Isle foreclosures
drop 47 percent as
conditions improve

Homeowners and banks are
opting for cheaper alternatives,
one attorney says

The numbers

---

By Tim Ruel
truel@starbulletin.com

Completed foreclosures in Hawaii dropped by nearly half during the first 11 months of 2001, the result of better relations between lenders, real estate agencies and debtors, as well as improvement in some sectors of the state's economy a year earlier.

State figures show that 953 foreclosure cases were closed in January through November, a 47 percent drop from 1,811 during the same period in 2000 and a 9 percent drop from the 1,045 cases in 1999. The numbers account for both in-court and out-of-court foreclosures.

Increasingly, banks and homeowners are opting for cheaper, easier alternatives to foreclosure, said Wayne Mau, a Honolulu bankruptcy and foreclosure attorney. Owners can hand the property over to the bank, a move known as a deed in lieu of foreclosure, or sell the home for less than the value of the mortgage, then negotiate the difference with the bank, which is known as a short sale.

In the past, when Hawaii's land values were skyrocketing, banks wanted property and would use only foreclosure, Mau said.

But when the real-estate bubble burst in 1991, the banks were stuck with a lot of devalued property. Lenders began adopting more sophisticated ways of working with debtors, and eventually, local Realtors caught on as well, Mau said.

"I think the banks are trying to be cost-conscious, and they also are trying to screen the situations by determining whether the people that are in trouble have the ability to repay loan amounts," he said.

If a homeowner has solid financial backing, it makes more sense for the bank to renegotiate the mortgage payments than to take the property back, Mau said.

Completed foreclosures are also an indicator of past economic activity, since they can take several months to a year to close.

In 2000, completed foreclosures spiked 70 percent from 1999 partly because of sagging real-estate prices in Leeward Oahu, which had many homeowners stuck between a rock and a hard place.

The owners were paying more on their mortgage than what their home was worth. They did not want to sell, because they would lose money. Ultimately, many owners turned the keys in to the bank.

Making the process easier was the increasing popularity of out-of-court foreclosures, which essentially strip lenders of their legal ability to collect if the sale of a home does not repay a loan. This leaves consumers with a simple, cheaper alternative to going to court.

In 2001, some economic signs were looking better.

The median resale price of homes in Leeward Oahu rose 4.3 percent to $230,000 in the first 11 months of 2001 from $220,500 during the same period in 2000, according to the Honolulu Board of Realtors. The median Leeward condominium price jumped 10.6 percent to $88,500 from $80,000.

Initial in-court foreclosure filings statewide fell about 12 percent during the first 11 months of 2001 to 1,777 filings from 2,017 in 2000, according to the state Judiciary.

Initial filings peaked in 1998 at 3,626 for all 12 months. The popularity of out-of-court foreclosure partly explains the decline in the in-court numbers. A measure of initial out-of-court foreclosure actions was not available.

It is hard to predict where the trend will go next, Mau said. Lower interest rates should encourage more homeowners to refinance their mortgages at better terms, but banks are willing to do that only with consumes in a steady financial situation, Mau said.

The post-Sept. 11 downturn would probably increase foreclosure numbers nationally, even with interest rates so low, because companies have laid off a lot of people, said Honolulu attorney Derek Wong.

"Hawaii would suffer its share," Wong said.

|

Statewide foreclosures Completed foreclosures in Hawaii for the first 11 months of the year: Year Foreclosures Change from previous year 2001 953 -47% 2000 1,811 +73%