SB1454 SD1.DOC

SECTION 1. Chapter 421J, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§421J‑ Foreclosure by action. (a) All sums assessed by an association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens, except:

(1) Liens for taxes and assessments lawfully imposed by governmental authority against the unit; and

(2) All sums unpaid on any mortgage of record that was recorded prior to the recordation of a notice of a lien by the association, and costs and expenses including attorneys' fees provided in the mortgages.

The lien of an association may be foreclosed by action or by nonjudicial or power of sale foreclosure procedures set forth in this section, by the managing agent or board, acting on behalf of the association. In any foreclosure of a lien pursuant to this section, the unit owner shall be required to pay a reasonable rental for the unit, if provided in the bylaws of the association, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed. The managing agent or board, acting on behalf of the association, unless prohibited by the declaration, may bid on the unit at foreclosure sale and acquire, hold, lease, mortgage, or convey the unit. Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed.

(b) In any foreclosure action pursuant to this section:

(1) The circuit court may assess the amount due to the association without the intervention of a jury, and shall render judgment for the amount awarded in the foreclosure of the association's lien; provided that execution may be issued on the judgment as ordered by the court;

(2) All mortgage creditors whose names are or can be discovered by the association foreclosing its lien shall be made parties to the action; provided that the foreclosure of the association's lien shall not extinguish priority liens as described in subsection (a);

(3) Foreclosure of the association's lien shall operate to extinguish subsequent liens on the same property without forcing prior lienors to their right of recovery; provided that proceeds in excess of the amounts secured by prior liens and the association's lien shall be payable to the unit owner or as otherwise determined by the court in accordance with principles of equity; and

(4) Any party may assert any legal or equitable defense to the foreclosure of the association's lien; provided that a dispute as to the amount due to the association shall not be allowed as a defense to the action but shall be subject to the remedies provided in section 514B-B.

(c) Nonjudicial power of sale foreclosure of the association's lien is authorized in accordance with this subsection; provided that nonjudicial foreclosure of the association's lien is authorized whether or not a power of sale is stated in the association's declaration or bylaws; and provided further that this section shall control over any conflicting power of sale provisions in the declaration or bylaws of an association:

(1) The association shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State;

(2) The attorney shall give notice of the association's intention to foreclose its lien by:

(A) Mailing notice, by both first class mail and by certified mail, return receipt requested, not less than twenty-one days before the day of sale, to:

(i) The unit owner, at the owner's address as shown in the records of the association and, if different, at the address of the unit being foreclosed;

(ii) All mortgage creditors whose names are or can be discovered by the association;

(iii) The state director of taxation; and

(iv) The director of finance of the county where the unit is located; and

(B) Posting notice on the front door or other conspicuous location on the unit not less than twenty-one days before the day of sale; and

(C) Publishing notice three times, once in each of three successive weeks, in a newspaper having general circulation in the county where the unit is located, the last publication to be not less than fourteen days before the day of sale; and

(3) Within thirty days after selling the unit, the attorney shall record an affidavit at the bureau of conveyances or the land court, to be recorded and indexed by the registrant pursuant to chapter 501 or 502 as appropriate, setting forth fully and particularly the association's acts consistent with this section; provided that an affidavit recorded pursuant to this paragraph shall include a copy of the notice of sale as an exhibit and may include other evidence of compliance with the requirements of this section; and provided further that the affidavit or a certified copy shall be admitted as evidence of the completion of the foreclosure if it demonstrates that the unit was sold in compliance with the procedures established in this section.

(d) The notice required by in subsection (c) shall identify the association foreclosing its lien, contain a description of the unit being foreclosed upon, and contain a statement of the time and place proposed for the sale the unit no sooner than four weeks from the date when first advertised.

(e) Any sale for which notice has been given pursuant to subsection (c) may be postponed from time to time by public announcement made by a person acting on behalf of the association. The date and time of the postponed auction, or information that the auction was canceled, shall be disclosed to any person entitled to notice pursuant to subsection (c) who requests that information.

(f) An association that holds a lien on a unit may purchase the unit at auction and may satisfy the bid price requirement of subsection (g) by credit bidding up to the amount of the association's lien.

(g) Except as provided in subsection (f), a down payment of no more than ten per cent of the highest successful bid price shall be paid to the association by the successful bidder immediately after the completion of the auction sale; provided that the successful bidder shall remain liable to the association for the balance of the highest successful bid price and for damages, if any, that result from the successful bidder's failure, neglect, or refusal to complete the purchase. The successful bidder's interest in the unit shall be subject to the right, title, and interest of any prior liens as defined in subsection (a) of this section.

(h) Any person entitled to notice pursuant to subsection (c) may make a request, prior to the auction, for the amount to cure the default, together with an estimated amount of the foreclosing association's attorneys' fees and costs, and all other fees and costs estimated to be incurred by the foreclosing association related to the default. The association shall disclose the requested information within five business days after the request.

(i) The association shall disclose the sale price of the foreclosed unit once auctioned upon the request of any person entitled to notice pursuant to subsection (c). If the association purchases a unit in foreclosure and proposes to re‑sell the unit, the association shall disclose in writing to all prospective purchasers the recorded amounts and holders of all prior liens as defined in subsection (a) of this section on the unit."

SECTION 2. Chapter 514A, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

"§514A-A Association fiscal matters; lien following mortgage foreclosure. (a) Subject to this subsection and subsections (b) and (c), the board may specially assess the amount of the unpaid regular monthly common assessments for common expenses against a person who, in a judicial or nonjudicial foreclosure, purchases a delinquent unit; provided that:

(1) A purchaser who holds a mortgage on a delinquent unit that was recorded prior to the filing of a notice of lien by the association and who acquires the delinquent unit through a judicial or nonjudicial foreclosure proceeding, including by purchasing the delinquent unit at a foreclosure auction, shall not be obligated to make, nor be liable for, payment of the special assessment as provided for under this subsection; and

(2) A person who subsequently purchases the delinquent unit from the mortgagee described in paragraph (1) shall be obligated to make and shall be liable for payment of the special assessment provided for under this subsection; provided that the mortgagee or subsequent purchaser may require the association to provide at no charge a notice of the association's intent to claim lien against the delinquent unit for the amount of the special assessment prior to the subsequent purchaser's acquisition of title to the delinquent unit; provided further that the notice shall state the amount of the special assessment, how that amount was calculated, and the legal description of the unit.

(b) The amount of the special assessment assessed under subsection (a) shall not exceed the total amount of unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the judicial or nonjudicial foreclosure. In no event shall the amount of the special assessment exceed the sum of $3,600.

(c) After any judicial or nonjudicial foreclosure proceeding in which the association acquires title to the unit, any excess rental income received by the association from the unit shall be paid to existing lienors based on priority of lien, and not on a pro rata basis. For purposes of this subsection, excess rental income shall be any net income received by the association after paying, crediting, or reimbursing the association or a third party for:

(1) The special assessment for delinquency assessed pursuant to subsections (a) and (b);

(2) Any maintenance fee delinquency against the unit;

(3) Attorneys' fees and other collection costs related to the association's foreclosure of the unit; or

(4) Any costs incurred by the association for the rental, repair, maintenance, or rehabilitation of the unit while the association is in possession of the unit including monthly association maintenance fees, management fees, real estate commissions, cleaning and repair expenses for the unit, and general excise taxes paid on rental income;

provided that the special assessment for delinquent maintenance fees under paragraph (1) shall be paid, credited, or reimbursed first.

(d) For purposes of subsections (a) and (b), the following definitions shall apply, unless the context requires otherwise:

"Completion" means:

(1) In a nonjudicial power of sale foreclosure, when the affidavit required under clause 514A-90(c)(3) is filed; and

(2) In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (f).

"Regular monthly common assessments" shall not include:

(1) Any special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514A-83.6;

(2) Late charges, fines, or penalties;

(3) Interest assessed by the association;

(4) Any lien arising out of the assessment; or

(5) Any fees or costs related to the collection or enforcement of the assessment including attorneys' fees and court costs;

(e) The cost of a release of any lien imposed by this section shall be paid by the party requesting the release.

(f) Except as provided in subsection (a), when the mortgagee of a mortgage of record or other purchaser of a unit obtains title to the unit as a result of foreclosure of the mortgage, the acquirer of title and the acquirer's successors and assigns shall not be liable for the share of common expenses or assessments by the association chargeable to the unit which became due prior to the acquisition of title to the unit by the acquirer. The unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the unit owners, including the acquirer and the acquirer's successors and assigns. The mortgagee of record or other purchaser of the unit shall be deemed to acquire title and shall be required to pay the unit's share of common expenses and assessments beginning:

(1) Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;

(2) Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;

(3) Thirty days after the public sale in a nonjudicial or power of sale foreclosure pursuant to chapter 667; or

(4) Upon the recording of the instrument of conveyance,

whichever occurs first; provided that the mortgagee of record or other purchaser of the unit shall not be deemed to acquire title under paragraph (1), (2), or (3) if transfer of title is delayed past the thirty-six days specified in paragraph (1), the sixty days specified in paragraph (2), or the thirty days specified in paragraph (3) when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court to grant the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy. In any such case, the mortgagee of record or other purchaser of the unit shall be deemed to acquire title upon recordation of the instrument of conveyance.

§514A-B Association fiscal matters; payment under protest; remedies after payment of disputed amounts. (a) No unit owner shall withhold any assessment claimed by the association for any reason.

(b) A unit owner who disputes the amount of an assessment may request a written statement that clearly indicates:

(1) The amount of regular monthly common assessments or special assessments included in the assessment, including the due date of each amount claimed;

(2) The amount of any penalty, late fee, lien filing fee, and any other charge included in the assessment;

(3) The amount of attorneys' fees and costs, if any, included in the assessment;

(4) That under Hawaii law, a unit owner has no right to withhold assessments for any reason;

(5) That a unit owner has a right to demand mediation or arbitration to resolve disputes about the amount or validity of an association's assessment; provided that the unit owner immediately pays the assessment in full and keeps assessments current; and

(6) That payment in full of the assessment does not prevent the owner from contesting the assessment or receiving a refund of amounts not owed;

provided that nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.

(1) File an action in small claims court; or

(2) Require the association to mediate to resolve any disputes concerning the amount or validity of the association's claim.

(d) Any dispute remaining after mediation pursuant to subsection (c) shall be subject to arbitration pursuant to section 514A-121, upon demand by the association or by the unit owner; provided that a unit owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the unit owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings. If the unit owner pays all association assessments within thirty days of the date of suspension, the unit owner may ask the arbitrator to recommence the arbitration proceedings. If the owner fails to pay all association assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings. The unit owner shall be entitled to a refund of any amounts paid to the association that are not owed.

§514A-C Association fiscal matters; additional remedies. (a) In conjunction with or as an alternative to foreclosure proceedings under section 514A-90, where a unit is owner-occupied, the association may authorize its managing agent or board to, after sixty days' written notice to the unit owner and to the unit's first mortgagee of the nonpayment of the unit's share of the common expenses, terminate the delinquent unit's access to the common elements and cease supplying a delinquent unit with any and all services normally supplied or paid for by the association. Any terminated services and privileges shall be restored upon payment of all delinquent assessments but need not be restored until payment in full is received.

(b) Before the board or managing agent may take the actions permitted under subsection (a), the board shall adopt a written policy providing for such actions and have the policy approved by a majority vote of the unit owners at an annual or special meeting of the association or by the written consent of a majority of the unit owners."

SECTION 3. Chapter 514B, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

"§514B-A Association fiscal matters; lien following mortgage foreclosure. (a) Subject to this subsection and subsections (b) and (c), the board may specially assess the amount of the unpaid regular monthly common assessments for common expenses against a person who, in a judicial or nonjudicial foreclosure, purchases a delinquent unit; provided that:

(1) The special assessment for delinquency assessed pursuant to subsections (a) and (b);

(2) Any maintenance fee delinquency against the unit;

(3) Attorneys' fees and other collection costs related to the association's foreclosure of the unit; or

provided that the special assessment for delinquent maintenance fees under paragraph (1) shall be paid, credited, or reimbursed first.

(d) For purposes of subsections (a) and (b), the following definitions shall apply, unless the context requires otherwise:

"Completion" means:

(1) In a nonjudicial power of sale foreclosure, when the affidavit required under clause 514B-146(c)(3) is filed; and

(2) In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (f).

"Regular monthly common assessments" shall not include:

(1) Any special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B-148;

(2) Late charges, fines, or penalties;

(3) Interest assessed by the association;

(4) Any lien arising out of the assessment; or

(5) Any fees or costs related to the collection or enforcement of the assessment including attorneys' fees and court costs;

(e) The cost of a release of any lien imposed by this section shall be paid by the party requesting the release.

(1) Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;

(2) Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;

(3) Thirty days after the public sale in a nonjudicial or power of sale foreclosure pursuant to chapter 667; or

(4) Upon the recording of the instrument of conveyance,

§514B-B Association fiscal matters; payment under protest; remedies after payment of disputed amounts. (a) No unit owner shall withhold any assessment claimed by the association for any reason.

(b) A unit owner who disputes the amount of an assessment may request a written statement that clearly indicates:

(1) The amount of regular monthly common assessments or special assessments included in the assessment, including the due date of each amount claimed;

(2) The amount of any penalty, late fee, lien filing fee, and any other charge included in the assessment;

(3) The amount of attorneys' fees and costs, if any, included in the assessment;

(4) That under Hawaii law, a unit owner has no right to withhold assessments for any reason;

(6) That payment in full of the assessment does not prevent the owner from contesting the assessment or receiving a refund of amounts not owed;

provided that nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.

(1) File an action in small claims court; or

(2) Require the association to mediate to resolve any disputes concerning the amount or validity of the association's claim.

(d) Any dispute remaining after mediation pursuant to subsection (c) shall be subject to arbitration pursuant to section 514B-162, upon demand by the association or by the unit owner; provided that a unit owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the unit owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings. If the unit owner pays all association assessments within thirty days of the date of suspension, the unit owner may ask the arbitrator to recommence the arbitration proceedings. If the owner fails to pay all association assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings. The unit owner shall be entitled to a refund of any amounts paid to the association that are not owed.

§514B-C Association fiscal matters; additional remedies. (a) In conjunction with or as an alternative to foreclosure proceedings under section 514B-146, where a unit is owner-occupied, the association may authorize its managing agent or board to, after sixty days' written notice to the unit owner and to the unit's first mortgagee of the nonpayment of the unit's share of the common expenses, terminate the delinquent unit's access to the common elements and cease supplying a delinquent unit with any and all services normally supplied or paid for by the association. Any terminated services and privileges shall be restored upon payment of all delinquent assessments but need not be restored until payment in full is received.

SECTION 4. Section 514A-90, Hawaii Revised Statutes, is amended to read as follows:

"§514A-90 [~~Priority of lien.~~] Association fiscal matters; lien for assessments. (a) All sums assessed by [~~the~~] an association of apartment owners but unpaid for the share of the common expenses chargeable to any apartment constitute a lien on the apartment prior to all other liens, except:

(1) Liens for taxes and assessments lawfully imposed by governmental authority against the apartment; and

(2) All sums unpaid on any mortgage of record that was recorded prior to the recordation of notice of a lien by the association of apartment owners, and costs and expenses including attorneys' fees provided in such mortgages.

The lien of [~~the~~] an association of apartment owners may be foreclosed by action or by nonjudicial or power of sale foreclosure procedures set forth in [~~chapter 667,~~] this section by the managing agent or board of directors, acting on behalf of the association of apartment owners[~~, in like manner as a mortgage of real property~~]. In any [~~such~~] foreclosure pursuant to this section, the apartment owner shall be required to pay a reasonable rental for the apartment, if [so] provided in the bylaws[,] of the association, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed. The managing agent or board of directors, acting on behalf of the association of apartment owners, unless prohibited by the declaration, may bid on the apartment at foreclosure sale[,] and acquire [~~and~~], hold, lease, mortgage, [~~and~~] or convey the apartment. Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed.

[(b) Except as provided in subsection (g), when the mortgagee of a mortgage of record or other purchaser of an apartment obtains title to the apartment as a result of foreclosure of the mortgage, the acquirer of title and the acquirer's successors and assigns shall not be liable for the share of the common expenses or assessments by the association of apartment owners chargeable to the apartment which became due prior to the acquisition of title to the apartment by the acquirer. The unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the apartment owners, including the acquirer and the acquirer's successors and assigns. The mortgagee of record or other purchaser of the apartment shall be deemed to acquire title and shall be required to pay the apartment's share of common expenses and assessments beginning:

~~(1)~~ ~~Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;~~

~~(2)~~ ~~Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;~~

~~(3)~~ ~~Thirty days after the public sale in a nonjudicial power of sale foreclosure pursuant to section 667-5; or~~

~~(4)~~ ~~Upon the recording of the instrument of conveyance,~~

whichever occurs first; provided that the mortgagee of record or other purchaser of the apartment shall not be deemed to acquire title under paragraph (1), (2), or (3), if transfer of title is delayed past the thirty-six days specified in paragraph (1), the sixty days specified in paragraph (2), or the thirty days specified in paragraph (3), when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court to grant the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy. In any such case, the mortgagee of record or other purchaser of the apartment shall be deemed to acquire title upon recordation of the instrument of conveyance.

~~(c) No apartment owner shall withhold any assessment claimed by the association. An apartment owner who disputes the amount of an assessment may request a written statement clearly indicating:~~

~~(1)~~ ~~The amount of common expenses included in the assessment, including the due date of each amount claimed;~~

~~(2)~~ ~~The amount of any penalty, late fee, lien filing fee, and any other charge included in the assessment;~~

~~(3)~~ ~~The amount of attorneys' fees and costs, if any, included in the assessment;~~

~~(4)~~ ~~That under Hawaii law, an apartment owner has no right to withhold assessments for any reason;~~

~~(5)~~ That an apartment owner has a right to demand mediation or arbitration to resolve disputes about the amount or validity of an association's assessment; provided the apartment owner immediately pays the assessment in full and keeps assessments current; and

~~(6)~~ ~~That payment in full of the assessment shall not prevent the owner from contesting the assessment or receiving a refund of amounts not owed.~~

~~Nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.~~

(d) An apartment owner who pays an association the full amount claimed by the association may file in small claims court or require the association to mediate to resolve any disputes concerning the amount or validity of the association's claim. If the apartment owner and the association are unable to resolve the dispute through mediation, either party may file for arbitration under part VII; provided that an apartment owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the apartment owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings. If the apartment owner pays all association assessments within thirty days of the date of suspension, the apartment owner may ask the arbitrator to recommence the arbitration proceedings. If the owner fails to pay all association assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings. The apartment owner shall be entitled to a refund of any amounts paid to the association which are not owed.

(e) As an alternative to foreclosure proceedings under subsection (a), where an apartment is owner-occupied, the association of apartment owners may authorize its managing agent or board of directors to, after sixty days' written notice to the apartment owner and to the apartment's first mortgagee of the nonpayment of the apartment's share of the common expenses, terminate the delinquent apartment's access to the common elements and cease supplying a delinquent apartment with any and all services normally supplied or paid for by the association of apartment owners. Any terminated services and privileges shall be restored upon payment of all delinquent assessments.

(f) Before the board of directors or managing agent may take the actions permitted under subsection (e), the board shall adopt a written policy providing for such actions and have the policy approved by a majority vote of the apartment owners at an annual or special meeting of the association or by the written consent of a majority of the apartment owners.

(g) Subject to this subsection, and subsections (h) and (i), the board of an association of apartment owners may specially assess the amount of the unpaid regular monthly common assessments for common area expenses against a person who, in a judicial or nonjudicial power of sale foreclosure, purchases a delinquent apartment; provided that:

~~(1)~~ A purchaser who holds a mortgage on a delinquent apartment that was recorded prior to the filing of a notice of lien by the association of apartment owners and who acquires the delinquent apartment through a judicial or nonjudicial foreclosure proceeding, including purchasing the delinquent apartment at a foreclosure auction, shall not be obligated to make, nor be liable for, payment of the special assessment as provided for under this subsection; and

~~(2)~~ A person who subsequently purchases the delinquent apartment from the mortgagee referred to in paragraph (1) shall be obligated to make, and shall be liable for, payment of the special assessment provided for under this subsection; provided that the mortgagee or subsequent purchaser may require the association of apartment owners to provide at no charge a notice of the association's intent to claim a lien against the delinquent apartment for the amount of the special assessment, prior to the subsequent purchaser's acquisition of title to the delinquent apartment. The notice shall state the amount of the special assessment, how that amount was calculated, and the legal description of the apartment.

(h) The amount of the special assessment assessed under subsection (g) shall not exceed the total amount of unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the judicial or nonjudicial power of sale foreclosure. In no event shall the amount of the special assessment exceed the sum of $3,600.

~~(i) For purposes of subsections (g) and (h), the following definitions shall apply:~~

~~"Completion" means:~~

~~(1)~~ ~~In a nonjudicial power of sale foreclosure, when the affidavit required under section 667-5 is filed; and~~

~~(2)~~ ~~In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (b).~~

~~"Regular monthly common assessments" shall not include:~~

(1) ~~Any other special assessment, except for a special assessment imposed on all apartments as part of a budget adopted pursuant to section 514A-83.6;~~

~~(2)~~ ~~Late charges, fines, or penalties;~~

~~(3)~~ ~~Interest assessed by the association of apartment owners;~~

~~(4)~~ ~~Any lien arising out of the assessment; or~~

~~(5)~~ ~~Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs.~~]

(b) In any foreclosure action pursuant to this section:

(1) The circuit court may assess the amount due to the association without the intervention of a jury and shall render judgment for the amount awarded in the foreclosure of the association's lien; provided that execution may be issued on the judgment as ordered by the court;

(1) The association shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State;

(2) The attorney shall give notice of the association's intention to foreclose its lien by:

(A) Mailing notice, by both first class mail and by certified mail, return receipt requested, not less than twenty-one days before the day of sale, to:

(i) The unit owner, at the owner's address as shown in the records of the association and, if different, at the address of the unit being foreclosed;

(ii) All mortgage creditors whose names are or can be discovered by the association;

(iii) The director of taxation;

(iv) The director of finance of the county where the unit is located; and

(v) The planned community association in which the unit is located, if any;

(B) Posting notice on the front door or other conspicuous location on the unit not less than twenty-one days before the day of sale; and

(3) Within thirty days after selling the unit, the attorney shall record an affidavit at the bureau of conveyances or the land court to be recorded and indexed according to chapter 501 or 502, as appropriate, setting forth fully and particularly the association's acts consistent with this section; provided that an affidavit recorded pursuant to this paragraph shall include a copy of the notice of sale as an exhibit and may include other evidence of compliance with the requirements of this section; and provided further that the affidavit or a certified copy shall be admitted as evidence of the completion of the foreclosure if it demonstrates that the unit was sold in compliance with the procedures established in this section.

(d) The notice required by subsection (c) shall identify the association foreclosing its lien, contain a description of the unit being foreclosed upon, and contain a statement of the time and place proposed for the sale of the unit no sooner than four weeks from the date when first advertised.

(i) The association shall disclose the sale price of the foreclosed unit once auctioned upon the request of any person entitled to notice pursuant to subsection (c). If the association purchases a unit in foreclosure and proposes to re‑sell the unit, the association shall disclose in writing to all prospective purchasers the recorded amounts and holders of all prior liens as described in subsection (a) of this section on the unit."

SECTION 5. Section 514B-146, Hawaii Revised Statutes, is amended to read as follows:

"§514B-146 Association fiscal matters; lien for assessments. (a) All sums assessed by [~~the~~] an association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens, except:

(1) Liens for taxes and assessments lawfully imposed by governmental authority against the unit; and

The lien of [~~the~~] an association may be foreclosed by action or by nonjudicial or power of sale foreclosure procedures set forth in [~~chapter 667,~~] this section by the managing agent or board, acting on behalf of the association[~~, in like manner as a mortgage of real property~~]. In any [~~such~~] foreclosure[,] pursuant to this section, the unit owner shall be required to pay a reasonable rental for the unit, if [so] provided in the bylaws[,] of the association, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed. The managing agent or board, acting on behalf of the association, unless prohibited by the declaration, may bid on the unit at foreclosure sale[,] and acquire [~~and~~], hold, lease, mortgage, [~~and~~] or convey the unit. Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed.

[(b) Except as provided in subsection (g), when the mortgagee of a mortgage of record or other purchaser of a unit obtains title to the unit as a result of foreclosure of the mortgage, the acquirer of title and the acquirer's successors and assigns shall not be liable for the share of the common expenses or assessments by the association chargeable to the unit which became due prior to the acquisition of title to the unit by the acquirer. The unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the unit owners, including the acquirer and the acquirer's successors and assigns. The mortgagee of record or other purchaser of the unit shall be deemed to acquire title and shall be required to pay the unit's share of common expenses and assessments beginning:

~~(1)~~ ~~Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;~~

~~(2)~~ ~~Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;~~

~~(3)~~ ~~Thirty days after the public sale in a nonjudicial power of sale foreclosure pursuant to section 667‑5; or~~

~~(4)~~ ~~Upon the recording of the instrument of conveyance;~~

whichever occurs first; provided that the mortgagee of record or other purchaser of the unit shall not be deemed to acquire title under paragraph (1), (2), or (3), if transfer of title is delayed past the thirty-six days specified in paragraph (1), the sixty days specified in paragraph (2), or the thirty days specified in paragraph (3), when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court to grant the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy. In any such case, the mortgagee of record or other purchaser of the unit shall be deemed to acquire title upon recordation of the instrument of conveyance.

~~(c) No unit owner shall withhold any assessment claimed by the association. A unit owner who disputes the amount of an assessment may request a written statement clearly indicating:~~

~~(1)~~ ~~The amount of common expenses included in the assessment, including the due date of each amount claimed;~~

~~(2)~~ ~~The amount of any penalty, late fee, lien filing fee, and any other charge included in the assessment;~~

~~(3)~~ ~~The amount of attorneys' fees and costs, if any, included in the assessment;~~

~~(4)~~ ~~That under Hawaii law, a unit owner has no right to withhold assessments for any reason;~~

~~(5)~~ That a unit owner has a right to demand mediation or arbitration to resolve disputes about the amount or validity of an association's assessment, provided the unit owner immediately pays the assessment in full and keeps assessments current; and

~~(6)~~ ~~That payment in full of the assessment does not prevent the owner from contesting the assessment or receiving a refund of amounts not owed.~~

~~Nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.~~

(d) A unit owner who pays an association the full amount claimed by the association may file in small claims court or require the association to mediate to resolve any disputes concerning the amount or validity of the association's claim. If the unit owner and the association are unable to resolve the dispute through mediation, either party may file for arbitration under section 514B‑162; provided that a unit owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the unit owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings. If the unit owner pays all association assessments within thirty days of the date of suspension, the unit owner may ask the arbitrator to recommence the arbitration proceedings. If the owner fails to pay all association assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings. The unit owner shall be entitled to a refund of any amounts paid to the association which are not owed.

(e) In conjunction with or as an alternative to foreclosure proceedings under subsection (a), where a unit is owner-occupied, the association may authorize its managing agent or board to, after sixty days' written notice to the unit owner and to the unit's first mortgagee of the nonpayment of the unit's share of the common expenses, terminate the delinquent unit's access to the common elements and cease supplying a delinquent unit with any and all services normally supplied or paid for by the association. Any terminated services and privileges shall be restored upon payment of all delinquent assessments but need not be restored until payment in full is received.

(f) Before the board or managing agent may take the actions permitted under subsection (e), the board shall adopt a written policy providing for such actions and have the policy approved by a majority vote of the unit owners at an annual or special meeting of the association or by the written consent of a majority of the unit owners.

(g) Subject to this subsection, and subsections (h) and (i), the board may specially assess the amount of the unpaid regular monthly common assessments for common expenses against a person who, in a judicial or nonjudicial power of sale foreclosure, purchases a delinquent unit; provided that:

~~(1)~~ A purchaser who holds a mortgage on a delinquent unit that was recorded prior to the filing of a notice of lien by the association and who acquires the delinquent unit through a judicial or nonjudicial foreclosure proceeding, including purchasing the delinquent unit at a foreclosure auction, shall not be obligated to make, nor be liable for, payment of the special assessment as provided for under this subsection; and

~~(2)~~ A person who subsequently purchases the delinquent unit from the mortgagee referred to in paragraph (1) shall be obligated to make, and shall be liable for, payment of the special assessment provided for under this subsection; and provided further that the mortgagee or subsequent purchaser may require the association to provide at no charge a notice of the association's intent to claim lien against the delinquent unit for the amount of the special assessment, prior to the subsequent purchaser's acquisition of title to the delinquent unit. The notice shall state the amount of the special assessment, how that amount was calculated, and the legal description of the unit.

~~(i) For purposes of subsections (g) and (h), the following definitions shall apply, unless the context requires otherwise:~~

~~"Completion" means:~~

~~(1)~~ ~~In a nonjudicial power of sale foreclosure, when the affidavit required under section 667-5 is filed; and~~

~~(2)~~ ~~In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (b).~~

~~"Regular monthly common assessments" does not include:~~

~~(1)~~ ~~Any other special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B‑148;~~

~~(2)~~ ~~Late charges, fines, or penalties;~~

~~(3)~~ ~~Interest assessed by the association;~~

~~(4)~~ ~~Any lien arising out of the assessment; or~~

~~(5)~~ ~~Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs.~~

~~(j) The cost of a release of any lien filed pursuant to this section shall be paid by the party requesting the release.~~]

(b) In any foreclosure action pursuant to this section:

(1) The association shall be represented by an attorney who is licensed to practice law in the State and is physically located in the State;

(2) The attorney shall give notice of the association's intention to foreclose its lien by:

(A) Mailing notice, by both first class mail and by certified mail, return receipt requested, not less than twenty-one days before the day of sale, to:

(i) The unit owner, at the owner's address as shown in the records of the association and, if different, at the address of the unit being foreclosed;

(ii) All mortgage creditors whose names are or can be discovered by the association;

(iii) The director of taxation;

(iv) The director of finance of the county where the unit is located; and

(v) The planned community association in which the unit is located, if any;

(B) Posting notice on the front door or other conspicuous location on the unit not less than twenty-one days before the day of sale; and

(3) Within thirty days after selling the unit, the attorney shall record an affidavit at the bureau of conveyances or the land court to be recorded and indexed pursuant to chapter 501 or 502, as appropriate, setting forth fully and particularly the association's acts consistent with this section; provided that an affidavit recorded pursuant to this paragraph shall include a copy of the notice of sale as an exhibit and may include other evidence of compliance with the requirements of this section; and provided further that the affidavit or a certified copy shall be admitted as evidence of the completion of the foreclosure if it demonstrates that the unit was sold in compliance with the procedures established in this section.

(g) Except as provided in subsection (f), a down payment of no more than ten per cent of the highest successful bid price, but not more, shall be paid to the association by the successful bidder immediately after the completion of the auction sale; provided that the successful bidder shall remain liable to the association for the balance of the highest successful bid price and for damages, if any, that result from the successful bidder's failure, neglect, or refusal to complete the purchase. The successful bidder's interest in the unit shall be subject to the right, title, and interest of any prior liens as defined in subsection (a) of this section.

(i) The association shall disclose the sale price of the foreclosed unit once auctioned upon the request of any person entitled to notice pursuant to subsection (c). If the association purchases a unit in foreclosure and proposes to re‑sell the unit, the association shall disclose in writing to all prospective purchasers the recorded amounts and holders of all prior liens as described in subsection (a) of this section on the unit."

SECTION 6. Section 603-21.7, Hawaii Revised Statutes, is amended to read as follows:

"§603-21.7 Nonjury cases. The several circuit courts shall have jurisdiction, without the intervention of a jury except as provided by statute, as follows:

(a) Of actions or proceedings:

(1) For the determination and declaration of heirs of deceased persons, which jurisdiction shall be in addition to the probate jurisdiction of the court;

(2) For the admeasurement of dower and curtesy, or the partition of real estate;

(3) For enforcing and regulating the execution of trusts, whether the trusts relate to real or personal estate, for the foreclosure of mortgages, for the foreclosure of liens by a condominium association subject to chapter 514A or 514B or a planned community association subject to chapter 421J, for the specific performance of contracts, and except when a different provision is made they shall have original and exclusive jurisdiction of all other cases in the nature of suits in equity, according to the usages and principles of courts of equity;

(b) Of actions or proceedings in or in the nature of habeas corpus, prohibition, mandamus, quo warranto, and all other proceedings in or in the nature of applications for writs directed to courts of inferior jurisdiction, to corporations and individuals, as may be necessary to the furtherance of justice and the regular execution of the law."

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on July 1, 2011.

THE SENATE	S.B. NO.	1454
TWENTY-SIXTH LEGISLATURE, 2011		S.D. 1
STATE OF HAWAII