by using the law to drag out foreclosure.

Levins said a few borrowers could try to abuse the new law but that obligations of borrowers under the law should dissuade abuse. “We don’t think that’s going to be significant,” he said.

Levins said timetables under the dispute resolution program could actually speed up loan modification cases and resolve bad loans — either through restructuring or foreclosure — more quickly, which would benefit lenders.

“We’re not asking lenders to do anything out of charity,” he said. “We acknowledge they’re a business. We’re just trying to help people. It’s really a win-win.”

Lenders might disagree, but no out-of-state lenders testified against the bill.

BofA representatives met privately with lawmakers and announced plans to hold face-to-face meetings with Hawaii customers at a series of workshops. Wells Fargo announced a similar plan recently.

The Rev. Bob Nakata, a longtime affordable housing advocate and former state senator, said the moves by BofA were too little, too late. “If they were doing this (meeting face to face with customers) all along, the problem would not have been so great,” he said.

Out-of-state lenders relied on trade associations such as the Hawaii Bankers Association and Hawaii Credit Union League to testify on the bill.

Local lender associations opposed provisions in the bill, but they also pointed out that they weren’t guilty of shoddy or improper practices attributed to out-of-state lenders, a point on which bill proponents agreed.

The Legislature passed the bill Tuesday, and Gov. Abercrombie signed it two days later. His signing of the bill marked the start of a moratorium on any nonjudicial foreclosures until the dispute resolution process is running, which will be Oct. 1 at the latest.

“This is a comprehensive, detailed, broadly based and extremely researched response to this challenge,” he said.

ACT 48 DETAILS
A key provision in Hawaii’s new foreclosure protection law is dispute resolution.

Here’s how it works:
Who can participate?
Owner occupants of residential property under nonjudicial foreclosure. (Nonjudicial foreclosures happen when lenders pursue a foreclosure outside of court, which is the case for most foreclosures in Hawaii.)

Owner-occupants must reside at the property for a minimum 200 consecutive days.

Owners of time shares, vacation homes and commercial property are not eligible.

What is the timing of the dispute-resolution program?
Program will be ready to start accepting applications by Oct. 1.

Dispute resolution proceedings will start Jan. 1.

Program sunsets Sept. 30, 2014.

How does the program work?
No nonjudicial foreclosures may be initiated until Oct. 1, when the program begins.

Mortgage lenders who pursue nonjudicial foreclosures after Oct. 1 will be required to file a notice with the state Department of Commerce and Consumer Affairs.

Upon receiving a foreclosure notice, DCCA will send information to the homeowner about the dispute resolution program.

Homeowner has 30 days after receiving DCCA’s notice to elect dispute resolution, which is optional.

If homeowner does not elect dispute resolution, the foreclosure may proceed.

If homeowner elects to participate in dispute resolution, lender must participate.

Upon election to participate, DCCA will take no longer than 14 days to set a date, time and place of dispute resolution session run by a neutral, trained professional. Session will be scheduled within 30 to 60 days unless an alternate date is agreed to mutually.

Dispute resolution session shall be no more than three hours but may be extended by one additional three-hour session at the facilitator’s discretion.

If parties reach an agreement, foreclosure is terminated.

If parties don’t reach an agreement, foreclosure resumes.

How is the program funded?
Lenders pay $250 with each nonjudicial foreclosure notice.

Homeowners and lenders participating in the dispute resolution program each pay $300.

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Lender wins bid for troubled Ritz-Carlton

Lehman Brothers will aim to maintain the foreclosed Kapalua luxury resort’s value

By Kristen Consillio
Article from: Star-Advertiser

Lehman Brothers Holdings Inc. topped two other qualified entities with a $75 million credit bid to claim the 404-room Ritz-Carlton Kapalua.
The lender for the Ritz-Carlton Kapalua scooped up its investment in a foreclosure auction yesterday on Maui, with a $75 million credit bid on the luxury hotel.

Lehman Brothers Holdings Inc. outbid two other qualified bidders for the 404-room luxury property, which was foreclosed in September after institutional investors and Maui Land & Pineapple Co. defaulted on a loan, most recently valued at $268 million.

Lehman Brothers filed for bankruptcy in September 2008 and is in the process of being liquidated.

The auction was held at the state courthouse building in Wailuku with local real estate executive Chris Lau serving as foreclosure commissioner. A confirmation hearing by a Circuit Court judge hasn’t been scheduled. It is possible for a judge to reopen bidding if someone offers 5 percent above Lehman’s bid, Lau said.

“I think it’s a good possibility,” he added.

However, if the bid is confirmed, the investment banking firm will focus on ensuring the hotel continues to operate and the value of the property is preserved, according to Barry Sullivan, an attorney for Lehman.

“When lenders take a property back, they’re looking to maximize the value for it to try to recover their loan,” he said. “The idea is to do what’s in the best interest of the property so that we can do the best we can to recover the investment that was made.”

While the five-star hotel is a high-quality asset, it carries significant debt, so the lender will likely wait for the property’s value to rise and sell it when the market’s stronger, said hotel consultant Joseph Toy.

“The lenders don’t really want to be hotel owners,” he said.

“At some point in time they’ll want to sell the asset,” likely in a private sale where the owner can get more value through negotiations, he added.

Like other hoteliers, the Ritz-Carlton’s owners fell into trouble when the downturn in the economy and real estate market hindered sales of 107 residential condominium units.

Condominium sales were to pay down debt accrued for a $180 million renovation in 2008. Lehman initially issued $232 million in loans to finance the renovation and condominium conversion plan.

If no other bidders emerge at a confirmation hearing, Lehman would be in a position to resume condo sales efforts or restructure the existing operating plan.

Yesterday’s auction included the bulk sale of 73 unsold condo units, 297 hotel units, common areas, commercial space and 21 acres of undeveloped land.

The Ritz-Carlton Kapalua was built in 1992 by Japan-based Nissho Iwai Corp., Ritz-Carlton Co. and Maui Land for $206 million.

Kona company starts algae-to-oil production

Cellana says it will be able to make 3,800 gallons of oil per acre annually for biofuels

By Alan Yonan Jr.
Article from: Star-Advertiser
Cellana’s 6-acre facility at Keahole Point in Kona is capable of producing up to 60 tons of oil-rich algae a year. Cellana’s goal is to produce 3,800 gallons of oil per acre per year to be used for biofuels, animal feed, cosmetics, nutritional oils and industrial chemicals.

Cellana Inc. said it has begun producing oil from algae grown at its Kona facility and is on track to begin commercial production by 2014.

The Big Island company is harvesting up to one ton of algae a month in ponds at its 6-acre facility at Keahole Point. The company estimates it will be able to grow up to 60 tons of algae capable of producing 3,800 gallons of oil per acre per year.

The oil can be refined into a variety of products, including biodiesel for automobiles and power generation plants. Other uses include animal feed, cosmetics, nutritional oils and industrial chemicals.

Oil-rich algae is considered an attractive crop for biofuel production because of its relatively high yield compared with other crops. Algae can produce up to 11 times more oil per acre than the oil palm nut, the next-highest yielding feedstock, according to the U.S. Department of Energy. Algae yields are as much as 145 times higher than soybeans, the department said.

“Over $100 million has been invested to date in our Kona demonstration facility, our algae strains and the process we use to grow, harvest and separate our algae biomass, which puts Cellana on a very short list of leading companies in the emerging algae-based biofuels and bioproducts industry,” said Martin Sabarsky, Cellana’s chief executive office.

Cellana’s parent company, Cellana LLC, last month changed its name from HR BioPetroleum, which was founded in 2004. HR BioPetroleum in 2008 signed a memorandum of understanding with Maui Electric Co. and Alexander & Baldwin Inc. to develop a commercial algae facility on land next to MECO’s Maalaea power plant.

“It is a pioneering effort with tremendous potential, and we are now looking at 2014 for the construction and operation of this transformational facility on Maui,” Sabarsky said.

Cellana also announced yesterday that it has received a $5.5 million federal grant to develop animal feed from the algae grown at the Keahole Point facility.

The grant from the U.S. Department of Agriculture will be combined with $1.6 million raised by Cellana for the project titled “Developing a new Generation of Animal Feed Supplements,” according to a news release from the office of U.S. Sen Daniel Inouye.

The project began Sunday and runs through April 30, 2014.

The senator praised “Cellana’s efforts to move Hawaii away from the use of imported fossil fuels while developing innovative new products form one of our most readily available resources.”

Hotel numbers look good despite Japan lag

Japanese arrivals to Hawaii declined after the March quake and tsunami

By Allison Schaefers
Article from: Star-Advertiser
All measures of Hawaii hotel performance increased in March, despite a strong downturn from Japanese visitors after the March 11 earthquake and tsunami.

Statewide hotel occupancy increased 4.8 percentage points to 75.2 percent, according to a report released today by hotel consultancy Hospitality Advisors LLC.

The increase would have been larger if not for the tragedy in Japan. Japanese visitor arrivals to Hawaii were down 18.7 percent in March. The drop was felt most at Oahu hotels, since Waikiki is the primary destination for Japanese visitors.

“Occupancy at Oahu’s hotels had been exceeding 2010 levels up until March 11,” said Joseph Toy, president of Hospitality Advisors. “In the aftermath of the events in Japan, Oahu’s daily occupancies trailed the previous year’s levels during most of the remaining days in March.”

Even with the decline in the last half of March, Oahu’s hotel occupancy grew by 3.4 percentage points to 79.2 percent, the highest occupancy in the isles.

On Maui, occupancy rose 6.5 percentage points to 78.7 percent. Big Island occupancy climbed 5.9 percentage points to 63.4 percent. Kauai’s occupancy rose 6.1 percentage points to 62.2 percent.

Jack Richards, president and chief executive of Pleasant Holidays LLC, the state’s largest wholesaler, said the booking pace for vacation packages that included Hawaii hotel stays was very strong until March 11.

“Bookings slowed for the remainder of March and began increasing in early April,” Richards said.

More visitors from the U.S. West, U.S. East and Canada helped offset the drop in Japanese arrivals and keep room rates moving higher.

The statewide average daily rate (ADR) paid for a hotel room increased more than 9 percent in March to $190.15. Revenue per available room (RevPAR), considered by many to be the best measure of hotel performance, was up nearly 17 percent to $142.99.

The state did well in the first quarter despite the Japanese decline in March.

For the first quarter, Hawaii’s $147.05 RevPAR was the highest in the nation. Hawaii’s 77 percent hotel occupancy during the first quarter was the second highest in the nation behind Miami, and the state’s $190.99 average daily rate trailed only New York.

David Kong, president and chief executive of Best Western International, which operates two hotels in Honolulu and one on Maui, said the brand’s Hawaii hotels are doing well this year.

“The two here on Honolulu are both up tremendously this year,” Kong said. Hawaii will continue to be a sought-after destination, he said. “The aloha spirit is the most important element of Hawaii’s success,” Kong said. “It’s very difficult for any other destination to duplicate.”

With occupancy improving, hotels are able to charge more for rooms.

The average daily rate on Oahu was $156.42, an increase of more than 9 percent from the previous year. Likewise, RevPAR increased about 14 percent to $123.88 from $108.76 a year ago.

On Maui the average daily rate rose about 15 percent to $265.94, and RevPAR increased about 25 percent to $209.29. Kauai ADR increased more than 7 percent to $201.18, and RevPAR grew about 19 percent to $125.13.

Big Island RevPAR rose about 4 percent to $109.11; however, ADR fell by about 6 percent to $172.09. The tsunami-related closures of the Kona Village Resort and the Four Seasons Hualalai, which just reopened, on the Big Island likely contributed to the decrease in ADR.