A survey published in February 2012 by three consumer-protection groups shows that “mortgage servicers continue to initiate foreclosure proceedings improperly, either while a homeowner is awaiting a loan modification or due to improper fees or payment processing.”  The three groups are the National Association of Consumer Advocates (NACA), the National Consumer Law Center (NCLC), and the National Association of Consumer Bankruptcy Attorneys (NACBA).

Unfortunately, the results of this survey are consistent with what we find here in Hawaii – many homeowners are trying desperately to obtain loan modifications or stay current on their payments, and are finding that the loan servicers completely ignore such attempts while pursuing foreclosure, forcing such homeowners to seek protection by filing bankruptcy.  The results show that about 85% of the attorneys representing homeowners awaiting loan modifications under HAMP see foreclosures occurring during that time.

While Act 48 temporarily stopped many foreclosures in Hawaii, most of the servicers have converted their foreclosure processing into judicial foreclosures, sidestepping the remedies set up by the legislature in Act 48 and continuing to reflect the problems with the dual-track system of pursuing loan modification discussions and foreclosure processing simultaneously.

Many of our clients are using Chapter 13 bankruptcy to stop foreclosure and ensure that sufficient time is allowed for their loan modification applications to be processed.   A stepped Chapter 13 plan can often provide the time necessary for a homeowner to get a real chance at having the loan modification application considered properly, and can also provide a means for the homeowner to catch up on arrears over a five year timeframe.

We are working on awareness of this issue on a state and national level so that policymakers may address this along with other problems plaguing our housing market.