REPORT TITLE:
Condominiums


DESCRIPTION:
Allows condo assoc. to collect from the tenant overdue
maintenance fees and terminate common privileges for nonpayment
of fees; provides priority lien for unpaid common expenses;
provides time of title transfer for foreclosure; allows for condo
assoc to deposit funds in out of financial institutions and
credit unions. (SD1)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        36
THE SENATE                              S.B. NO.           S.D. 1
TWENTIETH LEGISLATURE, 1999                                
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.  The legislature finds that condominium
 
 2 associations are unable to collect maintenance fees that remain
 
 3 unpaid prior to and during foreclosure proceedings.  The
 
 4 legislature further finds that financial institutions refuse to
 
 5 pay for any outstanding maintenance fees even though secondary
 
 6 mortgage market lenders will reimburse financial institutions for
 
 7 up to six months of owners' delinquent maintenance fees.
 
 8      The legislature further finds that in cases where there is a
 
 9 mortgage lien that is recorded prior to the recordation of the
 
10 association's notice of lien and the foreclosure sale proceeds
 
11 are insufficient to pay the claims of both the mortgagee and the
 
12 association, the lien priority for condominium associations
 
13 unfairly requires non-delinquent apartment owners to bear the
 
14 entire burden of unpaid common expenses assessments accrued by a
 
15 delinquent owner. 
 
16      The legislature further finds that section 514A-83.6, Hawaii
 
17 Revised Statutes (HRS), requires condominium associations to
 
18 build up their reserves through the collection of maintenance
 
19 fees to ensure the availability of funds for repair and
 

 
Page 2                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

 
 
 
Page 3                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 or house rules to the contrary, the association of apartment
 
 2 owners may authorize its board of directors, after thirty days'
 
 3 prior written notice to the apartment owner's first mortgagee of
 
 4 nonpayment of common assessments, to terminate the delinquent
 
 5 apartment's common privileges and cease supplying the delinquent
 
 6 apartment with any and all services normally supplied or paid for
 
 7 by the association.  Any terminated services and privileges shall
 
 8 be restored upon payment of all assessments.  Notwithstanding any
 
 9 other provision of this chapter, a vote of a majority of those
 
10 attending an annual or special meeting of the association, in
 
11 person or by proxy, shall be necessary to permit the board to
 
12 take the actions authorized by this section."
 
13      SECTION 3.  Section 514A-90, Hawaii Revised Statutes, is
 
14 amended by amending subsections (a) and (b) to read as follows:  
 
15      "(a)  All sums assessed by the association of apartment
 
16 owners but unpaid for the share of the common expenses chargeable
 
17 to any apartment constitute a lien on the apartment prior to all
 
18 other liens, except:
 
19      (1)  [liens] Liens for taxes and assessments lawfully
 
20           imposed by governmental authority against the
 
21           apartment[,]; and
 
22      (2)  [all] All sums unpaid on any mortgage of record [which]
 
23           that was recorded prior to the recordation of a notice
 

 
Page 4                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1           of a lien by the association of apartment owners[,] and
 
 2           costs and expenses, including attorneys' fees, provided
 
 3           in such mortgages[.];
 
 4 provided that the association of apartment owners' lien shall be
 
 5 prior to any mortgages recorded after the effective date of this
 
 6 Act to the extent of any unpaid common expense assessments based
 
 7 on the annual budget adopted under section 514A-83.6 which would
 
 8 have become due in the absence of acceleration during the six
 
 9 months immediately preceding the commencement of any legal
 
10 proceeding to collect amounts due to the association or the
 
11 mortgagee under the mortgage, including but not limited to
 
12 foreclosure by the association pursuant to this section.  The
 
13 lien of the association of apartment owners may be foreclosed by
 
14 action by the [manager] managing agent or board of directors,
 
15 acting on behalf of the apartment owners, in like manner as a
 
16 mortgage of real property.  In any [such] foreclosure, the
 
17 apartment owner shall be required to pay a reasonable rental for
 
18 the apartment, if so provided in the bylaws, and the plaintiff in
 
19 the foreclosure shall be entitled to the appointment of a
 
20 receiver to collect the [same.] rental.  The [manager] managing
 
21 agent or board of directors, acting on behalf of the association
 
22 of apartment owners, [may,] unless prohibited by the declaration,
 
23 may bid on the apartment at foreclosure sale[,] and acquire and
 

 
Page 5                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 hold, lease, mortgage, and convey the [same.] apartment.  Action
 
 2 to recover a money judgment for unpaid common expenses shall be
 
 3 maintainable without foreclosing or waiving the lien securing the
 
 4 [same.] expenses owed.
 
 5      (b)  Where the mortgagee of a mortgage of record or other
 
 6 purchaser of an apartment obtains title to the apartment as a
 
 7 result of foreclosure of the mortgage, the acquirer of title and
 
 8 the acquirer's successors and assigns shall not be liable for the
 
 9 share of the common expenses or assessments by the association of
 
10 apartment owners chargeable to the apartment which became due
 
11 prior to the acquisition of title to the apartment by the
 
12 acquirer.  The unpaid share of common expenses or assessments
 
13 shall be deemed to be common expenses collectible from all of the
 
14 apartment owners, including the acquirer and the acquirer's
 
15 successors and assigns.  
 
16      The mortgagee of record or other purchaser of the apartment
 
17 shall be deemed to acquire title and shall be required to pay the
 
18 apartment's share of common expenses and assessments beginning at
 
19 the time the sale is confirmed."
 
20      SECTION 4.  Section 514A-94, Hawaii Revised Statutes, is
 
21 amended to read as follows:
 
22      "§514A-94  Attorneys' fees, delinquent assessments, [and]
 
23 expenses of enforcement[.], and fee collection from tenants.
 

 
Page 6                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 (a)  All costs and expenses, including reasonable attorneys'
 
 2 fees, incurred by or on behalf of the association for:
 
 3      (1)  Collecting any delinquent assessments against any
 
 4           owner's apartment;
 
 5      (2)  Foreclosing any lien thereon; or
 
 6      (3)  Enforcing any provision of the declaration, bylaws,
 
 7           house rules, and the Condominium Property Act; or the
 
 8           rules of the real estate commission;
 
 9 against an owner, occupant, tenant, employee of an owner, or any
 
10 other person who may in any manner use the property shall be
 
11 promptly paid on demand to the association by such person or
 
12 persons; provided that if the claims upon which the association
 
13 takes any action are not substantiated, all costs and expenses,
 
14 including reasonable attorneys' fees, incurred by any such person
 
15 or persons as a result of the action of the association, shall be
 
16 promptly paid on demand to such person or persons by the
 
17 association.
 
18      (b)  If any claim by an owner is substantiated in any action
 
19 against an association, any of its officers or directors, or its
 
20 board of directors to enforce any provision of the declaration,
 
21 bylaws, house rules, or this chapter, then all reasonable and
 
22 necessary expenses, costs, and attorneys' fees incurred by an
 
23 owner shall be awarded to such owner; provided that no such award
 

 
Page 7                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 shall be made in any derivative action unless:
 
 2      (1)  The owner first shall have demanded and allowed
 
 3           reasonable time for the board of directors to pursue
 
 4           such enforcement; or
 
 5      (2)  The owner demonstrates to the satisfaction of the court
 
 6           that a demand for enforcement made to the board of
 
 7           directors would have been fruitless.
 
 8      If any claim by an owner is not substantiated in any court
 
 9 action against an association, any of its officers or directors,
 
10 or its board of directors to enforce any provision of the
 
11 declaration, bylaws, house rules, or this chapter, then all
 
12 reasonable and necessary expenses, costs, and attorneys' fees
 
13 incurred by an association shall be awarded to the association,
 
14 unless the action was filed in small claims court or prior to
 
15 filing the action in a higher court the owner has first submitted
 
16 the claim to mediation, or to arbitration under part VII of this
 
17 chapter, and made a good faith effort to resolve the dispute
 
18 under any of those procedures.
 
19      (c)  Anyone contracted by the association of apartment
 
20 owners to collect delinquent assessments against any owner's
 
21 apartment shall not share in any portion of any penalties or late
 
22 charges collected. 
 
23      (d)  If the owner of an apartment rents or leases the
 

 
Page 8                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 apartment and defaults for thirty days or more in the payment of
 
 2 the apartment's share of the common expenses, the board, for as
 
 3 long as the default continues, may demand and receive from any
 
 4 tenant occupying the apartment, the rent due or becoming due from
 
 5 the tenant to the apartment owner.  The board may demand from the
 
 6 tenant an amount sufficient to pay all sums due from the
 
 7 apartment owner to the association, including interest, if any.
 
 8 The tenant's payment of rent to the board shall discharge the
 
 9 tenant from paying rent to the apartment owner, to the extent of
 
10 the amount paid to the board.  If the board makes a demand upon
 
11 the tenant pursuant to this section, the tenant may not question
 
12 the right of the board to make the demand.  Instead, the tenant
 
13 shall make the payments demanded by the board; provided that the
 
14 board may not exercise this right if a commissioner or receiver
 
15 has been appointed to take charge of the premises pending a
 
16 mortgage foreclosure or if a mortgagee is in possession pending a
 
17 mortgage foreclosure."
 
18      SECTION 5.  Section 514A-97, Hawaii Revised Statutes, is
 
19 amended by amending subsection (c) to read as follows:
 
20      "(c)  All funds collected by an association, or by a
 
21 managing agent for any association, shall be:
 
22      (1)  Deposited in a financial institution [located in the
 
23           State], including a credit union whose deposits are
 

 
Page 9                                                     36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

 
Page 10                                                    36
                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 association under the supervision of the association's board of
 
 2 directors.  All funds collected by a managing agent from an
 
 3 association shall be held in a client trust fund account and
 
 4 shall be disbursed only by the managing agent or the managing
 
 5 agent's employees under the supervision of the association's
 
 6 board of directors.  The commission may draft rules governing the
 
 7 handling and disbursement of condominium association funds."
 
 8      SECTION 6.  Statutory material to be repealed is bracketed.
 
 9 New statutory material is underscored.
 
10      SECTION 7.  This Act shall take effect upon its approval,
 
11 except section 514A-90(a), Hawaii Revised Statutes, as amended in
 
12 section 3 of this Act shall take effect on January 1, 2000.