By Deborah Goonan, Independent American Communities
Is the tide turning against nonjudicial foreclosure of HOA or condominium association liens?
Real estate investors and condominium associations throughout Hawaii are reeling after U.S. District Court Judge Leslie Kobayashi published a decision that nonjudicial foreclosure of condominium assessment liens were illegal under state law.
During the recent mortgage crisis and economic slump, some attorneys for condo associations interpreted the Aloha State’s law to allow a streamlined process for foreclosing on assessment liens. The nonjudicial process does not require review or approval of a Judge.
Critics point to evidence that many condo associations used the nonjudicial foreclosure process to exploit condo owners by moving quickly to auction off their units in order to collect on unpaid assessments, plus substantial collection costs and attorney fees. Quite often, units were sold by the condo association without proper notice, for a fraction of market value, even when unpaid assessment balances were relatively low.
Condo foreclosures, while purportedly intended to reimburse associations for unpaid assessments, had the consequence of providing a windfall for investors (sometimes the association itself), leaving condo owners homeless, and, in many cases, on the hook for the unpaid mortgage.
Numerous complaints have led to a class action lawsuit in Hawaii, involving 160 individual former condo owners, as explained in an earlier blog. That class action case remains pending before Kobayashi.
Kobayashi’s most recent ruling appears to favor former condo owners represented in that pending class action suit, according to Attorney Steven K.S. Chung, with the firm of Imanaka Asato.
The streamlined nonjudicial foreclosure process used by at least 70 condo associations, according to Chung and Kobayashi, is reserved for use by mortgage holders, and only if the mortgage contains a “power of sale” clause. Because mandatory condominium associations are not mortgage lenders, Hawaii law requires a different, more stringent foreclosure procedure that includes important consumer protections, such as ample notice of intent to foreclose the assessment lien.
The full implications of Kobayashi’s ruling remain to be seen, but plenty of condo associations, certain condo foreclosure attorneys, and investors holding onto condos acquired through nonjudicial foreclosure are understandably worried about the possibility of losing potentially hundreds of wrongful foreclosure lawsuits.
Ian Lind: Why Condo Associations Are Sweating After A Judge’s Ruling
Civil Beat (Honolulu)
Improper foreclosure procedures were sometimes used, a federal judge found, and the stakes could be staggeringly high.
By Ian Lind / April 12, 2017
It’s probably going to take years to unravel the legal and financial uncertainty now facing condominium associations and law firms that used nonjudicial foreclosures — private sales without supervision by courts — to collect unpaid maintenance fees or other assessments prior to 2012.
That’s the best guess after the recent ruling by a federal judge in Honolulu that condominium associations were not legally eligible to use the streamlined, nonjudicial foreclosure process that allowed properties to be sold at auction with minimal notice to — or procedural protections for — the unit owners.
In a 57-page ruling filed March 30, U.S. District Court Judge Leslie Kobayashi concluded condominium associations did not have the power under Hawaii law to pursue quick, nonjudicial foreclosures under Part I of the state’s foreclosure law, which gave special rights to lenders whose mortgage contracts include a “power of sale” clause.
Most, but not all, of the condominium associations that pursued nonjudicial foreclosures were represented by one of two law firms: Porter, McGuire, Kiakona & Chow, or Ekimoto & Morris. It’s hard to predict at this stage what the cases will eventually mean for those firms, but it’s undoubtedly going to be painful.
Heated discussion forum at HOATalk
Recent court ruling could mean millions for evicted condo owners (Hawaii News Now – Video)