 Well, welcome to condo insider. It's Thursday at three o'clock and we're going to talk about association issues. And as you all know, our legislators, legislators in session and continues to I think it's May 4 when it adjourns, but we're at the midway point. We're going to talk about some meaningful legislation is still circling the halls over there. So I invited a very good friend, an attorney, LaRae McGuire from the Porter McGuire Kiyakona chow firm. Thank you, Richard. I'm happy to be here. Tell us a little bit about your background and all you've been away and about your law background and what she specialized in and I moved to Hawaii in 1976. Wow. When I was a baby. And I'm kidding, but I moved here in 76 and I started with my current firm in 1999. Where did you come from when you came here? Originally, I was from Oklahoma and Texas. Oh. And I moved here for surf. Now that you said that, I can hear a little bit of the accent. There's a bit. A little bit of the accent. You know, I want to our viewing audience to know is that the legislature has a specific process is defined in the statute. So there's cut offs for bills to be introduced. There's cut off for them to be into the final committee. And there's cut off that to be out of all the committees. And first decking means that in both the house and the Senate, they have to be out of all the committees. So those bills introduced in the house have to be out of all the committees it was assigned to. And sometimes it's one committee and sometimes it's three committees. I don't think I've ever seen four, but I guess it's possible. And then the same thing happens in the Senate. They have them, even though you may have, we call companion bills, which says the same thing. They're really not connected to house in the Senate. They kind of do their own thing with their own people and their own votes. They're not communicating behind the scenes and oh, let's use your bill or my bill, whatever at this point in time anyway. So first decking is all the bills have to be out of their final committee. And that means that they're not out of the final committee. They're they're dead for this year, meaning that we this is a biannual legislature. So it could come back next year unlikely, but it could come back next year. And so that's what first decking means is that the 40 bills approximately they were introduced. When you take away all the duplicity in this whole thing, we're down to maybe seven or eight left that are still alive in one form or another. But the ones that have been really hot on the horizon have dealt with what we call foreclosures. And in some cases zombie foreclosures, we're going to get into in a minute. Correct. So there were four bills that were introduced that one was House Bill 76 and House Bill 1557 that it was Senate Bill 551 and Senate Bill 722. And the differences were the zombie foreclosure bill had all these issues of fines to homeowners if you didn't rent out your foreclosed property and it's confusing as heck to me we're going to go into that one minute. But Senate Bill 551 had to do with some appellate court intermediate court of appeals rulings, kind of undoing power of sale non judicial foreclosures. If you're an old association didn't have the language in your original governing documents. So Senate Bill 722 and House Bill 76 died, they're deferred. Sad in a way because House Bill 76 is the same as Senate Bill 551. I don't know if that's foretelling or not but these are really critical issues to these two associations. So I want to talk to you let's start with House Bill 1557 at the industry is appropriately named the zombie bill. Correct the zombie foreclosure bill. That's right. Describe it. I mean, what's the intent of this bill what's it's trying to do. Well, this this bill arose out of a problematic situation wherein homeowners often once they obtain a notice of foreclosure either from the association or from their lender, they will move out of their home. And that's because they think if they move out, they won't be liable to either pay the assessments anymore or to pay their mortgage, which is a wrong assumption. But nonetheless, that is the assumption they make they vacate their unit. And, you know, as as was stated in House Bill 1557, Hawaii has one of the longest periods for judicial foreclosures from beginning to end is an incredibly lengthy process. And as a result, in the very beginning of the process, homeowners are moving out of their homes, thinking that they won't be responsible for the payments. And the foreclosure process itself may not be completed for two to three years in many situations. And so during this period of two to three years, this home will be vacant. And oftentimes there are squatters that go into the home, or oftentimes the home will just fall into disrepair. The yard gets overgrown and you get rodents in there and it just brings down the value of the surrounding homes. So it's become a problem. And that problem came to a head on the big island this past summer. Because of the lava flow. And it severely affected the Pahoa area, the Ka'au area, Lailani Estates, for example. They had all these fishers running through Lailani Estates and all the people in that in Lailani Estates had to evacuate their homes. And as of July, early July this year, over 700 homes had been destroyed. And as a consequence of that, Pahoa and Ka'au had a major problem in terms of housing. They were trying to house all these people that had lost their homes. And representative Joy San Buenaventura, she's the one that sponsored this bill. And it came to her attention because she said when she was trying to assist her constituents in finding homes, she was coming in contact with brokers, real estate agents, who could not rent to her or to her constituents who were displaced, these vacant homes because they were in foreclosure. And so it became very frustrating. And as a result of that, she sponsored this bill to try to prohibit in the future or dissuade, rather, homeowners from vacating their homes by finding them $1,000 a day if they were to vacate their home or not rent that home within 30 days of receiving the notice of foreclosure. The problem is that liability for that fine would be passed on to the foreclosing entity if the foreclosure was later postponed or canceled and the liability was further passed on to the purchaser if the sale didn't close within 30 days of the foreclosure sale. So if it was a non-judicial foreclosure, it would be, or not 30 days, I'm sorry, within a set period of time within the, let's say the hearing on the motion to confirm sale. So what else the house that the people moved out of isn't rentable because it's in bad condition? Well, I mean, that's the whole problem. And one of the things that we have suggested, CAI, is that the legislature require the association or the lender to put a notice in their original notice of foreclosure to the homeowner letting them know, educating them about the process so that they will realize that by moving out of the home, they will remain liable. And thus, you know, right now what's happening is homeowners are moving out and then they're renting other homes, notwithstanding the fact that they're still responsible for that mortgage payment or those assessments. And so now they're paying rent and they're also on the hook, if you will, for the assessments and their mortgage payment. You know, had they known, had they been informed of the fact that they remain liable, arguably they wouldn't have vacated their home to begin with and they wouldn't be taking up space in these rental properties that could be used for other people who are displaced due to lava flow or something of the sort. Has there been any discussion, I'm going to assume that the people moving out of these homes are probably delinquent in their mortgage. It's not that they're already paying their mortgage and everything's currently just decided to move out because it's a bad area or is there some of that too? Well, you know, actually I've seen it both ways because we represent condominium associations and homeowner associations and we will oftentimes have a situation where the owners will stop paying their assessments but they'll continue to pay their mortgage. Likewise, I've seen the situation where they will stop paying their mortgage and continue paying their assessments. So you see it both ways and sometimes it's both. So if you have an owner who moves out because let's say they're struggling and we wish the best for everybody who's struggling in life, why do we think they can then pay $1,000 fine on top of the fact they can't pay their mortgage and the rest of it? Well, in my opinion, they can't and they won't. They'll file bankruptcy or what will happen is that will ultimately get passed on because here's one of my concerns and speaking on behalf of CAI. The foreclosing entity, you know, let's talk about associations. They're not in the business of buying, selling homes. They just want to be able to pay the assessments, right? They have to pay their bills. And so what happens is people will stop paying and that doesn't resolve the situation. And so, you know, okay, this is so embarrassing to the homeowner but I have lost my train of thought. It's okay. Well, it's not okay but I apologize to everybody in the audience. I did. I've lost my train of thought. Well, I guess the questions we were talking about was I had brought up that it seems that they're moving out. They can't pay the bills. And so is there any real teeth in the fact that you're finding them $1,000 a day and then what are the lenders going to say? That was my thought. Okay, here we go. Sorry. Here we go. So basically what happens is if the homeowner moves out and you want to negotiate with that person to save the home so they don't have to move out. And so in doing that, maybe you want to postpone that sale. Well, if you, the foreclosing entity, are now going to be liable for the fines that that homeowner has been hit with over the last 30 days, $60 to $1,000 a day is extreme. It's excessive. And we won't even talk about whether or not that's constitutional. But the fact is no foreclosing entity is going to want to take on that liability. Therefore, in order to negotiate a compromise with the homeowner, they're not going to be willing to postpone the sale, much less cancel the sale because they don't want to have to pay those fines in order to do that. Likewise, you know, with the purchaser, I think the purchaser, if they want to buy it, they're going to buy it. And if they know they're going to get stuck with having to pay those fines, they will close on time. You think it is constitutional? It seems to me there's a lot of questions about this. No, I honestly, I think it's probably an excessive fine and not constitutional. I think that's a separate issue altogether. But I think if this does become law, that will become a challenge. Well, we're going to take a break in one minute. So I asked one more question before the break. Okay. You think this is going to work? If it was passed in law, will it work? Will it solve the problem? No, I don't think it will solve the problem. I really think the problem is housing. I think there's a housing shortage in many areas. And I think in terms of solving the vacancy problem, you have to educate the homeowners to let them know that because otherwise they're going to vacate whether they've got to pay a fine or not. If they don't know that they will remain responsible for those assessments or for that mortgage payment, they're going to move out because they think they won't be responsible for it. So in my humble opinion, the way to resolve it is to educate the homeowner with regard to their rights and their liabilities to dissuade them from vacating the unit. Okay. Well, we're going to take a one-minute break. We've talked about zombie or closure bill and the $1,000 fine and all the humdrum about this which still confuses many of the benefit of this law. And after this break, we're going to then talk about the Intermediate Court of Appeals and regular foreclosures and the humbug were in there. See you in a minute. Aloha and welcome to At the Crossroads. I'm your host, Keisha King. You can catch me every Wednesday. Alive at 5. I'll see you there. Aloha. This is Winston Welch. I am your host of Out and About where every other week, Mondays at 3, we explore a variety of topics in our city, state, nation and world and events, organizations, the people that fuel them. It's a really interesting show. We welcome you to tune in and we welcome your suggestions for shows. You got a lot of them out there and we have an awesome studio here where we can get your ideas out as well. So I look forward to you tuning in every other week where we've got some great guests and great topics. You're going to learn a lot. You're going to come away inspired like I do. So I'll see you every other week here at 3 o'clock on Monday afternoon. Aloha. Welcome back to Kondo Insider. We're talking about two bills before the legislature affecting foreclosure, what affects condominiums and their budgets. And we just finished talking about the zombie foreclosure bill and maybe we should have worn a zombie costume or something when we talked about that. But the last one, which is we're going to talk about briefly, is Senate Bill 551. And essentially, I may not be too bright, but for years, decades maybe, condo associations have had to write by law, current law to do a non-judicial foreclosure called a power of sale. Correct. And the benefit was the association when a person was not paying their bills, they could mitigate their budget deficit because they could get possession foreclose around the first mortgage and tax liens and things like that. Get possession and rent it out because as you said earlier, it takes two or three years to do a regular foreclosure and you can do a non-judicial probably in six months or so. Maybe a little longer than that. Six, nine months. So they have that period where they can recover income stream out of it. So associations have done this forever and then someone took it to the immediate court of appeals. So give us a little bit of background where this stands right now. Right now under a recent ICA decision the court came down with the decision that associations may no longer do non-judicial foreclosures unless their governing documents contain a power of sale provision or unless they have some form of an agreement with the homeowner that allows them to do that. I'm not aware of any such agreement but that was a part of the decision. And newer condos pretty much have power of sale language if what I've seen. The newer developed condos. That's because the power of sale has become more popular since the recent recession in 2008 to date. So anyway we know factually that many associations over the last 10 years I don't know what the statute limitations are. On a contract six years. So in the last six years many associations have foreclosed to non-judicial power of sale language and now the immediate court of appeals says oops that's a mistake you shouldn't have been allowed to do it. So does that mean there's going to be claims against associations and boards and because of the immediate court of appeals saying you can't do that? Yes, that does. There will probably be hundreds against all the associations who have been doing this in the past who did not have power of sale provisions in their governing documents. And I would say the majority certainly those that were developed back in the 70s, 80s I doubt that hardly any of those have power of sale provisions in their governing document. But the deceptive point was if you look at 514 A 514 B 146 subsection A it contains a provision which references the non-judicial foreclosure remedies quote unquote remedies in HRS chapter 667. Well a remedy is basically a method that you can go to do a non-judicial foreclosure. That language is in the statute. And based on that language and the fact that in 2012 the legislature created this section 6 of chapter 667 that allowed associations and homeowner associations to do non-judicial foreclosures. A separate provision specifically to allow them to do non-judicial foreclosures. Based on that, based on the history because this has been going on at least since 1999 based on that I would submit that almost all associations have done non-judicial foreclosures certainly the larger ones have because if you look back at the recession that we went through in 2008, 2007, 2008, 2009, 2010 but for the non-judicial foreclosure process I would submit that numerous associations would have gone bankrupt because so many of their owners were not paying and associations they don't have another source of income. If you don't pay your assessments they can't pay their bills. So do you think there's lawyers out there now researching all the foreclosures in the past and then contacting these owners who lost, these non-paying owners who lost their property for non-payment of the fees that they're going to now be finding lawsuits and class action lawsuits? Do you think that's going to happen? That's already happened. Yes, it's already happened. I mean they were denied class certification and so there are a few, a handful of lawyers that are doing that kind of thing. It's my understanding one lawyer in particular is going to the Bureau of Conveyances and looking up what they can find in the Bureau and in Landcourt to see what's been recorded in terms of non-judicial foreclosures. And has any of these cases where there's been a foreclosure or gone to a trial where there's been damages assessed? Have any of them gone through? Not yet. Not yet. Yeah, but there are some that are pending right now, yes. And without being specific like dollars or anything like that, what do they allege in the types of damages they have? They lost their home, they lost their equity, but what is, what are their arguments to do? It's a gamut. I mean from, you know, breach of contract, intentional infliction of emotional distress I mean the whole gamut in one particular case they allege damages of $2 million. That's just one association and one owner. And so what's going to happen is the non-paying owner who was foreclosed on is going to get a lawyer on a contingency probably and he's going to go and file a suit and if they get a judgment all the paying owners are going to have to pay the judgment to the non-paying fair assumption? Well, I mean realistically what's going to happen is the association is going to tender it to their insurance carrier and after several of those their insurance carrier is going to drop them and they may not be able to obtain insurance after that. You know, but initially they're going to be represented by their carrier assuming the carrier says that they're covered and they don't reject coverage. I was talking to a prominent insurance agent here in town about this issue and she says they're now seeing in the morgue or the Director of Officer of Liability Renewal Coverage. There are now questions about doing non-judicial foreclosures and they have now associations being turned down for Director of Officer Coverage because of their foreclosure practices in the past and what they've done and that on new applications they're seeing applications rejected because of the foreclosure practice which means they probably will be able to get insurance but they're going to have to go out of the standard market into the high risk market and their premiums may go up 10 times. Oh, I'm sure. Really, I'm sure. So what is the bill 551 attempt to do? What it attempts to do is clarify the history of non-judicial foreclosures in the state to show that associations have had the ability as a matter of law to do non-judicial foreclosures for decades and, you know, basically notwithstanding the fact that they don't have a power of sale or non-judicial foreclosure provisions within their governing document. Now, I know this has been the ICA Intermediate Court of Appeals decision. Has this ever been filed to the State Supreme Court? In the Recents to Call case the association did file an application for writ of cert for the Supreme Court and the Supreme Court turned it down. I will tell you, though, that that case dealt with 514A, which has now been repealed. So I would imagine there will be other cases going up under 514B and probably also under 421J. So it's hasn't been looking good, but there's still potential through the Supreme Court. And so do they feel that 551 being passed would be like kind of like another brick on our side of the scale that it shows the intent of the legislature from the beginning that may influence the appellate in the Supreme Court because the legislature is kind of confirming this was our intent from the beginning. Is that what kind of the theory is? Yes, that is the theory. My concern is, though, that the ICA of the Supreme Court is not retroactive. In other words, let's say that Senate Bill 551 passes, becomes law, the governor signs it into law, and then it goes up to the court, to the ICA or the Supreme Court. The Supreme Court could say, well, that is in effect a new law. And so it's not retroactive. So 551, I know this legislature has the ability to make laws retroactive. They do. So 551 doesn't do that. They have to state that in the bill specifically in order for it to be retroactive. Or they also have to state that you have to show the legislature's intent all along was for it to be retroactive. But there again, that's a matter of interpretation. So if that was the intent, it has to be stated clearly and succinctly in the bill. Does Senate Bill 551 do that or not do that? So what it does, I don't know if it does it enough for the attorney general to submit a testimony. They weren't against it, but they understood the issue and provided a clarifying language and I think they asked in their testimony what the intent was of the hearing. Was it to be retroactive or not or whatever and that was going to be a specific issue with regard to that. So should we tell all the boards out there to write into their legislator and support 551? Otherwise they could be facing damages down the road either. Yes. Write your legislator. Find who's your representative write to them, email them submit testimony. Go on to the legislative website and submit testimony. It is so easy and it provides you with instructions how to do it. And I guess my message is pay your maintenance fees so you don't get foreclosed on so we don't have the problem in the first place. Yes. The association does not want your home. They want you to be happily ever after and if you get behind go talk to the board about a payment plan. Don't just ignore it. So you go down to this endless list of legal issues and costs and expenses. I want to thank you for being on the show today. It's always enlightening and I appreciate everything you do in the industry. I know you're on the CAI lack board with me and it's a tough job to fight all this stuff, you know, because you get testimony out there of people who just don't understand what the bill is trying to do and they go off on some emotional thing which confuses the legislators. Thank you for watching Kindle Insider. We will see you again next week, 3 o'clock. We hope you enjoy our show and aloha.