REPORT TITLE:
Condominiums


DESCRIPTION:
Subjects CPR to county zoning rules and prohibits CPRs on
agricultural land; clarifies where funds collected by
associations may be deposited; establishes a fair market value
standard (FMVS) for appraising the leased fee interest of condos;
clarifies the powers of the boards of directors of associations
of apartment owners to enter into purchase agreements with
lessors; allows association to terminate common utilities and
collect from tenants when condominium owner defaults on paying
maintenance fees; requires mortgage holders to pay common
expenses to the association while foreclosure proceedings are
pending; increases membership of real estate commission by 2
members to represent interests of condominium governance
organizations; clarifies that moneys in condominium management
education fund shall be used exclusively for purposes of the
condominium management education fund; provides lien for unpaid
common expenses; provides time of title transfer for foreclosure;
allows for condo association to deposit funds in Hawaii credit
unions and invest with Hawaii Securities Brokers. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1276
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                S.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT


RELATING TO CONDOMINIUMS.


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

 1                              PART I.
 
 2      SECTION 1.  The legislature finds that the function of
 
 3 county zoning and county land development ordinances and rules is
 
 4 to protect public health, safety, and welfare.  The purpose of
 
 5 this Part is to clarify that projects created and established as
 
 6 condominium property regimes are subject to county land use
 
 7 regulatory authority, and to ensure that projects created and
 
 8 established as condominium property regimes conform to the
 
 9 provisions of underlying county zoning ordinances and development
 
10 requirements and are consistent with the intent of adopted county
 
11 land use policies and the state land use law.
 
12      SECTION 2.  Chapter 514A, Hawaii Revised Statutes, is
 
13 amended by adding to part I a new section to be appropriately
 
14 designated and to read as follows:
 
15      "§514A-    Conformance with county zoning; land use
 
16 classification.  (a)  Any project and all phases of any project
 
17 established under this chapter shall conform to the existing
 
18 underlying county zoning for the property and all development,
 
19 building, and permitting requirements adopted by the county by
 

 
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 1 ordinance or rule.  The total number of units or apartments
 
 2 established for residential use for all phases of any project,
 
 3 inclusive of farm dwellings and all units or apartments to be
 
 4 conveyed with reservation rights to alter, improve, expand,
 
 5 convert, or replace a nonresidential apartment for residential
 
 6 use, shall not exceed the number of dwelling units allowed per
 
 7 zoned lot of record by the existing underlying county zoning.
 
 8      (b)  Condominium property regimes set forth in chapter 514A
 
 9 shall not be allowed on agricultural designated land classified
 
10 pursuant to sections 205-2, 205-3.1, 205-4, and 205-5."
 
11      SECTION 3.  Section 514A-3, Hawaii Revised Statutes, is
 
12 amended by amending the definition of "apartment" to read as
 
13 follows:
 
14      ""Apartment" means a unit or part of the property intended
 
15 for any type of use or uses, and with an exit to a public street
 
16 or highway or to a common element or elements leading to a public
 
17 street or highway, and may include such appurtenances as garage
 
18 and other parking space, storage room, balcony, terrace, and
 
19 patio."
 
20      SECTION 4.  Section 514A-11, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§514A-11  Recordation and contents of declaration.  The
 
23 bureau of conveyances and the land court shall immediately set up
 

 
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 1 the mechanics and method by which recordation of a master deed or
 
 2 lease and the declaration may be made.  Provisions shall be made
 
 3 for the recordation of instruments affecting the individual
 
 4 apartments on subsequent resales, mortgages, and other
 
 5 encumbrances, as is done with all other real estate recordations;
 
 6 provided that land court certificates of title shall not be
 
 7 issued for apartments.  The declaration to which section 514A-20
 
 8 refers shall express the following particulars:
 
 9      (1)  Description of the land, whether leased or in fee
 
10           simple, on which the building or buildings and
 
11           improvements are or are to be located;
 
12      (2)  Description of the building or buildings, stating the
 
13           number of stories and basements, the number of
 
14           apartments, and the principal materials of which it or
 
15           they is or are constructed or to be constructed;
 
16      (3)  The apartment number of each apartment, and a statement
 
17           of its location, approximate area, number of rooms, and
 
18           immediate common element to which it has access,
 
19           designated parking stall, if considered a limited
 
20           common element, and any other data necessary for its
 
21           proper identification;
 
22      (4)  Description of the common elements;
 
23      (5)  Description of the limited common elements, if any,
 

 
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 1           stating to which apartments their use is reserved;
 
 2      (6)  The percentage of undivided interest in the common
 
 3           elements appertaining to each apartment and its owner
 
 4           for all purposes, including voting;
 
 5      (7)  Statement of the purposes for which the building or
 
 6           buildings and each of the apartments are intended and
 
 7           restricted as to use;
 
 8      (8)  The name of a person to receive service of process in
 
 9           the cases hereinafter provided, together with the
 
10           residence or place of business of the person which
 
11           shall be within the county in which the property is
 
12           located;
 
13      (9)  Provision as to the percentage of votes by the
 
14           apartment owners which shall be determinative of
 
15           whether to rebuild, repair, or restore the property in
 
16           the event of damage or destruction of all or part of
 
17           the property;
 
18     (10)  Any further details in connection with the property
 
19           which the person executing the declaration may deem
 
20           desirable to set forth consistent with this chapter;
 
21     (11)  The method by which the declaration may be amended,
 
22           consistent with this chapter; provided that an
 
23           amendment to the declarations of all condominium
 

 
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 1           projects existing as of May 22, 1991, and all
 
 2           condominium projects created thereafter shall require a
 
 3           vote or written consent of seventy-five per cent of all
 
 4           apartment owners, except as otherwise provided in this
 
 5           chapter; provided further that the declarations of
 
 6           condominium projects having five or fewer apartments
 
 7           may provide for the amendment thereof by a vote or
 
 8           written consent of more than seventy-five per cent of
 
 9           all apartment owners;
 
10     (12)  Description as to any additions, deletions,
 
11           modifications, and reservations as to the property,
 
12           including without limitation provisions concerning the
 
13           merger or addition of later phases of the project.  To
 
14           the extent provided in the declaration, an amendment to
 
15           the declaration which is made to implement those
 
16           additions, deletions, modifications, reservations, or
 
17           merger provisions shall require the vote or written
 
18           consent of only the declarant or such percentage of
 
19           apartment owners as is provided in the declaration; and
 
20     (13)  [In the case of a project which includes one or more
 
21           existing structures being converted to condominium
 
22           status, a] Receipt of a written statement or other
 
23           administrative procedure evidencing the certification
 

 
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 1           by the county or city and county officer or officers
 
 2           having jurisdiction over county zoning ordinances and
 
 3           the issuance of building permits that the project is in
 
 4           compliance with all zoning and building ordinances and
 
 5           codes applicable to the project[,] pursuant to section
 
 6           514A-  , and specifying, if applicable:
 
 7           (A)  Any variances which have been granted to achieve
 
 8                such compliance; and
 
 9           (B)  Whether, as the result of the adoption or
 
10                amendment of any ordinances or codes, the project
 
11                presently contains any legal non-conforming uses
 
12                or structures[.];
 
13           except that a project that is registered pursuant to
 
14           section 514A-31 shall not include that statement in the
 
15           declaration and shall provide the statement pursuant to
 
16           514A-40."
 
17      SECTION 5.  Section 514A-12, Hawaii Revised Statutes, is
 
18 amended to read as follows:
 
19      "§514A-12  Copy of the [floor] plans to be filed.  (a)
 
20 Simultaneously with the recording of the declaration, there shall
 
21 be filed in the office of the recording officer a set of plans to
 
22 include the floor plans and elevations of the building or
 
23 buildings, showing the layout, location, apartment numbers, and
 

 
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 1 dimensions of the apartments, stating the name of the property or
 
 2 that it has no name, and [bearing the] a project site plan or map
 
 3 showing the boundaries of the project property and the boundaries
 
 4 of recorded lots, common elements, limited common elements for
 
 5 exclusive use of each apartment, easements and rights of way if
 
 6 any, the area measures for the preceding, location and uses of
 
 7 units or apartments and buildings, zoning of the recorded lots,
 
 8 and tax map key.
 
 9      (b)  The project site plan for all projects filed under this
 
10 chapter shall bear a statement from the county or city and county
 
11 officers having jurisdiction over zoning and development
 
12 permitting certifying the project to be in compliance with county
 
13 zoning and development ordinances and rules.  The floor plans
 
14 shall bear a statement of a registered architect or professional
 
15 engineer certifying that it is an accurate copy of portions of
 
16 the plans of the building or buildings as filed with the county
 
17 or city and county officer having jurisdiction over the issuance
 
18 of permits for the construction of buildings and, if construction
 
19 of the building or buildings is completed, as approved by the
 
20 county or city and county officer.  If the floor plans do not
 
21 include a statement by the architect or engineer that the floor
 
22 plans fully and accurately depict the layout, location, apartment
 
23 numbers, and dimensions of the apartments as approved by the
 

 
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 1 county or city and county officer having jurisdiction over the
 
 2 issuance of permits for the construction of buildings and as
 
 3 built, there shall be recorded within thirty days from the date
 
 4 of completion of the building or buildings as "date of
 
 5 completion" is defined in section 507-43, or from the date of
 
 6 occupancy of the building or buildings, whichever shall first
 
 7 occur, an amendment to the declaration to which shall be attached
 
 8 a statement of a registered architect or professional engineer
 
 9 certifying that the final floor plans theretofore filed, or being
 
10 filed simultaneously with such amendment, fully and accurately
 
11 depict the project site plan, layout, location, apartment
 
12 numbers, and dimensions of the apartments as approved by the
 
13 county or city and county officer having jurisdiction over the
 
14 issuance of permits for the construction of buildings and as
 
15 built, which amendment shall require only the vote or written
 
16 consent of the declarant or such other person or persons as are
 
17 provided in the declaration.
 
18      (c)  The plans shall be kept by the recording officer as
 
19 provided by rules adopted by the department of land and natural
 
20 resources, pursuant to chapter 91, indexed in the same manner as
 
21 a conveyance entitled to record, numbered serially in the order
 
22 of receipt, each designated "apartment ownership," with the name
 
23 of the property, if any, and each containing an appropriate
 

 
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 1 reference to the recording of the declaration.  Correspondingly,
 
 2 the record of the declaration shall contain a reference to the
 
 3 file number of the project site plan and floor plans of the
 
 4 building or buildings on the property affected thereby."
 
 5      SECTION 6.  Section 514A-36, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (a) to read as follows:
 
 7      "(a)  Concurrently with its filing with the commission of
 
 8 the notification of intention pursuant to sections 514A-31 and
 
 9 514A-32, the developer shall prepare and submit to the commission
 
10 a public report disclosing all material facts pertaining to the
 
11 project.  The public report shall be in such form and content as
 
12 prescribed by the commission.  Such public report may not be used
 
13 for the purpose of selling any apartments in the project unless
 
14 and until the commission issues an effective date for the public
 
15 report.  The commission's issuance of an effective date for a
 
16 public report shall not be construed to constitute the
 
17 commission's approval or disapproval of the project, or the
 
18 commission's representation that all material facts concerning
 
19 the project have been fully or adequately disclosed, or the
 
20 commission's judgment of the value or merits of the project.  No
 
21 effective date for a final public report shall be issued until
 
22 execution and recordation of the deed or master lease, the
 
23 declaration, the bylaws, and plans including site and floor
 

 
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 1 plans, as provided by sections 514A-11, 514A-12, 514A-20,
 
 2 514A-40, and 514A-81."
 
 3      SECTION 7.  Section 514A-40, Hawaii Revised Statutes, is
 
 4 amended by amending subsections (a) and (b) to read as follows:
 
 5      "(a)  No effective date shall be issued by the commission
 
 6 for a final public report prior to completion of construction of
 
 7 the project, unless there is filed with the commission:
 
 8      (1)  A statement showing all costs involved in completing
 
 9           the project, including land payments or lease payments,
 
10           real property taxes, construction costs, architect,
 
11           engineering, and attorneys' fees, financing costs,
 
12           provisions for contingency, etc., which must be paid on
 
13           or before the completion of construction of the
 
14           project;
 
15      (2)  An estimate of the time of completion of construction
 
16           of the total project;
 
17      (3)  Satisfactory evidence of sufficient funds to cover the
 
18           total project cost from purchasers' funds, equity
 
19           funds, interim or permanent loan commitments, or other
 
20           sources;
 
21      (4)  A copy of the executed construction contract;
 
22      (5)  Satisfactory evidence of a performance bond issued by a
 
23           surety licensed in the State of not less than one
 

 
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 1           hundred per cent of the cost of construction, or such
 
 2           other substantially equivalent or similar instrument or
 
 3           security approved by the commission;
 
 4      (6)  If purchasers' funds are to be used for construction,
 
 5           an executed copy of the escrow agreement for the trust
 
 6           fund required under section 514A-67 for financing
 
 7           construction, which expressly shall provide for:
 
 8           (A)  No disbursements by the escrow agent for payment
 
 9                of construction costs, unless bills are submitted
 
10                with the request for disbursements that have been
 
11                approved or certified for payment by the project
 
12                lender or an otherwise qualified financially
 
13                disinterested person; and
 
14           (B)  No disbursements from the balance of the trust
 
15                fund after payment of construction costs pursuant
 
16                to the preceding paragraph until construction of
 
17                the project has been completed and the escrow
 
18                agent receives satisfactory evidence that all
 
19                mechanics' and materialmen's liens have been
 
20                cleared, unless sufficient funds are set aside for
 
21                any bona fide dispute;
 
22      (7)  A parking plan to include designated residence parking
 
23           stalls and guest parking, if any, exclusive of
 

 
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 1           assignment to individual apartments, if parking stalls
 
 2           are to be considered limited common elements; [and]
 
 3      (8)  A copy of the disclosure statement required by section
 
 4           514A-62(f)(3) if an effective date for a contingent
 
 5           final public report has been issued by the commission
 
 6           and the report has not expired[.]; and
 
 7      (9)  A signed statement or other administrative evidence
 
 8           issued by the appropriate county or city and county
 
 9           officer or officers having jurisdiction over county
 
10           zoning ordinances and the issuance of building permits,
 
11           certifying that the project is in compliance with all
 
12           zoning and building ordinances and codes applicable to
 
13           the project, pursuant to section 514A- .
 
14      (b)  No effective date shall be issued by the commission for
 
15 a final public report for a project that includes one or more
 
16 existing structures being converted to condominium status unless
 
17 there is filed with the commission all items required under
 
18 subsection (a) and:
 
19      (1)  A statement signed by [an] appropriate county
 
20           [official] or city and county officers that the project
 
21           is in compliance with all zoning and building
 
22           ordinances and codes applicable to the project[,]
 
23           pursuant to section 514A- , and specifying, if
 

 
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 1           applicable:
 
 2           (A)  Any variances which have been granted to achieve
 
 3                such compliance; and
 
 4           (B)  Whether the project contains any legal
 
 5                nonconforming uses or structures as a result of
 
 6                the adoption or amendment of any ordinances or
 
 7                codes;
 
 8      (2)  A statement by the declarant, based upon a report
 
 9           prepared by an independent Hawaii registered architect
 
10           or engineer, describing the present condition of all
 
11           structural components and mechanical and electrical
 
12           installations material to the use and enjoyment of the
 
13           project; and
 
14      (3)  A statement by the declarant of the expected useful
 
15           life of each item reported on in paragraph (2) or a
 
16           statement that no representations are made in that
 
17           regard; provided that this paragraph and paragraph (2)
 
18           apply only to apartments that may be occupied for
 
19           residential use and have been in existence for five
 
20           years or more."
 
21      SECTION 8.  If any provision of this Part, or the
 
22 application thereof to any person or circumstance is held
 
23 invalid, the invalidity does not affect other provisions or
 

 
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 1 applications of the Part which can be given effect without the
 
 2 invalid provision or application, and to this end the provisions
 
 3 of this Part are severable.
 
 4      SECTION 9.  This Part shall be repealed on August 1, 2001.
 
 5                             PART II.
 
 6      SECTION 10.  The legislature finds that a standard is needed
 
 7 to clarify the conditions in which a fee simple owner offers a
 
 8 leased fee interest in condominiums to be purchased by a lessee.
 
 9 The appraisal of these properties should be based on their fair
 
10 market value to ensure equity and fairness in the process.
 
11      One method to accomplish this purpose would be to first
 
12 calculate the fair market value of the real property.  After
 
13 determining the total interest of the fee owner, this percentage
 
14 of the property would be assigned to determine proportionate
 
15 percentages of ownership between the fee owner and the lessee.
 
16      The purpose of this Part is to establish a fair market value
 
17 standard for determining the value of the leased fee interest to
 
18 be purchased by a lessee.
 
19      SECTION 11.  Chapter 514A, Hawaii Revised Statutes, is
 
20 amended by adding a new section to be appropriately designated
 
21 and to read as follows:
 
22      "§514A-     Appraisal method for condominium lease-to-fee
 
23 conversion.  (a)  All condominium leases, including subleases,
 

 
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 1 executed prior to the effective date of this Act, that establish
 
 2 within the lease or sublease an appraisal method for determining
 
 3 the value of the lease-to-fee conversion, may use the following
 
 4 fair market value conversion appraisal method to compute the
 
 5 value of a lease-to-fee conversion:
 
 6      (1)  A qualified real estate appraiser shall complete a
 
 7           leased fee analysis of the property to determine the
 
 8           fair market value of the property;
 
 9      (2)  The fee owner's total interest in the property is
 
10           calculated;
 
11      (3)  After determining the total interest of the fee owner,
 
12           this percentage of the property would be assigned to
 
13           determine proportionate percentages of ownership
 
14           between the fee owner and the lessee; and
 
15      (4)  The amount for the lease-to-fee conversion would then
 
16           be calculated based on the percentages set forth in
 
17           paragraph (3);
 
18 so long as all parties to the lease agree to the use of this
 
19 method.
 
20      (b)  All condominium leases, including subleases, executed: 
 
21      (1)  On or subsequent to this Act; or 
 
22      (2)  Prior to this Act that do not specify an appraisal
 
23           method in the lease;
 

 
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 1 shall use the fair market value conversion appraisal method set
 
 2 forth in subsection (a) to compute the value of a lease-to-fee
 
 3 conversion.
 
 4      (c)  For purposes of this section:
 
 5      "Fair market value" means that amount of money that a
 
 6 purchaser willing, but not obliged, to buy an interest in land
 
 7 would pay an owner willing, but not obliged, to sell it, taking
 
 8 into consideration all uses to which the land is adapted or might
 
 9 in reason be applied.
 
10      "Lease" or "sublease" means a conveyance of land or an
 
11 interest in land, by a fee simple owner as lessor, or by a lessee
 
12 or sublessee as sublessor, to any person, in consideration of a
 
13 return of rent or other recompense, for a term, measured from the
 
14 initial date of the lease or sublease, of twenty years or more,
 
15 including any periods for which the lease may be extended or
 
16 renewed at the option of the lessee.
 
17      "Lessee" or "sublease" means any person to whom land is
 
18 leased or subleased, and the lessee's heirs, successors, legal
 
19 representatives, and assigns.
 
20      (d)  This section shall not apply to lease-to-fee conversion
 
21 through condemnation."
 
22                             PART III.
 
23      SECTION 12.  The legislature finds that condominium lessees
 

 
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 1 are often able to acquire the leased fee interest appurtenant to
 
 2 their apartments at more affordable prices when the association
 
 3 of apartment owners negotiates directly with the project's lessor
 
 4 for a bulk purchase of all of the lessor's interests by the
 
 5 association and its members.  The legislature further finds that
 
 6 it is necessary to clarify the powers of the boards of directors
 
 7 of associations of apartment owners to enter into purchase
 
 8 agreements with lessors in order to facilitate and encourage
 
 9 voluntary lease-to-fee conversions of condominium projects in an
 
10 efficient and economical manner.
 
11      SECTION 13.  Section 514A-82, Hawaii Revised Statutes, is
 
12 amended by amending subsection (b) to read as follows:
 
13      "(b)  In addition to the requirements of subsection (a), the
 
14 bylaws shall provide for:
 
15      (1)  The method of removal from office of directors; that at
 
16           any regular or special meeting of the apartment owners,
 
17           any one or more members of the board of directors may
 
18           be removed by the apartment owners and successors shall
 
19           then and there be elected for the remainder of the term
 
20           to fill the vacancies thus created.  The removal and
 
21           replacement shall be in accordance with all applicable
 
22           requirements and procedures in the bylaws for the
 
23           removal and replacement of directors, including, but
 

 
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 1           not limited to, any provisions relating to cumulative
 
 2           voting.  If removal and replacement is to occur at a
 
 3           special association meeting, the call for the meeting
 
 4           shall be by the president or by a petition to the
 
 5           secretary or managing agent signed by not less than
 
 6           twenty-five per cent of the apartment owners as shown
 
 7           in the association's record of ownership; and provided
 
 8           further that if the secretary or managing agent shall
 
 9           fail to send out the notices for the special meeting
 
10           within fourteen days of receipt of the petition, then
 
11           the petitioners shall have the authority to set the
 
12           time, date, and place for the special meeting and to
 
13           send out the notices for the special meeting in
 
14           accordance with the requirements of the bylaws.  Except
 
15           as otherwise provided herein, the meeting for the
 
16           removal and replacement from office of directors shall
 
17           be scheduled, noticed, and conducted in accordance with
 
18           the bylaws of the association.
 
19      (2)  The bylaws may be amended at any time by the vote or
 
20           written consent of sixty-five per cent of all apartment
 
21           owners; provided that each one of the particulars set
 
22           forth in this section shall be embodied in the bylaws
 
23           always; and provided further that any proposed bylaws
 

 
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 1           with the rationale for the proposal may be submitted by
 
 2           the board of directors or by a volunteer apartment
 
 3           owners' committee.  If submitted by that committee, it
 
 4           shall be accompanied by a petition signed by not less
 
 5           than twenty-five per cent of the apartment owners as
 
 6           shown in the association's record of ownership.  The
 
 7           proposed bylaws, rationale, and ballots for voting on
 
 8           any proposed bylaw shall be mailed by the board of
 
 9           directors to the owners at the expense of the
 
10           association for vote or written consent without change
 
11           within thirty days of the receipt of the petition by
 
12           the board of directors.  The vote or written consent
 
13           required to adopt the proposed bylaw shall not be less
 
14           than sixty-five per cent of all apartment owners;
 
15           provided that the vote or written consent must be
 
16           obtained within one hundred twenty days after mailing.
 
17           In the event that the bylaw is duly adopted, then the
 
18           board shall cause the bylaw amendment to be recorded in
 
19           the bureau of conveyances or filed in the land court,
 
20           as the case may be.  The volunteer apartment owners'
 
21           committee shall be precluded from submitting a petition
 
22           for a proposed bylaw that is substantially similar to
 
23           that which has been previously mailed to the owners
 

 
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 1           within one year after the original petition was
 
 2           submitted to the board.  This subsection shall not
 
 3           preclude any apartment owner or voluntary apartment
 
 4           owners' committee from proposing any bylaw amendment at
 
 5           any annual association meeting.
 
 6      (3)  Notices of association meetings, whether annual or
 
 7           special, shall be sent to each member of the
 
 8           association of apartment owners at least fourteen days
 
 9           prior to the meeting, and shall contain at least:  the
 
10           date, time, and place of the meeting, the items on the
 
11           agenda for the meeting, and a standard proxy form
 
12           authorized by the association, if any.
 
13      (4)  No resident manager or managing agent shall solicit,
 
14           for use by the manager or managing agent, any proxies
 
15           from any apartment owner of the association of owners
 
16           that employs the resident manager or managing agent,
 
17           nor shall the resident manager or managing agent cast
 
18           any proxy vote at any association meeting except for
 
19           the purpose of establishing a quorum.  No member of a
 
20           board of directors who uses association funds to
 
21           solicit proxies shall cast any of these proxy votes for
 
22           the election or reelection of board members at any
 
23           association meeting unless the proxy form specifically
 

 
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 1           authorizes the board member to vote for the election or
 
 2           reelection of board directors and the board first posts
 
 3           notice of its intent to solicit proxies in prominent
 
 4           locations within the project at least thirty days prior
 
 5           to its solicitation of proxies; provided that if the
 
 6           board receives within seven days of the posted notice a
 
 7           request by any owner for use of association funds to
 
 8           solicit proxies accompanied by a statement, the board
 
 9           shall mail to all owners either:
 
10           (A)  A proxy form containing the names of all owners
 
11                who have requested the use of association funds
 
12                for soliciting proxies accompanied by their
 
13                statements; or
 
14           (B)  A proxy form containing no names, but accompanied
 
15                by a list of names of all owners who have
 
16                requested the use of association funds for
 
17                soliciting proxies and their statements.
 
18           The statement shall not exceed one hundred words,
 
19           indicating the owner's qualifications to serve on the
 
20           board and reasons for wanting to receive proxies.
 
21      (5)  A director who has a conflict of interest on any issue
 
22           before the board shall disclose the nature of the
 
23           conflict of interest prior to a vote on that issue at
 

 
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 1           the board meeting, and the minutes of the meeting shall
 
 2           record the fact that a disclosure was made.
 
 3      (6)  The apartment owners shall have the irrevocable right,
 
 4           to be exercised by the board of directors, to have
 
 5           access to each apartment from time to time during
 
 6           reasonable hours as may be necessary for the operation
 
 7           of the property or for making emergency repairs therein
 
 8           necessary to prevent damage to the common elements or
 
 9           to another apartment or apartments.
 
10      (7)  An owner shall not act as an officer of an association
 
11           and an employee of the managing agent employed by the
 
12           association.
 
13      (8)  An association's employees shall not engage in selling
 
14           or renting apartments in the condominium in which they
 
15           are employed except association-owned units, unless
 
16           such activity is approved by an affirmative vote of
 
17           sixty-five per cent of the membership.
 
18      (9)  The board of directors shall meet at least once a year.
 
19           Whenever practicable, notice of all board meetings
 
20           shall be posted by the resident manager or a member of
 
21           the board in prominent locations within the project
 
22           seventy-two hours prior to the meeting or
 
23           simultaneously with notice to the board of directors.
 

 
Page 23                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1     (10)  Directors shall not expend association funds for their
 
 2           travel, directors' fees, and per diem, unless owners
 
 3           are informed and a majority approve of these expenses.
 
 4     (11)  Associations at their own expense shall provide all
 
 5           board members with a current copy of the association's
 
 6           declaration, bylaws, house rules, and, annually, a copy
 
 7           of this chapter with amendments.
 
 8     (12)  The directors may expend association funds, which shall
 
 9           not be deemed to be compensation to the directors, to
 
10           educate and train themselves in subject areas directly
 
11           related to their duties and responsibilities as
 
12           directors; provided that the approved annual operating
 
13           budget include these expenses as separate line items.
 
14           These expenses may include registration fees, books,
 
15           videos, tapes, other educational materials, and economy
 
16           travel expenses.  Except for economy travel expenses
 
17           within the State, all other travel expenses incurred
 
18           under this subsection shall be subject to the
 
19           requirements of subsection 514A-82(b)(10).
 
20     (13)  (A)  The association of apartment owners may purchase
 
21                the lessor's interest in the condominium project;
 
22                provided that the declaration of condominium
 
23                property regime shall either contain or be amended
 

 
Page 24                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                to include a provision authorizing the board of
 
 2                directors to effectuate such a purchase.  If the
 
 3                lessor is also a condominium unit lessee, the
 
 4                lessor's lessee interest shall be disregarded in
 
 5                the computation of the percentage of apartment
 
 6                owners needed to achieve the vote or written
 
 7                consent required in order to amend the declaration
 
 8                of condominium property regime.
 
 9           (B)  If the association of apartment owners purchases
 
10                the lessor's interest pursuant to this section,
 
11                the following powers, in addition to any other
 
12                powers, shall be conferred upon the association of
 
13                apartment owners:
 
14                (i)  To purchase or otherwise acquire, own,
 
15                     improve, use, and otherwise deal in and with
 
16                     the leased fee interest to the land or any or
 
17                     all undivided interests therein;
 
18               (ii)  To incur liabilities, borrow money, and
 
19                     secure any of its obligations by mortgage or
 
20                     pledge of all or any portion of its property,
 
21                     assessments, and funds;
 
22              (iii)  To assess, as a common expense, the apartment
 
23                     owners for the expenses incurred in acquiring
 

 
Page 25                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1                     the leased fee interest to the land, or to
 
 2                     service any debt associated therewith; and
 
 3               (iv)  To sell the leased fee interest appurtenant
 
 4                     to a condominium unit to any condominium unit
 
 5                     lessee or subsequent purchaser of such unit.
 
 6                No condominium lessee shall be compelled to
 
 7                purchase the portion of the leased fee interest of
 
 8                the property appurtenant to the lessee's
 
 9                apartment, but may instead pay lease rent to the
 
10                association of owners together with the lessee's
 
11                share of the common expenses incurred in acquiring
 
12                the leased fee interest to the land, or including
 
13                any debt associated therewith.
 
14           (C)  As used in this paragraph, "lessor" means any or
 
15                all of the fee simple owners and other persons
 
16                having legal or equitable ownership interests in
 
17                the leased fee interest appurtenant to the various
 
18                apartments in the condominium project and in the
 
19                various apartment and ground leases including, but
 
20                not limited to, any sublessor, but shall not
 
21                include the apartment lessees or sublessees.
 
22 The provisions of this subsection shall be deemed incorporated
 
23 into the bylaws of all condominium projects existing as of
 

 
Page 26                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 January 1, 1988, and all condominium projects created after that
 
 2 date."
 
 3      SECTION 14.  No purchase or conveyance of the leased fee
 
 4 interest made prior to the effective date of this Part to or by
 
 5 an association of owners in a good faith belief that the purchase
 
 6 or conveyance was valid, and no borrowing, mortgage, or pledge by
 
 7 an association of owners in connection therewith shall be invalid
 
 8 because it was without capacity or power to do such an act or to
 
 9 make or receive such conveyance, transfer, or loan, nor shall any
 
10 apartment owner be excused from paying such owner's share of the
 
11 common expenses incurred in acquiring the leased fee interest to
 
12 the land, or to service any debt associated therewith on account
 
13 of any such lack of capacity of power.
 
14                              PART IV
 
15      SECTION 15.  The legislature finds that the real estate
 
16 commission collects annual fees from condominium owners
 
17 associations for deposit to the condominium management education
 
18 fund.  In recent years, the number of training and workshop
 
19 opportunities provided for condominium management has been
 
20 limited.  Therefore, excess funds are at-risk of being deposited
 
21 into the general fund.  In an effort to keep government
 
22 operations from growing too large, condominium associations need
 
23 representation on the real estate commission rather than the
 

 
Page 27                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 establishment of a condominium commission.
 
 2      Funds from the education fund are currently being used for
 
 3 staffing the commission for non-education fund purposes, contrary
 
 4 to legislative intent.  The legislature further finds that it
 
 5 should be the condominium associations that make decisions
 
 6 regarding the appropriate use of the fund.  Therefore, the
 
 7 purpose of this Part is to add two additional seats to the
 
 8 commission who represent the interests of condominium governance
 
 9 organizations and prohibit the use of education funds for
 
10 purposes other than the condominium education fund.
 
11      SECTION 16.  Section 467-3, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§467-3 Commission, appointments, qualifications, tenure.
 
14 There shall be appointed a commission to be known as the real
 
15 estate commission, [to consist] consisting of [nine] eleven
 
16 members, at least four of whom shall be licensed real estate
 
17 brokers who have been engaged in business as licensed real estate
 
18 brokers or salespersons for three years immediately preceding
 
19 their appointments, each of whom shall be a citizen of the United
 
20 States and shall have resided in the State for at least three
 
21 years preceding appointment, and one of whom shall be designated
 
22 by the appointing power as chairperson.  Four members shall be
 
23 residents of the city and county of Honolulu, one shall be a
 

 
Page 28                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 resident of the county of Hawaii, one shall be a resident of the
 
 2 county of Maui, and one shall be a resident of the county of
 
 3 Kauai and [two] four members shall be public members.  At least
 
 4 two of the eleven members shall be apartment owners of units in
 
 5 condominium property regimes who represent the interests of
 
 6 condominium governance organizations.
 
 7      Appointments shall be made for a term of four years,
 
 8 commencing from the date of expiration of the last preceding term
 
 9 and shall be made to expire on June 30.  Appointments shall be
 
10 made so that at least one appointment shall be required each
 
11 year.
 
12      Any vacancy shall be filled by appointment for the unexpired
 
13 term."
 
14      SECTION 17.  Section 514A-133, Hawaii Revised Statutes, is
 
15 amended by amending subsection (b) to read as follows:
 
16      "(b)  [The] In order to carry out the responsibilities under
 
17 this part, the commission and the director of commerce and
 
18 consumer affairs may use moneys in the condominium management
 
19 education fund to employ necessary personnel not subject to
 
20 chapters 76 and 77 for additional staff support, hired
 
21 exclusively to carry out responsibilities under this part, to
 
22 provide office space, and to purchase equipment, furniture, and
 
23 supplies [required by the commission to carry out its
 

 
Page 29                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 responsibilities under this part].  Moneys used from the
 
 2 condominium management education fund must exclusively be used to
 
 3 carry out the commission's responsibilities under this part."
 
 4                              PART V
 
 5      SECTION 18.  The legislature finds that condominium
 
 6 associations are unable to collect maintenance fees that remain
 
 7 unpaid prior to and during foreclosure proceedings.  The payment
 
 8 of maintenance fees for common expenses is an integral part of
 
 9 condominium ownership.  Unfortunately, some owners rent out their
 
10 apartments and then fail to pay the maintenance fees, which
 
11 breaches their contract with the association and is a hardship on
 
12 the other owners.  
 
13      The legislature further finds that financial institutions
 
14 refuse to pay for any outstanding maintenance fees even though
 
15 secondary mortgage market lenders will reimburse financial
 
16 institutions for up to six months of owners' delinquent
 
17 maintenance fees.
 
18      The legislature further finds that in cases where there is a
 
19 mortgage lien that is recorded prior to the recordation of the
 
20 association's notice of lien and the foreclosure sale proceeds
 
21 are insufficient to pay the claims of both the mortgagee and the
 
22 association, the lien priority for condominium associations
 
23 unfairly requires non-delinquent apartment owners to bear the
 

 
Page 30                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 entire burden of unpaid common expenses assessments accrued by a
 
 2 delinquent owner. 
 
 3      The legislature further finds that section 514A-83.6, Hawaii
 
 4 Revised Statutes (HRS), requires condominium associations to
 
 5 build up their reserves through the collection of maintenance
 
 6 fees to ensure the availability of funds for repair and
 
 7 improvement of their aging buildings.  Currently, these funds
 
 8 must be deposited in Hawaii financial institutions only.
 
 9      The legislature further finds that currently there are eight
 
10 financial institutions in the State that offer Federal Deposit
 
11 Insurance Corporation protection up to a limit of $100,000 per
 
12 account.  The legislature further finds that the requirements
 
13 under section 514A-83.6, HRS, may result in condominium
 
14 association's reserve accounts being so large that they will
 
15 exceed $100,000 and be uninsured.
 
16      The purpose of this Part is to grant the condominium
 
17 associations authority to terminate common utilities and collect
 
18 from tenants; require the mortgage holder to pay maintenance fees
 
19 of a foreclosed condominium; establish a lien for unpaid common
 
20 expenses with a limited six-month priority over mortgage liens;
 
21 allow the association to enforce a lien created pursuant to
 
22 section 514A-90; and to permit condominium associations to
 
23 deposit funds in credit unions located in the State and with
 

 
Page 31                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 Hawaii Securities Brokers.
 
 2      SECTION 19.  Chapter 514A, Hawaii Revised Statutes, is
 
 3 amended by adding a new section to part V to be appropriately
 
 4 designated and to read as follows:
 
 5      "§514A-     Termination of utilities.  (a)  Notwithstanding
 
 6 any law, rule, or provision of the condominium declaration,
 
 7 bylaws, or house rules to the contrary, after thirty days' prior
 
 8 written notice of nonpayment of common assessments to the
 
 9 apartment tenant, owner, or mortgagee, the association of
 
10 apartment owners may authorize its board of directors to
 
11 terminate the delinquent apartment's common privileges and cease
 
12 supplying the delinquent apartment with any and all services
 
13 normally supplied or paid for by the association.  Any terminated
 
14 services and privileges shall be restored upon payment of all
 
15 assessments.  Notwithstanding any other provision of this
 
16 chapter, a vote of a majority of those attending an annual or
 
17 special meeting of the association, in person or by proxy, shall
 
18 be necessary to permit the board to take the actions authorized
 
19 by this section.
 
20      (b)  Prior to any common privilege termination pursuant to
 
21 this section, the condominium association shall adopt written
 
22 policies setting forth procedures for the termination of common
 
23 privileges and for giving notice to the tenant."
 

 
Page 32                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1      SECTION 20.  Chapter 514A, Hawaii Revised Statutes, is
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "§514A-     Collection from tenants.  If the owner of an
 
 5 apartment rents or leases the apartment, and is in default for
 
 6 thirty days or more in the payment of the apartment's share of
 
 7 the common expenses, the board, for as long as the default
 
 8 continues, may demand in writing and receive from any tenant
 
 9 occupying the apartment, an amount sufficient to pay all sums due
 
10 from the apartment owner to the association, including interest,
 
11 if any.  The tenant's payment under this section shall discharge
 
12 that amount of payment from the tenant's rent obligation, and any
 
13 contractual provision to the contrary shall be void as a matter
 
14 of law.  The apartment owner shall not take any retaliatory
 
15 action against the tenant for payments made under this section.
 
16 If the board makes a demand upon the tenant pursuant to this
 
17 section, the tenant shall make the payments demanded by the board
 
18 and the fact that the board made such a written demand is a
 
19 complete defense to an action for nonpayment of rent to the
 
20 extent of the amount demanded; provided that the board may not
 
21 exercise this right if a commissioner or receiver has been
 
22 appointed to take charge of the premises pending a mortgage
 
23 foreclosure or if a mortgagee is in possession pending a mortgage
 

 
Page 33                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 foreclosure.  In the event of any conflict between this section
 
 2 and any provision of chapter 521, this section shall control."
 
 3      SECTION 21.  Chapter 514A, Hawaii Revised Statutes, is
 
 4 amended by adding a new section to be appropriately designated
 
 5 and to read as follows:
 
 6      "§514A-    Common expenses to be paid during foreclosure;
 
 7 when.  Notwithstanding sections 514A-15(b) and 514A-90, if a
 
 8 mortgage holder or court-appointed receiver or commissioner
 
 9 collects rent on any apartment that is in foreclosure, the
 
10 mortgage holder or court-appointed receiver or commissioner shall
 
11 pay to the association of apartment owners the current common
 
12 expenses chargeable to the apartment.  The current common
 
13 expenses shall be paid to the association of apartment owners
 
14 from the date the rent is first collected to the date the rent is
 
15 no longer collected or the foreclosure proceedings are completed,
 
16 whichever occurs first."
 
17      SECTION 22.  Section 514A-82, Hawaii Revised Statutes, is
 
18 amended by amending subsection (b) to read as follows:
 
19      "(b)  In addition to the requirements of subsection (a), the
 
20 bylaws shall provide for:
 
21      (1)  The method of removal from office of directors; that at
 
22           any regular or special meeting of the apartment owners,
 
23           any one or more members of the board of directors may
 

 
Page 34                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           be removed by the apartment owners and successors shall
 
 2           then and there be elected for the remainder of the term
 
 3           to fill the vacancies thus created.  The removal and
 
 4           replacement shall be in accordance with all applicable
 
 5           requirements and procedures in the bylaws for the
 
 6           removal and replacement of directors, including, but
 
 7           not limited to, any provisions relating to cumulative
 
 8           voting.  If removal and replacement is to occur at a
 
 9           special association meeting, the call for the meeting
 
10           shall be by the president or by a petition to the
 
11           secretary or managing agent signed by not less than
 
12           twenty-five per cent of the apartment owners as shown
 
13           in the association's record of ownership; and provided
 
14           further that if the secretary or managing agent shall
 
15           fail to send out the notices for the special meeting
 
16           within fourteen days of receipt of the petition, then
 
17           the petitioners shall have the authority to set the
 
18           time, date, and place for the special meeting and to
 
19           send out the notices for the special meeting in
 
20           accordance with the requirements of the bylaws.  Except
 
21           as otherwise provided herein, the meeting for the
 
22           removal and replacement from office of directors shall
 
23           be scheduled, noticed, and conducted in accordance with
 

 
Page 35                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           the bylaws of the association.
 
 2      (2)  The bylaws may be amended at any time by the vote or
 
 3           written consent of sixty-five per cent of all apartment
 
 4           owners; provided that each one of the particulars set
 
 5           forth in this section shall be embodied in the bylaws
 
 6           always; and provided further that any proposed bylaws
 
 7           with the rationale for the proposal may be submitted by
 
 8           the board of directors or by a volunteer apartment
 
 9           owners' committee.  If submitted by that committee, it
 
10           shall be accompanied by a petition signed by not less
 
11           than twenty-five per cent of the apartment owners as
 
12           shown in the association's record of ownership.  The
 
13           proposed bylaws, rationale, and ballots for voting on
 
14           any proposed bylaw shall be mailed by the board of
 
15           directors to the owners at the expense of the
 
16           association for vote or written consent without change
 
17           within thirty days of the receipt of the petition by
 
18           the board of directors.  The vote or written consent
 
19           required to adopt the proposed bylaw shall not be less
 
20           than sixty-five per cent of all apartment owners;
 
21           provided that the vote or written consent must be
 
22           obtained within one hundred twenty days after mailing.
 
23           In the event that the bylaw is duly adopted, then the
 

 
Page 36                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           board shall cause the bylaw amendment to be recorded in
 
 2           the bureau of conveyances or filed in the land court,
 
 3           as the case may be.  The volunteer apartment owners'
 
 4           committee shall be precluded from submitting a petition
 
 5           for a proposed bylaw that is substantially similar to
 
 6           that which has been previously mailed to the owners
 
 7           within one year after the original petition was
 
 8           submitted to the board.  This subsection shall not
 
 9           preclude any apartment owner or voluntary apartment
 
10           owners' committee from proposing any bylaw amendment at
 
11           any annual association meeting.
 
12      (3)  Notices of association meetings, whether annual or
 
13           special, shall be sent to each member of the
 
14           association of apartment owners at least fourteen days
 
15           prior to the meeting, and shall contain at least:  the
 
16           date, time, and place of the meeting, the items on the
 
17           agenda for the meeting, and a standard proxy form
 
18           authorized by the association, if any.
 
19      (4)  No resident manager or managing agent shall solicit,
 
20           for use by the manager or managing agent, any proxies
 
21           from any apartment owner of the association of owners
 
22           that employs the resident manager or managing agent,
 
23           nor shall the resident manager or managing agent cast
 

 
Page 37                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           any proxy vote at any association meeting except for
 
 2           the purpose of establishing a quorum.  No member of a
 
 3           board of directors who uses association funds to
 
 4           solicit proxies shall cast any of these proxy votes for
 
 5           the election or reelection of board members at any
 
 6           association meeting unless the proxy form specifically
 
 7           authorizes the board member to vote for the election or
 
 8           reelection of board directors and the board first posts
 
 9           notice of its intent to solicit proxies in prominent
 
10           locations within the project at least thirty days prior
 
11           to its solicitation of proxies; provided that if the
 
12           board receives within seven days of the posted notice a
 
13           request by any owner for use of association funds to
 
14           solicit proxies accompanied by a statement, the board
 
15           shall mail to all owners either:
 
16           (A)  A proxy form containing the names of all owners
 
17                who have requested the use of association funds
 
18                for soliciting proxies accompanied by their
 
19                statements; or
 
20           (B)  A proxy form containing no names, but accompanied
 
21                by a list of names of all owners who have
 
22                requested the use of association funds for
 
23                soliciting proxies and their statements.
 

 
Page 38                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           The statement shall not exceed one hundred words,
 
 2           indicating the owner's qualifications to serve on the
 
 3           board and reasons for wanting to receive proxies.
 
 4      (5)  A director who has a conflict of interest on any issue
 
 5           before the board shall disclose the nature of the
 
 6           conflict of interest prior to a vote on that issue at
 
 7           the board meeting, and the minutes of the meeting shall
 
 8           record the fact that a disclosure was made.
 
 9      (6)  The apartment owners shall have the irrevocable right,
 
10           to be exercised by the board of directors, to have
 
11           access to each apartment from time to time during
 
12           reasonable hours as may be necessary for the operation
 
13           of the property or for making emergency repairs therein
 
14           necessary to prevent damage to the common elements or
 
15           to another apartment or apartments.
 
16      (7)  An owner shall not act as an officer of an association
 
17           and an employee of the managing agent employed by the
 
18           association.
 
19      (8)  An association's employees shall not engage in selling
 
20           or renting apartments in the condominium in which they
 
21           are employed except association-owned units, unless
 
22           such activity is approved by an affirmative vote of
 
23           sixty-five per cent of the membership.
 

 
Page 39                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1      (9)  The board of directors shall meet at least once a year.
 
 2           Whenever practicable, notice of all board meetings
 
 3           shall be posted by the resident manager or a member of
 
 4           the board in prominent locations within the project
 
 5           seventy-two hours prior to the meeting or
 
 6           simultaneously with notice to the board of directors.
 
 7     (10)  Directors shall not expend association funds for their
 
 8           travel, directors' fees, and per diem, unless owners
 
 9           are informed and a majority approve of these expenses.
 
10     (11)  Associations at their own expense shall provide all
 
11           board members with a current copy of the association's
 
12           declaration, bylaws, house rules, and, annually, a copy
 
13           of this chapter with amendments.
 
14     (12)  The directors may expend association funds, which shall
 
15           not be deemed to be compensation to the directors, to
 
16           educate and train themselves in subject areas directly
 
17           related to their duties and responsibilities as
 
18           directors; provided that the approved annual operating
 
19           budget include these expenses as separate line items.
 
20           These expenses may include registration fees, books,
 
21           videos, tapes, other educational materials, and economy
 
22           travel expenses.  Except for economy travel expenses
 
23           within the State, all other travel expenses incurred
 

 
Page 40                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           under this subsection shall be subject to the
 
 2           requirements of subsection 514A-82(b)(10).
 
 3     (13)  A lien created pursuant to section 514A-90 may be
 
 4           enforced by the association in any manner permitted by
 
 5           law, including non-judicial foreclosure procedures
 
 6           contained in chapter 667.
 
 7 The provisions of this subsection shall be deemed incorporated
 
 8 into the bylaws of all condominium projects existing as of
 
 9 January 1, 1988, and all condominium projects created after that
 
10 date." 
 
11      SECTION 23.  Section 514A-90, Hawaii Revised Statutes, is
 
12 amended by amending subsections (a) and (b) to read as follows:  
 
13      "(a)  All sums assessed by the association of apartment
 
14 owners but unpaid for the share of the common expenses chargeable
 
15 to any apartment constitute a lien on the apartment prior to all
 
16 other liens, except:
 
17      (1)  [liens] Liens for taxes and assessments lawfully
 
18           imposed by governmental authority against the
 
19           apartment[,]; and
 
20      (2)  [all] All sums unpaid on any mortgage of record [which]
 
21           that was recorded prior to the recordation of a notice
 
22           of a lien by the association of apartment owners[,] and
 
23           costs and expenses, including attorneys' fees, provided
 

 
Page 41                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1           in such mortgages[.];
 
 2 provided that the association of apartment owners' lien shall be
 
 3 to any mortgages recorded after the effective date of this Act to
 
 4 the extent of any unpaid common expense assessments based on the
 
 5 annual budget adopted under section 514A-83.6 which would have
 
 6 become due in the absence of acceleration during the six months
 
 7 immediately preceding the commencement of any legal proceeding to
 
 8 collect amounts due to the association or the mortgagee under the
 
 9 mortgage, unless the mortgagee files a complaint for foreclosure
 
10 within      days of the mortgage default, by the mortgagor.  The
 
11 lien of the association of apartment owners may be foreclosed by
 
12 action by the [manager] managing agent or board of directors,
 
13 acting on behalf of the apartment owners, in like manner as a
 
14 mortgage of real property.  In any [such] foreclosure, the
 
15 apartment owner shall be required to pay a reasonable rental for
 
16 the apartment, if so provided in the bylaws, and the plaintiff in
 
17 the foreclosure shall be entitled to the appointment of a
 
18 receiver to collect the [same.] rental.  The [manager] managing
 
19 agent or board of directors, acting on behalf of the association
 
20 of apartment owners, [may,] unless prohibited by the declaration,
 
21 may bid on the apartment at foreclosure sale[,] and acquire and
 
22 hold, lease, mortgage, and convey the [same.] apartment.  Action
 
23 to recover a money judgment for unpaid common expenses shall be
 

 
Page 42                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 maintainable without foreclosing or waiving the lien securing the
 
 2 [same.] expenses owed.
 
 3      (b)  Where the mortgagee of a mortgage of record or other
 
 4 purchaser of an apartment obtains title to the apartment as a
 
 5 result of foreclosure of the mortgage, the acquirer of title and
 
 6 the acquirer's successors and assigns shall not be liable for the
 
 7 share of the common expenses or assessments by the association of
 
 8 apartment owners chargeable to the apartment which became due
 
 9 prior to the acquisition of title to the apartment by the
 
10 acquirer.  The unpaid share of common expenses or assessments
 
11 shall be deemed to be common expenses collectible from all of the
 
12 apartment owners, including the acquirer and the acquirer's
 
13 successors and assigns.  
 
14      The mortgagee of record or other purchaser of the apartment
 
15 shall be deemed to acquire title and shall be required to pay the
 
16 apartment's share of common expenses and assessments beginning:
 
17      (1)        days after the order confirming the sale to the
 
18           purchaser has been filed with the court;
 
19      (2)        days after the hearing at which the court grants
 
20           the motion to confirm the sale to the purchaser; or 
 
21      (3)  Upon the recording of the deed,
 
22 whichever occurs first."
 
23      SECTION 24.  Section 514A-97, Hawaii Revised Statutes, is
 

 
Page 43                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 amended by amending subsection (c) to read as follows:
 
 2      "(c)  All funds collected by an association, or by a
 
 3 managing agent for any association, shall be:
 
 4      (1)  Deposited in a financial institution located in the
 
 5           State, including a credit union whose deposits are
 
 6           insured by an agency of the United States government;
 
 7      (2)  Held by a corporation authorized to do business under
 
 8           article 8 of chapter 412; [or]
 
 9      (3)  Invested in the obligations of the United States
 
10           [government.] Treasury; or
 
11      (4)  Invested with a securities broker which is registered
 
12           with the Securities and Exchange Commission, has an
 
13           office in Hawaii, and the accounts of which are held by
 
14           member firms of the New York Stock Exchange or National
 
15           Association of Securities Dealers and insured by the
 
16           Securities Insurance Protection Corporation.
 
17      All funds collected by an association, or by a managing
 
18 agent for any association, shall be invested only in demand
 
19 deposits, investment certificates, and certificates of deposit;
 
20 obligations of the United States government, the State of Hawaii,
 
21 and their respective agencies; provided that those obligations
 
22 shall have stated maturities of no more than one year after the
 
23 purchase date; or mutual funds comprised solely of investments in
 

 
Page 44                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 1
                                                        

 
 1 the obligations of the United States government or the State of
 
 2 Hawaii, or their respective agencies.
 
 3      Records of the deposits and disbursements shall be disclosed
 
 4 to the commission upon request.  All funds collected by an
 
 5 association shall only be disbursed by employees of the
 
 6 association under the supervision of the association's board of
 
 7 directors.  All funds collected by a managing agent from an
 
 8 association shall be held in a client trust fund account and
 
 9 shall be disbursed only by the managing agent or the managing
 
10 agent's employees under the supervision of the association's
 
11 board of directors.  The commission may draft rules governing the
 
12 handling and disbursement of condominium association funds."
 
13      SECTION 25.  Statutory material to be repealed is bracketed.
 
14 New statutory material is underscored.
 
15      SECTION 26.  This Act shall take effect upon its approval,
 
16 except that Part I of this Act shall take effect on August 1,
 
17 1999, and shall be repealed as provided in section 9; and section
 
18 514A-90(a), Hawaii Revised Statutes, as amended in section 23 of
 
19 this Act shall take effect on January 1, 2000.