REPORT TITLE:
Condominiums


DESCRIPTION:
Authorizes an association of apartment owners to assess the
purchaser of a delinquent apartment for unpaid assessments
provided the association has previously filed a foreclosure
action.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           2333
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
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                   A  BILL  FOR  AN  ACT

RELATING TO CONDOMINIUMS PROPERTY REGIMES. 


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

 1      SECTION 1.  The legislature finds that due to the current
 
 2 economic situation many condominium owners have been unable to
 
 3 meet payments for either their mortgage or maintenance expenses.
 
 4 Mortgagees have lost significant amounts during this period.
 
 5 Homeowners associations have, likewise, lost much during this
 
 6 period.  Both are innocent victims of these economic times.
 
 7 Homeowners associations and mortgage lenders have participated in
 
 8 many hearings and discussions with the legislature over the
 
 9 years.  Attempts to find a solution have been hampered because
 
10 both parties are innocent victims.  While a solution has been
 
11 elusive, this Act goes a long way toward resolving the issue in a
 
12 creative and fair manner.
 
13      This Act allows for the assessment of purchasers of
 
14 delinquent units for unpaid common expenses by the homeowners
 
15 association.  The assessment is limited to the amount accrued
 
16 within six months of the acquisition of title by the purchaser,
 
17 and is further limited to one per cent of the original amount of
 
18 the then existing first mortgage.  In order to make the
 
19 assessment, homeowners associations must file a foreclosure
 

 
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 1 action before the purchaser acquires title.  This is only fair,
 
 2 providing the purchaser with actual notice of the total amount of
 
 3 the delinquencies.
 
 4      Furthermore, the legislature believes that this issue is a
 
 5 result of current economic conditions and that based on reports
 
 6 from the State's council on revenues, the worst has occurred and
 
 7 the State is on the road to recovery.  This Act, therefore, has a
 
 8 sunset date of January 1, 2002.  In addition, if the law appears
 
 9 to be unnecessary based upon the number of foreclosures being
 
10 filed for nonpayment of common area expenses, the Act requires
 
11 the department of commerce and consumer affairs to propose
 
12 legislation for an earlier sunset date.  This Act is a
 
13 comprehensive and reasonable solution to a thorny issue.   
 
14      SECTION 2.  Section 514A-90, Hawaii Revised Statutes, is
 
15 amended to read as follows:
 
16      "§514A-90  Priority of lien.(a)  All sums assessed by the
 
17 association of apartment owners but unpaid for the share of the
 
18 common expenses chargeable to any apartment constitute a lien on
 
19 the apartment prior to all other liens, except:
 
20      (1)  Liens for taxes and assessments lawfully imposed by
 
21           governmental authority against the apartment; and
 
22      (2)  All sums unpaid on any mortgage of record that was
 
23           recorded prior to the recordation of a notice of a lien
 

 
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 1           by the association of apartment owners, and costs and
 
 2           expenses including attorneys' fees provided in such
 
 3           mortgages. 
 
 4 The lien of the association of apartment owners may be foreclosed
 
 5 by action or by nonjudicial or power of sale foreclosure
 
 6 procedures set forth in chapter 667, by the managing agent or
 
 7 board of directors, acting on behalf of the association of
 
 8 apartment owners, in like manner as a mortgage of real property.
 
 9 In any such foreclosure the apartment owner shall be required to
 
10 pay a reasonable rental for the apartment, if so provided in the
 
11 bylaws, and the plaintiff in the foreclosure shall be entitled to
 
12 the appointment of a receiver to collect the rental owed.  The
 
13 managing agent or board of directors, acting on behalf of the
 
14 association of apartment owners, unless prohibited by the
 
15 declaration, may bid on the apartment at foreclosure sale, and
 
16 acquire and hold, lease, mortgage, and convey the apartment.
 
17 Action to recover a money judgment for unpaid common expenses
 
18 shall be maintainable without foreclosing or waiving the lien
 
19 securing the unpaid common expenses owed.
 
20      (b)  Where the mortgagee of a mortgage of record or other
 
21 purchaser of an apartment obtains title to the apartment as a
 
22 result of foreclosure of the mortgage, the acquirer of title and
 
23 the acquirer's successors and assigns shall not be liable for the
 

 
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                                     S.B. NO.           2333
                                                        
                                                        

 
 1 share of the common expenses or assessments by the association of
 
 2 apartment owners chargeable to the apartment which became due
 
 3 prior to the acquisition of title to the apartment by the
 
 4 acquirer.  The unpaid share of common expenses or assessments
 
 5 shall be deemed to be common expenses collectible from all of the
 
 6 apartment owners, including the acquirer and the acquirer's
 
 7 successors and assigns.  The mortgagee of record or other
 
 8 purchaser of the apartment shall be deemed to acquire title and
 
 9 shall be required to pay the apartment's share of common expenses
 
10 and assessments beginning:
 
11      (1)  Thirty-six days after the order confirming the sale to
 
12           the purchaser has been filed with the court;
 
13      (2)  Sixty days after the hearing at which the court grants
 
14           the motion to confirm the sale to the purchaser; or
 
15      (3)  Upon the recording of the deed,
 
16 whichever occurs first.
 
17      (c)  No apartment owner shall withhold any assessment
 
18 claimed by the association.  An apartment owner who disputes the
 
19 amount of an assessment may request a written statement clearly
 
20 indicating:
 
21      (1)  The amount of common expenses included in the
 
22           assessment, including the due date of each amount
 
23           claimed;
 

 
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 1      (2)  The amount of any penalty, late fee, lien filing fee,
 
 2           and any other charge included in the assessment;
 
 3      (3)  The amount of attorneys' fees and costs, if any,
 
 4           included in the assessment;
 
 5      (4)  That under Hawaii law, an apartment owner has no right
 
 6           to withhold assessments for any reason;
 
 7      (5)  That an apartment owner has a right to demand mediation
 
 8           or arbitration to resolve disputes about the amount or
 
 9           validity of an association's assessment, provided the
 
10           apartment owner immediately pays the assessment in full
 
11           and keeps assessments current; and
 
12      (6)  That payment in full of the assessment does not prevent
 
13           the owner from contesting the assessment or receiving a
 
14           refund of amounts not owed.
 
15 Nothing in this section shall limit the rights of an owner to the
 
16 protection of all fair debt collection procedures mandated under
 
17 federal and state law.
 
18      (d)  An apartment owner who pays an association the full
 
19 amount claimed by the association may file in small claims court
 
20 or require the association to mediate to resolve any disputes
 
21 concerning the amount or validity of the association's claim.  If
 
22 the apartment owner and the association are unable to resolve the
 
23 dispute through mediation, either party may file for arbitration
 

 
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                                     S.B. NO.           2333
                                                        
                                                        

 
 1 under part VII; provided that an apartment owner may only file
 
 2 for arbitration if all amounts claimed by the association are
 
 3 paid in full on or before the date of filing.  If the apartment
 
 4 owner fails to keep all association assessments current during
 
 5 the arbitration, the association may ask the arbitrator to
 
 6 temporarily suspend the arbitration proceedings.  If the
 
 7 apartment owner pays all association assessments within thirty
 
 8 days of the date of suspension, the apartment owner may ask the
 
 9 arbitrator to recommence the arbitration proceedings.  If the
 
10 owner fails to pay all association assessments by the end of the
 
11 thirty-day period, the association may ask the arbitrator to
 
12 dismiss the arbitration proceedings.  The apartment owner shall
 
13 be entitled to a refund of any amounts paid to the association
 
14 which are not owed.
 
15      (e)  As an alternative to foreclosure proceedings under
 
16 subsection (a), where an apartment is owner-occupied, the
 
17 association of apartment owners may authorize its managing agent
 
18 or board of directors to, after sixty days' written notice to the
 
19 apartment owner and to the apartment's first mortgagee of the
 
20 nonpayment of the apartment's share of the common expenses,
 
21 terminate the delinquent apartment's access to the common
 
22 elements and cease supplying a delinquent apartment with any and
 
23 all services normally supplied or paid for by the association of
 

 
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                                     S.B. NO.           2333
                                                        
                                                        

 
 1 apartment owners.  Any terminated services and privileges shall
 
 2 be restored upon payment of all delinquent assessments.
 
 3      (f)  Before the board of directors or managing agent may
 
 4 take the actions permitted under [subsection] subsections (e)[,]
 
 5 and (g), the board must adopt a written policy providing for such
 
 6 actions and have the policy approved by a majority vote of the
 
 7 apartment owners at an annual or special meeting of the
 
 8 association or by the written consent of a majority of the
 
 9 apartment owners. 
 
10      (g)  The board of directors of an association of apartment
 
11 owners may authorize a special assessment on a purchaser of a
 
12 delinquent apartment for unpaid assessments for common area
 
13 expenses chargeable to the delinquent apartment that have accrued
 
14 or become due during the six months immediately preceding the
 
15 acquisition of title by the purchaser; provided that a purchaser
 
16 who acquires title to the delinquent apartment shall not be
 
17 liable for the special assessment unless the association of
 
18 apartment owners has filed an action to foreclose on the lien for
 
19 unpaid common area expenses assessed prior to the purchaser's
 
20 acquisition of title to the delinquent apartment.  In no event
 
21 shall the purchaser be liable for an amount which exceeds one per
 
22 cent of the original amount of the first mortgage debt then
 
23 existing or $1,500, whichever amount is less.
 

 
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                                     S.B. NO.           2333
                                                        
                                                        

 
 1      The special assessment shall not include any other special
 
 2 assessment, late charges, fines, penalties, interest assessed by
 
 3 the association of apartment owners, any lien arising out of the
 
 4 assessment, or any fees or costs related to the collection or
 
 5 enforcement of the assessment, including attorneys' fees and
 
 6 court costs.  A person holding a mortgage of record that was
 
 7 recorded prior to the recordation of a notice of lien by the
 
 8 association of apartment owners who acquires a delinquent
 
 9 apartment through a nonjudicial or judicial foreclosure
 
10 proceeding, purchases a delinquent apartment at a foreclosure
 
11 auction, or acquires the delinquent apartment by a deed in lieu,
 
12 devise, or descent, shall not be liable for the payment of the
 
13 special assessment.  Notwithstanding any other law to the
 
14 contrary, this subsection shall not apply to a delinquent
 
15 apartment that has a combined mortgage debt exceeding $379,050,
 
16 or that exceeds $1,000,000 in assessed or appraised value."
 
17      SECTION 3.  The department of commerce and consumer affairs
 
18 shall submit an annual report to the legislature, no later than
 
19 twenty days prior to the convening of each regular session, that
 
20 identifies:
 
21      (1)  The total number of foreclosures for non-payment of
 
22           common area expenses by Hawaii condominium
 
23           associations; and 
 

 
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 1      (2)  The total amount of unpaid common area expenses.
 
 2 The information shall be identified by each association.  If the
 
 3 total number of foreclosures for non-payment of common area
 
 4 expenses is less than fifty per cent of the total incidences of
 
 5 non-payment of common area expenses in any calendar year, the
 
 6 department of commerce and consumer affairs shall submit to the
 
 7 legislature proposed legislation for the repeal of this Act.
 
 8      SECTION 4.  Statutory material to be repealed is bracketed.
 
 9 New statutory material is underscored.
 
10      SECTION 5.  This Act shall take effect upon its approval and
 
11 shall be repealed on January 1, 2002; provided that section
 
12 514A-90, Hawaii Revised Statutes, shall be reenacted in the form
 
13 in which it read on the day before the approval of this Act.
 
14 
 
15                       INTRODUCED BY:  ___________________________