 Aloha everyone, and thank you for joining us for another weekly condo insider. Today I have with me the wonderful nylon with. She's an attorney and she specialized which part of her role is handling some condo foreclosures. So welcome, and give us a little one minute update on on what you do and the attorney from that you're with. Damon cup Chuck and something. Thank you really. Hello, everybody. My name is my line. I'm a director with a law firm demon key Leon cup chapter I practice condominium community association law. So as really just mentioned a part of our practice is assisting associations to foreclose on their statutory lean for amped assessments. So let's start off like, because this has always been a conversation that some people are, you know, list of questions that people have asked is when a unit owner becomes delinquent. Typically typically the association should have already in place a collection process. So, like, do they wait 60 days, 90 days or 120 days before they send it to legal, but they should have an established policy and procedure for sending it for collections, right. What so the big part is once it goes to collection. The attorneys have their. They follow the debt collection procedures act. And so they go through their steps for collection. Can you give it just a brief little snippet of what that collection process would entail. And so for starter of course, usually the association would the attorney would first to review the file to see you know the power courtesy reminder. And maybe the first three letters sent from the association's managing agent to the owners where if I you know if the person identified is the owner of record and do some due diligence on the owner to see if there's any, let's see bankruptcy filing that would be subject to automatic delay, or if the owner is on active active military status that was special rights would apply to so those that are, you know, and then, you know, if there's any bounce back from the dress the association previously tried to communicate with the owner. Of course, if the dress is wrong that attorneys usually will do skip trace or just using some other avenues to try to locate where the owners are the first step usually start with a fair debt notice letter, which is subject to the requirements on the federal law as a debt collector what the initial notice is what information need to be provided in that initial notice that usually gives a period of time for debtors to dispute the debt. If not, sometimes you know owners been good if this went to legal they would pay off sometimes they will reach out to try to work out payment plans. Sometimes there are owners who are really facing financial difficulty they cannot pay off that they are also taking no action, not, you know, contacting back. Usually the next step but attorney was would recommend the association consider placing the link. Although there is a statutory link automatic in place. Actually, attorneys would recommend the board to record a link because in the lean word, as we all know it's first in time first in right. So recording it that would give you an advantage as a priority wise to other credit debtors out there. You know if this is let's see a owner occupant sometimes there's also special avenues the association can try like a rent collection policy or termination of certain common immunity services provided by the association if the association has adopted such policies with majority approval of creditors. If not, then there's usually ways you know they would consider taking to the next step. If somehow you know there's no response from owner there's no payment plan there's nothing that it would consider either filing district court action to get a personal judgment, or they would consider for closing on the link that will lead to our discussion today for closure. I want to also make it clear that with HRS 514 be statute number 41 144 146. There's no way an owner can say well I'm not paying the maintenance because I don't like the way it's being maintained. I mean, that is not an excuse. They signed their when they purchase it they signed an agreement. The house rules in place. So, just because they don't like something is not an excuse, or a reason to not pay, make their maintenance fees correct. That's correct there's a statute of provision that clearly see a unit owner cannot withhold from paying such you know assessment because once you bought into this unit, you as a unit owner obligated to pay for your share of the, you know, common expenses. And then there's, you know, the whole 514 B section 146 dictates on how such amped amounts the solution should automatically get a statutory. Okay, so just to kind of recap so when it goes to the attorney, then they're going to go through their procedures, following the debt collection procedures act. They're going to check to see if they're what the what the liens are on the property because there could be government liens, right. Real property tax and paid amounts. Yes. Right. They need to check what what is attached to the property already. Also identifying who the recorded owners of the property are. Right. And then they would send a letter to all owners of record. At that time, right. And do they notify the current or the existing lean holders of any kind of being taken that usually if you know if you're trying to do let's see rent collection or termination utility or common amenities. There's a requirement you also need to give notice to the first link first mortgage lean holder. Okay, of course, there's judicial foreclosure, which you need to go to court. There's also non judicial foreclosure, you know, which is the power of sale process, both of these processes. You will need to basically serve all parties that has an interest in this property. And I would include mortgage lean holders, you know, if there's, of course, I'm paid real property taxes need the government, the city. And then, you know, if there's other judgment a creditor that has recorded lead that, of course, and then you need owners, that's for sure. So, definitely the notice process will be triggered once you decide to go into that process. Let's talk about the filing of the this pendants. What exactly is that. So for judicial foreclosure at the moment when you file for the complaint, there is, you know, usually it's called also called a notice of pendants of action in Hawaii it's also referred as the legal term is the lease pendants. At the same time, you file that NOPA in court. Once upon filing, you can record that in the bill roll so that gives, you know, third party, the public notices that you know there is this action where the link order is in the process starting to foreclose on the link. So whoever you either they want to buy this property or they want to refund us or do something on this property they're going to get notice of this so they realize you know they need to take care of this before they can get a clean title. Right. And then, I know, there's been a lot of court action regarding the non judicial foreclosures, but what's what's the status now, the legal status now with non judicial foreclosures. For associations, there is new section, you know, part six of the chapter 667 Hawaii revise statue. We're caught, you know, this is the current procedure. The association has been following to conduct non judicial foreclosures. Of course, there were, you know, disputes litigation on the old chapter of the non judicial process. I think that's beyond today's topic. We're just going to be focusing on part six of chapter 667. If the association opts to do non judicial foreclosure then that's the process the procedure steps they need to follow. But of course, you know, the statue also made it clear. If owners delinquency rose from or includes only fines, legal fees and costs, you cannot use non judicial foreclosure to foreclose on that. You can do it by judicial foreclosure, but not for power of sale for culture. Okay, so in the debt collection process. What role does the attorney take in trying to collect the, collect the debt. Do they in, I mean they make every attempt to communicate with the, with the unit owner. Do they try to establish like a payment plan or put them into a payment plan of some sort. For both, you know, the statue gives a basically when you try to start the for culture process you start with a notice of default intent for close. And then the statue impose a 60 day waiting period of time that would give time for debtor to consult with the credit counseling or, you know, budget counseling or some sometimes they would even consult with bankruptcy attorneys, or they give them time to work out a payment plan. You know, with the association. Within this 60 days, you're not supposed to proceed further you're supposed to wait and give that are the opportunity to work things out. And they always have a right to propose a payment plan proposal. Usually a reasonable payment plan, you know, under the statue it will be defined as if they keep paying the current dues, and then they can come up with a plan that would pay off the debt or within a year, 12 months. So then that should be considered a reasonable plan association supposed to work with the owner to accept the payment plan proposal monitor and put a hold on the for culture process. Oh, so say they owe like $5,000 and back maintenance fees. So they would have to pay the current month, plus apply extra money toward their dad. Oh yes. Wow. Okay. So, because I remember wait back when sometimes they would, they would accept like $25 a month, you know, for for only a certain amount of time not forever, but for a certain amount of time. So that's the just the statute of definition, you know, the board always have authority, you know, if they think this owner has been behaving well. The owners there's unique circumstances presenting they want to give the owner some additional time. You know if the board approves, you know, a payment plan that would cure the default within two years that that would also be acceptable usually the attorney is just a messenger there you know they would pass on this proposal for the board to approve review. And that's how it usually works. So what would be your favorite or your your most widely professional tips to condos to the board on setting up their debt collection procedures. I mean, I mean, each association has their own legal console, you know, I think before you finalize that policy, you know, that policy could be adopted like many, many years ago when the statute are different. So if it's been a while, it's always a good idea to consult with our console to try to update make sure it's in compliance with the current applicable law. So, you know, right now there's also a mediation process, you know, after you started the foreclosure process if the owner wants to initiate a foreclosure, initiate a mediation process within 30 days of service then, you know, association should also pause the non traditional foreclosure and go into mediation with owners. There are all kinds of, you know, new laws also regarding, you know, the process how it works, the publication requirements, you know, before and now they're all very different. So definitely your collection policy need to be updated to keep keep up with the current law. That's important and also you know you want to always there's going to be special situations. You want to give the professional that you retain the legal console. So some discretion in special situations, if this property doesn't have a mortgage on it. Are you supposed to just go ahead do non judicial foreclosure, or maybe in that situation perhaps it will be better to go the judicial route instead of you know you have to deal with something very risky situation where you know the property could be sold at a very low price to a third party. And then later on there's going to be a dispute with the owner. So there are definitely different situations I think a collection usually I mean of course it saves money to just follow a procedure you know just a lot of attorneys would have party goes do a lot of things. But really, there are situations where that approach would be risky you would want the special cases to be given special attention, you know, not taking the cookie cutter approach. So, I know he's speaking to some board board members of different condos over the years, when we've gone into conversations about policies and procedures. What you just explained on the debt collection practice on the procedures. A lot of them don't even have it in writing. They don't even have a policy procedure manual. So, I would think it's highly recommended to make sure it's a written policy and procedure because it has to apply equally to everybody. So it really in boards change from year to year, or they could change from year to year. So really one of the highly recommended is to make sure that you have a written policy and procedure that is followed with every single you're not. An issue can't come up that you're discriminating or you're preferring one to another, you're just following it line item by line item, and being consistent with every single collection. Right. Yeah, that's always a good approach, you're supposed to uniformly apply no selective enforcement. Okay, so let's move on to the actual sale so what happens when it moves to a foreclosure sale. What happens with that I know the DCCA publishes it now because it became too expensive because we only have one newspaper. So it literally became so cost prohibitive just to publish that sale. So I believe the DCCA now is putting it on their website but you kind of got a scroll way down to the bottom to kind of find it. Right. So, in the old days, you know the three consecutive publications has to be done on newspaper which is really costly. But then you know during the reform process the design this state website, people can post notice there. But still, you know the 28 advanced notice on the website that's just one step you still need to do at least one newspaper advertisement. You know for the judicial process, you know a commissioner will be appointed by the court to handle the, you know, the auction, the advertisement, you know if the sale needs to be postponed, the postponement or consolation need to be published as well. But in a non-judicial foreclosure process usually that would be the association's attorney who is the one that's going to be in charge of posting these notices making sure postponement, consolations are also timely, you know, posted to this website and, you know, on the newspaper following the requirements, the procedure requirements. That's usually like, you know, right before the auction when you need to give a public let them know when and where you should go to bid on this property that that's like assuming all the other process we just mentioned about the bid issue or, you know, the payment planning or didn't work. You have fulfilled all the requirements of serving every possible party that all the property has right entitled to notice. Then you went ahead to the auction stage to the sale public notice of public sale. That's what we're talking about all this publication of notices. Okay, so after I know some ails are buying it back subject to the first mortgage. So, so I've seen typically it will go into the managing agents rental pool and then so they'll manage that and get their, their property management portion of that rental value. But is it, is it there's their set standard that once it goes into that rental pool that they market, they rented for market value. Should that be the standard and how long do they keep it into that rental pool I mean, I mean, ails are not really in the business of being rental housing, so to speak, when do they actually try to dispose of that property. So usually when the association forecloses there is a senior mortgage lien on title. So the association when they bid at their own auction they do credit bid, maybe at a $1 because it's subject to the senior mortgage lien you probably get no other invested if there's no equity in the association usually there's no other interested bidders their association usually ended up getting the property subject to the senior mortgage lien. And once you know because you really didn't ever get paid out of this kind of process because there's no sales process here you advanced all these legal fees and cost and you know the the do's are accumulating during this process when you handle this for So after the decision to control of the property, that's the opportunity when you know if you spend a little bit of money, maintain a brand it up to a rentable condition that you start getting rental income out of this unit. And then, you know there's this sections and in section in 514b-146, guiding you on the, you know, rental income of course, you know, of course the net you get you have to still pay you know either there's a rental managing agents fee. And there's also this unit's a person of association dues, and there may be you know, cleaning fees, whatever you have to keep this condition process and then if there's net, you started to pay these delinquencies old by this unit. So first on the six months superlink like the six months regular comment assessments that so she should have a superlink for that you pay that off and then started with the other categories of balances there's legal fees there's late fees there's also other maintenance fee delinquencies on the unit. If then there's extra section in for the condo statute basically says the decisions not entitled to this access net rental income. It would be a good idea for the association to keep a separate account, not a mingle that portion of the money with your common money common funds account. There should be a separate to keep track of you know the amounts coming in because supposedly this access rental income. When the senior lean holder, they go through the full closure process they got a court judgment basically saying they are the senior lean holder, and they are entitled to claim that access rental income. And if they're paid off they're still surplus, and supposedly it would go through other junior link orders if there's any judgment link order which is, you know, a subordinate to a decisions and then if there's any other. You know, of course the unit owner, if there's no money left they will go there. But usually, it wouldn't be like the situation usually the situation would take a still take a while for the association to bring the book from red back to gray. They have to really ready a long time in order to recoup their loss and make it current, and then for the surplus amount they need to keep a separate account to keep track of that. Just be prepared one day the senior to come back to claim that. So, this is a, I'm sorry, I just want to, and this is for the non judicial closure process, if it's a judicial closure process of course, you know, after the sale finishes the commissioner is going to provide a report to the court. So, you know, how the sales process it needs to be distributed the course is going to give order, then according to the parties that leaves this, you know, and then if there's surplus it will be deposited with a court clerk. You wouldn't have to be worrying about too much about that. And then, yeah, so, and then if the association take title in that kind of situation. Supposedly, you know, maybe you wouldn't turn over the access access amount to to the court. Okay, so, so technically for a while though, the that property, if it's rented out at market value, it would be generating literally in the red for a while until it starts to get back into the black, but that unit, whatever the rental income if it's at market would be, hopefully it would be generating enough income to pay the existing current maintenance fee, right, and then also being applying, applying the monies toward the past delinquencies. Yes, yes. And also, of course, you have to, you know, buy insurance for the unit as well like 804. There's other, you know, you pay the rental rental management agent case stuff like that there's ongoing. Yeah, right. So, so literally they the, the association could not even really turn around and sell that unit because it's still subject to the first. But it's whether they're going to establish clear title in order to really sell it. That's really where it gets complicated right. They cannot basically because you know as we just mentioned a first in time first in right, the mortgage lien is always recorded first. So really under the statute of course the real property tax lien that has the, you know, number one priority. And then the next one is the senior mortgage lien. And then the senior mortgage lien they foreclose if they fulfill all the service requirements and all the notice requirements after the lender forecloses, they're going to wipe out all the junior liens under the law. So, but the association only get a special car about which is the six month super priority lane, which is, you can only collect six month common assessments, regular common assessment from, you know, the new buyer who took over from the foreclosing mortgage, but, you know, when a junior lien holder foreclosed first, usually it's the association you take the, you know, you go ahead foreclosed the senior lien hasn't started there for closure, you only get a property with, with a subject to that senior mortgage lien that their right is intact, you don't take anything to have, you know, deliver a clean title. That's why you're just holding this property actually in label in a temporary period of time before the senior lien holder steps in to foreclose on their collateral. So, yeah, there's really no no other way for the situation to somehow deliver clean title. No. So what if the unit owner in correspondence with the commissioner or whatever, you know, they just get throw their hands up and they're like, you know what I can't maintain the unit I can't make the mortgage payments. I can't pay back all my past two maintenance fees. I mean like, like mortgage lenders you're able to literally almost give back the keys and one one verbiage that was that was said. So what if that's presented to all the parties all the lien holders like I can't I can't do this, you know, I don't want the unit just take it off my hands. I mean is there a formal process for that as well. Yeah, so, you know, it really depends if of course if the property has equity, the best way usually is for owner to stop ownership, put it for sale on the market, you know, get money pay off your mortgage and then maybe you get some money back you for the lender or the association accumulate legal fees and costs because that all ultimately will come out of your pocket. But if there's no equity, you know, if the market the market is bad now the property is on the water that happening you know back in the last crisis we saw a lot. You know, then the owner would be better off to just surrender I think, you know, in a lot of other states there's deed in lieu of foreclosure. And somehow you know the, you know, these days of course there's also for variance during the special period of time especially during Kobe. There are a lot of programs out there who can help owners. You know, it really depends if you have a lot of debt on this property you're also worried about your credit. At that point if you're super super underwater you have many liens on this property already maybe the best way is to consult with a bankruptcy attorney. With bankruptcy, you can shake off a lot of those junior liens like a judgment if you have a very giant judgment or even RS income liens whatever work through bankruptcy process get data protection give you a period of time to you know you can there is a portion you there are debtors who you know either choose the chapter seven liquidation process or involuntary or you know the voluntarily choose a chapter 13. They could, you know, through bankruptcy there's a five year payment plan because somehow, you know, only, you know, those secured creditors will pay the portion of the debt through the payment plan. And the other insecure debt will be wiped out through the bankruptcy process. So there's definitely avenues there. That's why the whole process started with the 60 whole day hold also notice will tell debtors there are these consulate services available you can do credit counseling, or you know budget counseling or even bankruptcy counseling to try to put your financials into order thinking through what makes sense for you at this point. Okay. So, we're getting close to our end time but I also wanted to, to make mention that Hawaiian committee, Hawaiian committee assets so it's, it's Hawaiian Council dot org, not Hawaii Council but Hawaiian Council dot org. They are doing the homeowner assistance. And I want to say they will help up to 30,000 but I don't call me on that but I was going through the website and I did refer when one person to them and they've been tremendous and helping her in getting her stuff in order, because she was, there was an auction date set for her. But they do have assistance to homeowners, and I believe it's not specific to just Hawaiians only that you have to have part one for them to help their, I believe that's open for anyone to seek assistance so people should really if they're delinquent they should take advantage of some of those monies that are still out there from COVID to do these assistance that that are really, I mean they really need to take advantage of it so that they can save their properties and and get current if they're behind. So any, any closing thoughts that you have. I think, yeah, so for associations, I guess it's just that, you know, as you said, if you ended up with that property in your rental pool you just, you know, act according to your business judgment rule do your best, you know, try to brand the, you know, brand once after that for the access net rental income you want to be careful about counting and keeping a separate account for that for owners really still I think be active, you know, take timely action, work out payment plans with, you know, either association or mortgages do not wait until last minute. But of course during the, you know, foreclosure process until you know that the sale coming as documents are recorded there is a period of time you can still, if you come up with enough money you can pay off the desk stop the whole process to regain your rental property. But that that's usually like, you know, a lot of legal fees has been accumulated already, like if you started with something small, you know, propose a payment plan work hard to try to avoid further accumulation of legal fees usually you try to tackle a smaller problem is much better than you take nothing no action and wait and then the legal fees is going to jump, you know, substantially making it even harder for you to try to deal with the problem down the road and those professional consulting services are really helpful. And there may be some other assistant programs out there, especially for owner occupant, you want to, you know, actively seek help if you are in that kind of situation and also find your own console represent you to in the foreclosure process, don't just get defaulted and then do nothing. Right. Okay, so thank you we're nearing and I really, really want to thank you for joining me today, and going through this little tutorial on that whole foreclosure process and what it should be complying in with the debt collection practices act. I really appreciate you taking your time out of your busy day to do our condo insider. So with that, so thank you not not on. And thank you everyone for joining us. Hope to see you back again next week on another condo insider subject. Thank you.