HOUSE OF REPRESENTATIVES	H.B. NO.	1957
TWENTY-NINTH LEGISLATURE, 2018
STATE OF HAWAII

A BILL FOR AN ACT

 

 

relating to mortgage foreclosures.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 

     SECTION 1.  The legislature finds that the Report of the Permanent Editorial Board for the Uniform Commercial Code regarding the Application of the Uniform Commercial Code to Selected Issues Relating to Mortgage Notes, dated November 14, 2011, notes on page 12, footnote 43, that:

Moreover, even if the holder [of a mortgage note] had an attached security interest in the note and, thus, had a security interest in the mortgage, this would not, of itself, mean that the holder could enforce the mortgage without a recordable assignment of the mortgage to the holder.  Whatever steps are required in order to enforce a mortgage in the absence of a recordable assignment are the province of real property law.

     Furthermore, the report states on page 13 that section 9‑203(g) of the Uniform Commercial Code, regarding the attachment of a security interest, does not determine "the effect of recordation or non-recordation in the real property recording system on enforcement of the mortgage."  The report also notes on page 13, footnote 46, that the article on secured transactions "does not determine who has the power to release a mortgage of record.  That issue is determined by real-property law."

     Nonetheless, in a recent ruling of the Hawaii intermediate court of appeals in Bank of New York Mellon v. Rumbawa, CAAP-15-0000024 (Haw. App. Feb. 4, 2016), dealing with mortgage foreclosure by action, the court ignored the province of real property law, including the issue of a recordable assignment of the mortgage to the holder, as well as the law on secured transactions from the Uniform Commercial Code.  Instead, the court looked only to the law on negotiable instruments and held in part that, in order to enforce a note and mortgage under Hawaii law, it is sufficient to merely show that the creditor is in possession of the note.  Moreover, the court stated that a creditor is not required to prove the validity of every transfer in the chain of title before the creditor may foreclose on a property.

     The purpose of this Act is to override the ruling in Bank of New York Mellon v. Rumbawa by prohibiting a person who is entitled to enforce a mortgage note as a negotiable instrument from also foreclosing on the property in a foreclosure by action unless the person is the owner, as opposed to a holder, of the mortgage note.

     SECTION 2.  Chapter 667, Hawaii Revised Statutes, is amended by adding a new section to part IA to be appropriately designated and to read as follows:

     "§667-     Action on a mortgage note that is a negotiable instrument; owner of the mortgage note.  (a)  No person who is entitled to enforce a mortgage note as a negotiable instrument under section 490:3-301 may bring a foreclosure by action to enforce the mortgage and foreclose on a property unless the person establishes that the person is the owner of the mortgage note.

     (b)  No person shall be deemed the owner of the mortgage note unless the person:

     (1)  Proves the validity of every transfer in the chain of title from the original creditor; and

     (2)  Holds an assignment of the mortgage that has been duly registered in the land court pursuant to chapter 501 or recorded in the bureau of conveyances pursuant to chapter 502, as the case may be.

     (c)  Proof that the person is the holder of the mortgage note shall not by itself constitute proof that the person is also the owner of the mortgage note.

     (d)  In case of a conflict between this section and section 490:3-301, 490:9-203(g), or 490:9-308(e), or any other provision of chapter 490, this section shall prevail."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

 

INTRODUCED BY:	_____________________________

 

 

Report Title:

Foreclosure by Action; Negotiable Instruments; Secured Transactions

 

Description:

Prohibits a person who is entitled enforce a mortgage note as a negotiable instrument from also foreclosing on the property in a foreclosure by action unless the person is the owner, as opposed to a holder, of the mortgage note.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.