Honolulu, Hawaii
                                                     , 1999

                                   RE:  S.B. No. 36
                                        S.D. 1

Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii


     Your Committee on Government Operations and Housing, to
which was referred S.B. No. 36 entitled: 


begs leave to report as follows:

     The purpose of this measure is to enable condominium
associations to recover delinquent maintenance fees.

     More specifically, this measure allows condominium
associations to collect up to six months of delinquent
maintenance fees, terminate common privileges, including
utilities, and collect rent from a tenant up to the amount of
delinquency.  In the case of utilities a vote of a majority of
those attending an annual or special meeting of the association,
in person or by proxy is required.  This measure also provides
for timely transfer of title from a foreclosure in order to
prevent a condominium owner from receiving common privileges, yet
avoiding having to pay maintenance fees. 

     Testimony in support of this measure was received from the
Real Estate Commission, Hawaii Association of Realtors, Hawaii
Council of Associations of Apartment Owners, Hawaii Independent
Condominium and Cooperative Owners, Hawaiiana Management Company,
Ltd., Community Associations Institute, Association of Apartment
Owners for Makakilo Hale 1, five residents of The Mauna Luan, and
fourteen individuals.  Testimony in favor only of the section of
the measure that would enable associations to obtain timely

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payment of fees from the mortgagee-owners was received from the
Department of Commerce and Consumer Affairs.  Testimony in favor
of this measure with amendments was received from two
individuals.  Testimony opposed to this measure was received from
the Mortgage Bankers Association.  Oral testimony was received
from the Association of Apartment Owners for Marco Polo. 

             I.  Collecting Unpaid Maintenance Fees

     Your Committee finds that currently, condominium owners have
no means of collecting delinquent maintenance fees, particularly
once an apartment is sold in foreclosure.  As a result,
delinquent owners are receiving benefits, such as common
utilities, security, building maintenance, and recreational
facilities without paying for them.  Non-delinquent owners in the
association carry the burden of maintaining the condominium
association's budget.  Your Committee, therefore, finds that the
condominium association should be entitled to terminate common
benefits for nonpayment.

     Your Committee finds that once a condominium goes into
foreclosure, condominium associations have difficulty collecting
delinquent maintenance fees which increase due to the fact
lenders purposely delay recording the deed until a sale is
confirmed.  This measure proposes a reasonable time limit for
transferring the condominium to the purchaser in foreclosure in
which liability for common expenses will begin to accrue to the
new owner.

     The measure requires the purchaser or mortgagee of record to
begin paying maintenance fees when the sale is confirmed.  Your
Committee finds that occasionally, a delinquent owner is not
paying maintenance fees to the association but the owner is still
collecting rent from a tenant.  This measure will allow the
association to demand the rent from the tenant to pay the
maintenance fees.

     Your Committee recognizes the concerns of some of the
Committee members that this measure appears to interfere with the
contract between an owner and tenant.  However, your Committee
finds that when the owner took title to the condominium, the
owner simultaneously agreed to abide by and be governed by the
condominium board's rules and regulations, including the payment
of maintenance fees.  

                  II.  Six Month Priority Lien

     Your Committee has amended this measure by incorporating the
provision from S.B. No. 641 and S.B. No. 701 allowing a six month

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priority lien on a foreclosed condominium, which results in the
condominium association collecting six months of maintenance

     Your Committee finds that currently, state law allows
condominium associations a lien for unpaid maintenance fees.
However, since many condominiums are valued at less than their
mortgages, and since mortgages have priority over the
associations' claim, associations usually receive no money from
the proceeds of the sale of foreclosed unit.  This amendment will
allow for a six month priority lien that will allow condominium
associations to collect delinquent maintenance fees.

     Your Committee finds that the banking industry is under the
impression that a six month priority lien will chill the
secondary mortgage market.  However, your Committee finds that 15
jurisdictions that contain a priority lien in their statutes have
not had a negative impact on the secondary mortgage markets.  

     In order to give the Housing and Community Development
Corporation of Hawaii time to negotiate with the bond buyers of
the Hula Mae bond program, the six month priority lien provision
will not take effect until July 1, 2000.

                   III.  Condominium Reserves

     Your Committee also has amended this measure to incorporate
provisions from S.B. No. 372 and S.B. No. 642 to allow the
deposit of condominium reserves in out-of-state financial
institutions and credit unions.  

     Your Committee finds that currently, condominium
associations are required to deposit their funds in a financial
institution in the State.  However, there is an inadequate number
of financial institutions in the State in which condominium
associations may legally deposit their funds.  Due to the
$100,000 federal insurance limit on accounts, many associations
have uninsured moneys deposited in financial institutions in
Hawaii, which may cause a breach of their fiduciary duty to the
condominium owners.

     Your Committee finds that allowing condominium associations
to deposit funds in out-of-state financial institutions and
credit unions will expand investment opportunities as well as
provide protection to the condominium associations' reserve

     Your Committee encourages both the banking industry and
condominium associations to continue the dialogue regarding the

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issues in this measure and to make recommendations to the

     As affirmed by the record of votes of the members of your
Committee on Government Operations and Housing that is attached
to this report, your Committee is in accord with the intent and
purpose of S.B. No. 36, as amended herein, and recommends that it
pass Second Reading in the form attached hereto as S.B. No. 36,
S.D. 1, and be referred to the Committee on Judiciary.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Government
                                   Operations and Housing,

                                   ROD TAM, Chair

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