HOUSE OF REPRESENTATIVES

H.B. NO.

1544

TWENTY-SIXTH LEGISLATURE, 2011

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO FORECLOSURES.

 

 

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

 


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

"514B- Association fiscal matters; assessments following mortgage foreclosure. (a) After completion of the foreclosure of a mortgage of record that was recorded prior to the recordation of a notice of a lien by the association, any unpaid share of common expenses or assessments attributable to the foreclosed unit shall be deemed to be a common expense collectible from all the unit owners, including the acquirer and the successors and assigns of the acquirer; provided that:

(1) Any purchaser of the unit at auction, other than the mortgagee, shall be liable to the association for unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the mortgage foreclosure; and

(2) If the mortgagee is the purchaser at auction, then any successor or assign of the mortgagee shall be liable to the association for unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the mortgage foreclosure. The mortgagee shall not be liable for any amount assessed prior to its acquisition of title.

(b) The cost of a release of any lien imposed by this section shall be paid by the party requesting the release.

(c) After completion of a mortgage foreclosure, any purchaser, including the mortgagee, shall be deemed to acquire title and to be obligated to pay the share of common expenses and assessments attributable to the unit beginning:

(1) Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;

(2) Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;

(3) Thirty days after the public sale in a nonjudicial power of sale foreclosure pursuant to section 667-5; or

(4) Upon the recordation of the affidavit of sale described in section 514B-146(c)(3),

whichever occurs first; provided that the mortgagee of record or other purchaser of the unit shall not be deemed to acquire title under paragraph (1), (2), or (3), if transfer of title is delayed past the time frame specified in paragraphs (1), (2), or (3), when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court granting the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy. In any such case, the mortgagee of record or other purchaser of the unit shall be deemed to acquire title upon recordation of the instrument of conveyance.

As used in this section:

"Completion" means:

(1) In a nonjudicial power of sale foreclosure, when the affadavit required under section 667-5 is filed; and

(2) In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (c).

"Regular monthly common assessments" shall not include:

(1) Any special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B-148;

(2) Late charges, fines, or penalties;

(3) Interest assessed by the association;

(4) Any lien arising out of the assessment; or

(5) Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs."

SECTION 2. Section 514B-146, Hawaii Revised Statutes, is amended to read as follows:

"514B-146 Association fiscal matters; lien for assessments[.]; foreclosure. (a) All sums assessed by the association but unpaid for the share of the common expenses chargeable to any unit shall constitute a lien on the unit with priority over all other liens, except:

(1) Liens for real property taxes and assessments lawfully imposed by governmental authority against the unit; and

(2) All sums unpaid on any mortgage of record that was recorded prior to the recordation of a notice of a lien by the association, and costs and expenses including attorneys' fees provided in such mortgages.

All costs and expenses including attorneys' fees and costs provided in section 514B-157 shall be secured by said lien. The lien of the association may be foreclosed by action or by nonjudicial or power of sale foreclosure procedures set forth in [chapter 667,] this section by the managing agent or board, acting on behalf of the [association, in like manner as a mortgage of real property.] association. In any such foreclosure, the unit owner shall be required to pay a reasonable rental for the unit, if so provided in the bylaws, and the plaintiff in the foreclosure shall be entitled to the appointment of a receiver to collect the rental owed. The managing agent or board, acting on behalf of the association, [unless prohibited by the declaration,] may bid on the unit at foreclosure sale, and acquire and hold, lease, mortgage, and convey the unit[.], unless prohibited by the declaration. Action to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the unpaid common expenses owed.

[(b) Except as provided in subsection (g), when the mortgagee of a mortgage of record or other purchaser of a unit obtains title to the unit as a result of foreclosure of the mortgage, the acquirer of title and the acquirer's successors and assigns shall not be liable for the share of the common expenses or assessments by the association chargeable to the unit which became due prior to the acquisition of title to the unit by the acquirer. The unpaid share of common expenses or assessments shall be deemed to be common expenses collectible from all of the unit owners, including the acquirer and the acquirer's successors and assigns. The mortgagee of record or other purchaser of the unit shall be deemed to acquire title and shall be required to pay the unit's share of common expenses and assessments beginning:

(1) Thirty-six days after the order confirming the sale to the purchaser has been filed with the court;

(2) Sixty days after the hearing at which the court grants the motion to confirm the sale to the purchaser;

(3) Thirty days after the public sale in a nonjudicial power of sale foreclosure pursuant to section 667‑5; or

(4) Upon the recording of the instrument of conveyance;

whichever occurs first; provided that the mortgagee of record or other purchaser of the unit shall not be deemed to acquire title under paragraph (1), (2), or (3), if transfer of title is delayed past the thirty-six days specified in paragraph (1), the sixty days specified in paragraph (2), or the thirty days specified in paragraph (3), when a person who appears at the hearing on the motion or a party to the foreclosure action requests reconsideration of the motion or order to confirm sale, objects to the form of the proposed order to confirm sale, appeals the decision of the court to grant the motion to confirm sale, or the debtor or mortgagor declares bankruptcy or is involuntarily placed into bankruptcy. In any such case, the mortgagee of record or other purchaser of the unit shall be deemed to acquire title upon recordation of the instrument of conveyance.

(c) No unit owner shall withhold any assessment claimed by the association. A unit owner who disputes the amount of an assessment may request a written statement clearly indicating:

(1) The amount of common expenses included in the assessment, including the due date of each amount claimed;

(2) The amount of any penalty, late fee, lien filing fee, and any other charge included in the assessment;

(3) The amount of attorneys' fees and costs, if any, included in the assessment;

(4) That under Hawaii law, a unit owner has no right to withhold assessments for any reason;

(5) That a unit owner has a right to demand mediation or arbitration to resolve disputes about the amount or validity of an association's assessment, provided the unit owner immediately pays the assessment in full and keeps assessments current; and

(6) That payment in full of the assessment does not prevent the owner from contesting the assessment or receiving a refund of amounts not owed.

Nothing in this section shall limit the rights of an owner to the protection of all fair debt collection procedures mandated under federal and state law.

(d) A unit owner who pays an association the full amount claimed by the association may file in small claims court or require the association to mediate to resolve any disputes concerning the amount or validity of the association's claim. If the unit owner and the association are unable to resolve the dispute through mediation, either party may file for arbitration under section 514B‑162; provided that a unit owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the unit owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings. If the unit owner pays all association assessments within thirty days of the date of suspension, the unit owner may ask the arbitrator to recommence the arbitration proceedings. If the owner fails to pay all association assessments by the end of the thirty-day period, the association may ask the arbitrator to dismiss the arbitration proceedings. The unit owner shall be entitled to a refund of any amounts paid to the association which are not owed.

(e) In conjunction with or as an alternative to foreclosure proceedings under subsection (a), where a unit is owner-occupied, the association may authorize its managing agent or board to, after sixty days' written notice to the unit owner and to the unit's first mortgagee of the nonpayment of the unit's share of the common expenses, terminate the delinquent unit's access to the common elements and cease supplying a delinquent unit with any and all services normally supplied or paid for by the association. Any terminated services and privileges shall be restored upon payment of all delinquent assessments but need not be restored until payment in full is received.

(f) Before the board or managing agent may take the actions permitted under subsection (e), the board shall adopt a written policy providing for such actions and have the policy approved by a majority vote of the unit owners at an annual or special meeting of the association or by the written consent of a majority of the unit owners.

(g) Subject to this subsection, and subsections (h) and (i), the board may specially assess the amount of the unpaid regular monthly common assessments for common expenses against a person who, in a judicial or nonjudicial power of sale foreclosure, purchases a delinquent unit; provided that:

(1) A purchaser who holds a mortgage on a delinquent unit that was recorded prior to the filing of a notice of lien by the association and who acquires the delinquent unit through a judicial or nonjudicial foreclosure proceeding, including purchasing the delinquent unit at a foreclosure auction, shall not be obligated to make, nor be liable for, payment of the special assessment as provided for under this subsection; and

(2) A person who subsequently purchases the delinquent unit from the mortgagee referred to in paragraph (1) shall be obligated to make, and shall be liable for, payment of the special assessment provided for under this subsection; and provided further that the mortgagee or subsequent purchaser may require the association to provide at no charge a notice of the association's intent to claim lien against the delinquent unit for the amount of the special assessment, prior to the subsequent purchaser's acquisition of title to the delinquent unit. The notice shall state the amount of the special assessment, how that amount was calculated, and the legal description of the unit.

(h) The amount of the special assessment assessed under subsection (g) shall not exceed the total amount of unpaid regular monthly common assessments that were assessed during the six months immediately preceding the completion of the judicial or nonjudicial power of sale foreclosure. In no event shall the amount of the special assessment exceed the sum of $3,600.

(i) For purposes of subsections (g) and (h), the following definitions shall apply, unless the context requires otherwise:

"Completion" means:

(1) In a nonjudicial power of sale foreclosure, when the affidavit required under section 667-5 is filed; and

(2) In a judicial foreclosure, when a purchaser is deemed to acquire title pursuant to subsection (b).

"Regular monthly common assessments" does not include:

(1) Any other special assessment, except for a special assessment imposed on all units as part of a budget adopted pursuant to section 514B‑148;

(2) Late charges, fines, or penalties;

(3) Interest assessed by the association;

(4) Any lien arising out of the assessment; or

(5) Any fees or costs related to the collection or enforcement of the assessment, including attorneys' fees and court costs.

(j) The cost of a release of any lien filed pursuant to this section shall be paid by the party requesting the release.]

(b) In any foreclosure action pursuant to this section:

(1) The circuit court may assess the amount due to the association, without the intervention of a jury, and shall render judgment for the amount awarded and the foreclosure of the association's lien. Execution may be issued on the judgment, as ordered by the court;

(2) All mortgage creditors whose names are or can be discovered by the association foreclosing its lien shall be made parties to the action; provided that the foreclosure of the association's lien shall not extinguish priority liens as defined in subsection (a) of this section;

(3) Proceeds in excess of amounts secured by the association's lien, if any, shall be payable to mortgage creditors according to the priority of their liens, and not pro rata; and judgments of foreclosure shall operate to extinguish all liens on the same property except priority liens as defined in subsection (a) of this section. Proceeds in excess of the amounts secured by priority liens shall be payable to the unit owner or as otherwise determined by the court in accordance with principles of equity; and

(4) Any party may assert any legal or equitable defense to the foreclosure; provided that a dispute as to the amount due to the association shall not be allowed as a defense to the action but shall be subject to the remedies provided in section 514B-146.2.

(c) Non-judicial and power of sale foreclosure of the association's lien are both authorized in accordance with the following procedures; provided that non-judicial foreclosure of the association's lien is authorized whether or not a power of sale is stated in the association's declaration or bylaws; and provided further that the procedures of this section shall control over any power of sale provisions in the declaration or bylaws of an association:

(1) The association shall be represented by an attorney who is both licensed and physically located in this State;

(2) The attorney shall give notice of the association's intention to foreclose its lien by:

(A) Mailing notice, by both first class mail and certified mail, return receipt requested, not less than twenty-one days before the day of sale, to:

(i) The unit owner, at the owner's address as shown in the records of the association and, if different, at the address of the unit being foreclosed;

(ii) All mortgage creditors whose names are or can be discovered by the association;

(iii) The director of taxation; and

(iv) The planned community association in which the unit is located, if any;

(B) Posting notice on the front door or other conspicuous location on the premises not less than twenty-one days before the day of sale; and

(C) Publishing notice three times, once in each of three successive weeks, in a newspaper having general circulation in the county where the unit is located, the last publication to be not less than fourteen days before the day of sale;

and

(3) Within thirty days after the sale of the property, the attorney shall record an affidavit at the bureau of conveyances setting forth fully and particularly the association's acts consistent with this section. The affidavit shall include a copy of the notice of sale as an exhibit and may include other evidence of compliance with the requirements of this section. The affidavit, or a certified copy thereof, shall be admitted as evidence of the completion of the foreclosure if it demonstrates that the unit was sold in compliance with the procedures established in this section. The affidavit shall be recorded and indexed by the registrar, in the manner provided in chapter 501 or chapter 502.

(d) The notice referred to in subsection (c) shall:

(1) Identify the association foreclosing its lien;

(2) Contain a description of the unit being foreclosed upon; and

(3) Contain a statement of the time and place proposed for the sale, which date may be any time after the expiration of four weeks from the date the notice was first published in the newspaper.

(e) Any sale scheduled pursuant to subsection (c) may be postponed from time to time by public announcement made by a person acting on behalf of the association. The date and time of the postponed auction, or information that the auction was canceled, shall thereafter be disclosed to any person entitled to notice pursuant to subsection (c) who requests that information.

(f) A down payment of no more than ten per cent of the highest successful bid price shall be paid to the association by the successful bidder immediately after the completion of the public sale; provided that the successful bidder shall remain liable to the association for the balance of the highest successful bid price and for damages, if any, that result from the successful bidder's failure, neglect, or refusal to complete the purchase.

(g) Any person entitled to notice pursuant to subsection (c) may request, prior to the sale, for a quote of sums claimed to be due to the association in relation to the default, including an estimate of attorney's fees and costs associated with the default, plus an estimate of all other fees and costs associated with the default. The association shall disclose the requested information within five business days after the request.

(h) The association shall disclose the sale price, after the sale, to any person entitled to notice pursuant to subsection (c)."

SECTION 3. Section 603-21.7, Hawaii Revised Statutes, is amended to read as follows:

"603-21.7 Noninjury cases. The several circuit courts shall have jurisdiction, without the intervention of a jury except as provided by statute, as follows:

[(a)] (1) Of actions or proceedings:

[(1)] (A) For the determination and declaration of heirs of deceased persons, which jurisdiction shall be in addition to the probate jurisdiction of the court;

[(2)] (B) For the admeasurement of dower and curtesy, or the partition of real estate; and

[(3)] (C) For enforcing and regulating the execution of trusts, whether the trusts relate to real or personal estate, for the foreclosure of mortgages, for the foreclosure of condominium association liens, for the specific performance of contracts, and except when a different provision is made they shall have original and exclusive jurisdiction of all other cases in the nature of suits in equity, according to the usages and principles of courts of equity; and

[(b)] (2) Of actions or proceedings in or in the nature of habeas corpus, prohibition, mandamus, quo warranto, and all other proceedings in or in the nature of applications for writs directed to courts of inferior jurisdiction, to corporations and individuals, as may be necessary to the furtherance of justice and the regular execution of the law."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on January 1, 2012.

 

INTRODUCED BY:

_____________________________

 

 


 


 

Report Title:

Mortgage Foreclosures; Liens

 

Description:

Sets forth guidelines for mortgage foreclosures, and liens for assessments.

 

 

 

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