Affordable Housing

Requires assisted housing development owner to give one year
notice to tenants if owner is going to terminate a subsidy
contract or mortgage prepayment; gives tenants or nonprofit
organization opportunity to purchase the development if owner of
development has not given notice to sell prior to July 1, 1999. 

THE SENATE                              S.B. NO.           1519
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                     A BILL FOR AN ACT



 1      SECTION 1.  The purpose of this Act is to provide protection
 2 to residents of housing assisted by the United States Department
 3 of Housing and Urban Development (HUD) who are at risk of losing
 4 their housing subsidy due to changes in the HUD project based
 5 Section 8 program.
 6      In Hawaii, there are currently more than three thousand
 7 units of affordable housing in fifty projects which are assisted
 8 by the HUD project based Section 8 program.  The residents of
 9 each of these dwelling units has a low income, so that they pay
10 thirty per cent of their income as rent, and HUD contributes the
11 remainder of their rent to the landlord.  
12      It is estimated that HUD contributes more than $20,000,000
13 annually to rents, and to the Hawaii economy, for the three
14 thousand families that live in the assisted dwelling units.  This
15 income to the State, and the stability it provides for the
16 families which rely upon it, are essential to the struggling
17 economies where these projects are located.
18      The private landlords who own these projects will be under
19 increasing pressure to convert this affordable housing to market

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 1 rate housing as HUD's programs have changed to lower the amount
 2 of rent the owners receive from HUD.  If these owners elect not
 3 to continue receiving HUD subsidies, then the State stands to
 4 lose up to $20,000,000 annually in federal housing support.  In
 5 addition, the lives of the tenants of these projects, and the
 6 long term stock of affordable housing in Hawaii, would be
 7 seriously hurt by these conversions.
 8      Therefore, this Act is to protect the low income tenants
 9 residing in HUD project based Section 8 housing from conversion
10 to market rate housing.
11      SECTION 2.  Chapter 201G, Hawaii Revised Statutes, is
12 amended by adding a new subpart to Part III to be appropriately
13 designated and to read as follows:
15                              PROGRAM
16      201G-  Definitions.  The following words or terms as used
17 in this subpart shall have the following meanings unless a
18 different meaning clearly appears from the context:
19      "Affected tenant" means a tenant household residing in an
20 assisted housing development which at the time the notice is
21 provided, benefits from the government assistance.
22      "Assisted housing development" or "development" means a
23 multifamily rental housing development that receives governmental
24 assistance under any of the following federal programs:

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 1      (1)  New construction, substantial rehabilitation, moderate
 2           rehabilitation, property disposition, and loan
 3           management set-aside programs under Section 8 of the
 4           United States Housing Act of 1937, as amended (42
 5           U.S.C. 1437f).
 6      (2)  The following programs under the following sections of
 7           the National Housing Act:
 8           (A)  Section 213 (12 U.S.C. 1715(e));
 9           (B)  The Below-Market-Interest-Rate Program under
10                U.S.C. Section 221(d)(3)(12 U.S.C. 1715(1)(d)(3)
11                and (5));
12           (C)  Section 236 (12 U.S.C. 1715(z-1)); and
13           (D)  Section 202 (12 U.S.C. 1701(q)).
14      (3)  Programs for rent supplement assistance under Section
15           101 of the Housing and Urban Development Act of 1965,
16           as amended (Public Law 89-117).
17      (4)  Programs under section 515 of the Housing Act of 1949,
18           as amended (42 U.S.C. 1485).
19      "Corporation" means the housing and community development
20 corporation of Hawaii.
21      "Local nonprofit organization" means not-for-profit
22 corporations organized pursuant to chapter 415B, whose principal
23 purpose is ownership, development, or management of housing or

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 1 community development projects for person and families of low,
 2 very low, or moderate income.  Additionally, local nonprofit
 3 organizations should have a board that is a broad representative
 4 of the community, members that are community based, and a proven
 5 track record of local community service.
 6      "Low or moderate income" means having an income between
 7 fifty and eighty per cent of the area median income as defined by
 8 the federal Department of Housing and Urban Development.
 9      "Owner" means an individual, corporation, limited liability
10 company, association, partnership, joint venture, or business
11 entity that holds title to an assisted housing development.
12      "Profit-motivated organizations and individuals" means
13 individuals or two or more persons that carry on a business for
14 profit.
15      "Regional or national organization" means not-for-profit
16 charitable corporations organized on a multicounty, state, or
17 multistate basis that have as their principal purpose the
18 ownership, development, or management of housing or community
19 development projects for persons and families of low or moderate
20 income and very low income.
21      "Regional or national public agencies" means multicounty,
22 state, or multistate agencies that are authorized to own,
23 develop, or manage housing or community development projects for

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                                     S.B. NO.           1519

 1 persons and families of low or moderate income and very low
 2 income.
 3      "Tenant" means a tenant, subtenant, lessee, sublessee, or
 4 other person legally in possession or occupying the assisted
 5 housing development.
 6      "Tenant association" means a group of tenants who have
 7 formed a nonprofit corporation, cooperative corporation, or other
 8 entity or organization or a local nonprofit regional, or national
 9 organization whose purpose includes the acquisition of an
10 assisted housing development and which represents the interest of
11 at least a majority of the tenants in the assisted housing
12 development.
13      "Use restriction" means any federal, state, or local
14 statute, regulation, ordinance, or contract which, as a condition
15 of receipt of any housing assistance, including a rental subsidy,
16 mortgage subsidy, or mortgage insurance to an assisted housing
17 development: 
18      (1)  Establishes maximum limitations on tenant incomes a
19           condition of eligibility for occupancy of the units
20           within a development;
21      (2)  Imposes any restrictions on the maximum rents that
22           could be charged for any of the units within a
23           development; or 

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                                     S.B. NO.           1519

 1      (3)  Requires that rents for any of the units within a
 2           development be reviewed by any governmental body or
 3           agency before the rents are implemented.
 4      "Very low income" means having an income less than fifty per
 5 cent of the area median income as defined by the federal
 6 Department of Housing and Urban Development.
 7      201G-  Notice Requirement.(a)  At least one year prior
 8 to the anticipated date of termination of a subsidy contract or
 9 mortgage prepayment on an assisted housing development, the owner
10 proposing the termination or prepayment of governmental
11 assistance shall provide a notice of the change to each affected
12 tenant household residing in the assisted housing development at
13 the time the notice is provided.
14      The notice shall contain:
15      (1)  The anticipated date of the termination or prepayment
16           of the programs contained in the definition of
17           "assisted housing development in section 201G-    ;
18      (2)  The anticipated rent increase subsequent to the date of
19           the prepayment or termination of the program;
20      (3)  A statement that a copy of the notice will be sent to
21           the corporation and the county where the assisted
22           housing development is located;
23      (4)  A statement of the possibility that the housing may

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 1           remain in the federal program after the date of subsidy
 2           termination or prepayment under certain circumstances;
 3           and
 4      (5)  The telephone number of the corporation's office which
 5           can be contacted to request additional written
 6           information.  
 7 The same notice also shall be filed at the same time with the
 8 corporation, the county where the property is located, and the
 9 state legislature.
10      (b)  The notice to the appropriate county shall also
11 contain:
12      (1)  Total number of affected tenants in the project;
13      (2)  Number of units that are government assisted;
14      (3)  Number of units that are not government assisted;
15      (4)  Number of bedrooms in each unit that is government
16           assisted;
17      (5)  Ages, income, and ethnic or racial categories of the
18           affected tenants;
19      (6)  A brief description of the owner's plan for the
20           project, including any timetables or deadlines for
21           actions to be taken and specific governmental approvals
22           that are required to be obtained;
23      (7)  The reason the owner seeks to terminate the subsidy
24           contract or prepay the mortgage; and 

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                                     S.B. NO.           1519

 1      (8)  A list of any contracts the owner has made or is making
 2           with other governmental agencies or other interested
 3           parties in connection with the notice.
 4 The information contained in the notice this subsection shall be
 5 based on reasonably available existing tenant written records and
 6 shall not require the owner to obtain or acquire additional
 7 information that is not contained in the existing tenant records.
 8 The owner shall not be held liable for any inaccuracies contained
 9 in the tenant records or from other sources.
10      (c)  For purposes of this section, service of the notice
11 shall be made by first-class mail postage prepaid.
12      (d)  This section may be enforced either at law or in equity
13 by any person or entity entitled to receive notice under this
14 section who is adversely affected by an owner's failure to comply
15 with this section.
16      (e)  This section shall not diminish any responsibility for
17 notification under federal law.
18      201G-    Right to purchase.(a)  An owner of an assisted
19 housing development who has not, prior to July 1, 1999, given
20 notice of intent to terminate a subsidy contract or prepay the
21 mortgage pursuant to section 201G-    , shall not sell, or
22 otherwise dispose of the development in a manner which would
23 result in either:

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 1      (1)  A discontinuance of its use as an assisted housing
 2           development; or
 3      (2)  The termination of any low-income use restrictions
 4           which apply to the development, 
 5 unless the owner or its agent proposing the removal of government
 6 assistance shall first have provided each of the entities, listed
 7 in subsection (b), an opportunity to purchase the development at
 8 a price and upon terms which represent a bona fide intention to
 9 sell, in compliance with subsection (f).
10      (b)  The entities to whom an opportunity to purchase shall
11 first be provided include the following:
12      (1)  The tenant association of the development;
13      (2)  Local nonprofit organizations and public agencies;
14      (3)  Regional or national nonprofit organizations and
15           regional or national public agencies.
16      (c)  For the purpose of this section, to qualify as a
17 purchaser of an assisted housing development, an entity listed in
18 subsection (b) shall:
19      (1)  Be capable of managing the housing and related
20           facilities for their remaining useful life, either by
21           itself or through a management agent;
22      (2)  Agree to obligate itself and any successors in interest
23           to maintain the affordability of the assisted housing

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                                     S.B. NO.           1519

 1           development for persons and families of low or moderate
 2           income and very low income for either a fifty-five year
 3           period from the date that the purchaser took legal
 4           possession of the housing or the remaining term of the
 5           existing federal government assistance, whichever is
 6           greater.
 7                The development shall be continuously occupied in
 8           the approximate percentages that those persons and
 9           families occupied that development on the date the
10           owner gave notice of intent or the approximate
11           percentages specified in existing use restrictions,
12           whichever is higher.
13                This obligation shall be recorded prior to the
14           close of escrow in the bureau of conveyances and shall
15           contain a legal description of the property, indexed to
16           the name of the owner as grantor. 
17      (3)  Local nonprofit organizations and public agencies shall
18           have no member among their officers or directorate with
19           a financial interest in assisted housing developments
20           that have terminated a subsidy contract or prepaid
21           mortgage on the development.
22      (d)  If an assisted housing development is not economically
23 feasible, as defined in section 17058(h)(3) of the Revenue and

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 1 Taxation Code, a purchaser shall be entitled to remove one or
 2 more units from the rent and occupancy requirements as is
 3 necessary for the development to become economically feasible;
 4 provided that once the development is again economically
 5 feasible, the purchaser shall designate the next available units
 6 as low income units up to the original number of those units.
 7      (e)  If an owner decides to sell or otherwise dispose of the
 8 assisted housing development pursuant to subsection (a), at least
 9 one year prior to the anticipated date of termination of a
10 subsidy contract or mortgage prepayment of a development which
11 would result in either: 
12      (1)  A discontinuance of its use as an assisted housing
13           development; or
14      (2)  The termination of any low income use restrictions
15           which apply to the development;
16 the owner shall first give notice of the owner's bona fide
17 intention to sell, or otherwise dispose of the development to
18 each qualified entity on the list provided to the owner by the
19 corporation, in accordance with subsection (o), as well as to
20 those qualified entities which directly contact the owner.  
21      The notice shall conform to the requirements of subsection
22 (f) and shall be sent to the entities by registered or certified
23 mail, return receipt requested.  The owner shall also post a copy

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 1 of the notice in a conspicuous place in the common area of the
 2 development.
 3      If the owner already has a bona fide offer to purchase from
 4 a qualified entity at the time the owner decides to sell, or
 5 otherwise dispose of the development, the owner shall not be
 6 required to comply with this subsection.
 7      (f)  The initial notice of a bona fide intention to sell
 8 shall contain all of the following:
 9      (1)  The sale price, terms of assumable financing, if any,
10           terms of the subsidy contract, if any, and proposed
11           improvements to the property to be made by the owner in
12           connection with the sale, if any;
13      (2)  A statement that each of the type of entities listed in
14           subsection (b) has the right to purchase the
15           development under this section in the order and
16           according to the priorities established in subsection
17           (g);
18      (3)  A statement that the owner will make available to each
19           of the type of entities listed in subsection (b)
20           within fifteen business days of receiving a request
21           therefor, itemized lists of monthly operating expenses,
22           capital improvements as determined by the owner made
23           within each of the two preceding calendar years, the

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 1           amount of project reserves, and copies of the two most
 2           recent financial and physical inspection reports on the
 3           development, if any, filed with the federal, state, or
 4           local agencies.
 5      (4)  A statement that the owner will make available to each
 6           of the entities listed in subsection (b), within
 7           fifteen business days of a request therefor, the most
 8           recent rent roll listing the rent paid for each unit
 9           and the subsidy, if any, paid by a governmental agency
10           as of the date the notice of intent was made pursuant
11           to, section 201G-    and a statement of the vacancy
12           rate at the development for each of the two preceding
13           calendar years.
14      (5)  A statement that the owner has satisfied all notice
15           requirements pursuant to section 201G-    (a).
16      (g)  If a qualified entity elects to purchase an assisted
17 housing development, it shall make a bona fide offer to purchase
18 the development within one-hundred-eighty days from the date of
19 an owner's bona fide intention to sell.  
20      A qualified entity's bona fide offer to purchase shall
21 identify whether it is a tenant association, nonprofit
22 organization, public agency, or for-profit organization or
23 individual and shall certify, under penalty of perjury, that it
24 is qualified pursuant to subsection (c). 

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                                     S.B. NO.           1519

 1      During the first one-hundred-twenty days from the date of an
 2 owner's bona fide notice of intention to sell, an owner shall
 3 only accept a bona fide offer to purchase from the tenant
 4 association.  If at the end of the first one-hundred-twenty day
 5 period no purchase agreement has been executed, the owner may
 6 accept a bona fide offer to purchase from any qualified entity
 7 specified in subsection (b) during the remaining sixty days.
 8      (h)  If at the end of the one-hundred-eighty day period no
 9 purchase agreement has been executed and a person or entity other
10 than those entities listed in subsection (b) has offered to
11 purchase, or otherwise acquire the development, and the owner of
12 the development has complied with this section and section
13 201G-    , the owner may accept a bona fide offer to purchase
14 from this person or entity.
15      (i)  When a bona fide offer to purchase has been made to an
16 owner in response to a bona fide intention to sell, and the offer
17 is accepted, a purchase agreement shall be executed.
18      (j)  Either the owner or the qualified entity may request
19 that the fair market value of the property, as a development, be
20 determined by an independent appraiser qualified to perform
21 multifamily housing appraisals, who shall be selected and paid by
22 the requesting party.  
23      All appraisers shall possess qualifications equivalent to
24 those required by the Members of the Appraisers Institute.  This

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                                     S.B. NO.           1519

 1 appraisal shall be nonbinding on either party with respect to the
 2 sales price of the development offered in the bona fide intention
 3 to sell, the bona fide offer to purchase, or the acceptance or
 4 rejection of either.
 5      (k)  During the one-hundred-eighty day period following the
 6 initial one-hundred-eighty day period required pursuant to
 7 subsection (g), an owner may accept an offer from a person or an
 8 entity that does not qualify under subsection (c); provided that
 9 the acceptance does not conflict with applicable federal laws
10 governing who may purchase an assisted housing development. 
11      This acceptance shall be made subject to the owner providing
12 each qualified entity that made a bona fide offer to purchase the
13 first opportunity to purchase the development at the same terms
14 and conditions as the pending offer to purchase sent by
15 registered or certified mail, return receipt requested.  
16      The qualified entity shall have fifteen days from the date
17 the notice is mailed to submit a bona fide offer to purchase and
18 that offer shall be accepted by the owner.  The owner shall not
19 be required to comply with this subsection if the person or the
20 entity making the offer during this time period agrees to
21 maintain the development for persons and families of low and
22 moderate income and very low income, in accordance with
23 subsection (c)(2).

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                                     S.B. NO.           1519

 1      (l)  This section shall not apply to any of the following:
 2      (1)  A government taking by eminent domain or negotiated
 3           purchase; 
 4      (2)  A forced sale pursuant to a foreclosure; or
 5      (3)  A transfer by gift, devise, or operation of law.
 6      (m)  An owner, at any time during the one year period
 7 subsequent to giving notice of the bona fide intention to sell in
 8 accordance with subsection (e), may decide not to sell, or
 9 otherwise dispose of the development and may withdraw the notice
10 of intention to sell.  However, at any time that the owner again
11 decides to sell ,or otherwise dispose of the development, this
12 section shall apply.
13      (n)  Prior to the close of escrow, an owner selling,
14 leasing, or otherwise disposing of a development to a purchaser
15 who does not qualify under subsection (c) shall certify under
16 penalty of perjury that the owner has complied with all
17 provisions of this section and section 201G-     .
18      This certification shall be recorded and shall contain a
19 legal description of the property and be indexed to the name of
20 the owner as grantor.  Additionally, the certification may be
21 relied upon by good faith purchasers and encumbrancers for value
22 and without notice of a failure to comply with this section.
23      Any person or entity acting solely in the capacity of an

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                                     S.B. NO.           1519

 1 escrow agent for the transfer of real property subject to this
 2 section shall not be liable for any failure to comply with this
 3 section unless the escrow agent either had actual knowledge of
 4 the requirement so this section or acted contrary to written
 5 escrow instructions concerning this section.
 6      (o)  The corporation shall undertake the following
 7 responsibilities and duties:
 8      (1)  Publish a form by April 1, 2000, containing a summary
 9           of rights and obligations under this section and make
10           that information available to owners of assisted
11           housing developments as well as to tenant associations,
12           local nonprofit organizations, regional or national
13           nonprofit organizations, public agencies, and other
14           entities with an interest in preserving the State's
15           subsidized housing.
16      (2)  Compile, maintain, and update a list of entities in
17           subsection (b) that have either contacted the
18           corporation with an expressed interest in purchasing a
19           development in the subject area or have been identified
20           by the corporation as potentially having an interest in
21           participating in a right of first refusal program.  The
22           corporation shall publicize the existence of the list
23           statewide.  The initial list shall be developed by

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                                     S.B. NO.           1519

 1           February 1, 2000.  Within five working days of the date
 2           of receipt of a notice of intent under section
 3           201G-    , the corporation shall send the list by
 4           registered or certified mail to the owner proposing the
 5           termination or removal of government assistance.
 6      (p)  This section may be enforced either in law or in equity
 7 by any qualified entity entitled to exercise the right of first
 8 refusal under this section, that has been adversely affected by
 9 an owner's failure to comply with this section.
10      (q)  It is the intent of the legislature that this section
11 is in addition to, but not preemptive of, applicable federal laws
12 governing the sale, or other disposition of a development which
13 would result in either:
14      (1)  A discontinuance of its use as an assisted housing
15           development; or
16      (2)  The termination of any low income use restrictions
17           which apply to the development.
18      201G-   Other powers.  Nothing in this subpart shall
19 enlarge or diminish in any way, any power which a county,
20 affected tenant, or owner may have, independent of this section."
21      SECTION 4.  This Act shall take effect upon its approval.
23                              INTRODUCED BY:______________________