Hawaii law provides some protections so that homeowners facing foreclosure or struggling to make mortgage payments don't get scammed by foreclosure consultants. But the protections only go so far, you need to be hypervigilant if you are seeking help with a foreclosure, mortgage modification, forbearance, and the like.
Foreclosure consultants often claim they can save a home from foreclosure, for a price. Unfortunately, many homeowners have been duped by unscrupulous foreclosure consultants and end up losing not only the money paid to the consultant, but, in some cases, also their home.
In an effort to prevent foreclosure consultants from taking advantage of desperate homeowners, Hawaii passed the Mortgage Rescue Fraud Prevention Act (“MRFPA”). Read on to learn more about the MRFPA and how it can help stop foreclosure consultants from preying on you if you're facing foreclosure in Hawaii.
(To find out about common ways that some foreclosure consultants exploit homeowners in foreclosure, see our Foreclosure Rescue Scams topic area.)
What Is a Foreclosure Consultant?
The MRFPA applies to “distressed property consultants” (more commonly known as foreclosure consultants). It defines this type of consultant as any person who performs or makes any solicitation, representation, or offer to perform services such as:
- stopping or postponing a foreclosure sale
- eliminating liens for the nonpayment of any taxes, lease assessments, association fees, or maintenance fees
- obtaining a forbearance from a lender
- helping the homeowner to cure a mortgage default
- obtaining an extension of the time period within which the homeowner may reinstate the loan (that is, catch up on past-due payments)
- repairing bad credit due to a foreclosure, and/or
- obtaining a waiver of an acceleration clause contained in any promissory note or mortgage contract (Haw. Rev. Stat. § 480E-2).
Purpose of the MRFPA
Foreclosure consultants sometimes take upfront fees to assist homeowners in foreclosure, are not clear about what services they will perform, and then either disappear or do very little to earn the fee. The purpose of the MRFPA, which went into effect in 2008, is to protect vulnerable homeowners who are in distressed financial situations from dishonest foreclosure consultants.
The MRFPA requires foreclosure consultants to fully and completely describe their services in writing, prohibits foreclosure consultants from taking advance fees, and bans certain actions and misleading claims. Below are the details.
Contracts Must Be in Writing
If you hire a foreclosure consultant, there must be a written contract that spells out exactly what services the consultant will perform. In addition, the contract must fully disclose:
- all terms of the agreement (including the total amount due)
- the name, street address, and telephone number of the consultant, and
- the name and address to which the homeowner can deliver a notice to cancel the contract (Haw. Rev. Stat. § 480E-3(a),(b)).
The contract is not effective until all parties have signed it (Haw. Rev. Stat. § 480E-3(e)).
Right to Cancel the Contract
You can cancel a contract with a foreclosure consultant at any time (without any penalty or obligation) before the consultant has fully performed each and every service promised (Haw. Rev. Stat. § 480E-5(a)).
To cancel, you must mail or deliver a signed and dated copy of the notice of cancellation (which the consultant must provide to you along with the contract) to the address specified in the contract (Haw. Rev. Stat. § 480E-4(b), § 480E-5(b)).
Advance Fees Are Prohibited
Under the MRFPA, foreclosure consultants are not allowed to collect any fees until they have fully performed each and every service promised (Haw. Rev. Stat. § 480E-10(a)(6)).
Foreclosure consultants sometimes misrepresent their services or the results they can obtain to convince a homeowner to sign up with them. The MRFPA prohibits foreclosure consultants from (among other things):
- misrepresenting or concealing any material fact
- convincing or attempting to convince a distressed homeowner to waive any of the MRFPA protections, and
- making any promise or guarantee not fully disclosed in the contract (Haw. Rev. Stat. § 480E-10).
Limitations on Fees
Hawaii law also limits the fees that foreclosure consultants can charge and how they may secure payment of the fees. Under the MRFPA, foreclosure consultants cannot charge a fee that exceeds:
- the two most recent monthly mortgage installments (principal and interest) on the first mortgage, or
- the most recent annual real property taxes charged, whichever is less (Haw. Rev. Stat. § 480E-10).
They also cannot take or ask for:
- a wage assignment
- a lien of any type on real or personal property, or
- other security to ensure payment (Haw. Rev. Stat. § 480E-10).
Conveyances and Leases of Distressed Properties
The MRFPA also provides certain rights to homeowners who agree to transfer the ownership of their home or lease their home through a foreclosure consultant. For example:
- the contract must be in writing (Haw. Rev. Stat. § 480E-6, § 480E-9), and
- the homeowner may cancel an agreement to convey the property within 15 business days after signing the contract (Haw. Rev. Stat. § 480E-7, § 480E-8).
Out-of-State Attorneys Must Comply With Requirements
As originally enacted, licensed attorneys were exempt from the MRFPA. This opened the door to out-of-state attorneys to act as foreclosure consultants to Hawaii homeowners. However, it was difficult for state regulators to pursue out-of-state attorneys accused of defrauding Hawaii homeowners in foreclosure rescue scams.
To remedy this, Hawaii’s governor signed House Bill 2275 (Act 26), on April 23, 2014, which specifies that attorneys must be licensed by and engaged in the practice of law in Hawaii to be excepted from the requirements of the MRFPA. Out-of-state attorneys must comply with the requirements of the MRFPA.
If a foreclosure consultant in Hawaii that isn't complying with the MRFPA, this is a red flag that he or she is a scammer. Go elsewhere. (But even if a foreclosure consultant is in compliance with the MRFPA, that doesn't necessarily mean he or she's not scamming you.)
To protect yourself, avoid foreclosure consultants that:
- guarantee they can stop the foreclosure process (no matter what your circumstances are)
- tell you to cut off contact with your lender, attorney, or HUD-approved housing counselor
- insist that you pay a fee before they provide any services
- recommend that you quit making your mortgage payments (and instead make your mortgage payments directly to the foreclosure consultant rather than the lender), and/or
- pressure you to sign a contract before you've read it thoroughly or asked enough questions to fully understand what you’re agreeing to.
If you believe you are the victim of a scammer foreclosure consultant, you can file a complaint with the Hawaii Office of Consumer Protection.
How to Obtain Free Foreclosure Help
In Hawaii, you can get free advice about foreclosure from a certified housing counseling agency. To find a certified Hawaii housing counselor, go to the Hawaii Foreclosure Information Center’s website and click on “Homeowner Options.”
For More Information About the MRFPA
To read the text of Hawaii’s Mortgage Rescue Fraud Prevention Act, go to Chapter 480E of the Hawaii Revised Statutes.