Condos/Delinq. Exp; Liens

Requires mortgage holders to pay common expenses while
foreclosure proceedings are pending, if the unit is being rented.
Gives a condominium association a limited priority lien for
unpaid common expenses.

THE SENATE                              S.B. NO.           2349
TWENTIETH LEGISLATURE, 2000                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that condominium owners
 2 pay for common expenses of units in foreclosure when a court-
 3 appointed receiver or commissioner is collecting the rent but not
 4 paying those common expenses to the association of apartment
 5 owners.  The common expenses include insurance, repair and
 6 maintenance of common areas, electricity, water, cable service,
 7 and recreational amenities for a resident who occupies the unit.
 8 In a foreclosure, the mortgage holder or foreclosure receiver or
 9 commissioner does not pay the maintenance fees to the association
10 despite the fact that the resident continues to receive the
11 benefits of the services and amenities.  This Act would provide
12 some financial relief to condominium owners who are currently
13 subsidizing the common expenses of units in foreclosure to ensure
14 the proper maintenance, repair, and operation of condominiums.
15      The legislature also finds that the current system of lien
16 priority for condominium associations unfairly requires non-
17 delinquent apartment owners to bear the entire burden of unpaid
18 common expense assessments accrued by a delinquent owner, in
19 cases in which there is a mortgage lien that is recorded prior to

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                                     S.B. NO.           2349

 1 the recordation of the association's notice of lien and the
 2 foreclosure sale proceeds are insufficient to pay the claims of
 3 both the mortgagee and the association.
 4      Accordingly, the purposes of this Act are to require a
 5 mortgage holder or court appointed receiver or commissioner of a
 6 property during foreclosure proceedings to pay the association of
 7 apartment owners the current common expenses chargeable to the
 8 apartment, if rent is being collected and to grant the
 9 condominium association's lien for unpaid common expenses a
10 limited priority over mortgage liens.
11      SECTION 2.  Chapter 514A, Hawaii Revised Statutes, is
12 amended by adding a new section to be appropriately designated
13 and to read as follows:
14      "514A-    Common expenses to be paid during foreclosure;
15 when.  Notwithstanding sections 514A-15(b) and 514A-90, if a
16 mortgage holder or court-appointed receiver or commissioner
17 collects rent on any apartment that is in foreclosure, the
18 mortgage holder or court-appointed receiver or commissioner shall
19 pay to the association of apartment owners the current common
20 expenses chargeable to the apartment.  The current common
21 expenses shall be paid to the association of apartment owners
22 from the date the rent is first collected to the date the rent is
23 no longer collected or the foreclosure proceedings are completed,

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                                     S.B. NO.           2349

 1 whichever occurs first."
 2      SECTION 3.  Section 514A-90, Hawaii Revised Statutes, is
 3 amended by amending subsection (a) to read as follows:
 4      "(a)  All sums assessed by the association of apartment
 5 owners but unpaid for the share of the common expenses chargeable
 6 to any apartment constitute a lien on the apartment prior to all
 7 other liens, except:
 8      (1)  Liens for taxes and assessments lawfully imposed by
 9           governmental authority against the apartment; and
10      (2)  All sums unpaid on any mortgage of record that was
11           recorded prior to the recordation of a notice of a lien
12           by the association of apartment owners, and costs and
13           expenses, including attorneys' fees, provided in such
14           mortgages[.];
15 provided that the association of apartment owners' lien shall be
16 prior to any mortgages recorded after the effective date of this
17 Act to the extent of any unpaid common expense assessments based
18 on the annual budget, adopted under section 514A-83.6, which
19 would have become due in the absence of acceleration during the
20 six months immediately preceding the commencement of any legal
21 proceeding to collect amounts due to the association or the
22 mortgagee under the mortgage including foreclosure by the
23 association pursuant to this section.  The lien of the

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                                     S.B. NO.           2349

 1 association of apartment owners may be foreclosed by action or by
 2 non-judicial or power of sale foreclosure procedures set forth in
 3 chapter 667, by the managing agent or board of directors, acting
 4 on behalf of the association of apartment owners, in like manner
 5 as a mortgage of real property.  In any [such] foreclosure, the
 6 apartment owner shall be required to pay a reasonable rental for
 7 the apartment, if so provided in the bylaws, and the plaintiff in
 8 the foreclosure shall be entitled to the appointment of a
 9 receiver to collect the rental owed.  The managing agent or board
10 of directors, acting on behalf of the association of apartment
11 owners, unless prohibited by the declaration, may bid on the
12 apartment at foreclosure sale, and acquire and hold, lease,
13 mortgage, and convey the apartment.  Action to recover a money
14 judgment for unpaid common expenses shall be maintainable without
15 foreclosing or waiving the lien securing the unpaid common
16 expenses owed."
17      SECTION 4.  Statutory material to be repealed is bracketed.
18 New statutory material is underscored.
19      SECTION 5.  This Act shall take effect upon its approval.
21                           INTRODUCED BY:  _______________________