Among the many state systems governing foreclosure in this country, Hawaii has particularly draconian -- and nonjudicial -- process. It's based on a law that dates back to 1874, a statute that was a key mechanism used to take land away from native Hawaiians and whose history is riddled with fraud. Although Hawaiian law also allows for judicial foreclosures, the nonjudicial process -- when no judge is involved in the proceeding -- is much more commonly used.

But for those suffering under Hawaii's foreclosure system, the question is: Can there be any relief?

Suzanne Bonds is a Hawaii resident who was unbelievably exploited by the state's foreclosure process in 2004, but all her efforts to challenge what happened were rejected by Hawaii's courts. Now, her attorneys have asked the U.S. Supreme Court to intervene. Given the massive foreclosure tide swamping the nation, and the fact that the judiciary is regularly confronting fraud even in states where a judicial process is required for a lender to take a person's home, a hard look at the fairness of systems in the less-protective nonjudicial foreclosure states is crucial.

Bonds's petition was submitted on Jan. 22, 2011, and the other side has 30 days to file a brief urging the high court not to take the case. Gary Victor Dubin, Bonds's lawyer, doesn't expect the court to decide until late March whether or not it will take the case. If it does, a decision on the merits could be a year after that.

(Note: Unless otherwise linked, the information discussed below is drawn solely from the petition. No response brief has yet been filed.)

Hawaii's Foreclosure Statute in Action

Bonds was in her early 70s in 1998, when she inherited her Hawaii home from her husband. In 2001, she took out a mortgage with Ameriquest Home Mortgage, a notoriously predatory lender. By early 2004, Bonds was 78 and in terrible shape: Physically and mentally ill, she suffered from "heart failure, dementia and advanced state of senility, and psychotic and bipolar disorders" according to her physicians.

Nonetheless in May, 2004 she was sent a letter saying that her property had been sold at public auction a month earlier. In her condition, she took no action until a concerned "care-giving church official" reviewed the letter and helped her get a lawyer. To add insult to injury, the bank sold the property for $634,900, a price at best half of what it was worth, meaning that the purchaser made an immediate and massive profit, while Bonds was stripped of substantial equity.

Not coincidentally, the buyers of Bonds's home have made such purchases before: They seem to have a business model based in part on buying auctioned Hawaii properties for much less than they're worth. At the time, Hawaii's foreclosure law required purchasers to arrive at the auction with 100% of the purchase price, which made mortgage financing impossible. That tends to limit competitive bidding: Not many people or companies can come up with $600,000 cash on short notice.

This 100% down problem was theoretically fixed by a statute allowing buyers to pay 10% at auction. However, as interpreted by the federal court, the "fix" allows the auctioning lender to require the balance in 30 days or less, which again makes obtaining mortgage financing almost impossible. As a result, Dubin explained, foreclosure sales function as before, with little competition.

Making matters worse for Bonds, the auction notice for her house seemed screwy, suggesting that not all the potential competition was made aware of the impending sale. The brief says the property was listed with "a material misdescription, in virtually unreadable, blurred type."

Can't Challenge the Foreclosures

Bonds tried to challenge the foreclosure on many grounds: Her original mortgage violated the federal Truth in Lending Act (not surprising for an Ameriquest mortgage). The bank breached the mortgage contract because she never received the foreclosure notice it required. And, given her health, she was entitled to, but didn't get, protections under the federal and Hawaiian versions of the Americans with Disabilities Act.

All her efforts -- and her lawyers took the case to Hawaii's Supreme Court -- failed. Once title was transferred, the courts decided, nothing could be done. It didn't matter that the title was transferred before Bonds had a clue that a sale was scheduled, much less completed. It didn't matter that Bonds had a variety of state and federal claims arising from the mortgage and the foreclosure. Once the title had been transferred, it became too late. When the deed was done, the deed was done.

So her lawyers have filed a petition with the U.S. Supreme Court, asking it to decide whether or not Hawaii's nonjudicial foreclosure statute violated Bonds's due process rights and the Constitution's supremacy clause. The supremacy clause claim arises because the federal consumer protection laws her mortgage violated are in effect being trumped by the state foreclosure law.

How Much of the Foreclosure Is the State's Fault?

If the test of due process were purely fundamental fairness, then Bonds would surely win. But it's not: The Constitution only requires government to be fundamentally fair. Private citizens can exploit and cheat each other with impunity. So the big question raised by Bonds case is this: Does the state, whether Hawaii or the federal government, play a sufficiently large role in this story for the foreclosure to be considered "state action"?

The petition defines the "question presented" as a narrow view of state action: Is it state action to interpret state law to uphold a foreclosure when the borrower had no idea the foreclosure was occurring, and had valid, but as yet unlitigated, state and federal claims against the lender? The state actor in that case would be the Hawaii court system. However, the brief also offers a federal basis for finding state action: Fannie Mae's and Freddie Mac's role in mortgages and foreclosures.

The petition asserts that the way Hawaii mortgages are written, and the way foreclosures in Hawaii are conducted, is largely dictated by Fannie and Freddie, two government-sponsored enterprises. For example, most mortgages are made in forms Fannie and Freddie created, and both have instructed lenders to use nonjudicial foreclosures to save money, even though judicial foreclosures, with their attendant protections, are allowed under Hawaii law.

A Chance to Draw Boundaries

The Supreme Court ought to agree to hear this case. The abuses in the foreclosure fraud and mortgage mess playing out across the country are at their worst in nonjudicial foreclosure states. The Bonds case is an opportunity for the justices to lay down some basic boundaries of fairness in the foreclosure system. Moreover, it's an opportunity for the court to clarify its muddled state action doctrine, an opportunity the justices might appreciate.

And as Dubin explained to me, " The odds of Supreme Court review would greatly improve if other serious practitioners defending against nonjudicial foreclosures nationwide would seek leave of of court now to file amicus briefs in support, describing their clients' own contractual and due process violations and urging review."

Of course, if the court takes the case and finds there was no state action involved, ratifying what happened to Bonds, that would be a disaster for homeowners. But if it finds state action by the Hawaii court system, that will be great for borrowers in Hawaii, and potentially helpful elsewhere, depending on the court's reasoning.

However, if it finds state action through Fannie and Freddie, that would be most helpful of all, immediately giving borrowers a crucial precedent to challenge nonjudicial foreclosure procedures in California, Texas and 25 other "nonjudicial" states. That's a lot of Americans waiting to see how this case will play out.

Increase your money and finance knowledge from home

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

Economics 101

Intro to economics. But fun.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:
Charlie McPoyle

It seems that no state or place is immune to the real estate fluster that has been occurring in the United States. I feel that Hawaii would have a major problem with house market because the homes are over valued due to the location. I hope this will be cleared up and those people that are trouble financially will be helped.

April 09 2014 at 6:24 PM Report abuse rate up rate down Reply

It really does not matter too much how many Flaws there are in the documents. Eventually every home in the Foreclosure process will be properly traced back to the rightful Mortgage company or bank that legally holds the lien against the property and a complete paper trail will eventually be established. So regardless of which company 'legally' owns each property______they will all still eventually be foreclosed upon when the payments have not been made and once the courts can be satisfied the flawed documents are back in order.

February 07 2011 at 3:29 AM Report abuse rate up rate down Reply
1 reply to sgentilejr's comment

And what about those cases where the mortgages are *not* "tarced back to the rightful Mortgage company or bank?"

Such as those cases where tow or more lenders claim the property?

Cases such as when the mortgagee *has* been paying he full required monthly amounts?

Such as those cases where the home-owner paid for the property with in full, rather than with a mortgage?

And from the tone of your missive, you attitude is that, no matter what the errors and frauds perpetrated by the mortgage companies and banks you feel that there should be no penalty to *them,* just penalties to the homeowner.

February 21 2011 at 9:05 AM Report abuse rate up rate down Reply

OK, OK there are abuses taking place in the mortgage industry_____but after all is said and done_____No one can remain living in a home they are not paying for.
Real estate property taxes are a big part of all mortgage payments____and towns all over the USA need the payments to be made on time so those towns collect the taxes they need to pay for the schools, police and other services provided by the towns.
When the real estate taxes are not being paid___Everyone else living in the community is being cheated and forced to pay the costs for all those people who are paying nothing. So even if the banks do not foreclose or could be delayed for years in the foreclosure process__ the towns will still be placing those properties up for tax sale auction to recover the back taxes, interest and late charges that are still due. There a re NO Free Rides.
The writer Abigale Field is looking at the issue from one side only. Let's look at it from the other side just once. Lets say I buy a home with little or no money down_____ then for whatever reason I cannot afford to make the FULL payments on time.
Now let's say the full mortgage payment is $1,800 per month______do they pay $900 or $800 or $500 or whatever per month instead? Hell no, they have been paying nothing in many cases and yet still keeping a roof over their heads for free for one year or longer without paying one dime in most cases.

February 07 2011 at 3:15 AM Report abuse rate up rate down Reply

Many investment companies do make huge profits off the unfortunate people who fall behind in paying their taxes and mortgages. There should be more protection for the property owners against predator lenders and investors. There should be a reasonable cap on the amount of interest that a property owner must repay on a tax sale. People can pay nearly nothing on delinquent taxes and take possession of someone's property. The property owner must pay this person back with as much as 30% interest added if they want to reclaim their property. This is legal exploitation to the max.

February 06 2011 at 4:56 PM Report abuse rate up rate down Reply
marta renna

look hehre! you will bee shoocked!

February 06 2011 at 10:42 AM Report abuse +1 rate up rate down Reply

Again, the average John Q PUblic taxpaying american citizen is caught in the middle, the Banks answer to the fed government OCC, FDIC etc. but the foreclosure is done within the state juducial on not. Federal laws do not apply for foreclosure. I have written to the OCC three times in the last year. In January, 2011 I wrote that I wanted to see my note with Wells Fargo's name on it.
and I wanted to see title with Wells Fargo's name on it. I asked for the Truth in Lending discolosure as well, with Wells Fargo's name on it. And few other legal things. I called the OCC on Friday and yes, as the 30 days was up. And I asked the OCC if they had gotten a response. Yes, they did receive a response from Wells. I said, good when are you going to mail it to me. In 12 weeks, it's in the hands of a speicalist.
Hello that's 3 months. NO, that won't work. So I let my State Senator know and my fed Congressman know too. Folks this is a legal way to litterally bring all of US to our knees. It's called FRAUDCLOSURE. And we have to fight back.
After they get done with houses, what's next credit cards. If you don't pay your credit card they will slap a lien on your house or car and paycheck and steal that too. Thanks Barry making my home affordable was a lie, green jobs was lie, Summer of Recovery was a lie. That hope and change thing was a lie. My hope is that when 2012 comes we will change presidents and administrations.

February 06 2011 at 9:13 AM Report abuse -1 rate up rate down Reply

The courts are for the rich. Until this practice ends true democracy is unattainable. In short its rigged people.

February 06 2011 at 8:34 AM Report abuse +1 rate up rate down Reply

I was made homeless by my local government, and my own family. I lived in my home 20 some years. I paid cash at time of purchase, The full ammount.I became disabled in 1996. I paid the taxes in that year and they sent half of them back for some reason. Then they started charging me rent. They said a corporation bought my home for taxes. In 2006 I had an accident and was hurt on the property, faced with large hospital bills I asked who was taking the money out of my checks for disability for this rent of the property I think I own.So I could fill an insurance claim.Well no one came forward.Then I'm called into court this year and given 25 days to get out. The judge asked if I was paying any taxes.I would like to tell that judge at this time.I have paid more takes than you will ever make. The house I purchased,all my equipment,only tax I didn't pay was the coruption tax thats strangleing this country.

February 06 2011 at 2:56 AM Report abuse -1 rate up rate down Reply

I just wanted to THANK YOU so much for find 3.17% Rate. You were great! The closing went really smoothly on my Mortgage Refinance. As in the past, I'll continue to tell everyone about 123 Mortgage Refinance

February 05 2011 at 11:30 PM Report abuse -1 rate up rate down Reply

Another historical democrat run state that is fiscally unsustainable. What a surprise. Kool aid drinkers, go check the fiscal stability of every long term Dem run state in the country. Let's see what you find!

February 05 2011 at 5:43 PM Report abuse -1 rate up rate down Reply