THE SENATE

S.B. NO.

3231

THIRTY-SECOND LEGISLATURE, 2024

 

STATE OF HAWAII

 

 

 

 

 

 

A BILL FOR AN ACT

 

 

relating to THE lahaina bank.

 

 

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

 


SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"Chapter

LAHAINA BANK

   -1 Definitions. As used in this chapter, unless the context otherwise requires:

"Advisory board" means the advisory board of directors of the Lahaina bank.

"Board" means the board of the Lahaina bank.

"Financial institution" has the same meaning as in section 412:1-109.

"Lahaina" means the district defined in section 4-1(2)(D).

"Lahaina bank" or "bank" means the financial institution that is established by this chapter.

   -2 Lahaina bank; established. (a) The Lahaina bank shall be established.

(b) The purposes of the Lahaina bank shall be to:

(1) Support economic development and diversification by increasing access to capital for businesses, farms, intellectual property creators, and renewable technologies within Lahaina, other areas of Maui, and areas under a federal disaster declaration area as of August 8, 2023, in partnership with local financial institutions;

(2) Provide support and stability to the local financial sector in Lahaina, and work directly with local community banks, credit unions, and other financial institutions;

(3) Provide stability to the local housing market and reduce the number of forced sales of distressed properties due to the total loss or substantial damages to residential and commercial properties;

(4) Reduce the costs paid by the State for basic banking services;

(5) Return profits, beyond those necessary to accomplish the mission and continued sound operation of the bank, to underwrite the rebuilding of Lahaina and diversify the economy and invest in environmental, social, and governance parameter investments with the federal disaster area; and

(6) Provide home loans for department of Hawaiian home lands' beneficiaries in Lahaina.

   -3 Board of the Lahaina bank; powers and duties. (a) The board of the Lahaina bank shall operate, manage, and control the Lahaina bank. The board shall locate and maintain places of business of the bank and adopt and enforce rules, orders, and bylaws for the transaction of the bank's business.

(b) The board shall consist of five members; provided that:

(1) Four members shall:

(A) Reside in Lahaina; and

(B) Have a background in public financing, community philanthropy, bank management, investment and fund management, and business or economic diversification; and

(2) One member shall be from the public at large, who shall be appointed by the governor from a list of three names submitted for each appointment by the president of the senate and speaker of the house of representatives; provided that if fewer than three names are submitted, the governor may disregard the list.

The director of budget and finance, or the director's designee, and the commissioner of financial institutions shall serve as ex officio members and shall consult with the department of business, economic development, and tourism and relevant Lahaina civic and business groups. The powers of the board and the functions of the bank shall be implemented through actions taken and policies and rules adopted by the board.

(c) The board shall elect a chairperson from among its members. The board shall adopt rules requiring the holding of regular meetings and specifying the means for providing notice of the meetings.

(d) Three members of the board shall constitute a quorum to transact business and exercise all rights, duties, and powers of the board.

(e) A special meeting may be called at any time upon notice by the governor or by a majority of the board.

(f) The board shall appoint a president of the Lahaina bank. The person appointed as president shall have extensive experience in banking. The board may appoint and employ any subordinate officers, employees, and agents as the board deems necessary, and shall define the duties, designate the titles, and fix the compensation of any subordinate officers, employees, and agents. The board may designate the president or other officers or employees as its agent in respect to functions of the bank, subject to the supervision, limitation, and control of the board.

(g) The board may remove and discharge any person appointed in the exercise of the powers granted under this chapter.

   -4 Advisory board of directors; appointment and duties. (a) To enlist the help of private enterprise and to encourage active exercise of the Lahaina bank's purposes, the board shall appoint an advisory board of directors that shall consist of eight members.

(b) The members of the advisory board shall include representatives of the State's financial, business, agricultural, housing, infrastructure, innovation, climate technology, and labor sectors. At least two members shall be officers of banks, the majority of the stock of which shall be owned by residents of Lahaina as of August 8, 2023.

(c) The board shall appoint a chairperson, vice-chairperson, and secretary from the advisory board members. The term of each advisory board member shall be set by the board; provided that each term shall be re-ratified every four years.

(d) The advisory board shall:

(1) Meet regularly with the management officers of the bank to review the bank's operations and finances to determine whether recommendations should be made by the advisory board to the board relating to improved management performance, better customer service, and overall improvement in internal methods, procedures, and operating policies of the bank;

(2) Make recommendations to the board relating to the establishment of additional objectives for the operation of the bank;

(3) Make recommendations to the board concerning the appointment of officers of the bank;

(4) Meet regularly with the board to present any recommendations concerning the bank; and

(5) Participate on loan committees.

   -5 Deposits of public funds. (a) The Lahaina bank may accept deposits of public funds. Except as otherwise provided in section    -6, the bank shall not accept deposits of private funds. All income earned by the bank for its own account on public funds shall be credited to, and become a part of, the revenues and income of the bank.

(b) Whenever any public funds are deposited in the bank, the official having control of the public funds and the sureties on the bond of the official shall be exempt from all liability by reason of loss of any of the funds while deposited in the bank.

(c) The department of budget and finance shall deposit $500,000,000 into the bank moneys from the issuance of general obligation bonds or an amount that the department of budget and finance determines is necessary to allow the bank to fulfill its duties under this chapter.

   -6 Powers of the Lahaina bank. The Lahaina bank may:

(1) Make, purchase, guarantee, or hold loans:

(A) To state chartered or federally chartered lending agencies or institutions or other financial institutions;

(B) That are insured or guaranteed in whole or in part by the United States, its agencies, or instrumentalities;

(C) Obtained as security pledged for, or originated in the restructuring of, any other loan properly originated or participated in by the bank; or

(D) To instrumentalities of the State;

(2) Purchase participation interests in loans made or held by banks, bank holding companies, state chartered or federally chartered lending agencies or institutions, or any other financial institution or entity that provides financial services and meets underwriting standards that are generally accepted by state or federal financial regulatory agencies;

(3) Invest its funds in conformity with policies of the board and the department of budget and finance;

(4) Buy and sell federal funds;

(5) Lease, assign, sell, exchange, transfer, convey, grant, pledge, or mortgage all real and personal property, title to which has been acquired in any manner;

(6) Perform all acts and do all things necessary, convenient, advisable, or desirable to carry out the powers expressly granted or necessarily implied in this chapter through or by means of its president, officers, agents, or employees, or by contracts with any person, firm, or corporation;

(7) Purchase, guarantee, or hold loans originated by financial institutions doing business in the State;

(8) Make loans in the form of participation loans to qualified persons residing in or doing business in the State where the originator of the loan is a private financial institution;

(9) Act as a custodian bank for financial institutions organized under the laws of the State and accept deposits from the financial institutions in connection with this function;

(10) Issue bank stock loans to financial institutions organized under the laws of the State;

(11) For financial institutions that make the bank a reserve depository, perform the functions and render the services of a clearinghouse, including all facilities for providing domestic and foreign exchange and may rediscount paper, on terms prescribed by the board;

(12) Enter into contractual agreements with local financial institutions to provide mortgage servicing for properties subject to the short-sale program for distressed properties under section    -14;

(13) Enter into contractual agreements with local financial institutions for the purpose of supporting the availability of mortgage servicing by licensees maintaining an office in the State pursuant to section 454M-5; and

(14) Make loans to innovators and businesses with products and businesses located within Lahaina; provided that collateral is insured against loss of value.

   -7 Income; excess earnings. Except as otherwise provided, by June 30 of each calendar year, the board shall determine the amount of income, if any, earned by the Lahaina bank in that calendar year that is in excess of the amounts necessary to pay for the expenses of administering the activities of the bank. The amount of the excess shall be transferred to the Lahaina community preservation fund under section    -15 or other special fund or other protected funds in trust with the department of budget and finance.

   -8 Rulemaking powers. (a) The board shall adopt rules to:

(1) Ensure the safety and soundness of the bank that, to the extent possible, reflect applicable standards for safety and soundness set forth in title 12 Code of Federal Regulations part 364;

(2) Specify the bank's powers and permissible investments and activities;

(3) Authorize specific services that the bank may provide;

(4) Specify limits for loans and other obligations the bank makes or undertakes;

(5) Specify reserve requirements;

(6) Effectuate a short-sale program for the purpose of purchasing owner-occupied residential property pursuant to section    -14; and

(7) Establish other requirements that the board considers necessary.

(b) The department of commerce and consumer affairs shall examine the bank not less than once each calendar quarter to verify that the bank is in compliance with board rules adopted under subsection (a). The department shall report the results of the examination to the board and to the legislature. The department's report shall be a public record subject to disclosure.

(c) The state auditor shall audit the accounts and financial affairs of the bank not less than once every two years.

   -9 Deposits; guaranteed by State; exempt from taxation. (a) All deposits in the Lahaina bank shall be guaranteed by the State.

(b) The deposits and any income earned by the Lahaina bank shall not be subject to state or local taxes.

   -10 Civil actions. (a) Civil actions may be brought as provided in this section against the State on account of claims for relief asserted to have arisen out of transactions connected with the operation of the Lahaina bank.

(b) In an action brought under this section, the State shall be designated as the State of Hawaii, doing business as the Lahaina bank.

(c) An action brought under this section may be brought in the same manner and shall be subject to the same laws as other civil actions. The action shall be brought in a circuit court in the State.

   -11 Public officials; exemption from liability. Whenever any public funds are deposited in the Lahaina bank, the public official who deposited the funds and the sureties on any bond of the public official shall be exempt from liability by reason of loss of any of the funds while the funds are deposited in the Lahaina bank.

   -12 Conduct of business; execution of instruments. (a) All business of the Lahaina bank shall be conducted under the name of the Lahaina bank. Title to property pertaining to the operation of the bank shall be obtained and conveyed in the name of the Lahaina bank, doing business as the Lahaina bank.

(b) Instruments shall be executed in the name of the State of Hawaii. Within the scope of authority granted by the board, the president of the bank may execute instruments on behalf of the bank, including any instrument granting, conveying, or otherwise affecting any interest in or lien upon real or personal property.

(c) Other officers or employees of, and legal counsel to, the bank may execute instruments on behalf of the bank when authorized by the board.

   -13 Certain records confidential. (a) The following records of the Lahaina bank shall be confidential and shall not be disclosed:

(1) Commercial or financial information of a customer of the bank, whether obtained directly or indirectly, other than routine credit inquiries concerning information that is required to be disclosed in accordance with due legal process;

(2) Internal or interagency memoranda or letters that would not be available by law to a party other than in litigation with the bank; and

(3) Except as provided in section    -8, information that is contained in or related to a report of an examination or operating or condition reports prepared by, on behalf of, or for the use of, a state or federal agency responsible for the regulation or supervision of any bank activity.

(b) For purposes of this section, "customer" means any person that has transacted or is transacting business with, or has used, or is using the services of, the Lahaina bank, or for which the bank has acted or is acting as a fiduciary with respect to trust property.

   -14 Short-sale program for distressed properties. Pursuant to rules adopted under section    -8, the Lahaina bank shall administer the short-sale program for the continuation of the program under the Hawaii housing finance and development corporation that is established for the purpose of acquiring title to residential property rendered distressed by mortgage, insurance, and other issues arising out of the complete or substantial destruction or impairment of any residential or commercial property affected by the events of the federally declared disaster area of August 2023, which because of the distress, must be sold.

   -15 Lahaina community preservation fund. There is established in the state treasury the Lahaina community preservation fund, into which shall be deposited the amount of income, if any, earned by the Lahaina bank in each calendar year that is in excess of amounts necessary to pay for expenses of administering the activities of the bank."

SECTION 2. Section 36-1, Hawaii Revised Statutes, is amended to read as follows:

"36-1 Responsibility for moneys. [The] Except for moneys deposited with the Lahaina bank, established pursuant to chapter     , the director of finance shall be responsible for the safekeeping of all moneys paid into the treasury, and for the proper disbursement and appropriation thereof, pursuant to the laws; and the director shall be liable therefor on the director's official bond, provided that in case of the larceny or embezzlement of any moneys, by any officer of the director's department, or other persons, the director shall be allowed to give that fact, and that the director had no collusive knowledge thereof, in evidence, and the establishment of these facts shall discharge the director from responsibility."

SECTION 3. Section 38-1, Hawaii Revised Statutes, is amended by amending the definition of "depository" to read as follows:

"Depository includes the Lahaina bank; any federally insured national or state bank, savings and loan association, or financial services loan company; or federal or state credit union insured by the national credit union administration authorized to do business in this State."

SECTION 4. Section 412:1-109, Hawaii Revised Statutes, is amended by amending the definition of "depository institution" to read as follows:

""Depository institution" means a financial institution that is authorized to accept deposits under its chartering or licensing authority and includes the Lahaina bank or a bank, savings bank, savings and loan association, depository financial services loan company, credit union, or intra-Pacific bank."

SECTION 5. (a) The Hawaii housing finance and development corporation shall establish an interim purchase program for distressed residential and commercial properties encumbered by problematic mortgages, insurance short-fall, and other issues encountered by existing projects that were destroyed or substantially damaged by the August 2023 Lahaina fire that require an owner to sell their distressed property. The Hawaii housing finance and development corporation shall administer the program for the purposes of acquiring title to residential and commercial properties for the public good of the people of Lahaina. It is the intent of the legislature that the interim purchase program address problematic mortgages and distressed properties until the Lahaina bank is fully operational, as established pursuant to this Act.

Under the interim purchase program, the Hawaii housing finance and development corporation may purchase residential or commercial property occupied by one or more persons who hold title to the property against which the mortgagee has begun or will begin foreclosure proceedings for mortgage payment shortfalls due to the August 2023 Lahaina wildfire.

(b) An owner-occupant who has been using the subject property as a primary residence for a continuous period of not less than two hundred days immediately prior to the date when the owner-occupant received a letter of default on the mortgage, or notice that the owner-occupant's application for a mortgage modification under a federally sponsored program has been denied, shall be entitled to apply for consideration in the purchase program. The application shall conform to rules adopted by the Hawaii housing finance and development corporation and shall include copies of:

(1) The three most recent billing statements for the mortgage loan;

(2) The promissory note;

(3) The mortgage agreement; and

(4) The letter of default or notice that the owner-occupant's application for a mortgage modification or forbearance has been denied, has ended, or is about to end.

(c) Within thirty days of receiving an application pursuant to subsection (b), the Hawaii housing finance and development corporation shall review the application and determine whether the property shall be accepted for further evaluation.

If the Hawaii housing finance and development corporation accepts the property for further evaluation, within the thirty‑day review period, the corporation shall notify the mortgagee and its agents on record at the bureau of conveyances, including all affiliates that may be reported pursuant to sections 454M‑5(a)(4) and 667-58(a), Hawaii Revised Statutes, and any entities purporting to represent the mortgagee, as reflected in the mortgage statements provided in the application. The notice shall describe the purchase program and include details about the program's requirements, as set forth by rules adopted by the Hawaii housing finance and development corporation in accordance with chapter 91, Hawaii Revised Statutes.

If the corporation declines to accept the property for further evaluation, the corporation shall provide written notification to the applicant stating the reasons for the determination within the thirty-day review period.

(d) Within thirty days of receiving notice under subsection (c), the mortgagee shall submit a written response to the Hawaii housing finance and development corporation. The response shall include:

(1) A copy of the promissory note, signed by the mortgagor, including any endorsements, allonges, amendments, or riders to the note evidencing the mortgage debt and the mortgagee's legal right to enforce the note under section 490:3-203(b), Hawaii Revised Statutes, and articles 3 and 9 of the Uniform Commercial Code generally;

(2) A copy of the mortgage document and any amendments, riders, or other documentation evidencing the mortgagee's right to foreclose and interest in the property, including any interest as a successor, transferee, or assignee; and

(3) A certification under penalty or perjury describing the nature of the mortgagee's legal ownership of the mortgage loan that includes:

(A) Information about the chain of possession and the transfer between all holders in due course of the mortgage note from the origination of the mortgage loan to the present mortgagee; provided that descriptions of each transaction that effectuated a transfer of the mortgage note shall include:

(i) The names of the individuals involved;

(ii) The principal employers and the employers' state of incorporation for the individuals involved;

(iii) The authority conferred to the individuals;

(iv) The dates on which the mortgage note was negotiated; and

(v) The manner in which the note was endorsed;

(B) Information about the assignment or transfer of each mortgage agreement, including:

(i) The entities assigned the rights to enforce the mortgage agreement;

(ii) The individuals who signed documentation to effectuate the transfer and their titles, principal employers, and principal employers' state of incorporation;

(iii) A description of the authority conferred to the individuals;

(iv) The dates on which the mortgage agreements were assigned or transferred;

(v) The manner of the assignment or transfer; and

(vi) A description of the extent to which the mortgage agreement transfers or assignments coincided with the negotiations or transfers of the mortgage note; and

(C) The bureau of conveyances document number for every assignment or transfer of the mortgage note or mortgage agreement recorded and a copy of each filing.

The mortgagee's response shall provide an explanation for any failure to provide any of the items required under this subsection.

Failure to respond to a notice received under subsection (d) within seventy-five days shall result in an automatic referral to the department of the attorney general and the department of commerce and consumer affairs for investigation pursuant to subsection (f), as well as to the attorney general of the state within which the mortgagee is incorporated.  An automatic referral under this subsection shall operate as an automatic stay on any foreclosure action, pursuant to subsection (f).

(e) At any time after receiving a notice of acceptance from the Hawaii housing and finance and development corporation under subsection (c), a mortgagee may elect to participate in the purchase program as a qualified mortgagee, pursuant to rules adopted by the corporation in accordance with chapter 91, Hawaii Revised Statutes.

(f) Within forty-five days of receiving the mortgagee's response pursuant to subsection (d), the Hawaii housing finance and development corporation shall determine whether to refer the subject mortgage loan to the department of the attorney general, the department of commerce and consumer affairs, and the attorney general of the state within which the mortgagee is incorporated for a legal investigation and possible action to determine the mortgagee's legal authority to collect on the mortgage indebtedness and enforce the mortgage agreement; provided that if no document was filed or recorded with respect to a given assignment or transfer of the mortgage note or mortgage agreement, or the filing or recording occurred more than     months after the assignment or transfer, the corporation shall make the referral.

Written notification of the referral for legal investigation pursuant to this section shall operate as a stay of any foreclosure proceeding under chapter 667, Hawaii Revised Statutes, and may be filed in the office of the assistant registrar of the land court under chapter 501, Hawaii Revised Statutes, or recorded in the bureau of conveyances under chapter 502, Hawaii Revised Statutes, or both, as appropriate.

Upon a stay pursuant to this subsection, a mortgagee shall not foreclose upon a mortgage subject to the stay until the department of the attorney general or the department of commerce and consumer affairs releases the stay by recording a release at the bureau of conveyances, or as otherwise provided by law or court order.

If the Hawaii housing finance and development corporation determines that a referral for investigation is not warranted, the corporation shall promptly notify the mortgagee and the owner-occupant applicant before the end of the forty-five day period that the subject property is no longer being evaluated by the purchase program.  The notice may be filed in the office of the assistant registrar of the land court under chapter 501, Hawaii Revised Statutes, or recorded in the bureau of conveyances under chapter 502, Hawaii Revised Statutes, or both, as appropriate.

Nothing in this subsection shall be construed as preventing a mortgagee from filing a claim in circuit court to lift the stay by order.

(g) Terms and conditions for owner-occupants and qualified mortgagees participating in the purchase program shall be set forth by rules adopted by the corporation in accordance with chapter 91, Hawaii Revised Statutes; provided that:

(1) If the mortgagee agrees to participate in the purchase program, the stay on any foreclosure process and the referral for investigation made pursuant to subsection (f) shall be withdrawn;

(2) If the owner-occupant declines the offer purchase price under paragraph (3), the stay on any foreclosure process and the referral for investigation made pursuant to subsection (f) shall be withdrawn;

(3) Upon agreement by the owner-occupant and the qualified mortgagee, the corporation may offer to purchase the subject property from the owner-occupant for a price that shall not exceed seventy-five per cent of the principal balance due on the mortgage loan at the time of the mortgagee's election to participate;

(4) The amount of the purchase price of the property shall be paid to the qualified mortgagee and shall be deemed to fully satisfy the subject mortgage debt and release the lien held by the mortgagee;

(5) The former owner-occupant shall be permitted to rent the property for a minimum period of six months from the date of transfer at a rate that shall be based upon an independent appraisal of the fair-market rent for the property;

(6) The former owner-occupant shall be required to consult with an approved housing counselor or an approved budget and credit counselor as defined under chapter 667, Hawaii Revised Statutes;

(7) Upon the recommendation of an approved housing counselor or an approved budget and credit counselor, the corporation may offer to sell the subject property back to the former owner-occupant for a price that shall not exceed ninety per cent of the prior mortgagee's mortgage loan balance; provided that the payment plan, which may or may not include a mortgage, is reasonable and affordable to the owner-occupant; and

(8) The owner-occupant shall:

(A) Be prohibited from selling the property unless it is to the Lahaina bank; and

(B) Agree that, upon any resale of the property to a subsequent purchaser, the owner-occupant shall pay the corporation a share of the appreciation represented by the proportion of the price at which the owner-occupant purchased the property from the corporation to the subsequent sale price; provided that the property is sold for fair market value at a price approved by the corporation.

(h) Pursuant to rules adopted by the corporation in accordance with chapter 91, Hawaii Revised Statutes, the Hawaii housing finance and development corporation shall provide grants to approved housing counselors and approved budget and credit counselors, as defined under chapter 667, Hawaii Revised Statutes, that are based within the State for the purposes of subsection (g).

SECTION 6. The director of finance is authorized to issue general obligation bonds in the sum of $500,000,000 or so much thereof as may be necessary and the same sum or so much thereof as may be necessary is appropriated for fiscal year 2024-2025 to be deposited with the Lahaina bank for the establishment of the Lahaina bank pursuant to this Act.

SECTION 7. The appropriation made for the capital improvement projects authorized by this Act shall not lapse at the end of the fiscal biennium for which the appropriation is made; provided that all moneys from the appropriation unencumbered as of June 30, 2026, shall lapse as of that date.

SECTION 8. On the first day of the fiscal year commencing with the establishment of the Lahaina bank, pursuant to this Act, the director of finance shall deposit into the bank a sum of not less than $500,000,000 of state funds that were held in one or more private institutions on the day preceding the establishment of the Lahaina bank, on behalf of the State.

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect on July 1, 2024.

 

INTRODUCED BY:

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Report Title:

HHFDC; B+F; Lahaina Bank; Financial Institution; Lahaina Community Preservation Fund; Distressed Property Program; GO Bonds; Appropriation

 

Description:

Establishes the Lahaina Bank and Lahaina Community Preservation Fund. Directs the Lahaina Bank to administer the Lahaina Community Preservation Fund. Directs the Hawaii Housing Finance and Development Corporation to establish and operate an interim purchase program for distressed properties encumbered by problematic mortgages, insurance short-falls, and other issues caused by the August 2023 Lahaina fire and that require an owner to sell their distressed property until the Lahaina Bank is operational. Authorizes the Director of the Department of Budget and Finance to issue general obligation bonds, the proceeds of which shall be deposited with the Lahaina Bank. Makes an appropriation.

 

 

 

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.