These FAQs are being provided pursuant to §16-201-92, Hawaii Administrative Rules. The information provided herein is for informational and for educational purposes, and is informal and non-binding on the Real Estate Commission, or the Department of Commerce and Consumer Affairs. The information is not intended to be legal advice and not intended to be an exhaustive discussion of Act 48 (SLH 2011) and how it may impact the Condominium Law (Chapter 514A and Chapter 514B, HRS).
How Does Act 48 Affect the Association’s Foreclosure on its Lien for Past Due Assessments?
Act 48 appears to have amended the requirements for giving notice to a condominium unit owner about the unit owner’s default for non-payment of past due assessments and the association’s intent to conduct a non-judicial foreclosure to sell the condominium unit at a public sale without any court action under Part II of the Mortgage Foreclosure Law, Chapter 667. While it is unclear as to how the amendments to the “Notice of Default and Intention to Foreclose” applies to an association’s foreclosure, the amendment relating to service of the “Notice” could be read to require that the association must now serve the DCCA, in addition to the condominium unit owner.
Act 48 also amended the information a condominium association needs to include in the “Notice of Default and Intention to Foreclose.” The new information required to be given includes information about:
- The delinquent amount and the estimated amount of the foreclosing association’s attorney’s fees and costs and all other costs related to the default;
- Notice of the right of the owner-occupant to elect to participate in any other process as established by law; and
- Contact information for local approved housing counselors and approved budget and credit counselors. For more information about what else the notice should include, see §667-W, Section 5 and Section 21 of Act 48 which can be viewed at this website: http://www.capitol.hawaii.gov/session2011/bills/GM1150_.PDF
Does Act 48 Provide Condominium Associations With Foreclosure Options to Foreclose on a Unit When the Condominium Owner has Not Paid Past Due Assessments?
Chapter 667, HRS, provides for two types of non-judicial foreclosure procedures (Part I and Part II). It appears that Act 48 provides associations with the choice of foreclosing on its lien for past due assessments by judicial and non-judicial action as these procedures are set forth in Part II of Chapter 667, HRS.
However, Act 48 placed a moratorium on all new non-judicial foreclosure actions under Part I of Chapter 667, HRS, that began on May 5, 2011 and will end on July 1, 2012. Thus, until such time the moratorium ends, associations may not initiate any non-judicial foreclosures pursuant to Part I, 667-5, HRS.
May a Condominium Unit Owner Use the Mortgage Foreclosure Dispute Resolution (MFDR) Program After the Condominium Association Started to Foreclose on the Unit for Non-Payment of Past Due Assessments?
No. Although the MFDR shall be operative no later than October 1, 2011, Act 48 specifically does not make available to condominium owner occupants the option of using the program where the condominium association is foreclosing on a lien for amounts owed to a Chapter 514A, HRS, or Chapter 514B, HRS, condominium association (§667-A (b), HRS). As reported in Conference Committee Report (“CCR”), condominium associations foreclosing on its lien still have a “. . . right . . . to foreclose on liens under part II of chapter 667, Hawaii Revised Statutes. . . .” (non-judicial foreclosure procedures).
The MFDR program is intended for owner-occupants of residential property in non-judicial foreclosure to meet directly with their lenders to modify their loans or to work out a payment plan. However, Act 48 (SLH 2011) does appear to have affected the condominium law as to what the unit owner might be able to do to mitigate the effects of the association’s foreclosure on its lien for past due assessments and on the procedures the association must follow to foreclose on its lien. Of particular note, as reported in CCR 133, the Mortgage Foreclosure Task Force plans to recommend to the 2012 Legislature additional reforms to the foreclosure system particularly in regards to the non-judicial foreclosure process and its use by condominium associations for collection of common area maintenance fee assessments.
May a Condominium Unit Owner Convert the Association’s Non-Judicial Foreclosure to a Judicial Foreclosure?
Act 48 does not allow a delinquent condominium unit owner the option of converting a non-judicial foreclosure action to a judicial one where the condominium association is foreclosing on its lien for unpaid common expenses.
What Happens to the Condominium Association’s Non-Judicial Foreclosure When a Unit Owner Notifies the Association That it Intends to Cure the Default of the Past Due Assessments and Proposes a Payment Plan?
From and after the date that the condominium unit owner gives written notice to the association of its intent to cure the delinquency, any non-judicial foreclosure of the lien shall be stayed pending the sixty-day period or a longer period that is agreed upon by the parties. The association shall allow the delinquent condominium unit owner sixty calendar days to cure the default. The association shall not reject a reasonable payment plan for cure of the default; provided that a reasonable plan shall require the owner to pay at a minimum the current maintenance fee and some amount owed on the past due balance.
What Happens to the Condominium Association’s Non-Judicial Foreclosure When a Unit Owner Notifies the Association that it is Contesting the Amount Owed the Condominium Association?
On this subject, there may be a conflict between Act 48 and the condominium law. However, the condominium law may control, in that, the condominium law relates specifically to “contesting the assessment”; and Act 48 relates to “reasonable payment plan for cure of the default”. Thus more than likely the non-judicial foreclosure on the unit will not be stayed since the condominium owner, pursuant to §514B-146 (c) (4) and (d), HRS, cannot withhold any assessments for any reason and must pay the full amount owing before the unit owner is able to contest the amounts owing by filing in small claims court or require the association to mediate to resolve any disputes about the amount or validity of the condominium association’s claim. If the unit owner and the association are unable to resolve the dispute through mediation, either party may file for arbitration under §514B-162, HRS; provided that a unit owner may only file for arbitration if all amounts claimed by the association are paid in full on or before the date of filing. If the unit owner fails to keep all association assessments current during the arbitration, the association may ask the arbitrator to temporarily suspend the arbitration proceedings.
Did Act 48 Increase the Amount a Condominium Association May Recover for Past Due Special Assessments from a Purchaser Who Bought the Unit From a Foreclosing Lender?
Yes. The board may assess up to $7,200, for the twelve months immediately preceding the completion of the judicial or non-judicial power of sale foreclosure, for the amount of the unpaid regular monthly common assessments for common expenses against a person who, in a judicial or non-judicial power of sale foreclosure purchased the delinquent unit from the foreclosing lender. Previously, the amount was $3,600 for six months. The increased amount shall be repealed on September 30, 2014 and the amounts shall revert back to $3,600 for six months.
What if the Mortgage Lender Initiated the Non-Judicial Foreclosure Procedures Prior to the Association Foreclosing on its Lien for Unpaid Common Expenses?
When a lender initiates a foreclosure action, the condominium association is not permitted to initiate its own non-judicial foreclosure action under Part I HRS Chapter 667 until: 1) a court judgment has been issued; 2) the recording of an affidavit after a public sale, pursuant to HRS §§ 667-5 and 667-33; or 3) the filing of a settlement document under the MFDR provisions of Act 48.
Can a Condominium Association Foreclose on a Unit for Past Due Assessments While the Owner-Occupant and Lender are Participating in the MFDR Program?
No, a condominium association may not initiate a non-judicial foreclosure while the owner-occupant and lender are participating in the MFDR program, unless the association started a non-judicial foreclosure prior to the lender filing its foreclosure action.
Can a Condominium Owner Occupant Still Seek a Conversion of a Non-judicial Foreclosure of a Mortgage (not an association foreclosure on its lien for past due assessments) That Was Pending Before Act 48 Went into Effect on May 5, 2011?
Yes, Act 48 has a phase-in period. Owner-occupants currently undergoing non-judicial foreclosure have until August 15, 2011, to convert to a judicial foreclosure without having to meet certain requirements. However, after August 15, 2011, owner-occupants wishing to convert from non-judicial foreclosure to judicial foreclosure will have to comply with more demanding requirements. For more information about conversion to judicial foreclosure, please visit the Judiciary’s website: www.courts.state.hi.us/self-help/foreclosure/foreclosure_conversion_faqs.html#1. See the Judiciary’s explanation of this phase-in period under FAQ No. 26, No. 27 and No. 29. Sample Forms for converting a non-judicial foreclosure to a judicial foreclosure may also be viewed at the Judiciary’s website at http://www.courts.state.hi.us/docs/court_rules/pdf/2011_rcp_temp_adopt_ada.pdf
Will a Condominium Association be Notified of a Foreclosing Lender’s Intent to Foreclose on a Condominium Owner’s Unit for Non-Payment of the Mortgage?
Yes, two new sections added to Part II of the “Mortgage Foreclosures” law provides as follows (§667-S, HRS):
” §667-S Foreclosure notice; planned communities; condominiums; cooperative housing projects. Notwithstanding any law or agreement to the contrary, any person who forecloses on a property under this part within a planned community, a condominium apartment or unit, or an apartment in a cooperative housing project shall notify, by way of registered or certified mail, the board of directors of the planned community association, the association of owners of the condominium project, or the cooperative housing project in which the property to be foreclosed is located, of the foreclosure at the time foreclosure proceedings are begun. . . .”
Did Act 48 Provide Any “Pendency Provisions” . . . “in Anticipation of the (Mortgage) Task Force Recommendations to the 2012 Legislature That May Include Significant Changes to the Current Foreclosure Process” That Might Impact on Condominium Owners and Condominium Associations?
Yes, the following “pendency provisions” have different repeal dates:
- A moratorium on non-judicial foreclosures under part I of chapter 667, HRS, beginning on May 5, 2011 and ending on July 1, 2012 . No foreclosure by power of sale pursuant to section 667-5, HRS, shall be initiated . . . (Section 40, Act 48). The “Mortgage Foreclosures” statute (Chapter 667, HRS) provide for two types of non-judicial foreclosure; only part I procedures are subject to the moratorium;
- The option to convert a non-judicial foreclosure to a judicial action shall be available upon the effective date of this measure until December 31, 2012 (Section 45 (4), Act 48) , and shall include an initial forty-five day phase-in period during which a mortgagor may convert a pending non-judicial foreclosure without regard to certain prior notice and time limit requirements (page 4 and page 5 (7) CCR). Filing a petition pursuant to paragraph 1 (in accordance with the requirements of §667-(U)-(a) (1); Section 5, Act 48) . . . shall automatically stay the non judicial foreclosure action unless and until the judicial proceeding has been dismissed. (Section 5, Act 48; to be repealed on December 31, 2012 ).
- The judicial conversion option is not available to condominium owner occupants in the situation where the condominium association is foreclosing on its lien for past due assessments. (Section 5, Act 48; to be repealed on December 31, 2012 ); and
- The strengthened notice (of default and intention to foreclose) requirements and consumer protections for non-judicial foreclosures conducted pursuant to part I and part II of chapter 667, HRS. The additional notice (of default and intention to foreclose) requirements required to be served appears to have significant impacts on the defaulting condominium owner’s rights and choices. Consult with a Hawaii licensed attorney familiar with mortgage foreclosures and see §667-W of Act 48 ( Section 5, Act 48 ; to be repealed on December 31, 2012 ).