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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

Hawaii

SECURITY INSTRUMENT USED: Mortgage.

SECURITY INSTRUMENT USED

RECORDING REQUIREMENTS: Hawaii maintains 2 recording systems for documents relating to real property: (a) the Land Court System for property registered with the Land Court, and (b) the Regular System for all other property. For property registered with the Land Court System, mortgages are filed in the Office of the Assistant Registrar of the Land Court and they attach to the property at the time of filing, see Hawaii Revised Statutes (&ldquo;H.R.S.&rdquo;) &sect;&nbsp;501-101, &sect;&nbsp;501-116. An unrecorded mortgage of land court property will operate only as a contract between the parties and will not be operative to affect the land or be effective against third parties, even if the third parties have knowledge of the mortgage, see H.R.S. &sect;&nbsp;501-101. For requirements of the Land Court System, see H.R.S. Chapter 501. Regular System mortgages are recorded in the Bureau of Conveyances. Unrecorded Regular System mortgages are void as against subsequent holders of an interest in the property who take in good faith, for valuable consideration, and without actual notice of the mortgage, see H.R.S. &sect;&sect;&nbsp;502-83. For requirements of the Regular System, see H.R.S. Chapter 502. For acknowledgment requirements, see H.R.S. &sect;&sect;&nbsp;502-41 through 502-54. H.R.S. Sections 501-261 et seq. provides for deregistration of Land Court Property. Note that property covered by a mortgage may include both land court property and regular system property, in which case the mortgage must be filed in both the Office of the Assistant Registrar of the Land Court and the Bureau of Conveyances. The offices for both recording systems are physically located in the Bureau of Conveyances in Honolulu (there are no county recording offices). To record a mortgage in the Land Court System, the mortgagee must submit or have on file with the Bureau of Conveyances evidence that the mortgagee is validly existing and in good standing under the laws of its jurisdiction of organization, in the form of a certificate of good standing from a governmental agency of the state of its organization or an attorney&rsquo;s opinion. The certificate of good standing or opinion letter must include the date of incorporation or organization of the entity, and will not be accepted by the Assistant Registrar more than one year after the last anniversary of the entity&rsquo;s date of incorporation or organization. See Rule 58, Rules of the Land Court of the State of Hawaii. Federally-chartered financial institutions, however, are exempt from this requirement.

RECORDING REQUIREMENTS

STATUTES TO BE WAIVED: N/A.

STATUTES TO BE WAIVED

UNUSUAL TREATMENT OF STANDARD PROVISIONS: As to residential real property, the mortgagor (rather than the mortgagee) has the right to determine whether insurance proceeds will be used to pay the loan or to rebuild, regardless of what the mortgage provides. H.R.S. &sect;&nbsp;506-7.

UNUSUAL TREATMENT OF STANDARD PROVISIONS

SECURING FUTURE ADVANCES: A mortgage may secure a debt incurred for future advances even though the mortgagee is under no contractual duty to make such advances, but the statutory provision has been somewhat limited by case law so that the only future advances that are secured are: (a)&nbsp;those related to the initial mortgage loan or property; (b)&nbsp;those specifically referenced in the mortgage; and (c)&nbsp;those the borrower subsequently agrees in writing are to be secured by the prior mortgage. Akamine &amp; Sons, Ltd. v. American Security Bank, 50 Haw. 304, 440 P.2d 262 (1968), Haw. Nat&rsquo;l Bank v. Okino, 51 Haw. 367, 461 P.2d 136 (1969), and Kamaole Resort Twenty-One v. Ficke Haw&rsquo;n Investments, Inc., 60 Haw. 413, 591 P.2d 104 (1979). If the mortgage states a maximum amount for such advances, the lien for such advances shall be superior to any subsequently recorded mortgage or lien, with the exception of real property taxes and assessments for public improvements, regardless of when such advances are made. See H.R.S. &sect;&nbsp;506-1(b).

SECURING FUTURE ADVANCES

Securing additional advances to protect the collateral, including payment of taxes and insurance: In order to protect the priority of such amounts, specific language should be included in the text of the mortgage addressing such advances and stating the maximum amount thereof.

Securing additional advances to protect the collateral, including payment of taxes and insurance

TRUSTEE UNDER DEED OF TRUST: N/A.

TRUSTEE UNDER DEED OF TRUST N/A.

BRIEF DESCRIPTION OF PROCEDURE: Judicial foreclosure - Complaint, judgment, auction, and confirmation of sale. In the absence of any objections, the court generally will confirm a sale without an auction if there is a sufficient showing of an adequate price. Commercial mortgage loans typically are foreclosed by judicial foreclosure because title insurance generally is not available for power-of-sale foreclosures of commercial mortgage loans. In the case of judicial foreclosures involving residential property, the foreclosing mortgagee&rsquo;s attorney now must file an affirmation stating, among other things, that the attorney has personally reviewed and verified, under penalty of perjury, the accuracy of the documents submitted and, subject to applicable rules of professional conduct, has communicated with representatives of the mortgagee (whose names and positions must be listed), and has confirmed the accuracy of supporting affidavits and notarizations contained in the supporting documents filed with the court. The affirmation must be substantially in the form set forth in H.R.S. &sect;&nbsp;667-17. That section requires that the complaint and other papers filed with the court contain no false statements of fact or law and that the plaintiff has legal standing to foreclose. To establish standing to foreclose, the foreclosing mortgagee must demonstrate with admissible non-hearsay evidence that it has possession of the promissory note when the foreclosure complaint is filed and that if the note has a blank endorsement, that the blank endorsement was on the note prior to the filing of the complaint. Foreclosure by power of sale (non-judicial foreclosure) &ndash; When a mortgagee intends to conduct a power of sale foreclosure, the mortgagee will need to prepare a written notice of default and intention to foreclose (the &ldquo;Notice&rdquo;) addressed to the mortgagor, the borrower, and any guarantor. H.R.S. &sect;&nbsp;667-22. The requirements for the Notice are detailed in H.R.S. &sect;&nbsp;667-22. One of the requirements for the Notice is that it state the action required to cure the default and the date by which the default must be cured. Id. Notice shall be served on the mortgagor and the borrower, prior or junior lien holders, the state director of taxation, the county director of finance, the Department of Commerce and Consumer Affairs, and other persons entitled to notice. Id. If the default is not cured as required by the Notice, no agreement has been made, and the mortgagor has not elected to convert the foreclosure to a judicial action, the foreclosing mortgagee, without court involvement, may foreclose the mortgage under power of sale to sell the mortgaged property at a public sale. H.R.S. &sect;&nbsp;667-24. The foreclosing mortgagee will need to prepare the public notice of the public sale (the &ldquo;Public Notice&rdquo;). H.R.S. &sect;&nbsp;667-27. A copy of the Public Notice must be served on the mortgagor, the borrower, prior or junior creditors, the State Director of Taxation the County Director of Finance be posted on the premises, and published in the classified section of a newspaper that is published at least weekly and has a general circulation in the county in which the property lies, printed in not less than 7-point font, for 3 consecutive weeks, constituting 3 publications, with last publication not less than 14 days before the sale, or published on a state website not less than 28 days before the sale, provided that if the mortgaged property is owned by an owner-occupant, the Public Notice must be published on the website maintained by the Department of Commerce and Consumer Affairs and the Public Notice shall be published at least once in the format described above at least 14 days prior to the public sale. See id. The Public Notice must state certain information and contain language specified in H.R.S. &sect;&nbsp;667-27. The public sale of the mortgaged property shall be conducted on the date, time, and place as described in the Public Notice. H.R.S. &sect;&nbsp;667-25. Power of sale foreclosures have been more commonly used for residential mortgage loans because title insurance for power of sale foreclosures of commercial loans was difficult to obtain. However, the effect of changes in the foreclosure law has been that title companies are likewise reticent to provide title insurance for power of sale foreclosures of residential loans, so even residential foreclosures are now often pursued judicially. There is greater room for error with power of sale foreclosures as they are unsupervised by the courts. As a result, power of sale foreclosures have been subject to scrutiny and have been frequently challenged in Hawaii courts. Recent appellate decisions require the foreclosing lender to prove that the foreclosure sale was fairly and regularly conducted and, when the foreclosing mortgage was the purchaser at the foreclosure auction, that an &ldquo;adequate price&rdquo; was paid. See, e.g., Kondaur Capital Corp. v. Matsuyoshi, 136 Haw. 227, 361 P.3d 454 (2015). Additionally, notice of the nonjudicial foreclosure sale must be published in compliance with the provisions of the mortgage. Hungate v. Law Office of David B. Rosen, 139 Haw. 394, 391 P.3d 1 (2017). Currently, the power-of-sale foreclosure process is codified in Part II of H.R.S. &sect;&nbsp;667 exclusively. Part IV of H.R.S. &sect;&nbsp;667 provides the power-of-sale foreclosure requirements for time share interests. Part V of H.R.S. &sect;&nbsp;667 establishes a Mortgage Foreclosure Dispute Resolution Program (the &ldquo;Program&rdquo;). The Program applies only to power-of-sale foreclosures on residential property occupied by owner-occupant mortgagors. An owner occupant is any person who owns an interest in the residential property and who used the property as the owner&rsquo;s primary residence for at least 200 continuous days prior to the service date for the Notice. Under the Program, mortgagors and mortgagees enter into a dispute resolution negotiation for the purpose of entering into a mortgage loan modification or other agreement to avoid the foreclosure or to mitigate the foreclosure damages. A mortgagee is required to participate in the Program at the election of the mortgagor before the mortgagee conducts a public sale of the property. The mortgagee must give notice of the Program&rsquo;s availability and meet other requirements, including filing the notice with the Department of Commerce and Consumer Affairs. Part VI of H.R.S. &sect;&nbsp;667 provides for an alternative power of sale foreclosure process for &ldquo;associations&rdquo; as defined in H.R.S. &sect;&nbsp;661-1. H.R.S. &sect;&nbsp;667-53 provides a right for owner-occupants of residential property to convert a non-judicial foreclosure to a judicial foreclosure by filing a petition no later than 30 days after the Notice is served on the owner-occupant, and filing a statement submitting to the jurisdiction of the circuit court no later than 45 days after filing the petition. Under H.R.S. &sect;&nbsp;667-56, any foreclosing mortgagee is prohibited from (1)&nbsp;holding a public sale on a date, time or place other than described in the public notice of the public sale; (2)&nbsp;specifying a fictitious place in the public notice of the public sale; (3)&nbsp;conducting a postponed public sale on a date other than the date described in the new public notice of the public sale; (4)&nbsp;delaying the delivery of the recorded, conformed copy of the conveyance document to a bona fide purchaser who purchases in good faith for more than 60 days after the completion of the sale; (5)&nbsp;completing power-of-sale foreclosure proceedings during short sale escrows with a bona fide purchaser if the short sale offer is at least 10% greater than the public sale price; provided that escrow is opened within 10 days and closed within 45 days of the public sale; and provided further that a bona fide short sale purchaser shall have priority over any other purchaser; (6)&nbsp;completing power-of-sale foreclosure proceedings during bona fide loan modification negotiations with the mortgagor; or (7)&nbsp;completing power of sale foreclosure proceedings against a mortgagor who has been accepted or is being evaluated for consideration for entry into any federal loan modification program before obtaining a certificate or other documentation confirming that the mortgagor is no longer eligible for, or an active participant of, that federal program. Under H.R.S. &sect;&nbsp;667-60, a violation by a foreclosing mortgagee of these requirements, among others, constitutes an unfair and deceptive trade act under H.R.S. &sect;&nbsp;480-2, potentially subjecting the mortgagee to liability for treble damages.

BRIEF DESCRIPTION OF PROCEDURE

TYPICAL LENGTH OF PROCEDURE: Judicial foreclosure of residential property typically average of 6 to 11 months. Judicial foreclosures of commercial property typically average at least 12 months because mortgagors are more likely to engage in some response or delay tactics.

TYPICAL LENGTH OF PROCEDURE

FORECLOSURE BID REQUIREMENTS: For judicial foreclosures, a 10% down payment in cash, certified check, or cashier&rsquo;s check is required at the close of auction. A secured lender may bid without down payment as long as its mortgage balance is at least 10% of the amount of the bid. At the confirmation hearing, the auction may be reopened with a bid of at least 5% in excess of the highest bid at auction, at the court&rsquo;s discretion. For power of sale foreclosures, 10% down payment is required at the close of auction.

FORECLOSURE BID REQUIREMENTS

REDEMPTION PERIOD AND PRICE: There is no statutory right of redemption. Prior to foreclosure sale, by case law, the mortgagor has a right of redemption that cannot be waived. Kawauchi v. Tabata, 49 Haw. 160, 170-71, 413 P.2d 221, 227 (1966). See also, In Re Corey, 892 F.2d 829, 832 (1989). As a matter of practice, the right of redemption may be exercised up to the time of auction and possibly up to the time of the confirmation hearing. For commercial mortgage foreclosures, the redemption price will typically include all costs of foreclosure, payoff of the principal in full plus interest while, for a non-commercial mortgage, a court may allow the borrower to avoid the foreclosure if the borrower pays all costs and brings the mortgage current as if there had been no acceleration.

REDEMPTION PERIOD AND PRICE

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD: N/A

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

DEFICIENCIES: Deficiencies can be collected in judicial foreclosures. There is a 10-year period to collect on judgments, which is renewable once for 10 additional years. In power-of-sale foreclosure of residential property, the mortgagee or other person, excluding an association, shall not be entitled to pursue or obtain a deficiency judgment against an owner-occupant unless the debt is secured by other collateral. H.R.S. &sect;&nbsp;667-38. From and after April 30, 2020, a deficient defendant may request a determination of the &ldquo;fair market value&rdquo; of the property at the time of the foreclosure sale so that the deficiency judgment can be based on the greater of the &ldquo;fair market value&rdquo; or the amount of the confirmed sale price. Hawaii USA Fed. Credit Union v. Monalim, 147 Haw. 33, 49, 464 P.3d 821, 837 (2020). Also, laches may be a defense against a motion for deficiency judgment. Id. 464 P.3d at 830&ndash;32 (A deficiency judgment was vacated for consideration on remand of a laches defense where a 4-year unexplained delay in bringing the motion satisfied the first prong of a laches defense, and the defendant raised the argument that delay resulted in prejudice to the defendant for the second prong).

DEFICIENCIES

EFFECT OF FORECLOSURE ON LEASES: Any effect depends on the lease terms, the order of recordation, and the presence of any nondisturbance and attornment agreements. Generally, however, if the mortgagee wishes to terminate the leases by a judicial foreclosure, the lessees should be named as parties to the action. CONDOMINIUM AND HOMEOWNER ASSOCIATION&nbsp;SPECIAL ASSESSMENTS IN A FORECLOSURE:&nbsp;In connection with a foreclosure sale of a delinquent condominium unit or a lot in a planned community development:&nbsp;(a)&nbsp;a&nbsp;condominium association board may specially assess&nbsp;the&nbsp;mortgagee or other purchaser of&nbsp;the&nbsp;delinquent condominium unit&nbsp;an amount up&nbsp;to the unpaid regular monthly common assessments for the six-month period immediately preceding&nbsp;the completion of the foreclosure&nbsp;(defined in H.R.S.&nbsp;&sect; 514B-146);&nbsp;and&nbsp;(b) the board of a planned community association&nbsp;may&nbsp;specially assess a person&nbsp;other than the foreclosing mortgagee&nbsp;who purchases the delinquent unit or who subsequently purchases the unit from the mortgagee who acquired the delinquent unit at the foreclosure sale, an amount equal to the unpaid regular periodic assessments that were assessed during the six months immediately preceding the completion of the foreclosure (defined in H.R.S.&nbsp;&sect; 421J-10.5).&nbsp;

EFFECT OF FORECLOSURE ON LEASES

MORTGAGE SERVICERS: H.R.S. Ch. 454M requires all mortgage servicers to be licensed by the Hawaii Commissioner of Financial Institutions and have a physical presence in the State, as &ldquo;physical presence&rdquo; is defined below. H.R.S. &sect;&nbsp;454M-2. A &ldquo;mortgage servicer&rdquo; means any person responsible for collecting, receiving, and processing any scheduled periodic payments from a borrower pursuant to the terms of any residential mortgage loan, including amounts for escrow accounts under the Real Estate Settlement Procedures Act, and for making payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or a servicing agreement. H.R.S. &sect;&nbsp;454M-1. Servicing also includes making payments to the borrower on a home equity conversion mortgage or a reverse mortgage. H.R.S. &sect;&nbsp;454M-1. The regulators have taken a broad view of the application of the statute and assume that the named lender in any mortgage is a mortgage servicer even if the loan is serviced by a third party. H.R.S. &sect;&nbsp;454M-3 contains exemptions for depository institutions, trust companies, credit unions, insurance companies, financial services loan companies, certain federal government agencies and government sponsored entities such as the Federal National Mortgage Association, and persons making or acquiring contemporaneously no more than 5 residential mortgage loans with the person&rsquo;s own funds for the persons&rsquo; own investment. H.R.S. &sect;&nbsp;454M-5 requires that mortgage servicers that serviced at least 20% of the mortgage loan service market in the State the previous year have an office in Hawaii staffed by at least 1 agent or employee (which is the definition of &ldquo;physical presence&rdquo; pursuant to H.R.S. &sect;&nbsp;454M-5(b)(6)). In addition to the licensing requirement, H.R.S. Ch.&nbsp;454M specifies certain duties and disclosure requirements for servicers as well as periodic reporting requirements, all of which were substantially expanded by Act 62 of Hawaii Session Laws 2015, effective May 28, 2015. In addition, it addresses certain practices and procedures for handling and processing of mortgage payments. By way of example, for all home mortgage loans originated after July 1, 2015, except where inconsistent with federal law, payments are to be credited to the principal and interest due on the home loan before being credited to taxes, insurance or fees. H.R.S. &sect;&nbsp;454M-5(c)(1). H.R.S. &sect; 454M-9 permits a private right of action for borrowers and others for a servicer&rsquo;s violation of the requirements under H.R.S. Ch. 454M, and H.R.S. &sect; 454M-2.5 provides that any foreclosure action taken by non-exempt, unlicensed persons is void. Lastly, H.R.S. &sect;&nbsp;454M-6(b) prohibits a person licensed as a mortgage servicer from providing mortgage loan modification or other services without a license under the secure and fair enforcement for mortgage licensing act. The commissioner may report any state or federal violation to the Consumer Financial Protection Bureau or other federal agency having jurisdiction over the licensee. H.R.S. &sect;&nbsp;454M-8(4). H.R.S. &sect;&nbsp;454M-12 requires a licensed mortgage servicer to apply to the Commissioner for approval of any proposed change of control of the licensee. An individual is presumed to control an entity if that individual is (1)&nbsp;an executive officer of the entity (defined as a president, chairperson of an executive committee, senior officer responsible for the business of the subject entity, chief financial officer, or any other person who performs similar functions related to the subject entity); or (2) a director, general partner, or managing member who directly or indirectly has the right to vote 10% or more of a class of voting securities of the entity or the power to sell or direct the sale of 10% or more of a class of voting securities of the entity.

MORTGAGE SERVICERS

USURY CEILING: Hawaii&rsquo;s usury law restricts interest in 3 types of transactions: (1)&nbsp;consumer credit transactions (credit extended to a natural person primarily for personal, family or household purposes where (a) the principal amount does not exceed $250,000, or (b) such credit is secured by real property or by personal property used or expected to be used as the borrower&rsquo;s principal dwelling); (2)&nbsp;home business loans (a credit transaction (a) where the principal amount does not exceed $250,000, (b)&nbsp;that is not a consumer credit transaction, and (c)&nbsp;which is secured by a mortgage of the principal dwelling of any natural person who is a mortgagor named in the mortgage given as security in connection with the credit transaction); and (3)&nbsp;credit card agreements (any agreement that provides for the extension of credit pursuant to a cardholder&rsquo;s use of a credit card -exclusive of overdraft lines of credit and home equity lines of credit accessed by a credit card). Generally, with respect to consumer credit transactions and home business loans, a creditor may by written contract stipulate for a rate of simple interest not exceeding 1% per month or 12% per year, or, as an alternative, may stipulate for the payment of a finance charge in any form at an annual percentage rate not to exceed 12% together with other charges that are excluded or excludable from determination of finance charge under the Truth in Lending Act. See H.R.S. &sect;&nbsp;478-4. Notwithstanding the foregoing, financial institutions that are regulated by H.R.S. Chapter 412 (exclusive of a trust company or credit union) may charge a rate of simple interest not exceeding 2% per month or 24% per year, or, as an alternative may stipulate for the payment of a finance charge in any form at an annual percentage rate not to exceed 24% together with other charges that are excluded or excludable from determination of finance charge under the Truth in Lending Act. See H.R.S. &sect;&nbsp;478-4. Financial Institutions governed by H.R.S. Chapter 412 include: (1)&nbsp;all Hawaii financial institutions; (2)&nbsp;other persons, including foreign financial institutions, who subject themselves to special provisions of H.R.S. Chapter 412, or who, by violating any of its provisions, become subject to its penalties, and (3)&nbsp;to the extent permitted by federal law, all federal financial institutions transacting business in Hawaii. See H.R.S. &sect;&nbsp;412:1-102. All credit card issuers, wherever located, may not exceed a simple interest numerical periodic rate of 18% per year when extending credit under a credit card agreement with a customer who is a resident of Hawaii. See H.R.S. &sect;&nbsp;478-11.5. Given the limited scope of the usury law, commercial transactions that specify an interest rate in writing generally are exempt. Compound interest cannot be recovered on any consumer credit transaction or upon any credit card agreement.

USURY CEILING

USURY EXEMPTIONS: Usury does not apply to (1)&nbsp;indebtedness secured by first mortgages agreed to or incurred after May 30, 1980, or to (2)&nbsp;indebtedness secured by purchase-money junior mortgages agreed to or incurred after June 18, 1982. For a list of other exemptions, see H.R.S. &sect;&nbsp;478-8.

USURY EXEMPTIONS

LOCATIONS FOR FILING: <table>
 <tbody>
 <tr>
 <td width="271">
 Bureau of Conveyances
 &nbsp;of the State of Hawaii
 P.O. Box 2867
 Honolulu, Hawaii 96803
 &nbsp;
 Office of the Assistant Registrar
 Land Court of the State of Hawaii
 777 Punchbowl Street
 Honolulu, Hawaii 96813
 </td>
 <td width="367">
 For all virtually all filings, including those for fixtures, as extracted collateral, and timber located on Regular System property, but excluding fixtures, as extracted collateral and timber to be cut located on Land Court property.
 &nbsp;
 For fixtures, as extracted collateral and timber located on Land Court property ** (See below)
 </td>
 </tr>
 </tbody>
</table>

LOCATIONS FOR FILING

SECURITY INSTRUMENT USED AS FIXTURE FILING: Formal requirements of the Uniform Commercial Code must be satisfied and must be recorded in the Land Court for Land Court property and the Bureau of Conveyances for Regular System property. See H.R.S. Chapter 490, Article&nbsp;9. H.R.S. &sect;&nbsp;490:9-501 requires real-estate-related filings to be recorded in the appropriate real estate records, but Land Court currently does not accept financing statements for filing unless the financing statement is part of a mortgage. In that case, the title of the mortgage instrument should state it is also a financing statement.

SECURITY INSTRUMENT USED AS FIXTURE FILING

UNUSUAL PROVISIONS: Reference in the note to the guaranty made guarantor a &ldquo;party to the instrument&rdquo; under H.R.S. &sect;&nbsp;490:3&ndash;606(1)(b) [now 490:3-605(e)] and beneficiary of the defense under the note. Hon. Fed. Savings &amp; Loan Ass&rsquo;n v. Murphy, 7 Haw. App. 196, 753 P.2d 807, reconsideration denied, 7 Haw. App. 667, 807 P.2d 53, cert denied 67 Haw. 677 (1988). A married person is generally not liable for the debts of a spouse, nor is a married person&rsquo;s property generally liable to be taken in any collection process against that person&rsquo;s spouse. H.R.S. &sect;&nbsp;572-23. The only exception to the separation of liability for one spouse&rsquo;s debts is if the debt incurred by a spouse was for necessaries for both spouses, for one another or for their family during marriage, in which case both spouses shall be liable for the debt created by a spouse, unless such liability is contrary to a court order for support and maintenance pending divorce. H.R.S. &sect;&nbsp;572-24; see The Queen&rsquo;s Medical Ctr. v. Kagawa, 88 Haw. 489, 967 P.2d 686 (App. 1998), cert. denied, 91 Haw. 124, 980 P.2d 998 (1998). Under Hawai`i law, property held in tenancy by the entirety cannot be used to fulfill the liability of a married guarantor, unless both spouses affirmatively pledge their undivided interest in such property. A tenancy by the entirety must be held exclusively by married spouses or by reciprocal beneficiaries, who alone must possess the mutual right of survivorship. See H.R.S. &sect;&nbsp;509-2 (providing that reciprocal beneficiaries may hold title to property as tenants by the entirety); and see Traders Travel Int&rsquo;l, Inc. v. Howser, 69 Haw. 609, 613, 753 P.2d 244, 246 (1988) (defining a tenancy by the entirety).

UNUSUAL PROVISIONS

SPECIAL PROBLEMS IN ENFORCEMENT: None known.

SPECIAL PROBLEMS IN ENFORCEMENT

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS: See &ldquo;Deficiencies&rdquo; Section above.

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS

STATUTE OF LIMITATIONS PERIOD: 6 years for contracts. See H.R.S. &sect;&nbsp;657-1.

STATUTE OF LIMITATIONS PERIOD

REQUIREMENTS FOR RELEASE OF LIENS: Recordation in the Bureau of Conveyances or filing in the Land Court, or both, of a release of mortgage executed by mortgagee of record is required. See H.R.S. &sect;&nbsp;506-8. It should be noted that: (a)&nbsp;for a loan servicer to record a release, a properly recorded power of attorney executed by the mortgagee of record must first be recorded and (b)&nbsp;a release recorded by an assignee of the mortgage will not be effective unless the assignment of the mortgage has been properly recorded so that the assignee is then the mortgagee of record. The requirements for an assignment of a mortgage and a power of attorney, especially as to Land Court property, are very specific, and issues are encountered rather frequently when proper documentation has not been recorded. Particularly because it can take quite some time to obtain the proper documentation, such as when a prior mortgagee has been the subject of a merger or no longer exists, the failure to record proper assignment and release documentation at the outset exposes the various mortgagees to potential liability the borrower that has satisfied its loan. As of 2017, H.R.S. &sect;&nbsp;506-8 also applies to the reassignment or release of any assignment of leases and rents given to a secure debt upon full satisfaction and discharge of the secured debt.

REQUIREMENTS FOR RELEASE OF LIENS

HOMESTEAD ISSUES: None known.

HOMESTEAD ISSUES

COMMUNITY PROPERTY &ndash; IS THE STATE A COMMUNITY PROPERTY STATE? Not at this time. A community property law existed briefly during 1948.

COMMUNITY PROPERTY &ndash; IS THE STATE A COMMUNITY PROPERTY STATE?

MORTGAGE TAX: H.R.S &sect;&nbsp;431P-16(b) provides for a special mortgage recording fee in an amount equal to 0.10% of the stated principal amount of the debt secured by the mortgage (or the increase thereof). However, by Act 153 (2001 Regular Session), the special mortgage recording fee was suspended as of July&nbsp;1, 2001, and is to remain suspended until reactivated by the Board of the Hurricane Relief Fund. There are recording fees. As of February 27, 2017, Bureau of Conveyances recording fee in the Land Court system is $36 for a document up to and including 50 pages or $101 for a document of 51 pages or more and $41 in the Regular System for a document up to and including 50 pages or 106 for a document of 51 pages or more. In addition, for Land Court Property, $5 for notation on each Transfer Certificate of Title.

MORTGAGE TAX

DOCUMENTARY STAMP TAX: N/A.

DOCUMENTARY STAMP TAX

TRANSFER TAX: Upon foreclosure sale or conveyance in lieu of foreclosure, a conveyance tax is payable. See H.R.S. &sect;&nbsp;247-2. The conveyance tax is based on the actual and full consideration at the following rates: Except for conveyances of a condominium or single family residence for which the purchaser is ineligible for a county homeowner&rsquo;s exemption on property tax: (A)&nbsp;10&cent; per $100 for properties with a value of less than $600,000; (B)&nbsp;20&cent; per $100 for properties with a value of at least $600,000, but less than $1,000,000; (C)&nbsp;30&cent; per $100 for properties with a value of at least $1,000,000, but less than $2,000,000; (D)&nbsp;50&cent; per $100 for properties with a value of at least $2,000,000, but less than $4,000,000; (E)&nbsp;70&cent; per $100 for properties with a value of at least $4,000,000, but less than $6,000,000; (F)&nbsp;90&cent; per $100 for properties with a value of at least $6,000,000, but less than $10,000,000; and (G)&nbsp;$1 per $100 for properties with a value of $10,000,000 or greater. For the sale of a condominium or single family residence for which the purchaser is ineligible for a county homeowner&rsquo;s exemption on property tax: (A)&nbsp;15&cent; per $100 for properties with a value of less than $600,000; (B)&nbsp;25&cent; per $100 for properties with a value of at least $600,000, but less than $1,000,000; (C)&nbsp;40&cent; per $100 for properties with a value of at least $1,000,000, but less than $2,000,000; (D)&nbsp;60&cent; per $100 for properties with a value of at least $2,000,000, but less than $4,000,000; (E)&nbsp;85&cent; per $100 for properties with a value of at least $4,000,000, but less than $6,000,000; (F)&nbsp;$1.10 per $100 for properties with a value of at least $6,000,000, but less than $10,000,000; and (G)&nbsp;$1.25 per $100 for properties with a value of $10,000,000 or greater. Note, as of the date of this writing, Hawaii&rsquo;s Legislature has passed a bill to increase conveyance taxes for properties that are not classified as &ldquo;commercial&rdquo; for County real property tax purposes. The tax classifications between each County in Hawaii may differ. As of the date of this writing, the legislation is currently awaiting the Governor&rsquo;s signature. If signed, the legislation shall take effect on January 1, 2022. Accordingly, practitioners should review H.R.S. &sect; 247 for the current version of the statute.

TRANSFER TAX

ENFORCEABILITY OF AGREEMENT OF BORROWER AND LENDER AS TO CHOICE OF LAW PROVISIONS: As to contracts generally, as long as the parties to a contract have some nexus to the chosen state law, it will be enforced. See Airgo, Inc. v. Horizon Cargo Transport, Inc., 66 Haw. 590, 595, 670 P.2d 1277, 1281 (1983). There are exceptions. For example, matters and contracts concerning title to or alienation and transfer of realty are governed by the law of the place where the land is located. In re Grayco Land Escrow, Ltd., 57 Haw. 436, 450, 559 P.2d 264, 274 (1977). If the parties have not elected the applicable law, Hawaii courts will look to which state would have the strongest interest in seeing its laws applied to the case. Del Monte v. Fireman&rsquo;s Fund Ins. Co., 117 Haw, 357 (2007); Mikelson v. United Services Auto. Ass&rsquo;n., 107 Haw. 192, 198, 111 P.3d 601, 607 (2005). Also, H.R.S. &sect;&nbsp;490:1-301(c) mandates the application of the laws of certain states to determine perfection and priority of a security interest in certain collateral.

ENFORCEABILITY OF AGREEMENT OF BORROWER AND LENDER AS TO CHOICE OF LAW PROVISIONS

RECEIVER AVAILABLE: Yes, see H.R.S. &sect;&nbsp;651-14. However, it should be noted that, notwithstanding any contrary provision in the mortgage, as a practical matter the courts have typically required some demonstration of the need for a receiver. A receiver may be appointed if there is a danger of insufficient security or a fear that the mortgagor is insolvent. See Unna v. Brown, 6 Haw. 676 (1887). A receiver also may be appointed where the security is in jeopardy.

RECEIVER AVAILABLE

ANY PROHIBITIONS OR SPECIAL RULES FOR LOAN APPLICATION, LOAN OR COMMITMENT FEES: If a lender intends to exercise a power of sale foreclosure with respect to a loan where residential property is required to secure such loan, the lender must provide notice to the borrower explaining the mortgagee&rsquo;s option to pursue either judicial or non-judicial foreclosure if the borrower defaults. The notice must be provided within three business days after submission of a written loan application. See&nbsp;HRS &sect; 667-41 for the statutory form of notice. This requirement only applies to written loan applications submitted, or to loans where residential property is required to be used as security, after August 31, 2012. See&nbsp;HRS &sect; 667-41(c).

ANY PROHIBITIONS OR SPECIAL RULES FOR LOAN APPLICATION, LOAN OR COMMITMENT FEES

LENDER QUALIFICATION AND/OR LICENSURE: An out-of-state corporation generally may not &ldquo;transact business&rdquo; in Hawaii until it obtains a certificate of authority from the Director of the Department of Commerce and Consumer Affairs. H.R.S. &sect;&nbsp;414-431(a). Among other exemptions, creating or acquiring indebtedness, mortgages, and security interests in real or personal property and securing or collecting debts or enforcing mortgages and security interests in property do not constitute &ldquo;transacting business.&rdquo; H.R.S. &sect;&nbsp;414-431(b). Generally, mortgage loan originators and lenders making residential loans who are not depository financial institutions or otherwise required to be licensed or chartered under H.R.S. Ch. 412 are required to be licensed under H.R.S. Ch. 454F. The Hawaii Secure and Fair Enforcement for Mortgage Licensing Act. Under H.R.S. Ch.&nbsp;454F, mortgage loan originator companies and mortgage loan originators must be licensed by the Hawaii Division of Financial Institutions and registered with the National Mortgage Licensing System. Under H.R.S. &sect;&nbsp;454F-1, a &ldquo;mortgage loan originator&rdquo; is defined as an individual who (1) for compensation or gain or in the expectation of compensation or gain: (a) takes a residential mortgage loan application; or (b) offers or negotiates terms of a residential mortgage loan. Thus, a developer offering purchase money financing to buyers of residential real estate would need to be licensed under H.R.S. Ch.&nbsp;454F. Effective July 10, 2015, H.R.S. &sect; 454F-2(9) exempts from the term &ldquo;mortgage loan originator&rdquo; a natural person, estate, or trust selling property who provides purchase money financing, subject to various conditions including that the seller provides no more than 3 loans in 1 calendar year. H.R.S. &sect; 454F-25 provides an exemption for employees of a non-profit organization from the registration and licensing requirements of H.R.S. Ch. 454F, if the non-profit organization meets specified requirements. For commercial and consumer mortgage loans entered into prior to January&nbsp;1, 2011, a lender may also fall into the definition of &ldquo;mortgage broker&rdquo; under the repealed H.R.S. &sect;&nbsp;454-1 (&ldquo;a person not exempt under H.R.S. &sect;&nbsp;454-2 who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly makes, negotiates, acquires, or offers to make, negotiate, or acquire a mortgage loan on behalf of a borrower seeking a mortgage loan.&rdquo;). &ldquo;Foreign lenders&rdquo; as defined in H.R.S. Ch. 207 are exempt under H.R.S. &sect;&nbsp;454-2. Prior to January&nbsp;1, 2011, mortgage brokers were required to be licensed by the State of Hawaii, H.R.S. &sect;&nbsp;454-3, and any contract entered into by any person with any unlicensed mortgage broker is void and unenforceable under H.R.S. &sect;&nbsp;454-8. In Beneficial Hawaii, Inc. v. Kida, 96 Haw. 289, 30 P.3d 895 (2001), involving a form of transaction called &ldquo;table funding&rdquo; where the nominal lender on the mortgage and other loan documents was not the actual lender, the Hawaii Supreme Court held that the nominal lender had acted as a mortgage broker because it was not the actual lender and had helped make the loan for the actual lender. Since the unlicensed mortgage broker was the nominal lender and party to the contract, the note and mortgage were void and unenforceable under H.R.S. &sect;&nbsp;454-8. This case complicated financings in Hawaii prior to repeal of H.R.S. Ch. 454 and mortgage loans made prior to January 1, 2011 may still be affected by it.

LENDER QUALIFICATION AND/OR LICENSURE

MODIFICATION - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS. None known.

MODIFICATION - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS

ENVIRONMENTAL LIEN LAW ISSUES. Not applicable.

ENVIRONMENTAL LIEN LAW ISSUES.

LEGAL OPINIONS: The Opinion Committee of the Real Property and Financial Services Section of the&nbsp;Hawai&rsquo;i State Bar Association authored the&nbsp;Hawai&rsquo;i 2000 Report Regarding Lawyers&rsquo; Opinion Letters in Mortgage Loan Transactions&nbsp;(also known as the &ldquo;Hawai&rsquo;i 2000 Report&rdquo;), 22 U. Haw. L. Rev. 347 (2000). The Hawaii 2000 Report was neither considered nor approved by the&nbsp;Hawai&rsquo;i State Bar Association. It is intended to be used as an addendum to the Committee on Legal Opinions of the Section of Business Law of the American Bar Association&rsquo;s&nbsp;Third-Party Legal Opinion Report, Including the&nbsp;Legal Opinion Accord of the Section of Business Law, American Bar Association,&nbsp;47 Bus. Law. 167 (1991) (reprinted in 29 Real Prop. Prob. &amp; Tr. J. 484 (1994)),&nbsp;as modified by the&nbsp;Report on Adaptation of the Legal Opinion Accord of the Section of Business Law of the American Bar Association for Real Estate Secured Transactions of the Section of Real Property, Probate and Trust Law of the American Bar Association and the American College of Real Estate Lawyers (1993),&nbsp;29 Real Prop. Prob. &amp; Tr. J. 569 (1994). Although there have been discussions about updating the&nbsp;Hawai&rsquo;i 2000 Report, it is unknown if and when the update will be approved and published.&nbsp; LABOR AND MATERIALMEN&rsquo;S LIEN CLAIMS &ndash; PRIORITY ISSUES

LEGAL OPINIONS

INCEPTION OF LIEN: Part II of H.R.S. Chapter 507 (Mechanic&rsquo;s and Materialman&rsquo;s Liens) provides: The lien shall relate to and take effect from the time of the visible commencement of operations for the improvement; it shall rank equally in priority subject to the provisos hereinafter contained with all other mechanics&rsquo; and materialmen&rsquo;s liens and shall have priority over all other liens of any nature, except liens in favor of any branch of the government and mortgages, liens or judgments recorded or filed prior to the time of the visible commencement of operation; provided that all liens for wages for labor performed in the completion of the improvement, but not exceeding $300 for each claimant, shall have priority as a class over all other mechanics&rsquo; and materialmen&rsquo;s liens where claims are filed by: (1)&nbsp;The person who actually performed the labor; (2)&nbsp;The person&rsquo;s legal representative in the event of death or incapacity, or (3)&nbsp;The director of labor and industrial relations pursuant to chapter 371; and provided further that where a mortgage is recorded prior to the date of completion, and all or a portion of the money advanced under and secured by the mortgage is thereafter used for the purpose of paying for the improvement, the mortgagee shall be entitled, to the extent of the payments, to priority over liens of mechanics and materialmen, but no such priority shall be allowed unless the mortgage recites that the purpose of the mortgage is to secure the moneys advanced for the purpose of paying for the improvement in whole or in part. Payments made in good faith to the general contractor for such purposes shall be presumed to have been used for the purpose of paying for the improvement. Whenever the lien or claim of lien herein provided is satisfied (other than by the limitations expressed in section 507-43), a written notice thereof shall, at the expense of the lienee, be filed with the clerk of the circuit court, which shall be noted in the mechanics&rsquo; lien record, and if title to the land involved is registered in the land court and the lien did not attach solely to the interest of the lessee in one or more leasehold time share interests, it shall also be filed in the office of the assistant registrar of the court. H.R.S. &sect;&nbsp;507-46. See also, Strouss v. Simmons, 66 Haw. 32, 657 P.2d 1004 (1982). &ldquo;Visible commencement of operations&rdquo; is defined by statute as follows: [T]he first actual work of improvement as part of a continuous operation, or the first delivery to the site of materials to be used as part of a continuous operation in the improvement, of such manifest and substantial character as to notify interested persons that the real property is being improved or is about to be improved. H.R.S. &sect;&nbsp;507-41. The following is a sampling of events that may be considered &ldquo;visible commencement of operations&rdquo;: Building materials deposited on the property or on adjoining property or streets, if for use on the property in question; Foundation staking; Test hole boring or excavations; Grading or fill deposits; Surveying monuments; Building equipment or contractor&rsquo;s trailer or outhouse on the land; Buildings removed or razed; Clearing the site of weeds, trees, shrubs, etc.; Installation of pipes or erection of power poles or meters; Interior remodeling, additions, repairs or alterations to existing improvements. Notwithstanding this list of events, title insurers have lately considered the execution of a construction contract for the improvement of the real property to at least trigger review as to whether visible commencement of operations exists. It should be noted that when a lease, contract of sale, or instrument creating a life tenancy requires the improvement of the real property, the interest of the lessor, vendor or remainderman in the improvement and the land upon which it is situated is also subject to the lien. Moreover, any person or association of persons furnishing labor or material in the improvement of real property shall have a lien upon the improvement as well as upon the interest of the owner of the improvement in the real property upon which the same is situated, or for the benefit of which the same was constructed, for the price agreed to be paid (if the price does not exceed the value of the labor and materials), or if the price exceeds the value thereof or if no price is agreed upon by the contracting parties, for the fair and reasonable value of all labor and materials covered by their contract, express or implied. H.R.S. &sect;&nbsp;507-42.

INCEPTION OF LIEN

PRIORITY AS TO REMOVABLE FIXTURES: Under the mechanic&rsquo;s lien law, a lien for removable fixtures included within the improvement of the property is treated the same as a lien for any other portion of the improvement.

PRIORITY AS TO REMOVABLE FIXTURES

FORM USUALLY REQUIRED BY LENDER: Generally, an ALTA Extended Loan Policy with ALTA Endorsement Form&nbsp;1 Coverage is the minimum coverage required by lenders.

FORM USUALLY REQUIRED BY LENDER

ENDORSEMENTS AVAILABLE: Generally, ALTA forms and many CLTA forms are used. Commonly requested endorsements include:

ENDORSEMENTS AVAILABLE

CC&amp;R - coverage against loss by reason of present or future violations of covenants, conditions and restrictions, by reason of the encroachment of improvements;

CC&amp;R

Minerals - coverage against loss by reason of surface entry for mineral development; Water &ndash; coverage against loss by reason of surface entry for extraction of water;

Minerals

Encroachment - coverage against loss by reason of a court order or judgment requiring removal of any encroachment;

Encroachment

Mechanics&rsquo; Liens - coverage against loss or damage by reason of the establishment of priority over the lien of the insured mortgage of any statutory lien for labor or material;

Mechanics&rsquo; Liens

Variable Rate Mortgage - coverage against loss by reason of (1)&nbsp;invalidity or unenforceability of the insured mortgage resulting from terms therein providing for changes in the rate of interest, or (2)&nbsp;loss of priority of the insured mortgage caused by the changes in the interest rate;

Variable Rate Mortgage

Assignment of Mortgage - coverage against loss or damage by reason of any error in the assurance that an assigned mortgage has been assigned to the insured, that the assignment is a valid assignment and that there is no release or modification of the mortgage of record;

Assignment of Mortgage

Future Advance/Revolving Loans - assurance that advances made subsequent to the date of the policy pursuant to the agreement and that are secured by the insured mortgage shall be included within the coverage of the policy;

Future Advance/Revolving Loans

Amendment of Mortgage - coverage against loss or damage by reason of any error in the assurance that the mortgage has not been modified and is prior to any liens or encumbrances, except those shown in the policy and any endorsement;

Amendment of Mortgage

Environmental Protection Lien - coverage against loss or damage by reason of lack of priority of the insured mortgage over federal or state environmental protection liens;

Environmental Protection Lien

Leasehold Improvements - provides that the value of the lessee&rsquo;s interest in improvements, even though cast as personal property in the lease, will be included as an element of loss otherwise insured against under the leasehold policy;

Leasehold Improvements

Location/Address - provides assurance concerning the street address of designated improvements on the land and the sufficiency of the policy plat to show the record location of the land;

Location/Address

Foundation Encroachment - provides insured lender with assurance that the foundations of the structure under construction are within the land&rsquo;s boundaries and that their location does not violate referenced covenants, conditions, and restrictions or encroach upon referenced easements;

Foundation Encroachment

Maintenance of Specified Easement - coverage against loss by reason of the exercise, by an easement holder, of the right to use, or claims for maintenance of, a referenced easement;

Maintenance of Specified Easement

Removal of Improvements Located on Easement - coverage against loss by reason of the forced removal of improvements that encroach upon an easement;

Removal of Improvements Located on Easement

Condominium - &ldquo;comprehensive&rdquo; coverage against loss concerning statutory compliance, violations of CC&amp;Rs, condominium association charges &amp; assessments, real property tax assessments, encroachments, and exercise of preemptive rights of first refusal to purchase;

Condominium

Planned Unit Development - &ldquo;comprehensive&rdquo; coverage against loss concerning violations of CC&amp;Rs, homeowner association charges &amp; assessments, encroachments, and exercise of preemptive options or rights of first refusal to purchase;

Planned Unit Development

Condominium Address - provides assurance concerning the street address of designated separately-owned elements comprising part of the insured condominium, and with respect to the sufficiency of the referenced condominium map to show the correct exterior boundary of the condominium project.

Condominium Address

Physical Access &ndash; insures against loss due to failure of land to abut upon specified physically open street.

Physical Access

Assignment of Rents &ndash; insures against loss due to existence of recorded assignment of rents having priority over assignment of rents clauses in mortgage.

Assignment of Rents

Subdivision &ndash; insures against loss due to land not being a subdivided lot in compliance with applicable subdivision laws.

Subdivision

Zoning &ndash; insures against loss due to incorrectness in specified zoning classification or list of permitted uses.

Zoning

Survey &ndash; insures against loss due to land not being the same as shown on a specified survey.

Hawaii

Mortgage Law Summary

Continue reading the
Mortgage Law Summary for Hawaii

Hawaii

Mortgage Law Summary

Continue reading theMortgage Law Summary for Hawaii

Continue reading the
Mortgage Law Summary for Hawaii