HB2749 HD1

SECTION 1. The legislature finds that homeownership creates strong communities through economic growth and helping families build equity and stability. Research has shown that homeowners have a greater sense of security, continuity, belonging and pride in their communities.

The legislature finds that there is a lack of affordable housing for low- and moderate-income households statewide. Residential condominiums developed on state lands under long term leases provide a way to make homeownership affordable to low- and moderate-income households.

The purpose of this Act is to authorize the Hawaii housing finance and development corporation to enter into ninety-nine year leases of residential condominium units located on state lands with eligible low- and moderate-income households.

SECTION 2. Chapter 201H, Hawaii Revised Statutes, is amended by adding a new part to be appropriately designated and to read as follows:

"PART . STATE SUSTAINABLE AFFORDABLE LEASEHOLD HOUSING PROGRAM.

§201H-A Definitions. As used in this part, unless the context otherwise requires:

"Corporation" means the Hawaii housing finance and development corporation.

"Legal and equitable owners" means the corporation and all persons having legal or equitable interests in the fee or in the corporation's leasehold estate, including mortgagees, developers, lienors, and sublessors, and their respective heirs, successors, legal representatives, and assigns.

"Lessee" means any person to whom state land is leased or subleased, and the lessee's heirs, successors, legal representatives, and assigns.

"Lessor" means the corporation and the corporation's successors, legal representatives, and assigns.

The terms "lessor", "lessee", "fee simple owner", "fee owner", and "legal and equitable owners" include individuals, corporations, firms, associations, trusts, estates, and the State or its political subdivisions. When more than one person are the lessors, lessees, fee simple owners, fee owners, or legal and equitable owners of a lot, the terms apply to each of them, jointly and severally.

"Qualified resident" means a qualified resident as defined in section 201H-32.

"State sustainable affordable lease" means a lease by the corporation of a residential condominium unit in a state sustainable affordable leasehold housing project that satisfies all of the following requirements:

(1) The lease provides for a consideration to the corporation below a fair market return on the fair market value of the land; provided that compensation to the corporation for land, including lease rent, shall be either:

(A) Totally capitalized into the initial sales price for the residential condominium unit, including all buildings and improvements; or

(B) Partially capitalized with a share of appreciation paid to the corporation upon resale of the residential condominium unit;

(2) In order to maintain the continued affordability of the residential condominium unit, the lease limits the lessee's maximum sales price on the residential condominium unit upon resale, including all buildings and improvements, as set forth in section 201H-E; and

(3) The lease may allow the corporation to receive a share of the appreciation as agreed to by the corporation and lessee, and as set forth in the lease.

"State sustainable affordable leasehold housing project" means a condominium as defined in section 514B-3 and that satisfies all of the following requirements:

(1) The sales price at the time of initial sale of at least thirty per cent of all the residential condominium units in the project shall be limited in accordance with directly applicable state or county laws, so that households earning not more than the required percentages of the median income for the applicable county will be required to spend no more than the allowable percentage of their gross incomes for housing costs as determined by secondary mortgage market standards or as otherwise agreed, as determined at the time of the initial sale of the residential condominium unit;

(2) The sales price at the time of the initial sale of at least fifty-one per cent of the residential condominium units in the project, including the condominium units subject to the requirements of paragraph (1), and the sales price at the time of a resale of at least fifty‑one per cent of all the residential condominium units property in the project, shall be no higher than eighty per cent of the fair market value of the residential condominium units in fee at the time of initial sale or resale, as appropriate, including all buildings and improvements, unencumbered by the restrictions of the state sustainable affordable lease;

(3) All residential condominium units sold in satisfaction of paragraph (1) or (2) shall be leased under a state sustainable affordable lease; and

(4) The corporation may reduce the minimum percentage of residential condominium units to be sold in satisfaction of paragraph (1) or (2) upon a showing that the state sustainable affordable leasehold housing project comprises a portion of a housing project that includes other housing, which together with the residential condominium units comprising the state sustainable affordable leasehold housing project, satisfies the corporation's affordable housing requirements as set forth in applicable laws.

"State sustainable affordable leasehold land" means land that the corporation owns pursuant to section 201H-9, land set aside to the corporation pursuant to section 171-11, and land leased to the corporation by another state department or agency or by a county and used in whole or in part for a state sustainable affordable leasehold housing project. The corporation as lessor may lease condominium units on state sustainable affordable leasehold land under a state sustainable affordable lease for a term, measured from the initial date of the conveyance, of no longer than ninety-nine years, which may be renewed under conditions set forth in the state sustainable affordable lease.

§201H-B State sustainable affordable leasehold housing program; authorization. The corporation may enter into state sustainable affordable leases with lessees in state sustainable affordable leasehold housing projects.

§201H-C Exemption for state sustainable affordable leasehold housing projects. Notwithstanding any law to the contrary, state sustainable affordable leasehold housing projects shall be exempt from chapter 516, and no lessee under a state sustainable affordable lease may exercise the rights granted to a lessee by chapter 516.

§201H‑D Recordkeeping. The corporation shall maintain during the term of all state sustainable affordable leases records regarding income levels and other qualifications of buyers of state sustainable affordable leases at the time of purchase.

§201H-E Transfers; options; restrictions; waiver of restrictions. (a) The following restrictions shall apply to the transfer of a residential condominium unit sold under this part:

(1) If a lessee wishes to transfer title of the unit, the corporation shall have the first option to purchase the unit at a price that shall not exceed the sum of:

(A) The original cost to the seller, as defined in rules adopted by the corporation;

(B) The cost of any improvements added by the seller, as defined in rules adopted by the corporation;

(D) The corporation's share of net appreciation in the unit, as defined in rules adopted by the corporation;

(2) The corporation may purchase the unit either:

(A) By conveyance free and clear of all mortgages and liens; provided all mortgages and liens are released; or

(B) By conveyance subject to existing mortgages and liens;

The corporation's interest created by this section shall constitute a statutory lien on the unit and shall be superior to any other mortgage or lien except for:

(i) Any first mortgage created for the purpose of securing the payment of a loan of funds expended solely for the purchase of the unit by the seller;

(ii) Any mortgage insured or held by a federal housing agency; and

(iii) Any mortgage or lien created for any other purpose; provided that the corporation has previously consented to it in writing.

The amount paid by the corporation to the seller shall be the difference, if any, between the purchase price determined by paragraph (1)(A) through (C), and the total of the outstanding principal balances of the mortgages and liens assumed by the corporation;

(3) A purchaser may refinance a unit sold under this part; provided that the purchaser shall not refinance the unit within ten years from the date of purchase for an amount in excess of the purchase price as determined by paragraph (1)(A) through (C); provided that the purchaser shall obtain the corporation's written consent if any restriction on the transfer of the unit remains applicable;

(4) Notwithstanding any provision in this section to the contrary, the subsidy or deferred sales price and any interest accrued may be paid, at any time; and

(5) Notwithstanding any provision in this section to the contrary, the corporation's share of appreciation in the unit:

(A) Shall apply when the sales price of the unit that is sold under this part is less than the current, unencumbered, fair market value of the unit as determined by a real property appraisal obtained prior to the closing of the sale;

(B) Shall be a restriction that runs with the unit until it is paid in full and released by the corporation, or extinguished pursuant to subsection (f); and

(b) If the corporation waives its first option to repurchase the unit provided in subsection (a), a qualified nonprofit housing trust shall have the option to purchase the unit at the price and in the manner set forth in subsection (a).

(c) For a period of ten years after the purchase, whether by lease, assignment of lease, deed, or agreement of sale, if the purchaser wishes to transfer title of the unit, and if the corporation or the qualified nonprofit housing trust selected by the corporation does not exercise the option to purchase the unit as provided in subsection (a) or (b), then the corporation shall require the purchaser to sell the unit to a qualified resident, and upon the terms in accordance with sections 201H-F and 201H-G, and rules adopted by the corporation.

(d) The corporation may waive the restrictions prescribed in subsections (a) through (c) if:

(1) A lessee wishes to transfer title to the unit by devise or through the laws of descent to a family member who would otherwise qualify under rules established by the corporation;

(2) The sale or transfer of the unit would be at a price and upon terms that preserve the intent of this section without the necessity of the State repurchasing the unit; provided that, in this case, the lessee shall sell the unit and sell or assign the unit to a person who is a qualified resident; and provided further that the seller shall pay to the corporation its share of appreciation in the unit as determined in applicable rules; or

(3) The sale or transfer is of the unit subject to a sustainable affordable lease as defined in section 516-1.

(e) The corporation may release the restrictions prescribed in subsections (a) through (c) if the unit is financed under a federally subsidized mortgage program and the restrictions would jeopardize the federal government's ability to recapture any interest credit subsidies provided to the homeowner.

(f) The restrictions prescribed in this section and section 201H-G shall be automatically extinguished and shall not attach in subsequent transfers of title when a qualified nonprofit housing trust becomes the owner of the unit pursuant to subsection (b); or a mortgage holder or other party becomes the owner of the unit pursuant to a mortgage foreclosure, foreclosure under power of sale, or a conveyance in lieu of foreclosure after a foreclosure action is commenced; provided that the mortgage is the initial purchase money mortgage, or that the corporation consented to and agreed to subordinate the restrictions to the mortgage when originated, if the mortgage is not the initial purchase money mortgage; or when a mortgage is assigned to a federal housing agency. Any law to the contrary notwithstanding, a mortgagee under a mortgage covering real property or leasehold interest encumbered by the first option to purchase in favor of the corporation, prior to commencing mortgage foreclosure proceedings, shall notify the corporation in writing of:

(1) Any default of the mortgagor under the mortgage within ninety days after the occurrence of the default; and

(2) Any intention of the mortgagee to foreclose the mortgage under chapter 667, forty-five days prior to commencing mortgage foreclosure proceedings;

provided that the mortgagee's failure to provide written notice to the corporation shall not affect the mortgage holder's rights under the mortgage. The corporation shall be a party to any foreclosure action, and shall be entitled to its share of appreciation in the unit as determined under this chapter in lien priority when the payment is applicable, and if foreclosure occurs within the ten-year period after a purchase, the corporation shall also be entitled to all proceeds remaining in excess of all customary and actual costs and expenses of transfer pursuant to default, including liens and encumbrances of record; provided that the person in default shall be entitled to an amount that shall not exceed the sum of amounts determined pursuant to subsection (a)(1)(B) and (C).

(g) The provisions of this section shall be incorporated in any lease, deed, agreement of sale, or any other instrument of conveyance issued by the corporation. In any sale by the corporation of a unit for which a subsidy or deferred sales price was made by the corporation, the amount of the subsidy or deferred sales price, description of the cost items that constitute the subsidy or deferred sales price, and the conditions of the subsidy or deferred sales price shall be clearly stated at the beginning of the contract document issued by the corporation. In any sale in which the corporation's share of appreciation in a unit is a restriction, the terms of the shared appreciation equity program shall be clearly stated and included as an exhibit in any lease, agreement of sale, or any other instrument of conveyance.

(h) This section need not apply to market-priced units in an economically integrated housing project, except as otherwise determined by the developer of the units and the corporation; provided that preference shall be given to qualified residents in the initial sale of market-priced units.

(i) The corporation is authorized to waive any of the restrictions set forth in this section in order to comply with or conform to requirements set forth in federal law or regulations governing mortgage insurance or guarantee programs or requirements set forth by federally chartered secondary mortgage market participants.

(j) Notwithstanding any law to the contrary, if a unit is purchased by a qualified nonprofit housing trust pursuant to subsection (b), the housing trust shall establish new buyback restrictions for the purpose of maintaining the unit as affordable for as long as practicable, or as otherwise required by the corporation.

(k) A qualified nonprofit housing trust shall report the status and use of its units in a state sustainable affordable leasehold housing project to the corporation by November 30 of each calendar year.

§201H-F Restrictions on use; occupancy requirement. (a) A unit in a state sustainable affordable leasehold housing project purchased under this part shall be occupied by the purchaser at all times during the term of the state sustainable affordable lease, except in hardship circumstances where the inability to reside on the property arises out of unforeseeable job or military transfer, a temporary educational sabbatical, serious illness of the person, or in other hardship circumstances as determined by the corporation on a case-by-case basis.

The corporation may waive the owner-occupancy requirement for a total of not more than ten years after the purchase of the unit, during which time the unit may be rented or leased. Waivers may be granted only to qualified residents who have paid resident state income taxes during all years in which they occupied the dwelling, who continue to pay resident state income taxes during the waiver period, and whose inability to reside on the property does not stem from a natural disaster.

The corporation shall adopt rules pursuant to chapter 91 to implement this subsection and to prescribe necessary terms and conditions. The rules shall include:

(1) Application and approval procedures for the waivers;

(2) Exceptions authorized by this subsection;

(3) The amounts of rents that may be charged by persons allowed to rent or lease a unit; and

(4) Schedules of fees needed to cover administrative expenses and attorneys' fees.

No qualified resident who fails to reoccupy a unit after any waiver period shall receive more than the maximum to which the person would be entitled under section 201H-E. Any person who disagrees with the corporation's determination under this section shall be entitled to a contested case proceeding under chapter 91.

(b) From time to time the corporation may submit a verification of owner-occupancy form to the lessee. Failure to respond to the verification in a timely manner or violation of subsection (a) shall be sufficient reason for the corporation, at its option, to purchase the unit as provided in section 201H-E.

(c) Any lease, deed, agreement of sale, or other instrument of conveyance issued by the corporation shall expressly contain the restrictions on use prescribed in this section.

(d) The restrictions prescribed in subsection (a) shall terminate and shall not attach in subsequent transfers of title if the corporation releases the restrictions when the unit is financed under a federally subsidized mortgage program.

(e) Subsections (a) through (c) shall not apply to market-priced units in an economically integrated housing project, except as otherwise determined by the developer of the units and the corporation; provided that preference shall be given to qualified residents in the initial sale of market-priced units.

(f) The corporation shall be authorized to waive any of the restrictions set forth in this section in order to comply with or conform to requirements set forth in federal law or regulations governing mortgage insurance or guarantee programs or requirements set forth by federally chartered secondary mortgage market participants.

§201H-G Restrictions on use, sale, and transfer of real property; effect of amendment or repeal. (a) Restrictions on the use, sale, and transfer of real property shall be made as uniform as possible in application to purchasers of all residential condominium units, and restrictions shall be conformed with applicable rules. Purchasers shall be permitted at their election to sell or transfer units subject to restrictions in effect at the time of their sale or transfer; provided that the corporation is paid its share of appreciation in the unit as determined by rules adopted.

(b) The corporation, any department of the State, or any county housing agency maintaining restrictions, through contract, deed, other instrument, or by rule, shall notify purchasers of any substantial change in restrictions made by law, ordinance, rule, or regulation not more than one hundred eighty days after a change in restrictions. The notice shall clearly state the enacted or proposed new provisions, the date or dates upon which they are to be effective, and offer to each purchaser of a residential condominium unit constructed and sold prior to the effective date an opportunity to modify the existing contract or other instrument to incorporate the most recent provisions. Public notice shall also be given at least three times in the State for state agencies and at least three times in a county for county agencies.

(c) No purchaser shall be entitled to modify the restrictions on use, transfer, or sale of a residential condominium unit, without the written permission of the holder of a duly-recorded first mortgage on the real property and the corporation, unless the holder of the first mortgage or the owner is an agency of the State or its political subdivisions.

(d) This section shall apply to all residential condominium units leased pursuant to this chapter and that are leased on the condition that the lessee accepts restrictions on the use, sale, or transfer of interest in the unit leased.

(e) The provisions of this section shall be incorporated in any State sustainable affordable lease or instrument, rule, or regulation relating to restrictions on use, sale, or transfer of a residential condominium unit subject to a State sustainable affordable lease.

(f) The restrictions of this section shall terminate as to a particular residential condominium unit and shall not attach in subsequent transfers of title of that unit if the corporation releases the restrictions when the unit is financed under a federally subsidized mortgage program.

§201H-H Substantial defect; authority to seek recovery. (a) Notwithstanding any provisions to the contrary, during the term of the state sustainable affordable lease, the following provisions shall apply when a state sustainable affordable leasehold housing project is found to have a substantial construction defect or a substantial soil defect:

(1) The corporation shall have the right, but not the obligation, to repurchase a unit in a state sustainable affordable leasehold housing project that has a defect, regardless of whether or not the lessee wishes to sell; provided that the repurchase shall be in accordance with the following provisions:

(A) The corporation may repurchase the unit if:

(i) The state sustainable affordable leasehold housing project is deemed unsafe by the county building department;

(ii) The defects are irreparable; or

(iii) In the opinion of the corporation, the defect is of such magnitude that it will take longer than one year to repair;

(B) The corporation's purchase price shall be based on the formula set forth in section 201H‑E(a)(1);

(C) After repairs to the unit or state sustainable affordable leasehold housing project are completed, the former owner shall have the first right of refusal to repurchase the unit;

(D) The corporation shall give preference in all other projects of the corporation to all owners whose unit is repurchased by the corporation under this subsection, and the corporation may waive certain eligibility requirements for these owners; and

(E) If the corporation exercises its right to repurchase a defective unit against an owner's wishes pursuant to this paragraph, the corporation shall provide relocation assistance to that owner as provided in chapter 111;

(2) If the corporation does not opt to repurchase a unit, the corporation shall also have the right, but not the obligation, to enter into a contract to repair a unit that has a construction defect or soil defect. During the period that the unit is being repaired, the corporation shall rent that unit from the owner for an amount not to exceed the owner's present mortgage payments; and

(3) If the corporation does not execute either a contract to repurchase the unit or an agreement to repair and rent the unit within ninety days after written notice is given to the corporation of a construction defect, the owner may pursue any other available legal remedies.

(b) If moneys are expended by the corporation pursuant to subsection (a)(1) and (2), the corporation shall have the authority to take necessary legal action against the developer, co‑developer, general contractor, and their subcontractors, consultants, and other parties notwithstanding chapter 657.

(c) If a unit in a state sustainable affordable leasehold housing project leased under this chapter is found to have a substantial construction or soil defect, the corporation shall have the right, but not the obligation, to file or cause to be filed a legal action on behalf of or by the lessee of the unit for the recovery of damages or for injunctive relief against the developer, co-developer, general contractor, and their subcontractors, consultants, and other parties notwithstanding chapter 657. Additionally, notwithstanding any provision of rule 23 of the Hawaii Rules of Civil Procedure, the corporation may file or cause to be filed a legal action brought under this subsection as a class action on behalf of or by at least two lessees of residential condominium units that have similar substantial construction or soil defects.

(d) Nothing in this chapter shall be construed to diminish the rights or remedies of the corporation otherwise provided under common law, by law, or by contract.

(e) This section shall not apply to a particular residential condominium unit and shall not apply after subsequent transfers of title of a unit if the corporation releases the restrictions when the unit is financed under a federally subsidized mortgage program.

(f) For the purposes of this section:

"Substantial construction defect" includes but is not limited to:

(1) Structural defects such as shifting foundations and bearing walls;

(2) Structural deficiencies due to the use of defective or undersized materials; and

(3) Defects affecting the health and safety of occupants.

"Substantial soil defect" means shifting, sliding, or sinking ground of such degree as to affect the residential condominium unit on the land or the health and safety of the occupants of the land.

§201H-I Rules. The corporation shall adopt rules pursuant to chapter 91 for the purposes of this part."

SECTION 3. Section 235-116, Hawaii Revised Statutes, is amended to read as follows:

"§235-116 Disclosure of returns unlawful; penalty. (a) All tax returns and return information required to be filed under this chapter shall be confidential, including any copy of any portion of a federal return that may be attached to a state tax return, or any information reflected in the copy of the federal return. [It] Except as provided in subsection (b), it shall be unlawful for any person, or any officer or employee of the State, including the auditor or the auditor's agent with regard to tax return information obtained pursuant to section 23-5(a), to make known intentionally information imparted by any income tax return or estimate made under sections 235-92, 235-94, 235-95, and 235-97 or wilfully to permit any income tax return or estimate so made or copy thereof to be seen or examined by any person other than the taxpayer or the taxpayer's authorized agent, persons duly authorized by the State in connection with their official duties, the Multistate Tax Commission or the authorized representative thereof, except as otherwise provided by law. Any offense against the foregoing provisions shall be punishable as a class C felony.

(b) Any officer or employee of the department of taxation who makes known income tax return information shall be exempt from subsection (a); provided that:

(1) The income tax return information is provided to the Hawaii housing finance and development corporation for the purposes of section 201H-F; and

(2) The income tax return information is limited to:

(A) Whether a person filed income tax returns; and

(B) The years of such returns."

SECTION 4. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 5. In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 6. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 7. This Act shall take effect on January 1, 2050.

HOUSE OF REPRESENTATIVES	H.B. NO.	2749
TWENTY-NINTH LEGISLATURE, 2018		H.D. 1
STATE OF HAWAII