Authorizes an association of apartment owners to assess the
purchaser of a delinquent or foreclosed apartment for unpaid
assessments.  (SD1)

HOUSE OF REPRESENTATIVES                H.B. NO.           H.D. 1
TWENTIETH LEGISLATURE, 2000                                S.D. 1
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that due to the current
 2 economic situation many condominium owners have been unable to
 3 meet payments for either their mortgage or maintenance expenses.
 4 Mortgagees have lost significant amounts during this period.
 5 Homeowners associations have, likewise, lost much during this
 6 period.  Both are innocent victims of these economic times.
 7 Homeowners associations and mortgage lenders have participated in
 8 many hearings and discussions with the legislature over the
 9 years.  Attempts to find a solution have been hampered because
10 both parties are innocent victims.  While a solution has been
11 elusive, this Act goes a long way toward resolving the issue in a
12 creative and fair manner.
13      This Act allows for the assessment of purchasers of
14 delinquent units for unpaid common expenses by the homeowners
15 association.  The assessment is limited to the amount accrued
16 within six months up to $1,800.  In order to make the assessment,
17 homeowners associations must file a notice of lien against the
18 delinquent apartment before the purchaser acquires title.  This
19 is only fair, providing the purchaser with actual notice of the

Page 2                                                     2716
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 1 total amount of the delinquencies.
 2      This Act is a comprehensive and reasonable solution to a
 3 thorny issue.
 4      SECTION 2.  Section 514A-90, Hawaii Revised Statutes, is
 5 amended to read as follows:
 6      "514A-90  Priority of lien.(a)  All sums assessed by the
 7 association of apartment owners but unpaid for the share of the
 8 common expenses chargeable to any apartment constitute a lien on
 9 the apartment prior to all other liens, except:
10      (1)  Liens for taxes and assessments lawfully imposed by
11           governmental authority against the apartment; and
12      (2)  All sums unpaid on any mortgage of record that was
13           recorded prior to the recordation of a notice of a lien
14           by the association of apartment owners, and costs and
15           expenses including attorneys' fees provided in such
16           mortgages. 
17 The lien of the association of apartment owners may be foreclosed
18 by action or by nonjudicial or power of sale foreclosure
19 procedures set forth in chapter 667, by the managing agent or
20 board of directors, acting on behalf of the association of
21 apartment owners, in like manner as a mortgage of real property.
22 In any such foreclosure the apartment owner shall be required to
23 pay a reasonable rental for the apartment, if so provided in the

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                                     H.B. NO.           H.D. 1
                                                        S.D. 1

 1 bylaws, and the plaintiff in the foreclosure shall be entitled to
 2 the appointment of a receiver to collect the rental owed.  The
 3 managing agent or board of directors, acting on behalf of the
 4 association of apartment owners, unless prohibited by the
 5 declaration, may bid on the apartment at foreclosure sale, and
 6 acquire and hold, lease, mortgage, and convey the apartment.
 7 Action to recover a money judgment for unpaid common expenses
 8 shall be maintainable without foreclosing or waiving the lien
 9 securing the unpaid common expenses owed.
10      (b)  [Where] Except as provided in subsection (g), when the
11 mortgagee of a mortgage of record or other purchaser of an
12 apartment obtains title to the apartment as a result of
13 foreclosure of the mortgage, the acquirer of title and the
14 acquirer's successors and assigns shall not be liable for the
15 share of the common expenses or assessments by the association of
16 apartment owners chargeable to the apartment which became due
17 prior to the acquisition of title to the apartment by the
18 acquirer.  The unpaid share of common expenses or assessments
19 shall be deemed to be common expenses collectible from all of the
20 apartment owners, including the acquirer and the acquirer's
21 successors and assigns.  The mortgagee of record or other
22 purchaser of the apartment shall be deemed to acquire title and
23 shall be required to pay the apartment's share of common expenses

Page 4                                                     2716
                                     H.B. NO.           H.D. 1
                                                        S.D. 1

 1 and assessments beginning:
 2      (1)  Thirty-six days after the order confirming the sale to
 3           the purchaser has been filed with the court;
 4      (2)  Sixty days after the hearing at which the court grants
 5           the motion to confirm the sale to the purchaser; or
 6      (3)  Upon the recording of the deed,
 7 whichever occurs first.
 8      (c)  No apartment owner shall withhold any assessment
 9 claimed by the association.  An apartment owner who disputes the
10 amount of an assessment may request a written statement clearly
11 indicating:
12      (1)  The amount of common expenses included in the
13           assessment, including the due date of each amount
14           claimed;
15      (2)  The amount of any penalty, late fee, lien filing fee,
16           and any other charge included in the assessment;
17      (3)  The amount of attorneys' fees and costs, if any,
18           included in the assessment;
19      (4)  That under Hawaii law, an apartment owner has no right
20           to withhold assessments for any reason;
21      (5)  That an apartment owner has a right to demand mediation
22           or arbitration to resolve disputes about the amount or
23           validity of an association's assessment, provided the

Page 5                                                     2716
                                     H.B. NO.           H.D. 1
                                                        S.D. 1

 1           apartment owner immediately pays the assessment in full
 2           and keeps assessments current; and
 3      (6)  That payment in full of the assessment does not prevent
 4           the owner from contesting the assessment or receiving a
 5           refund of amounts not owed.
 6 Nothing in this section shall limit the rights of an owner to the
 7 protection of all fair debt collection procedures mandated under
 8 federal and state law.
 9      (d)  An apartment owner who pays an association the full
10 amount claimed by the association may file in small claims court
11 or require the association to mediate to resolve any disputes
12 concerning the amount or validity of the association's claim.  If
13 the apartment owner and the association are unable to resolve the
14 dispute through mediation, either party may file for arbitration
15 under part VII; provided that an apartment owner may only file
16 for arbitration if all amounts claimed by the association are
17 paid in full on or before the date of filing.  If the apartment
18 owner fails to keep all association assessments current during
19 the arbitration, the association may ask the arbitrator to
20 temporarily suspend the arbitration proceedings.  If the
21 apartment owner pays all association assessments within thirty
22 days of the date of suspension, the apartment owner may ask the
23 arbitrator to recommence the arbitration proceedings.  If the

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

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                                     H.B. NO.           H.D. 1
                                                        S.D. 1

 1 (i), the board of an association of apartment owners may
 2 specially assess the amount of the unpaid regular monthly common
 3 assessments for common area expenses against a person who, in a
 4 judicial or non-judicial power of sale foreclosure, purchases a
 5 delinquent apartment; provided that:
 6      (1)  A purchaser who holds a mortgage on a delinquent
 7           apartment that was recorded prior to the filing of a
 8           notice of lien by the association of apartment owners
 9           and who acquires the delinquent apartment through a
10           judicial or non-judicial foreclosure proceeding,
11           including purchasing the delinquent apartment at a
12           foreclosure auction, shall not be obligated to make,
13           nor be liable for, payment of the special assessment as
14           provided for under this subsection; and
15      (2)  A person who subsequently purchases the delinquent
16           apartment from the mortgagee referred to in paragraph
17           (1) shall be obligated to make, and shall be liable
18           for, payment of the special assessment provided for
19           under this subsection; provided that the association of
20           apartment owners has filed a notice of lien against the
21           delinquent apartment for the unpaid assessments for
22           common area expenses which form the basis of the
23           special assessment, prior to the subsequent purchaser's

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                                     H.B. NO.           H.D. 1
                                                        S.D. 1

 1           acquisition of title to the delinquent apartment.
 2      (h)  The amount of the special assessment assessed under
 3 subsection (g) shall not exceed the total amount of unpaid
 4 regular monthly common assessments that were assessed during the
 5 six months immediately preceding the completion of the judicial
 6 or non-judicial power of sale foreclosure, and for which the
 7 association of apartment owners had filed a notice of lien
 8 against the delinquent apartment pursuant to subsection (g)(2).
 9 In no event shall the amount of the special assessment exceed the
10 sum of $1,800.
11      (i)  For purposes of subsections (g) and (h), the following
12 definitions shall apply:
13      (1)  "Completion" means:
14           (A)  In a non-judicial power of sale foreclosure, when
15                the affidavit required under section 667-5 is
16                filed; and
17           (B)  In a judicial foreclosure, when a purchaser is
18                deemed to acquire title pursuant to subsection
19                (b).
20      (2)  "Regular monthly common assessments" shall not include:
21           (A)  Any other special assessment, except for a special
22                assessment imposed on all apartments as part of a
23                budget adopted pursuant to section 514A-83.6;

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                                     H.B. NO.           H.D. 1
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 1           (B)  Late charges, fines, or penalties;
 2           (C)  Interest assessed by the association of apartment
 3                owners;
 4           (D)  Any lien arising out of the assessment; or
 5           (E)  Any fees or costs related to the collection or
 6                enforcement of the assessment, including
 7                attorneys' fees and court costs."
 8      SECTION 3.  Statutory material to be repealed is bracketed.
 9 New statutory material is underscored.
10      SECTION 4.  This Act shall take effect upon its approval and
11 shall be repealed on December 31, 2003; provided that section
12 514A-90, Hawaii Revised Statutes, shall be reenacted in the form
13 in which in read on the day before the approval of this Act.