Report Title:

Time Sharing Omnibus

Description:

Amends time share law to define "master development" and "person" and redefine "blanket lien," "developer," and "project." Exempts a sales agent of a time share developer licensed as a mortgage broker from broker and solicitor licensing laws. Permits the release purchasers' funds to a developer before closing if secured by developer's bond or letter of credit. (HB155 HD1)

HOUSE OF REPRESENTATIVES

H.B. NO.

155

TWENTY-THIRD LEGISLATURE, 2005

H.D. 1

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to time sharing.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Chapter 514E, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"§514E- Release of purchaser's funds pursuant to bond, letter of credit, or other financial assurance. (a) Notwithstanding any other provisions of this chapter, the director shall have the discretion to accept from the developer a surety bond, escrow bond, irrevocable letter of credit, or other financial assurance in lieu of maintaining a purchaser's funds in escrow. Upon such acceptance, the developer shall be entitled to the release of the purchaser's funds in escrow after expiration of the applicable cancellation period, regardless of whether a closing has occurred, if the following conditions have been met:

(1) The bond, irrevocable letter of credit, or other financial assurance is either in an amount equal to:

(A) The funds that would otherwise be held in escrow as verified by the escrow agent;

(B) An amount less than the funds that would otherwise be held in escrow as verified by the escrow agent; provided that in such event, the developer shall only be entitled to the release of funds up to the balance payable under the bond, irrevocable letter of credit, or other financial assurance; or

(C) One hundred ten per cent of the cost to complete the incomplete property in which the time share interest is located as verified by a statement of a licensed architect or engineer;

(2) The bond, irrevocable letter of credit, or other financial assurance names the director on behalf of the purchasers as the obligee;

(3) The bond, irrevocable letter of credit, or other financial assurance is issued by a company authorized to do business in the state and having sufficient net worth to be acceptable to the director; and

(4) The escrow agent has verified that it has been presented with a copy of the bond, irrevocable letter of credit, or other financial assurance and that there is no dispute regarding the release of funds to the developer.

(b) If the accommodations of the time share plan are located outside of the state, and a bond, irrevocable letter of credit, or other financial assurance has been accepted by the jurisdiction in which the accommodation is located, the director shall approve such bond, irrevocable letter of credit, or other assurance for sales conducted in the state if the bond, irrevocable letter of credit, or other financial assurance substantially meets the conditions set forth in this section."

SECTION 2. Section 454-2, Hawaii Revised Statutes, is amended to read as follows:

"§454-2 Exemptions. This chapter does not apply to the following:

(1) Banks, trust companies, building and loan associations, pension trusts, credit unions, insurance companies, financial services loan companies, or federally licensed small business investment companies, authorized under any law of this State or of the United States to do business in the [State;] state;

(2) A person making or acquiring a mortgage loan with one's own funds for one's own investment without intent to resell the mortgage loan;

(3) A person licensed to practice law in the [State,] state, not actively and principally engaged in the business of negotiating loans secured by real property, when the person renders services in the course of the person's practice as an attorney;

(4) A person licensed as a real estate broker or salesperson in the [State,] state, not actively engaged in the business of negotiating loans secured by real property, when the person renders services in the course of the person's practice as a real estate broker or salesperson;

(5) An institutional investor negotiating, entering into, or performing under a loan purchase agreement for its portfolio, for subsequent resale to other institutional investors, or for placement of the mortgages into pools or packaging them into mortgage-backed securities. As used in this paragraph, "loan purchase agreement" means an agreement or arrangement under which a bank, savings and loan, credit union, financial services loan company, or other financial institution registered to do business in the State of Hawaii agrees to sell mortgage loans or obtain funding therefor, with or without the transfer of servicing rights, to an institutional investor; [and]

(6) Foreign lender as defined in section 207-11[.]; and

(7) A person licensed as a real estate broker or salesperson in the state, when the person renders services in the course of the person's practice as a real estate broker or salesperson in the sale of time share interests on behalf of a developer of a time share plan who is licensed under this chapter as a mortgage broker."

SECTION 3. Section 514E-1, Hawaii Revised Statutes, is amended as follows:

1. By adding two new definitions to be appropriately inserted and to read:

""Master development" means a real estate development that consists of more than one project, including but not limited to a planned community association subject to chapter 421J with one or more sub-associations.

"Person" means a natural person, corporation, limited liability company, partnership, joint venture, association, estate, trust, government, governmental subdivision or agency, or other legal entity, or any combination thereof."

2. By amending the definitions of "blanket lien", "developer", and "project" to read:

""Blanket lien" means any mortgage, deed of trust, option to purchase, master lease, vendor's lien or interest under a contract or agreement of sale, or any other lien or encumbrance which (i) affects more than one time share interest either directly or by reason of affecting an entire time share unit or the property upon which the time share unit to be used by the purchasers is located, and (ii) secures or evidences the obligation to pay money or to sell or convey the property and which authorizes, permits, or requires the foreclosure and sale or other defeasance of the property affected; provided, however, that for the purpose of this chapter, the following shall not be considered blanket liens:

(1) The lien of current real property taxes;

(2) Taxes and assessments levied by public authority[;] and that are not yet due and payable;

(3) A lien for common expenses under chapter 514A or a lien on an individual time share unit for similar expenses in favor of a homeowners or community association;

(4) An apartment lease or condominium conveyance document conveying or demising a single condominium apartment or a lease of a single cooperative apartment; and

(5) Any lien for costs or trustee's fees charged by a trustee holding title to time share units pursuant to a trust created under section 514E-19[.]; provided that such costs or trustee's fees are not yet due and payable.

"Developer" means any person [, partnership, or corporation which] that creates a time sharing plan or is in the business of selling time share units. "Developer" does not include:

(1) A person who owns at any one time not more than twelve time share interests in a particular time share plan if that person did not create the time share plan and offers it for resale; and

(2) An association not otherwise a developer, that engages a third party to offer on its behalf a time share interest in the time share plan for which it serves as an association; provided that this paragraph shall apply only to time share interests that are:

(A) Sold to persons who acquired them for their own use and occupancy; and

(B) Acquired by the association for non-payment of assessments, whether by foreclosure, conveyance in lieu of foreclosure, cancellation of membership agreement, or otherwise.

"Project" means [property that is subject to project instruments, including but not limited to condominiums and cooperative housing corporations.]:

(1) An individual condominium project;

(2) Two or more contiguous condominium projects that have been merged and for administrative purposes operate as a single condominium project;

(3) An individual cooperative housing project;

(4) An individual subdivision of single-family homes subject to one or more project instruments; or

(5) An individual subdivision of townhomes subject to one or more project instruments.

"Project" does not include a master development."

SECTION 4. Section 514E-17, Hawaii Revised Statutes, is amended to read as follows:

"§514E-17 Release of purchaser's funds, notes, and contracts from escrow without a closing. A purchaser's funds, negotiable instruments, and purchase money contracts may be released from escrow without a closing as follows:

(1) If a purchaser or developer gives a valid notice of cancellation of the contract pursuant to section 514E-8, all of the purchaser's funds and any negotiable instruments and purchase money contracts made by the purchaser shall be returned to the purchaser within fifteen days after the notice of cancellation is received[.] or within five business days after receipt of funds from the purchaser’s cleared check, whichever is later;

(2) If a purchaser or developer properly terminates a contract pursuant to its terms, or if a developer or prospective purchaser terminates a reservation agreement, all of the purchaser's funds and any negotiable instruments and purchase money contracts made by the purchaser or prospective purchaser shall be delivered in accordance with the contract or reservation agreement[.];

(3) If the purchaser defaults in the performance of the purchaser's obligations under the contract, all of the purchaser's funds and any negotiable instruments or purchase money contracts made by the purchaser under the contract shall be delivered in accordance with the contract[.];

(4) If purchaser's funds are to be used for construction, the funds may be disbursed by the escrow agent from time to time to pay for:

(A) Construction costs of the buildings and improvements in proportion to the valuation of the work completed by the contractor in accordance with the contract documents, as certified by a [registered] licensed architect or engineer and approved for payment by the construction lender;

(B) Architectural, engineering, and interior design service fees in proportion to the services performed within each phase of services, as approved by the construction lender;

(C) The costs of purchasing furnishings and fixtures for the time share units, as approved by the construction lender; and

(D) Finance and legal fees, and other incidental expenses of constructing the time share units or developing the time share plan as approved by the construction lender;

provided that no such disbursements shall be made unless the developer first deposits with the director (i) a copy of the executed construction contract, (ii) a copy of executed performance and labor and material payment bonds in an amount which is not less than one hundred ten per cent of the cost of construction and covering any changes to the contract which do not in the aggregate increase the amount of the construction contract by more than ten per cent, (iii) a verified statement showing all costs involved in completing the project, and (iv) satisfactory evidence acceptable to the director of funds sufficient to cover the total costs of constructing, furnishing, and completing the project from purchaser's funds, equity funds, interim or permanent loan commitments, or other sources[.];

(5) If the developer instructs the escrow agent to return the purchaser's funds, negotiable instruments, or purchase money contracts, the escrow agent shall do so promptly after receipt of the developer’s instructions; or

(6) The escrow agent may disburse a purchaser’s funds in accordance with section 514E- ."

SECTION 5. Section 514E-18, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Notwithstanding any other provisions of this chapter, and except as otherwise provided in section 514E- , the escrow agent may not release the purchaser's funds, negotiable instruments, and purchase money contracts from the escrow account to or for the benefit of the developer or a sales agent or for construction until:

(1) The seven-day cancellation period under section 514E-8 expires as to the purchaser whose funds are being released; and

(2) The escrow agent receives a sworn statement from the developer that:

(A) No cancellation notice postmarked on a date within the seven-day cancellation period was received from the purchaser whose funds are being released; and

(B) No cancellation notice was otherwise received during the seven-day cancellation period from the purchaser whose funds are being released."

SECTION 6. Section 514E-19, Hawaii Revised Statutes, is amended to read as follows:

"§514E-19 Protection of purchasers from blanket liens. (a) An escrow for the sale of a time share interest in a time share ownership plan may close only if the requirements of any one of the following alternatives for protecting the purchaser have been satisfied:

(1) The time share interest is conveyed to the purchaser free and clear of any blanket liens[.];

(2) The time share unit is conveyed to a trustee:

(A) Free and clear of any blanket liens under a trust meeting the requirements of sections 514E-22 and 23; or

(B) Under a lien payment trust meeting the requirements of sections 514E-22, 23, 24, and 25[.];

(3) (A) The time share interest is conveyed to the purchaser subject only to blanket liens:

(i) Where every person holding an interest in the blanket lien has executed and recorded a nondisturbance agreement; or

(ii) For which the director's acceptance of a surety bond or an irrevocable letter of credit meeting the requirements of this section [514E-28] has been recorded with respect to that time share unit; and

(B) If legal or equitable title will be held by anyone other than the purchaser, a notice of time share plan is recorded[.];

or

(4) The requirements of any alternative arrangements accepted by the director have been met.

(b) An escrow for the sale of a time share interest in a time share use plan may close only if the requirements of any one of the following alternatives for protecting purchasers have been satisfied:

(1) The time share unit is conveyed to a trustee:

(A) Free and clear of any blanket liens under a trust meeting the requirements of sections 514E-22 and 23; or

(B) Under a lien payment trust meeting the requirements of sections 514E-22, 23, 24, and 25[.];

(2) A notice of time share plan is recorded and either:

(A) Every person holding an interest in a recorded blanket lien against any time share interests in that time share unit executes and records a nondisturbance agreement; or

(B) The director's acceptance of a surety bond or an irrevocable letter of credit meeting the requirements of this section [514E-28] is recorded[.];

or

(3) The requirements of any alternative arrangements accepted by the director have been met.

(c) A time share interest in any time share plan which satisfies the escrow and blanket lien protection requirements of this chapter shall not be deemed a risk capital security under chapter 485, and the offer or sale of a time share interest therein shall not be deemed the offer or sale of a security.

(d) Any surety bond or irrevocable letter of credit furnished to the director pursuant to this section shall be in an amount not less than one hundred ten per cent of the remaining principal balance of every indebtedness secured by a blanket lien related to the time share unit. The bond shall be issued by a surety authorized to do business in the state and having sufficient net worth to be acceptable to the director. The letter of credit shall be irrevocable and shall be drawn upon a bank, savings and loan association, or other financial institution authorized to do business in the state and having a sufficient net worth to be acceptable to the director. The bond or irrevocable letter of the credit shall provide for payment (up to the limit of such bond or letter of credit) of all amounts secured by the blanket lien, including costs, expenses, and legal fees of the lienholder, if for any reason the blanket lien is enforced. The beneficiary of the letter of credit and the obligee of the bond shall be the director on behalf of the purchasers. The bond or irrevocable letter of credit may be reduced periodically in proportion to the reduction of the remaining principal balance of the indebtedness secured by the blanket liens. Upon being furnished with a surety bond or irrevocable letter of credit satisfying the foregoing requirements, the developer shall prepare and the director shall execute and acknowledge a document in recordable form accepting the surety bond or irrevocable letter of credit and identifying the time share units to which it applies."

SECTION 7. Section 514E-28, Hawaii Revised Statutes, is repealed.

["§514E-28 Requirements for surety bonds and letters of credit. Any surety bond or irrevocable letter of credit furnished to the director pursuant to section 514E-19 must be in an amount which is not less than one hundred ten per cent of the remaining principal balance of every indebtedness secured by a blanket lien related to the time share unit. Any such bond must be issued by a surety authorized to do business in the State and having sufficient net worth to be acceptable to the director. Any such letter of credit must be irrevocable and must be drawn upon a bank, savings and loan association, or other financial institution authorized to do business in the State and having a sufficient net worth to be acceptable to the director. The bond or irrevocable letter of credit shall provide for payment (up to the limit of such bond or letter of credit) of all amounts secured by the blanket lien, including costs, expenses, and legal fees of the lienholder, if for any reason the blanket lien is enforced. The beneficiary of any such letter of credit and the obligee of any such bond shall be the director on behalf of the owners. The bond or irrevocable letter of credit may be reduced periodically in proportion to the reduction of the remaining principal balance of the indebtedness secured by the blanket liens. Upon being furnished with a surety bond or irrevocable letter of credit satisfying the foregoing requirements, the developer shall prepare and the director shall execute and acknowledge a document in recordable form accepting such surety bond or irrevocable letter of credit and identifying the time share units to which it applies."]

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2050.