It happens — and the process, nonjudicial foreclosure, is being used more widely in Hawai'i in the past few years by community associations, as well as lenders trying to collect debts.

Nonjudicial foreclosure has existed in Hawai'i since 1874, when a law was passed allowing lenders to sell collateral for unpaid loans without court assistance. Though modified since, the law went unused in recent history until title insurance companies and lenders embraced the process as a quicker, cheaper alternative to court-approved foreclosure.

The increase in use has brought a growing outcry by consumer advocates. At issue is whether nonjudicial foreclosures are being abused.

In some extreme cases on the Mainland, homeowners have lost their property over debts as small as $100. A few state legislatures have considered limiting nonjudicial foreclosure powers.

"People are being wiped out," said Gary Dubin, a local foreclosure defense attorney.

Representatives of community associations and mortgage companies say foreclosure is a last resort that can always be stopped before a forced sale by paying delinquent debts.

Supporters of nonjudicial foreclosures say the process is less costly and time-consuming for creditors and financially troubled homeowners, and that such cases always can be appealed to a court.

Opponents say nonjudicial foreclosure gives homeowners, especially unsophisticated ones, less protection from creditors than judicial foreclosures, which involve neutral oversight by judges and court-appointed commissioners.

The debate has flared largely in states which have seen egregious and well-publicized cases in which homeowners lost property for not paying dues or assessments of a few hundred dollars. Some have successfully sued to recover their homes.

In Hawai'i, little public attention has been given to nonjudicial foreclosures, in part because they cannot be tracked through public documents, as judicial foreclosures can.

So their number in Hawai'i is unclear, although the procedure has been used more frequently in the past few years, since title insurance companies began insuring such sales and a 1999 legislative amendment allowed community associations to use the practice.

In 2001, giant mortgage buyer Fannie Mae made nonjudicial foreclosures the predominant foreclosure method in Hawai'i on loans it owns.

Rising property values and the ability to refinance at lower interest rates have led to an overall decrease in home foreclosures in recent years, but that has not kept homeowners such as Aiu from losing substantial sums of home equity.

Dubin guesses that Hawai'i homeowners have lost $100 million in equity through nonjudicial foreclosures initiated mostly by lenders.

He said the losses are continuing even while property values are rising, because of lack of judicial oversight in nonjudicial foreclosures.

"It's a black market," he said. "They literally steal the property."

At a foreclosure sale, if a purchase price exceeds the debt owed, the debtor gets the difference. If sale proceeds are less than the debt, the debtor is liable for the difference. But nonjudicial foreclosure sales typically fetch a price approximating the debt, Dubin said, regardless of the home's market value.

One reason, he said, is that nonjudicial foreclosure sales usually require full payment at auction, unlike judicial foreclosures, which require a 10 percent down payment. That generally limits the buyer pool to bottom-fishing investors with cash, instead of owner-occupants willing to pay closer to market price.

Moreover, Dubin said, a shockingly low sale price in a judicial foreclosure could lead a judge to demand more marketing and another auction.

Dubin has challenged a couple dozen nonjudicial foreclosures in the past three years, including eight cases now before the state Supreme Court.

One case involved a creditor advertising an auction only in a Japanese-language newspaper. The law requires advertising the sale to the general public. Another case involved improper notice to homeowners. In a third case, lenders sold homes after mistakenly claiming homeowners had defaulted on mortgage payments.

"In a judicial foreclosure, a lender has to prove his case," Dubin said. "In a nonjudicial foreclosure, the lender can say 'Your loan is in default; come to the auction.'"

Big Island resident Mitchell Strauss said that's what happened to his home, which a lender sold recently for roughly $40,000 — about half of what he owed on his mortgage and a quarter of the estimated $150,000 fair market value.

Susan Aiu sued but failed to get back her condominium, on her right, which was sold at auction after the homeowners association foreclosed to recoup $4,500 in unpaid fees. The buyer resold the condo for a $73,000 profit. Aiu estimates she lost $70,000 in home equity.

"Those receipts are great, and they've got a great place in my filing cabinet, but if you can't get it in front of a judge (they're useless)."

Strauss said he's worried his former lender could still sue him for the unpaid balance of his mortgage, and convinced Dubin to help him try to get his house back.

Aiu said her "house fiasco" began in 1996, when financial difficulties led to unpaid maintenance fees at The Ridgeway. By mid-2001, the delinquency was $3,500, and a few months later her condo association filed a lien and notified Aiu it intended to foreclose.

Aiu said she arranged for a credit counselor friend to pay off the debt, but there were still unpaid assessments in May 2003 when a condo association attorney sent Aiu another letter demanding payment. Two months later, Aiu's house was bought for $4,500.

In an attempt to contest the sale, Aiu filed a lawsuit against the association and Fischer, claiming they were attempting to take the market value of her home as payment for a $4,500 debt. A judge dismissed the suit, which Aiu filed without an attorney.

"It is heart-wrenching," she said. "I am trying to piece my life together after this very cruel process called eviction."

Arlette Harada, an attorney representing the Ridgeway association, said she could not comment on Aiu's case. But in general, she said, foreclosure is an association's last option. "We don't like to do it," Harada said.

Gisela Iglesias, an attorney with Neeley & Anderson, a firm representing more than 400 Hawai'i homeowners' associations, said the overwhelming majority of homeowners cure assessment defaults after they receive a demand letter.

She said a "very small percentage" of homeowners lose their property to foreclosure by an association, especially in today's real estate market, in which rising values allow an owner in trouble to sell the property and save their home equity.

Other options to stave off foreclosure include working out a payment plan, borrowing against home equity or filing for bankruptcy.

Aiu said she tried borrowing, but repeatedly was turned down by lenders because of the overdue association debt. She said she didn't try to sell because she thought she could raise the money to cure the default.

Evan McKenzie, a professor at the University of Illinois at Chicago who researches common-interest housing law, said homeowners' associations should be prohibited from using nonjudicial foreclosures, because they are subject to abuse by lawyers who specialize in assessment collection.

"Lawyers are sometimes more interested in getting (fees) than in looking out for the interests of the community, which includes the delinquent owner," he said.

Still, McKenzie supports foreclosures that involve a judge. "That is a significant protection against abuse," he said.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.

Correction: Records of many, but not all, nonjudicial foreclosure notices are available through public documents at the state Bureau of Conveyances. Nonjudicial foreclosure notices can be tracked by the name of one or more of the parties involved and are not required to be filed at the bureau by entities initiating the action. Subjects of nonjudicial foreclosures are required to be privately notified. A previous version of this story said nonjudicial foreclosures could not be tracked.

Also, a previous verison of this story referred to Stephen W. Fischer, who purchased and later resold an 'Aiea woman’s condominium. The story did not include Fischer’s middle initial. Meanwhile Stephen S. Fischer has asked The Advertiser to clarify that he is not the person involved in the condominium sale and resale.