Provides lien for unpaid common expenses; provides time of title
transfer for foreclosure; allows for condo assoc to deposit funds
in out-of-state financial institutions and credit unions. (SD2)

THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that condominium
 2 associations are unable to collect maintenance fees that remain
 3 unpaid prior to and during foreclosure proceedings.  The
 4 legislature further finds that financial institutions refuse to
 5 pay for any outstanding maintenance fees even though secondary
 6 mortgage market lenders will reimburse financial institutions for
 7 up to six months of owners' delinquent maintenance fees.
 8      The legislature further finds that in cases where there is a
 9 mortgage lien that is recorded prior to the recordation of the
10 association's notice of lien and the foreclosure sale proceeds
11 are insufficient to pay the claims of both the mortgagee and the
12 association, the lien priority for condominium associations
13 unfairly requires non-delinquent apartment owners to bear the
14 entire burden of unpaid common expenses assessments accrued by a
15 delinquent owner. 
16      The legislature further finds that section 514A-83.6, Hawaii
17 Revised Statutes (HRS), requires condominium associations to
18 build up their reserves through the collection of maintenance
19 fees to ensure the availability of funds for repair and

Page 2                                                     36
                                     S.B. NO.           S.D. 2

 1 improvement of their aging buildings.  Currently, these funds
 2 must be deposited in Hawaii financial institutions only.
 3      The legislature further finds that currently there are eight
 4 financial institutions in the State that offer Federal Deposit
 5 Insurance Corporation protection up to a limit of $100,000 per
 6 account.  The legislature further finds that the requirements
 7 under section 514A-83.6, HRS, may result in condominium
 8 association's reserve accounts being so large that they will
 9 exceed $100,000 and be uninsured.
10      The purpose of this Act is to grant the condominium
11 associations a lien for unpaid common expenses with a limited six
12 month priority over mortgage liens; and to permit condominium
13 associations to deposit funds in financial institutions and
14 credit unions located outside of the State.
15 SECTION 2.  Chapter 514A, Hawaii Revised Statutes, is amended by
16 adding a new section to part V to be appropriately designated and
17 to read as follows:
18      "514A-     Termination of utilities.  Notwithstanding any
19 law, rule, or provision of the condominium declaration, bylaws,
20 or house rules to the contrary, after thirty days' prior written
21 notice of nonpayment of common assessments to the apartment
22 tenant, owner, or mortgagee, the association of apartment owners
23 may authorize its board of directors to terminate the delinquent
24 apartment's common privileges and cease supplying the delinquent

Page 3                                                     36
                                     S.B. NO.           S.D. 2

 1 apartment with any and all services normally supplied or paid for
 2 by the association.  Any terminated services and privileges shall
 3 be restored upon payment of all assessments.  Notwithstanding any
 4 other provision of this chapter, a vote of a majority of those
 5 attending an annual or special meeting of the association, in
 6 person or by proxy, shall be necessary to permit the board to
 7 take the actions authorized by this section."
 8      SECTION 3.  Section 514A-90, Hawaii Revised Statutes, is
 9 amended by amending subsections (a) and (b) to read as follows:  
10      "(a)  All sums assessed by the association of apartment
11 owners but unpaid for the share of the common expenses chargeable
12 to any apartment constitute a lien on the apartment prior to all
13 other liens, except:
14      (1)  [liens] Liens for taxes and assessments lawfully
15           imposed by governmental authority against the
16           apartment[,]; and
17      (2)  [all] All sums unpaid on any mortgage of record [which]
18           that was recorded prior to the recordation of a notice
19           of a lien by the association of apartment owners[,] and
20           costs and expenses, including attorneys' fees, provided
21           in such mortgages[.];
22 provided that the association of apartment owners' lien shall be
23 to any mortgages recorded after the effective date of this Act to
24 the extent of any unpaid common expense assessments based on the

Page 4                                                     36
                                     S.B. NO.           S.D. 2

 1 annual budget adopted under section 514A-83.6 which would have
 2 become due in the absence of acceleration during the      months
 3 immediately preceding the commencement of any legal proceeding to
 4 collect amounts due to the association or the mortgagee under the
 5 mortgage, unless the mortgagee files a complaint for foreclosure
 6 within      days of the mortgage default, by the mortgagor.  The
 7 lien of the association of apartment owners may be foreclosed by
 8 action by the [manager] managing agent or board of directors,
 9 acting on behalf of the apartment owners, in like manner as a
10 mortgage of real property.  In any [such] foreclosure, the
11 apartment owner shall be required to pay a reasonable rental for
12 the apartment, if so provided in the bylaws, and the plaintiff in
13 the foreclosure shall be entitled to the appointment of a
14 receiver to collect the [same.] rental.  The [manager] managing
15 agent or board of directors, acting on behalf of the association
16 of apartment owners, [may,] unless prohibited by the declaration,
17 may bid on the apartment at foreclosure sale[,] and acquire and
18 hold, lease, mortgage, and convey the [same.] apartment.  Action
19 to recover a money judgment for unpaid common expenses shall be
20 maintainable without foreclosing or waiving the lien securing the
21 [same.] expenses owed.

Page 5                                                     36
                                     S.B. NO.           S.D. 2

 1      (b)  Where the mortgagee of a mortgage of record or other
 2 purchaser of an apartment obtains title to the apartment as a
 3 result of foreclosure of the mortgage, the acquirer of title and
 4 the acquirer's successors and assigns shall not be liable for the
 5 share of the common expenses or assessments by the association of
 6 apartment owners chargeable to the apartment which became due
 7 prior to the acquisition of title to the apartment by the
 8 acquirer.  The unpaid share of common expenses or assessments
 9 shall be deemed to be common expenses collectible from all of the
10 apartment owners, including the acquirer and the acquirer's
11 successors and assigns.  
12      The mortgagee of record or other purchaser of the apartment
13 shall be deemed to acquire title and shall be required to pay the
14 apartment's share of common expenses and assessments beginning
15 days after the hearing at which the sale is confirmed."
16      SECTION 4.  Section 514A-97, Hawaii Revised Statutes, is
17 amended by amending subsection (c) to read as follows:
18      "(c)  All funds collected by an association, or by a
19 managing agent for any association, shall be:
20      (1)  Deposited in a financial institution [located in the
21           State], including a credit union whose deposits are
22           insured by an agency of the United States government;
23      (2)  Held by a corporation authorized to do business under
24           article 8 of chapter 412; [or]

Page 6                                                     36
                                     S.B. NO.           S.D. 2

 1      (3)  [Invested in the obligations of the United States
 2           government.] Held by the United States Treasury; or
 3      (4)  Held by a securities broker which is registered with
 4           the Securities and Exchange Commission, has an office
 5           in Hawaii, and the accounts of which are held by member
 6           firms of the New York Stock Exchange or National
 7           Association of Securities Dealers and insured by the
 8           Securities Insurance Protection Corporation.
 9      All funds collected by an association, or by a managing
10 agent for any association, shall be invested only in demand
11 deposits, investment certificates, and certificates of deposit;
12 obligations of the United States government, the State of Hawaii,
13 and their respective agencies; provided that those obligations
14 shall have stated maturities of no more than ten years after the
15 purchase date; or mutual funds comprised solely of investments in
16 the obligations of the United States government or the State of
17 Hawaii, or their respective agencies.
18      Records of the deposits and disbursements shall be disclosed
19 to the commission upon request.  All funds collected by an
20 association shall only be disbursed by employees of the
21 association under the supervision of the association's board of
22 directors.  All funds collected by a managing agent from an
23 association shall be held in a client trust fund account and

Page 7                                                     36
                                     S.B. NO.           S.D. 2

 1 shall be disbursed only by the managing agent or the managing
 2 agent's employees under the supervision of the association's
 3 board of directors.  The commission may draft rules governing the
 4 handling and disbursement of condominium association funds."
 5      SECTION 5.  Statutory material to be repealed is bracketed.
 6 New statutory material is underscored.
 7      SECTION 6.  This Act shall take effect upon its approval,
 8 except section 514A-90(a), Hawaii Revised Statutes, as amended in
 9 section 3 of this Act shall take effect on January 1, 2000.