REPORT TITLE:
Condominiums


DESCRIPTION:
Allows associations of apartment owners to collect delinquent
maintenance fees directly from the tenant.  Specifies when the
purchaser of an apartment at foreclosure becomes liable for
common assessments.  Allows associations to terminate services
and privileges to apartments that are delinquent in payment of
common assessments.  Specifies where and in what type of
institutions and investments an association may place its funds.
(SB36 HD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        36
THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                H.D. 1
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO CONDOMINIUMS. 


BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
 
 1      SECTION 1.  Chapter 514A, Hawaii Revised Statutes, is
 
 2 amended by adding a new section to be appropriately designated
 
 3 and to read as follows:
 
 4      "§514A-     Collection from tenants.  (a)  If the owner of
 
 5 an apartment rents or leases the apartment and is in default for
 
 6 thirty days or more in the payment of the apartment's share of
 
 7 the common expenses, the board of directors, for as long as the
 
 8 default continues, may demand in writing and receive each month
 
 9 from any tenant occupying the apartment, an amount sufficient to
 
10 pay all sums due from the apartment owner to the association,
 
11 including interest, if any, but the amount shall not exceed the
 
12 tenant's rent due each month.  The tenant's payment under this
 
13 section shall discharge that amount of payment from the tenant's
 
14 rent obligation, and any contractual provision to the contrary
 
15 shall be void as a matter of law.
 
16      (b)  Prior to taking any action under this section, the
 
17 board of directors shall give to the delinquent apartment owner
 
18 written notice of its intent to collect the rent owed.  The
 
19 notice shall:
 
20      (1)  Be sent both by first-class and certified mail;
 

 
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 1      (2)  Set forth the exact amount the association claims is
 
 2           due and owing by the apartment owner; and
 
 3      (3)  Indicate the intent of the board of directors to
 
 4           collect such amount from the rent, along with any other
 
 5           amounts that become due and remain unpaid.
 
 6      (c)  The apartment owner shall not take any retaliatory
 
 7 action against the tenant for payments made under this section.
 
 8      (d)  If the board makes a demand upon the tenant pursuant to
 
 9 this section, the tenant shall make the payments demanded by the
 
10 board and the fact that the board made such a written demand is a
 
11 complete defense to an action for nonpayment of rent to the
 
12 extent of the amount demanded; provided that the board may not
 
13 exercise this right if:
 
14      (1)  A commissioner or receiver has been appointed to take
 
15           charge of the premises pending a mortgage foreclosure;
 
16      (2)  A mortgagee is in possession pending a mortgage
 
17           foreclosure; or
 
18      (3)  The tenant is served with a court order directing
 
19           payment to a third party.
 
20      (e)  In the event of any conflict between this section and
 
21 any provision of chapter 521, this section shall control;
 
22 provided that if the tenant is entitled to an offset of rent
 
23 under chapter 521, the tenant may deduct the offset from the
 

 
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                                     S.B. NO.           S.D. 2
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 1 amount due to the association, up to the limits stated in chapter
 
 2 521.  Nothing herein precludes the apartment owner or tenant from
 
 3 seeking equitable relief from a court of competent jurisdiction
 
 4 or seeking a judicial determination of the amount owed.
 
 5      (f)  Before the board of directors may take the actions
 
 6 permitted under subsection (a), the board must adopt a written
 
 7 policy providing for the actions and have the policy approved by
 
 8 a majority vote of the apartment owners at an annual or special
 
 9 meeting of the association or by the written consent of a
 
10 majority of the apartment owners."
 
11      SECTION 2.  Section 514A-90, Hawaii Revised Statutes, is
 
12 amended to read as follows:
 
13      "§514A-90  Priority of lien.(a)  All sums assessed by the
 
14 association of apartment owners but unpaid for the share of the
 
15 common expenses chargeable to any apartment constitute a lien on
 
16 the apartment prior to all 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           was recorded prior to the recordation of a notice of a
 
22           lien by the association of apartment owners, and costs
 
23           and expenses including attorneys' fees provided in such
 

 
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                                     S.B. NO.           S.D. 2
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 1           mortgages. 
 
 2 The lien of the association of apartment owners may be foreclosed
 
 3 by action by the [manager] managing agent or board of directors,
 
 4 acting on behalf of the association of apartment owners, in like
 
 5 manner as a mortgage of real property.  In any such foreclosure
 
 6 the apartment owner shall be required to pay a reasonable rental
 
 7 for the apartment, if so provided in the bylaws, and the
 
 8 plaintiff in the foreclosure shall be entitled to the appointment
 
 9 of a receiver to collect the same.  The [manager] managing agent
 
10 or board of directors, acting on behalf of the association of
 
11 apartment owners, [may,] unless prohibited by the declaration,
 
12 may bid on the apartment at foreclosure sale, and acquire and
 
13 hold, lease, mortgage, and convey the same.  Action to recover a
 
14 money judgment for unpaid common expenses shall be maintainable
 
15 without foreclosing or waiving the lien securing the same.
 
16      (b)  Where the mortgagee of a mortgage of record or other
 
17 purchaser of an apartment obtains title to the apartment as a
 
18 result of foreclosure of the mortgage, the acquirer of title and
 
19 the acquirer's successors and assigns shall not be liable for the
 
20 share of the common expenses or assessments by the association of
 
21 apartment owners chargeable to the apartment which became due
 
22 prior to the acquisition of title to the apartment by the
 
23 acquirer.  The unpaid share of common expenses or assessments
 

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

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

 
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                                     S.B. NO.           S.D. 2
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 1 current during the arbitration, the association may ask the
 
 2 arbitrator to temporarily suspend the arbitration proceedings.
 
 3 If the apartment owner pays all association assessments within
 
 4 thirty days of the date of suspension, the apartment owner may
 
 5 ask the arbitrator to recommence the arbitration proceedings.  If
 
 6 the owner fails to pay all association assessments by the end of
 
 7 the thirty-day period, the association may ask the arbitrator to
 
 8 dismiss the arbitration proceedings.  The apartment owner shall
 
 9 be entitled to a refund of any amounts paid to the association
 
10 which are not owed.
 
11      (e)  As an alternative to foreclosure proceedings under
 
12 subsection (a), where an apartment is owner-occupied, the
 
13 association of apartment owners may authorize its managing agent
 
14 or board of directors to, after sixty days' written notice to the
 
15 apartment owner and to the apartment's first mortgagee of the
 
16 nonpayment of the apartment's share of the common expenses,
 
17 terminate the delinquent apartment's access to the common
 
18 elements and cease supplying a delinquent apartment with any and
 
19 all services normally supplied or paid for by the association of
 
20 apartment owners.  Any terminated services and privileges shall
 
21 be restored upon payment of all delinquent assessments.
 
22      (f)  Before the board of directors or managing agent may
 
23 take the actions permitted under subsection (e), the board must
 

 
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                                     S.B. NO.           S.D. 2
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 1 adopt a written policy providing for such actions and have the
 
 2 policy approved by a majority vote of the apartment owners at an
 
 3 annual or special meeting of the association or by the written
 
 4 consent of a majority of the apartment owners."
 
 5      SECTION 3.  Section 514A-97, Hawaii Revised Statutes, is
 
 6 amended by amending subsection (c) to read as follows:
 
 7      "(c)  All funds collected by an association, or by a
 
 8 managing agent for any association, shall be:
 
 9      (1)  Deposited in a financial institution, including a
 
10           federal or community credit union, located in the State
 
11           and whose deposits are insured by an agency of the
 
12           United States government;
 
13      (2)  Held by a corporation authorized to do business under
 
14           article 8 of chapter 412; [or]
 
15      (3)  [Invested in the obligations of the United States
 
16           government.] Held by the United States Treasury; or
 
17      (4)  Purchased in the name of and held for the benefit of
 
18           the association through a securities broker that is
 
19           registered with the Securities and Exchange Commission,
 
20           has an office in the State, and the accounts of which
 
21           are held by member firms of the New York Stock Exchange
 
22           or National Association of Securities Dealers and
 
23           insured by the Securities Insurance Protection
 

 
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                                     S.B. NO.           S.D. 2
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 1           Corporation.
 
 2      All funds collected by an association, or by a managing
 
 3 agent for any association, shall be invested only in:
 
 4      (1)  Demand deposits, investment certificates, and
 
 5           certificates of deposit;
 
 6      (2)  Obligations of the United States government, the State
 
 7           of Hawaii, or their respective agencies; provided that
 
 8           those obligations shall have stated maturity dates no
 
 9           more than ten years after the purchase date; or
 
10      (3)  Mutual funds comprised solely of investments in the
 
11           obligations of the United States government, the State
 
12           of Hawaii, or their respective agencies; provided that
 
13           those obligations shall have stated maturity dates no
 
14           more than ten years after the purchase date.
 
15      Records of the deposits and disbursements shall be disclosed
 
16 to the commission upon request.  All funds collected by an
 
17 association shall only be disbursed by employees of the
 
18 association under the supervision of the association's board of
 
19 directors.  All funds collected by a managing agent from an
 
20 association shall be held in a client trust fund account and
 
21 shall be disbursed only by the managing agent or the managing
 
22 agent's employees under the supervision of the association's
 
23 board of directors.  The commission may draft rules governing the
 

 
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                                     S.B. NO.           S.D. 2
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 1 handling and disbursement of condominium association funds."
 
 2      SECTION 4.  Statutory material to be repealed is bracketed.
 
 3 New statutory material is underscored.
 
 4      SECTION 5.  This Act shall take effect upon its approval.