REPORT TITLE:
Affordable Housing


DESCRIPTION:
Requires assisted housing development owners to give one year's
notice to tenants if the owner is going to terminate a subsidy
contract or mortgage prepayment.  Gives tenants or nonprofit
organizations opportunities to purchase the development if the
owner of the development has not given notice to sell prior to
July 1, 1999.  Authorizes general obligation bonds to the Rental
Housing Trust Fund to encourage the development and availability
of low income rental housing. (SB1519 HD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1519
THE SENATE                              S.B. NO.           S.D. 3
TWENTIETH LEGISLATURE, 1999                                H.D. 2
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO HOUSING.



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

 1      SECTION 1.  The legislature finds that in Hawaii, there are
 
 2 currently more than three thousand units of affordable housing in
 
 3 fifty projects that are assisted by the United States Department
 
 4 of Housing and Urban Development (HUD) project-based section 8
 
 5 program.  Because the residents of each of these dwelling units
 
 6 have a low household income, they pay thirty per cent of their
 
 7 income as rent, and the HUD project contributes the remainder of
 
 8 their rent to the landlord.
 
 9      It is estimated that the HUD project contributes more than
 
10 $20,000,000 annually to rent and to the Hawaii economy for the
 
11 three thousand families that live in the assisted dwelling units.
 
12 This income to the State and the stability it provides for the
 
13 families that rely upon it are essential to the struggling
 
14 economies where these projects are located.
 
15      The legislature finds that the private landlords who own
 
16 these projects will be under increasing pressure to convert this
 
17 affordable housing to market rate housing as HUD's programs have
 
18 changed to lower the amount of rent the owners receive from the
 
19 HUD project.  If these owners elect not to continue receiving HUD
 
20 subsidies, then the State stands to lose up to $20,000,000
 

 
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 1 annually in federal housing support.  In addition, the lives of
 
 2 the tenants of these projects and the long-term stock of
 
 3 affordable housing in Hawaii would be seriously hurt by these
 
 4 conversions.
 
 5      The legislature further finds that the greatest need for
 
 6 housing in the State of Hawaii is for families below eighty per
 
 7 cent of the median income, and the most effective way to
 
 8 perpetuate housing for low-income families is through nonprofit
 
 9 development. 
 
10      In 1992, the rental housing trust fund was created under Act
 
11 308, Session Laws Hawaii 1992.  The legislature created this fund
 
12 to provide loans and grants for the pre-development, development,
 
13 construction, acquisition, preservation, and substantial
 
14 rehabilitation of rental housing units.
 
15      As of June 30, 1998, the rental housing trust fund advisory
 
16 commission has committed project award loans to twenty-one
 
17 affordable rental developments.  Together they total one thousand
 
18 four hundred seventy-three units of affordable rental housing.
 
19 The rental housing trust fund provides low interest, flexible
 
20 term loans for the development of low income housing on Oahu,
 
21 Maui, Kauai, and Hawaii.
 

 
 
 
 
 
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 1      The purpose of this Act is to:
 
 2      (1)  Provide protection to residents of housing assisted by
 
 3           HUD who are at risk of losing their housing subsidy due
 
 4           to changes in the HUD project-based section 8 program;
 
 5           and
 
 6      (2)  Authorize general obligation bonds to the rental
 
 7           housing trust fund to encourage the development and
 
 8           availability of low income rental housing throughout
 
 9           the State of Hawaii.
 
10      SECTION 2.  Chapter 201G, Hawaii Revised Statutes, is
 
11 amended by adding a new subpart to part III to be appropriately
 
12 designated and to read as follows:
 
13   "  .  FEDERALLY ASSISTED RENTAL HOUSING PRESERVATION PROGRAM
 
14      201G-A  Definitions.  As used in this subpart, unless the
 
15 context otherwise requires:
 
16      "Affected tenant" means a tenant household residing in an
 
17 assisted housing development that, at the time the notice is
 
18 provided, benefits from the government assistance.
 
19      "Assisted housing development" or "development" means a
 
20 multifamily rental housing development that receives governmental
 
21 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. 1715e);
 
 9           (B)  The Below-Market-Interest-Rate Program under
 
10                U.S.C. Section 221(d)(3)(12 U.S.C. 1715l(d)(3) and
 
11                (5));
 
12           (C)  Section 236 (12 U.S.C. 1715z-1); and
 
13           (D)  Section 202 (12 U.S.C. 1701q);
 
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); and
 
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 who 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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 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 that has
 
 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 that 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 as 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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 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-B  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-A;
 
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;
 

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

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

 
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 1 mortgage pursuant to section 201G-B, shall not sell, or otherwise
 
 2 dispose of the development in a manner that would result in
 
 3 either:
 
 4      (1)  A discontinuance of its use as an assisted housing
 
 5           development; or
 
 6      (2)  The termination of any low-income use restrictions
 
 7           which apply to the development, 
 
 8 unless the owner or its agent proposing the removal of government
 
 9 assistance shall first have provided each of the entities, listed
 
10 in subsection (b), an opportunity to purchase the development at
 
11 a price and upon terms which represent a bona fide intention to
 
12 sell, in compliance with subsection (f).
 
13      (b)  The entities to whom an opportunity to purchase shall
 
14 first be provided include the following:
 
15      (1)  The tenant association of the development;
 
16      (2)  Local nonprofit organizations and public agencies; and
 
17      (3)  Regional or national nonprofit organizations and
 
18           regional or national public agencies.
 
19      (c)  For the purpose of this section, to qualify as a
 
20 purchaser of an assisted housing development, an entity listed in
 
21 subsection (b) shall:
 
22      (1)  Be capable of managing the housing and related
 
23           facilities for their remaining useful life, either by
 
24           itself or through a management agent;
 

 
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 1      (2)  Agree to obligate itself and any successors in interest
 
 2           to maintain the affordability of the assisted housing
 
 3           development for persons and families of low or moderate
 
 4           income and very low income for either a fifty-five year
 
 5           period from the date that the purchaser took legal
 
 6           possession of the housing or the remaining term of the
 
 7           existing federal government assistance, whichever is
 
 8           greater.  The development shall be continuously
 
 9           occupied in the approximate percentages that those
 
10           persons and families occupied that development on the
 
11           date the owner gave notice of intent or the approximate
 
12           percentages specified in existing use restrictions,
 
13           whichever is higher.  This obligation shall be recorded
 
14           prior to the close of escrow in the bureau of
 
15           conveyances and shall contain a legal description of
 
16           the property, indexed to the name of the owner as
 
17           grantor; and
 
18      (3)  Have no member among its officers or directorate with a
 
19           financial interest in assisted housing developments
 
20           that have terminated a subsidy contract or prepaid
 
21           mortgage on the development, if it is a local nonprofit
 
22           organization or public agency.
 

 
 
 
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 1      (d)  If an assisted housing development is not economically
 
 2 feasible, a purchaser shall be entitled to remove one or more
 
 3 units from the rent and occupancy requirements as is necessary
 
 4 for the development to become economically feasible; provided
 
 5 that once the development is again economically feasible, the
 
 6 purchaser shall designate the next available units as low income
 
 7 units up to the original number of those units.
 
 8      For the purpose of this subsection, "economically feasible"
 
 9 means the development's revenue equals or exceeds the
 
10 development's operating expenses, excluding any return on
 
11 investment.
 
12      (e)  If an owner decides to sell or otherwise dispose of the
 
13 assisted housing development pursuant to subsection (a), at least
 
14 one year prior to the anticipated date of termination of a
 
15 subsidy contract or mortgage prepayment of a development, that
 
16 would result in either: 
 
17      (1)  A discontinuance of its use as an assisted housing
 
18           development; or
 
19      (2)  The termination of any low income use restrictions
 
20           which apply to the development;
 
21 the owner shall first give notice of the owner's bona fide
 
22 intention to sell, or otherwise dispose of the development to
 
23 each qualified entity on the list provided to the owner by the
 

 
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 1 corporation, in accordance with subsection (o), as well as to
 
 2 those qualified entities which directly contact the owner.
 
 3      The notice shall conform to the requirements of subsection
 
 4 (f) and shall be sent to the entities by registered or certified
 
 5 mail, return receipt requested.  The owner shall also post a copy
 
 6 of the notice in a conspicuous place in the common area of the
 
 7 development.
 
 8      If the owner already has a bona fide offer to purchase from
 
 9 a qualified entity at the time the owner decides to sell or
 
10 otherwise dispose of the development, the owner shall not be
 
11 required to comply with this subsection.
 
12      (f)  The initial notice of a bona fide intention to sell
 
13 shall contain all of the following:
 
14      (1)  The sale price, terms of assumable financing, if any,
 
15           terms of the subsidy contract, if any, and proposed
 
16           improvements to the property to be made by the owner in
 
17           connection with the sale, if any;
 
18      (2)  A statement that each of the type of entities listed in
 
19           subsection (b) has the right to purchase the
 
20           development under this section in the order and
 
21           according to the priorities established in subsection
 
22           (g);
 

 
 
 
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 1      (3)  A statement that the owner will make available to each
 
 2           of the type of entities listed in subsection (b)
 
 3           within fifteen business days of receiving a request
 
 4           therefor:
 
 5           (A)  Itemized lists of monthly operating expenses;
 
 6           (B)  Capital improvements as determined by the owner
 
 7                made within each of the two preceding calendar
 
 8                years;
 
 9           (C)  The amount of project reserves; and
 
10           (D)  Copies of the two most recent financial and
 
11                physical inspection reports on the development, if
 
12                any, filed with the federal, state, or local
 
13                agencies;
 
14      (4)  A statement that the owner will make available to each
 
15           of the entities listed in subsection (b), within
 
16           fifteen business days of a request therefor:
 
17           (A)  The most recent rent roll listing the rent paid
 
18                for each unit and the subsidy, if any, paid by a
 
19                governmental agency as of the date the notice of
 
20                intent was made pursuant to section 201G-B; and
 
21           (B)  A statement of the vacancy rate at the development
 
22                for each of the two preceding calendar years;
 
23           and
 

 
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 1      (5)  A statement that the owner has satisfied all notice
 
 2           requirements pursuant to section 201G-B(a).
 
 3      (g)  If a qualified entity elects to purchase an assisted
 
 4 housing development, it shall make a bona fide offer to purchase
 
 5 the development within one hundred eighty days from the date of
 
 6 an owner's bona fide intention to sell.  
 
 7      A qualified entity's bona fide offer to purchase shall
 
 8 identify whether it is a tenant association, nonprofit
 
 9 organization, public agency, or for-profit organization or
 
10 individual and shall certify, under penalty of perjury, that it
 
11 is qualified pursuant to subsection (c). 
 
12      During the first one hundred twenty days from the date of an
 
13 owner's bona fide notice of intention to sell, an owner shall
 
14 only accept a bona fide offer to purchase from the tenant
 
15 association.  If at the end of the first one hundred twenty-day
 
16 period no purchase agreement has been executed, the owner may
 
17 accept a bona fide offer to purchase from any qualified entity
 
18 specified in subsection (b) during the remaining sixty days.
 
19      (h)  If at the end of the one hundred eighty-day period no
 
20 purchase agreement has been executed and a person or entity other
 
21 than those entities listed in subsection (b) has offered to
 
22 purchase, or otherwise acquire the development, and the owner of
 

 
 
 
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 1 the development has complied with this section and section
 
 2 201G-B, the owner may accept a bona fide offer to purchase from
 
 3 this person or entity.
 
 4      (i)  When a bona fide offer to purchase has been made to an
 
 5 owner in response to a bona fide intention to sell, and the offer
 
 6 has been accepted, a purchase agreement shall be executed.
 
 7      (j)  Either the owner or the qualified entity may request
 
 8 that the fair market value of the property, as a development, be
 
 9 determined by an independent appraiser qualified to perform
 
10 multifamily housing appraisals, who shall be selected and paid by
 
11 the requesting party.
 
12      All appraisers shall be certified real estate appraisers
 
13 under chapter 466K and shall possess qualifications equivalent to
 
14 those required by the members of the Appraisers Institute.  This
 
15 appraisal shall be nonbinding on either party with respect to the
 
16 sales price of the development offered in the bona fide intention
 
17 to sell, the bona fide offer to purchase, or the acceptance or
 
18 rejection of either.
 
19      (k)  During the one hundred eighty-day period following the
 
20 initial one hundred eighty-day period required pursuant to
 
21 subsection (g), an owner may accept an offer from a person or an
 
22 entity that does not qualify under subsection (c); provided that
 
23 the acceptance does not conflict with applicable federal laws
 
24 governing who may purchase an assisted housing development. 
 

 
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 1      This acceptance shall be made subject to the owner providing
 
 2 each qualified entity that made a bona fide offer to purchase the
 
 3 first opportunity to purchase the development at the same terms
 
 4 and conditions as the pending offer to purchase sent by
 
 5 registered or certified mail, return receipt requested.
 
 6      The qualified entity shall have fifteen days from the date
 
 7 the notice is mailed to submit a bona fide offer to purchase and
 
 8 that offer shall be accepted by the owner.  The owner shall not
 
 9 be required to comply with this subsection if the person or the
 
10 entity making the offer during this time period agrees to
 
11 maintain the development for persons and families of low and
 
12 moderate income and very low income, in accordance with
 
13 subsection (c)(2).
 
14      (l)  This section shall not apply to any of the following:
 
15      (1)  A government taking by eminent domain or negotiated
 
16           purchase; 
 
17      (2)  A forced sale pursuant to a foreclosure; or
 
18      (3)  A transfer by gift, devise, or operation of law.
 
19      (m)  An owner, at any time during the one-year period
 
20 subsequent to giving notice of the bona fide intention to sell in
 
21 accordance with subsection (e), may decide not to sell, or
 
22 otherwise dispose of the development and may withdraw the notice
 
23 of intention to sell.  However, at any time that the owner again
 

 
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 1 decides to sell, or otherwise dispose of the development, this
 
 2 section shall apply.
 
 3      (n)  Prior to the close of escrow, an owner selling,
 
 4 leasing, or otherwise disposing of a development to a purchaser
 
 5 who does not qualify under subsection (c) shall certify under
 
 6 penalty of perjury that the owner has complied with all
 
 7 provisions of this section and section 201G-B.
 
 8      This certification shall be recorded in the bureau of
 
 9 conveyances and shall contain a legal description of the property
 
10 and be indexed to the name of the owner as grantor.
 
11 Additionally, the certification may be relied upon by good faith
 
12 purchasers and encumbrancers for value and without notice of a
 
13 failure to comply with this section.
 
14      Any person or entity acting solely in the capacity of an
 
15 escrow agent for the transfer of real property subject to this
 
16 section shall not be liable for any failure to comply with this
 
17 section unless the escrow agent either had actual knowledge of
 
18 the requirements of this section or acted contrary to written
 
19 escrow instructions concerning this section.
 
20      (o)  The corporation shall undertake the following
 
21 responsibilities and duties:
 
22      (1)  Publish a form by April 1, 2000, containing a summary
 
23           of rights and obligations under this section and make
 

 
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 1           that information available to owners of assisted
 
 2           housing developments, as well as to tenant
 
 3           associations, local nonprofit organizations, regional
 
 4           or national nonprofit organizations, public agencies,
 
 5           and other entities with an interest in preserving the
 
 6           State's subsidized housing; and
 
 7      (2)  Compile, maintain, and update a list of entities in
 
 8           subsection (b) that have either contacted the
 
 9           corporation with an expressed interest in purchasing a
 
10           development in the subject area or have been identified
 
11           by the corporation as potentially having an interest in
 
12           participating in a right of first refusal program.  The
 
13           corporation shall publicize the existence of the list
 
14           statewide.  The initial list shall be developed by
 
15           February 1, 2000.  Within five working days of the date
 
16           of receipt of a notice of intent under section 201G-B,
 
17           the corporation shall send the list by registered or
 
18           certified mail to the owner proposing the termination
 
19           or removal of government assistance.
 
20      (p)  This section may be enforced either in law or in equity
 
21 by any qualified entity entitled to exercise the right of first
 
22 refusal under this section that has been adversely affected by an
 
23 owner's failure to comply with this section.
 

 
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 1      (q)  It is the intent of the legislature that this section
 
 2 is in addition to, but not preemptive of, applicable federal laws
 
 3 governing the sale or other disposition of a development which
 
 4 would result in either:
 
 5      (1)  A discontinuance of its use as an assisted housing
 
 6           development; or
 
 7      (2)  The termination of any low-income use restrictions
 
 8           which apply to the development.
 
 9      201G-D  Other powers.  Nothing in this subpart shall
 
10 enlarge or diminish in any way, any power which a county,
 
11 affected tenant, or owner may have, independent of this chapter."
 
12      SECTION 3.  The director of finance is authorized to issue
 
13 general obligation bonds in the sum of $1 or so much thereof as
 
14 may be necessary and the same sum or so much thereof as may be
 
15 necessary is appropriated for fiscal year 1999-2000 to be paid
 
16 into the rental housing trust fund created in section 201G-432,
 
17 Hawaii Revised Statutes.
 
18      The sums appropriated shall be expended by the housing and
 
19 community development corporation of Hawaii for the purposes of
 
20 this Act.
 
21      SECTION 4.  In codifying the new sections added by section 2
 
22 of this Act, the revisor of statutes shall substitute appropriate
 
23 section numbers for the letters used in designating the new
 
24 sections in this Act.
 

 
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 1      SECTION 5.  This Act shall take effect upon its approval;
 
 2 provided that section 3 shall take effect on July 1, 1999.