Affordable Housing

Requires assisted housing development owner to give 1 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. (SD2)

THE SENATE                              S.B. NO.           S.D. 2
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, the purpose of this Act is to protect the low
 9 income tenants residing in HUD project based Section 8 housing
10 from conversion 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-A  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

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

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

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

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                                     S.B. NO.           S.D. 2

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

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                                     S.B. NO.           S.D. 2

 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 which
 6           can be contacted to request additional written
 7           information.  
 8 The same notice also shall be filed at the same time with the
 9 corporation, the county where the property is located, and the
10 state 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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                                     S.B. NO.           S.D. 2

 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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                                     S.B. NO.           S.D. 2

 1 mortgage pursuant to section 201G-B, shall not sell, or otherwise
 2 dispose of the development in a manner which 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

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                                     S.B. NO.           S.D. 2

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

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                                     S.B. NO.           S.D. 2

 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.  For the purpose
 8 of this subsection, "economically feasible" means the
 9 development's revenue equals or exceeds the development's
10 operating expenses, excluding any return on investment.
11      (e)  If an owner decides to sell or otherwise dispose of the
12 assisted housing development pursuant to subsection (a), at least
13 one year prior to the anticipated date of termination of a
14 subsidy contract or mortgage prepayment of a development which
15 would result in either: 
16      (1)  A discontinuance of its use as an assisted housing
17           development; or
18      (2)  The termination of any low income use restrictions
19           which apply to the development;
20 the owner shall first give notice of the owner's bona fide
21 intention to sell, or otherwise dispose of the development to
22 each qualified entity on the list provided to the owner by the
23 corporation, in accordance with subsection (o), as well as to

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                                     S.B. NO.           S.D. 2

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

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                                     S.B. NO.           S.D. 2

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

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                                     S.B. NO.           S.D. 2

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

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                                     S.B. NO.           S.D. 2

 1 that the fair market value of the property, as a development, be
 2 determined by an independent appraiser qualified to perform
 3 multifamily housing appraisals, who shall be selected and paid by
 4 the requesting party.
 5      All appraisers shall be certified real estate appraisers
 6 under chapter 466K and shall possess qualifications equivalent to
 7 those required by the members of the Appraisers Institute.  This
 8 appraisal shall be nonbinding on either party with respect to the
 9 sales price of the development offered in the bona fide intention
10 to sell, the bona fide offer to purchase, or the acceptance or
11 rejection of either.
12      (k)  During the one-hundred-eighty day period following the
13 initial one-hundred-eighty day period required pursuant to
14 subsection (g), an owner may accept an offer from a person or an
15 entity that does not qualify under subsection (c); provided that
16 the acceptance does not conflict with applicable federal laws
17 governing who may purchase an assisted housing development. 
18      This acceptance shall be made subject to the owner providing
19 each qualified entity that made a bona fide offer to purchase the
20 first opportunity to purchase the development at the same terms
21 and conditions as the pending offer to purchase sent by
22 registered or certified mail, return receipt requested.
23      The qualified entity shall have fifteen days from the date

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                                     S.B. NO.           S.D. 2

 1 the notice is mailed to submit a bona fide offer to purchase and
 2 that offer shall be accepted by the owner.  The owner shall not
 3 be required to comply with this subsection if the person or the
 4 entity making the offer during this time period agrees to
 5 maintain the development for persons and families of low and
 6 moderate income and very low income, in accordance with
 7 subsection (c)(2).
 8      (l)  This section shall not apply to any of the following:
 9      (1)  A government taking by eminent domain or negotiated
10           purchase; 
11      (2)  A forced sale pursuant to a foreclosure; or
12      (3)  A transfer by gift, devise, or operation of law.
13      (m)  An owner, at any time during the one-year period
14 subsequent to giving notice of the bona fide intention to sell in
15 accordance with subsection (e), may decide not to sell, or
16 otherwise dispose of the development and may withdraw the notice
17 of intention to sell.  However, at any time that the owner again
18 decides to sell, or otherwise dispose of the development, this
19 section shall apply.
20      (n)  Prior to the close of escrow, an owner selling,
21 leasing, or otherwise disposing of a development to a purchaser
22 who does not qualify under subsection (c) shall certify under
23 penalty of perjury that the owner has complied with all

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                                     S.B. NO.           S.D. 2

 1 provisions of this section and section 201G-B.
 2      This certification shall be recorded in the bureau of
 3 conveyances and shall contain a legal description of the property
 4 and be indexed to the name of the owner as grantor.
 5 Additionally, the certification may be relied upon by good faith
 6 purchasers and encumbrancers for value and without notice of a
 7 failure to comply with this section.
 8      Any person or entity acting solely in the capacity of an
 9 escrow agent for the transfer of real property subject to this
10 section shall not be liable for any failure to comply with this
11 section unless the escrow agent either had actual knowledge of
12 the requirements of this section or acted contrary to written
13 escrow instructions concerning this section.
14      (o)  The corporation shall undertake the following
15 responsibilities and duties:
16      (1)  Publish a form by April 1, 2000, containing a summary
17           of rights and obligations under this section and make
18           that information available to owners of assisted
19           housing developments as well as to tenant associations,
20           local nonprofit organizations, regional or national
21           nonprofit organizations, public agencies, and other
22           entities with an interest in preserving the State's
23           subsidized housing; and

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                                     S.B. NO.           S.D. 2

 1      (2)  Compile, maintain, and update a list of entities in
 2           subsection (b) that have either contacted the
 3           corporation with an expressed interest in purchasing a
 4           development in the subject area or have been identified
 5           by the corporation as potentially having an interest in
 6           participating in a right of first refusal program.  The
 7           corporation shall publicize the existence of the list
 8           statewide.  The initial list shall be developed by
 9           February 1, 2000.  Within five working days of the date
10           of receipt of a notice of intent under section 201G-B,
11           the corporation shall send the list by registered or
12           certified mail to the owner proposing the termination
13           or removal of government assistance.
14      (p)  This section may be enforced either in law or in equity
15 by any qualified entity entitled to exercise the right of first
16 refusal under this section, that has been adversely affected by
17 an owner's failure to comply with this section.
18      (q)  It is the intent of the legislature that this section
19 is in addition to, but not preemptive of, applicable federal laws
20 governing the sale, or other disposition of a development which
21 would result in either:
22      (1)  A discontinuance of its use as an assisted housing
23           development; or

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 1      (2)  The termination of any low income use restrictions
 2           which apply to the development.
 3      201G-D  Other powers.  Nothing in this subpart shall
 4 enlarge or diminish in any way, any power which a county,
 5 affected tenant, or owner may have, independent of this section."
 6      SECTION 3.  In codifying the new sections added by section 2
 7 of this Act, the revisor of statutes shall substitute appropriate
 8 section numbers for the letters used in designating the new
 9 sections in this Act.
10      SECTION 4.  This Act shall take effect upon its approval.