REPORT TITLE:
Condominiums


DESCRIPTION:
Establishes a fair market value standard (FMVS) for appraising
the leased fee interest of condo and co-op housing corp. for
leases that do not specify an appraisal standard and for leases
on or after effective date of this Act; allows FMVS if lessor and
lessee agree for leases prior to date of this Act.  Clarifies the
powers of the boards of directors of associations of apartment
owners to enter into purchase agreements with lessors in order to
facilitate and encourage voluntary lease-to-fee conversions of
condominium projects.  Requires mortgage holders to pay common
expenses to the association while foreclosure proceedings are
pending, if the unit is being rented pending the foreclosure.
Increases membership of real estate commission by 2 members who
must 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 assoc to deposit funds in out-of-state financial
institutions and credit unions.  (SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1276
HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 1999                                S.D. 2
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 a standard is needed
 
 3 to clarify the conditions in which a fee simple owner offers a
 
 4 leased fee interest in condominiums and cooperative housing
 
 5 corporations to be purchased by a lessee.  The appraisal of these
 
 6 properties should be based on their fair market value to ensure
 
 7 equity and fairness in the process.
 
 8      One method to accomplish this purpose would be to first
 
 9 calculate the fair market value of the real property.  After
 
10 determining the total interest of the fee owner, this percentage
 
11 of the property would be assigned to determine proportionate
 
12 percentages of ownership between the fee owner and the lessee.
 
13      The purpose of this Part is to establish a fair market value
 
14 standard for determining the value of the leased fee interest to
 
15 be purchased by a lessee.
 
16      SECTION 2.  Chapter 519, Hawaii Revised Statutes is amended
 
17 by adding a new section to be appropriately designated and to
 
18 read as follows:
 
19      "§519-     Appraisal method for cooperative housing
 

 
Page 2                                                     1276
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 1 corporation lease-to-fee conversion.  (a)  All leases, including
 
 2 subleases executed by a cooperative housing corporation as
 
 3 lessee, and subleases acquired by a cooperative housing
 
 4 corporation by assignment, executed prior to the effective date
 
 5 of this Act, that establish within the lease or sublease an
 
 6 appraisal method for determining the value of the lease-to-fee
 
 7 conversion, may use the following fair market value conversion
 
 8 appraisal method to compute the value of a lease-to-fee
 
 9 conversion:
 
10      (1)  A qualified real estate appraiser shall complete a
 
11           leased fee analysis of the property to determine the
 
12           fair market value of the property;
 
13      (2)  The fee owner's total interest in the property is
 
14           calculated;
 
15      (3)  After determining the total interest of the fee owner,
 
16           this percentage of the property would be assigned to
 
17           determine proportionate percentages of ownership
 
18           between the fee owner and the lessee; and
 
19      (4)  The amount for the lease-to-fee conversion would then
 
20           be calculated based on the percentages set forth in
 
21           paragraph (3);
 
22 so long as all parties to the lease agree to the use of this
 
23 method.
 

 
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 1      (b)  All leases, including subleases executed by a
 
 2 cooperative housing corporation as lessee and subleases acquired
 
 3 by a cooperative housing corporation by assignment executed: 
 
 4      (1)  On or subsequent to this Act; or 
 
 5      (2)  Prior to this Act that do not specify an appraisal
 
 6           method in the lease;
 
 7 shall use the fair market value conversion appraisal method set
 
 8 forth in subsection (a) to compute the value of a lease-to-fee
 
 9 conversion.
 
10      (c)  For purposes of this section:
 
11      "Cooperative housing corporation" has the meaning set forth
 
12 in section 519-3(d).
 
13      "Fair market value" means that amount of money that a
 
14 purchaser willing, but not obliged, to buy an interest in land
 
15 would pay an owner willing, but not obliged, to sell it, taking
 
16 into consideration all uses to which the land is adapted or might
 
17 in reason be applied.
 
18      "Lease" or "sublease" means a conveyance of land or an
 
19 interest in land, by a fee simple owner as lessor, or by a lessee
 
20 or sublessee as sublessor, to any person, in consideration of a
 
21 return of rent or other recompense, for a term, measured from the
 
22 initial date of the lease or sublease, of twenty years or more,
 
23 including any periods for which the lease may be extended or
 

 
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 1 renewed at the option of the lessee.
 
 2      "Lessee" means any person to whom land is leased or
 
 3 subleased, and the lessee's heirs, successors, legal
 
 4 representatives, and assigns.
 
 5      (d)  This section shall not apply to lease-to-fee conversion
 
 6 through condemnation."
 
 7      SECTION 3.  Chapter 514A, Hawaii Revised Statutes is amended
 
 8 by adding a new section to be appropriately designated and to
 
 9 read as follows:
 
10      "§514A-     Appraisal method for condominium lease-to-fee
 
11 conversion.  (a)  All condominium leases, including subleases,
 
12 executed prior to the effective date of this Act, that establish
 
13 within the lease or sublease an appraisal method for determining
 
14 the value of the lease-to-fee conversion, may use the following
 
15 fair market value conversion appraisal method to compute the
 
16 value of a lease-to-fee conversion:
 
17      (1)  A qualified real estate appraiser shall complete a
 
18           leased fee analysis of the property to determine the
 
19           fair market value of the property;
 
20      (2)  The fee owner's total interest in the property is
 
21           calculated;
 
22      (3)  After determining the total interest of the fee owner,
 
23           this percentage of the property would be assigned to
 

 
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                                     H.B. NO.           H.D. 1
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 1           determine proportionate percentages of ownership
 
 2           between the fee owner and the lessee; and
 
 3      (4)  The amount for the lease-to-fee conversion would then
 
 4           be calculated based on the percentages set forth in
 
 5           paragraph (3);
 
 6 so long as all parties to the lease agree to the use of this
 
 7 method.
 
 8      (b)  All condominium leases, including subleases, executed: 
 
 9      (1)  On or subsequent to this Act; or 
 
10      (2)  Prior to this Act that do not specify an appraisal
 
11           method in the lease;
 
12 shall use the fair market value conversion appraisal method set
 
13 forth in subsection (a) to compute the value of a lease-to-fee
 
14 conversion.
 
15      (c)  For purposes of this section:
 
16      "Fair market value" means that amount of money that a
 
17 purchaser willing, but not obliged, to buy an interest in land
 
18 would pay an owner willing, but not obliged, to sell it, taking
 
19 into consideration all uses to which the land is adapted or might
 
20 in reason be applied.
 
21      "Lease" or "sublease" means a conveyance of land or an
 
22 interest in land, by a fee simple owner as lessor, or by a lessee
 
23 or sublessee as sublessor, to any person, in consideration of a
 

 
Page 6                                                     1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1 return of rent or other recompense, for a term, measured from the
 
 2 initial date of the lease or sublease, of twenty years or more,
 
 3 including any periods for which the lease may be extended or
 
 4 renewed at the option of the lessee.
 
 5      "Lessee" or "sublease" means any person to whom land is
 
 6 leased or subleased, and the lessee's heirs, successors, legal
 
 7 representatives, and assigns.
 
 8      (d)  This section shall not apply to lease-to-fee conversion
 
 9 through condemnation."
 
10                             Part II.
 
11      SECTION 4.  The legislature finds that condominium lessees
 
12 are often able to acquire the leased fee interest appurtenant to
 
13 their apartments at more affordable prices when the association
 
14 of apartment owners negotiates directly with the project's lessor
 
15 for a bulk purchase of all of the lessor's interests by the
 
16 association and its members.  The legislature further finds that
 
17 it is necessary to clarify the powers of the boards of directors
 
18 of associations of apartment owners to enter into purchase
 
19 agreements with lessors in order to facilitate and encourage
 
20 voluntary lease-to-fee conversions of condominium projects in an
 
21 efficient and economical manner.
 
22      SECTION 5.  Section 514A-82, Hawaii Revised Statutes, is
 
23 amended by amending subsection (b) to read as follows:
 

 
Page 7                                                     1276
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                                                        S.D. 2
                                                        

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

 
Page 8                                                     1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1           send out the notices for the special meeting in
 
 2           accordance with the requirements of the bylaws.  Except
 
 3           as otherwise provided herein, the meeting for the
 
 4           removal and replacement from office of directors shall
 
 5           be scheduled, noticed, and conducted in accordance with
 
 6           the bylaws of the association.
 
 7      (2)  The bylaws may be amended at any time by the vote or
 
 8           written consent of sixty-five per cent of all apartment
 
 9           owners; provided that each one of the particulars set
 
10           forth in this section shall be embodied in the bylaws
 
11           always; and provided further that any proposed bylaws
 
12           with the rationale for the proposal may be submitted by
 
13           the board of directors or by a volunteer apartment
 
14           owners' committee.  If submitted by that committee, it
 
15           shall be accompanied by a petition signed by not less
 
16           than twenty-five per cent of the apartment owners as
 
17           shown in the association's record of ownership.  The
 
18           proposed bylaws, rationale, and ballots for voting on
 
19           any proposed bylaw shall be mailed by the board of
 
20           directors to the owners at the expense of the
 
21           association for vote or written consent without change
 
22           within thirty days of the receipt of the petition by
 
23           the board of directors.  The vote or written consent
 

 
Page 9                                                     1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1           required to adopt the proposed bylaw shall not be less
 
 2           than sixty-five per cent of all apartment owners;
 
 3           provided that the vote or written consent must be
 
 4           obtained within one hundred twenty days after mailing.
 
 5           In the event that the bylaw is duly adopted, then the
 
 6           board shall cause the bylaw amendment to be recorded in
 
 7           the bureau of conveyances or filed in the land court,
 
 8           as the case may be.  The volunteer apartment owners'
 
 9           committee shall be precluded from submitting a petition
 
10           for a proposed bylaw that is substantially similar to
 
11           that which has been previously mailed to the owners
 
12           within one year after the original petition was
 
13           submitted to the board.  This subsection shall not
 
14           preclude any apartment owner or voluntary apartment
 
15           owners' committee from proposing any bylaw amendment at
 
16           any annual association meeting.
 
17      (3)  Notices of association meetings, whether annual or
 
18           special, shall be sent to each member of the
 
19           association of apartment owners at least fourteen days
 
20           prior to the meeting, and shall contain at least:  the
 
21           date, time, and place of the meeting, the items on the
 
22           agenda for the meeting, and a standard proxy form
 
23           authorized by the association, if any.
 

 
Page 10                                                    1276
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 1      (4)  No resident manager or managing agent shall solicit,
 
 2           for use by the manager or managing agent, any proxies
 
 3           from any apartment owner of the association of owners
 
 4           that employs the resident manager or managing agent,
 
 5           nor shall the resident manager or managing agent cast
 
 6           any proxy vote at any association meeting except for
 
 7           the purpose of establishing a quorum.  No member of a
 
 8           board of directors who uses association funds to
 
 9           solicit proxies shall cast any of these proxy votes for
 
10           the election or reelection of board members at any
 
11           association meeting unless the proxy form specifically
 
12           authorizes the board member to vote for the election or
 
13           reelection of board directors and the board first posts
 
14           notice of its intent to solicit proxies in prominent
 
15           locations within the project at least thirty days prior
 
16           to its solicitation of proxies; provided that if the
 
17           board receives within seven days of the posted notice a
 
18           request by any owner for use of association funds to
 
19           solicit proxies accompanied by a statement, the board
 
20           shall mail to all owners either:
 
21           (A)  A proxy form containing the names of all owners
 
22                who have requested the use of association funds
 
23                for soliciting proxies accompanied by their
 

 
Page 11                                                    1276
                                     H.B. NO.           H.D. 1
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 1                statements; or
 
 2           (B)  A proxy form containing no names, but accompanied
 
 3                by a list of names of all owners who have
 
 4                requested the use of association funds for
 
 5                soliciting proxies and their statements.
 
 6           The statement shall not exceed one hundred words,
 
 7           indicating the owner's qualifications to serve on the
 
 8           board and reasons for wanting to receive proxies.
 
 9      (5)  A director who has a conflict of interest on any issue
 
10           before the board shall disclose the nature of the
 
11           conflict of interest prior to a vote on that issue at
 
12           the board meeting, and the minutes of the meeting shall
 
13           record the fact that a disclosure was made.
 
14      (6)  The apartment owners shall have the irrevocable right,
 
15           to be exercised by the board of directors, to have
 
16           access to each apartment from time to time during
 
17           reasonable hours as may be necessary for the operation
 
18           of the property or for making emergency repairs therein
 
19           necessary to prevent damage to the common elements or
 
20           to another apartment or apartments.
 
21      (7)  An owner shall not act as an officer of an association
 
22           and an employee of the managing agent employed by the
 
23           association.
 

 
Page 12                                                    1276
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 1      (8)  An association's employees shall not engage in selling
 
 2           or renting apartments in the condominium in which they
 
 3           are employed except association-owned units, unless
 
 4           such activity is approved by an affirmative vote of
 
 5           sixty-five per cent of the membership.
 
 6      (9)  The board of directors shall meet at least once a year.
 
 7           Whenever practicable, notice of all board meetings
 
 8           shall be posted by the resident manager or a member of
 
 9           the board in prominent locations within the project
 
10           seventy-two hours prior to the meeting or
 
11           simultaneously with notice to the board of directors.
 
12     (10)  Directors shall not expend association funds for their
 
13           travel, directors' fees, and per diem, unless owners
 
14           are informed and a majority approve of these expenses.
 
15     (11)  Associations at their own expense shall provide all
 
16           board members with a current copy of the association's
 
17           declaration, bylaws, house rules, and, annually, a copy
 
18           of this chapter with amendments.
 
19     (12)  The directors may expend association funds, which shall
 
20           not be deemed to be compensation to the directors, to
 
21           educate and train themselves in subject areas directly
 
22           related to their duties and responsibilities as
 
23           directors; provided that the approved annual operating
 

 
Page 13                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1           budget include these expenses as separate line items.
 
 2           These expenses may include registration fees, books,
 
 3           videos, tapes, other educational materials, and economy
 
 4           travel expenses.  Except for economy travel expenses
 
 5           within the State, all other travel expenses incurred
 
 6           under this subsection shall be subject to the
 
 7           requirements of subsection 514A-82(b)(10).
 
 8     (13)  (A)  The association of apartment owners may purchase
 
 9                the lessor's interest in the condominium project;
 
10                provided that the declaration of condominium
 
11                property regime shall either contain or be amended
 
12                to include a provision authorizing the board of
 
13                directors to effectuate such a purchase.  If the
 
14                lessor is also a condominium unit lessee, the
 
15                lessor's lessee interest shall be disregarded in
 
16                the computation of the percentage of apartment
 
17                owners needed to achieve the vote or written
 
18                consent required in order to amend the declaration
 
19                of condominium property regime.
 
20           (B)  If the association of apartment owners purchases
 
21                the lessor's interest pursuant to this section,
 
22                the following powers, in addition to any other
 
23                powers, shall be conferred upon the association of
 

 
Page 14                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1                apartment owners:
 
 2                (i)  To purchase or otherwise acquire, own,
 
 3                     improve, use, and otherwise deal in and with
 
 4                     the leased fee interest to the land or any or
 
 5                     all undivided interests therein;
 
 6               (ii)  To incur liabilities, borrow money, and
 
 7                     secure any of its obligations by mortgage or
 
 8                     pledge of all or any portion of its property,
 
 9                     assessments, and funds;
 
10              (iii)  To assess, as a common expense, the apartment
 
11                     owners for the expenses incurred in acquiring
 
12                     the leased fee interest to the land, or to
 
13                     service any debt associated therewith; and
 
14               (iv)  To sell the leased fee interest appurtenant
 
15                     to a condominium unit to any condominium unit
 
16                     lessee or subsequent purchaser of such unit.
 
17                No condominium lessee shall be compelled to
 
18                purchase the portion of the leased fee interest of
 
19                the property appurtenant to the lessee's
 
20                apartment, but may instead pay lease rent to the
 
21                association of owners together with the lessee's
 
22                share of the common expenses incurred in acquiring
 
23                the leased fee interest to the land, or including
 

 
Page 15                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1                any debt associated therewith.
 
 2           (C)  As used in this paragraph, "lessor" means any or
 
 3                all of the fee simple owners and other persons
 
 4                having legal or equitable ownership interests in
 
 5                the leased fee interest appurtenant to the various
 
 6                apartments in the condominium project and in the
 
 7                various apartment and ground leases including, but
 
 8                not limited to, any sublessor, but shall not
 
 9                include the apartment lessees or sublessees.
 
10 The provisions of this subsection shall be deemed incorporated
 
11 into the bylaws of all condominium projects existing as of
 
12 January 1, 1988, and all condominium projects created after that
 
13 date."
 
14      SECTION 6.  No purchase or conveyance of the leased fee
 
15 interest made prior to the effective date of this Act to or by an
 
16 association of owners in a good faith belief that the purchase or
 
17 conveyance was valid, and no borrowing, mortgage, or pledge by an
 
18 association of owners in connection therewith shall be invalid
 
19 because it was without capacity or power to do such an act or to
 
20 make or receive such conveyance, transfer, or loan, nor shall any
 
21 apartment owner be excused from paying such owner's share of the
 
22 common expenses incurred in acquiring the leased fee interest to
 
23 the land, or to service any debt associated therewith on account
 

 
Page 16                                                    1276
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 1 of any such lack of capacity of power.
 
 2                             Part III.
 
 3      SECTION 7.  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 8.  The legislature finds that the real estate
 
18 commission collects annual fees from condominium owners
 
19 associations for deposit to the condominium management education
 
20 fund.  In recent years, the number of training and workshop
 
21 opportunities provided for condominium management has been
 
22 limited.  Therefore, excess funds are at-risk of being deposited
 
23 into the general fund.  In an effort to keep government
 

 
Page 17                                                    1276
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                                                        S.D. 2
                                                        

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

 
Page 18                                                    1276
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                                                        S.D. 2
                                                        

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

 
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                                                        S.D. 2
                                                        

 
 1 provide office space, and to purchase equipment, furniture, and
 
 2 supplies [required by the commission to carry out its
 
 3 responsibilities under this part].  Moneys used from the
 
 4 condominium management education fund must exclusively be used to
 
 5 carry out the commission's responsibilities under this part."
 
 6                             PART IV.
 
 7      SECTION 11.  The legislature finds that condominium
 
 8 associations are unable to collect maintenance fees that remain
 
 9 unpaid prior to and during foreclosure proceedings.  The
 
10 legislature further finds that financial institutions refuse to
 
11 pay for any outstanding maintenance fees even though secondary
 
12 mortgage market lenders will reimburse financial institutions for
 
13 up to six months of owners' delinquent maintenance fees.
 
14      The legislature further finds that in cases where there is a
 
15 mortgage lien that is recorded prior to the recordation of the
 
16 association's notice of lien and the foreclosure sale proceeds
 
17 are insufficient to pay the claims of both the mortgagee and the
 
18 association, the lien priority for condominium associations
 
19 unfairly requires non-delinquent apartment owners to bear the
 
20 entire burden of unpaid common expenses assessments accrued by a
 
21 delinquent owner. 
 
22      The legislature further finds that section 514A-83.6, Hawaii
 
23 Revised Statutes (HRS), requires condominium associations to
 

 
Page 20                                                    1276
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                                                        S.D. 2
                                                        

 
 1 build up their reserves through the collection of maintenance
 
 2 fees to ensure the availability of funds for repair and
 
 3 improvement of their aging buildings.  Currently, these funds
 
 4 must be deposited in Hawaii financial institutions only.
 
 5      The legislature further finds that currently there are eight
 
 6 financial institutions in the State that offer Federal Deposit
 
 7 Insurance Corporation protection up to a limit of $100,000 per
 
 8 account.  The legislature further finds that the requirements
 
 9 under section 514A-83.6, HRS, may result in condominium
 
10 association's reserve accounts being so large that they will
 
11 exceed $100,000 and be uninsured.
 
12      The purpose of this Act is to grant the condominium
 
13 associations a lien for unpaid common expenses with a limited
 
14 priority over mortgage liens; and to permit condominium
 
15 associations to deposit funds in financial institutions and
 
16 credit unions located outside of the State.
 
17      SECTION 12.  Chapter 514A, Hawaii Revised Statutes, is
 
18 amended by adding a new section to part V to be appropriately
 
19 designated and to read as follows:
 
20      "§514A-     Termination of utilities.  Notwithstanding any
 
21 law, rule, or provision of the condominium declaration, bylaws,
 
22 or house rules to the contrary, after thirty days' prior written
 
23 notice of nonpayment of common assessments to the apartment
 

 
Page 21                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

 
 1 tenant, owner, or mortgagee, the association of apartment owners
 
 2 may authorize its board of directors to terminate the delinquent
 
 3 apartment's common privileges and cease supplying the delinquent
 
 4 apartment with any and all services normally supplied or paid for
 
 5 by the association.  Any terminated services and privileges shall
 
 6 be restored upon payment of all assessments.  Notwithstanding any
 
 7 other provision of this chapter, a vote of a majority of those
 
 8 attending an annual or special meeting of the association, in
 
 9 person or by proxy, shall be necessary to permit the board to
 
10 take the actions authorized by this section."
 
11      SECTION 13.  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 22                                                    1276
                                     H.B. NO.           H.D. 1
                                                        S.D. 2
                                                        

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

 
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 1 for unpaid common expenses shall be maintainable without
 
 2 foreclosing or waiving the lien securing the [same.] expenses
 
 3 owed.
 
 4      (b)  Where the mortgagee of a mortgage of record or other
 
 5 purchaser of an apartment obtains title to the apartment as a
 
 6 result of foreclosure of the mortgage, the acquirer of title and
 
 7 the acquirer's successors and assigns shall not be liable for the
 
 8 share of the common expenses or assessments by the association of
 
 9 apartment owners chargeable to the apartment which became due
 
10 prior to the acquisition of title to the apartment by the
 
11 acquirer.  The unpaid share of common expenses or assessments
 
12 shall be deemed to be common expenses collectible from all of the
 
13 apartment owners, including the acquirer and the acquirer's
 
14 successors and assigns.  
 
15      The mortgagee of record or other purchaser of the apartment
 
16 shall be deemed to acquire title and shall be required to pay the
 
17 apartment's share of common expenses and assessments beginning
 
18 days after the hearing at which the sale is confirmed."
 
19      SECTION 14.  Section 514A-97, Hawaii Revised Statutes, is
 
20 amended by amending subsection (c) to read as follows:
 
21      "(c)  All funds collected by an association, or by a
 
22 managing agent for any association, shall be:
 
23      (1)  Deposited in a financial institution [located in the
 

 
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                                                        S.D. 2
                                                        

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

 
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                                                        S.D. 2
                                                        

 
 1 association shall only be disbursed by employees of the
 
 2 association under the supervision of the association's board of
 
 3 directors.  All funds collected by a managing agent from an
 
 4 association shall be held in a client trust fund account and
 
 5 shall be disbursed only by the managing agent or the managing
 
 6 agent's employees under the supervision of the association's
 
 7 board of directors.  The commission may draft rules governing the
 
 8 handling and disbursement of condominium association funds."
 
 9      SECTION 15.  Statutory material to be repealed is bracketed.
 
10 New statutory material is underscored.
 
11      SECTION 16.  This Act shall take effect upon its approval,
 
12 except section 513A-90(a), Hawaii Revised Statutes, as amended in
 
13 section 13 of this Act shall take effect on January 1, 2000.