 Thank you for joining us today for another episode of Kondo Insider. My name is Jane Sugimura, and I am hosting this episode. And today joining me today is my co-host, Richard Emory. Say hello, Richard. Nice to be here and sitting in the left chair, it's like Richard on the left, Jane on the right. Right. We're going to be talking about production of documents relating to condominium associations. And what's the background on this issue? Well, there's really two parts to this issue. First, we get homeowners a lot of times who are upset, and the statute provides them the right to have certain documents, and then they complain it's too expensive, they expect more than they get, and so that's one side of the issue. What owners' rights are there in documents? And when you talked about the statute, you're talking about 514B. That's correct. And specifically, it's 514B, and for those people who want to look it up, it's 154.5. Correct. Okay. And the second part of it is in the natural buying and selling of real estate realtors often will sign a contract, not the realtor, but the buyer and seller, they agree to disclose certain documents under section M as in Mary, and they are concerned about the high cost for production of these documents. So there's actually two sides, the real estate, the realtor side of it, and the homeowner side of it. And so, you know, for the homeowners, I mean, why is this part of the condo statute? Well, I think transparency is good. I mean, in some ways, you're an indentured servant when you're buying a condo. You've signed a contract, you have to pay maintenance fees, and you elect people to control things, and you wouldn't have transparency if you couldn't have a double check and a right to see certain documents. And so, it's an important thing for an owner to be able to have access and kind of a check and balance thing that they have a right to see documents. And so what kinds of documents do owners ask for? Well, what they're entitled to, what they ask for are offered and very, very different. Okay. Let's talk about what they're entitled to. Okay. Basically, owners and title to, I'm going to generalize it without getting specific, to financial information, general ledgers, journals, financial statement, balance sheet, check register. And this is because they pay the maintenance fees. That's right. And a lot of this comes about because maybe there's an increase in maintenance fees or an assessment, and they want to know how come. Correct. Right? Right. But they're entitled to the financial statement, but they are restricted that if they're going to see delinquency information of other owners, because we're subject to the Fair Debt Act, that they're entitled to those delinquencies over 90 days of age. They're also entitled to see contracts. And the recent change, I want to say two years ago, but maybe it was last year, no two years ago, where the manager, the general manager, the resident manager's contract has to be disclosed to an owner upon request. But you can redact any very personal information, such as that manager's social security number or personal address, health conditions, or things along that line. Why would an owner want to see the manager's contract? Because they're curious, because the maintenance fees are going up, and they think they're paying too much money for the manager, and they have some perception that he has maybe bonuses and extra benefits, so I guess financially driven more than anything else, that they don't believe that the board is making the best decision of what they're paying the manager. And sometimes when they ask for the manager's agreement, the manager's contract, they want to see what his duties are, because the gist of the request is the resident manager or the site manager's not doing his job. That's correct also. Or that's the perception. That's the perception of it. But you know, they are not entitled to everything that they want to see, because I made a list of about 20 items of the requests I've received over the last 10 years that people demand, and I'll just give you a couple of examples real quick, that they're not entitled to. They'll say, I want to see my neighbor's ledger of his charges and payments. Well, it has nothing to do with managing the association, that's private information of the neighbor. They may say, I want to see all the letters written to him on fines and dog violations. That's again a personal matter, and it's not under the statute they're entitled to see. The worst I've seen I've ever gotten was I want to see the signature cards or the trust account that was open and a copy of the bank statements. Well, the bank statements sometimes have electronic information on them, and you would want to redact that to protect the association. You would probably want to redact the account number, so people couldn't use that information in this internet crime world we live in. So when we get these requests, I want to see the signature card, and someone can extract that signature and use it for other purposes. So we get a lot of requests to see things that are not entitled under the statute, but in those cases, the owner isn't entitled to be told, we're not going to give it to you and why. And in the statute, if they want to see what documents are available, it is written in the statute. Very specific and very clear. Although there is a provision in the statute that gives the owner the right to request other documents, and the board has to answer them whether they're going to give them or not, but it doesn't require the board to give them to. And so that's also in the statute. And so let's say an owner wants some documents, where do they go? Do they go and ask the board first? Because the board only meets once a month or once every other month. I mean, where do they go to request these documents? Well, most condos in Hawaii use a professional management company, and they're the custodian of records for the association. So they should go to the management company and request to see the documents. So that would be the associate or the Hawaiian or the Hawaiian properties or touchstone. These are the professional management companies. Yeah, they're the custodian of records, and it makes sense because boards change every year and you want to preserve historical files. The problem I see is an owner gets upset. And so they'll write to me and they'll say, Richard, I want to see all of the records that's in the statute here, every contract, every invoice, every check register for the last 10 years. And I want to be able to see them and review them. And when they make that broad request, it becomes difficult to fulfill and expensive to fulfill. Why is it expensive? Well, you know, office rents in Honolulu are expensive. Most management companies only keep the current year's records in their office. And so they use a professional warehouse, which will be fireproof, bombproof, kind of safe building to restore historical records. So as soon as you say you want all those records, you have to get someone to pull them from the warehouse files, deliver them to you. And there's a cost affiliated with drawing records from a storage company. The warehouse charges us to do that. Then you have to return them. And of course, someone has to make sure all this, because all these boxes are marked what's in them specifically. So we can pull by date or by category of file very easily. But there's a cost to it, even if it's one box or 20 boxes. Surely it's more expensive for 20 than one. But there's still a cost to retrieval, delivery, and return. And then someone to check to make sure that everything's put back in an order that is required. So that's cost number one. Cost number two is something that's very, very misunderstood. Is an owner to say, well, I don't want to pay for the copy and cost of all that. So I want to go review them in a conference room. Well, as soon as we do that, and we put these records in a conference room, you can understand it has legal implication, maybe. We have to have a clerical person sit there to make sure someone doesn't add something who didn't exist before, for example. Or take something out that they don't want to be discovered. So we have to have someone sit there with the owner reviewing the records, which is an hourly cost to us, because we have an employee and we're paying them hourly plus benefits plus overhead. So the problem is that the owners would just simply say, what am I really interested in? If they think of the bigger picture, ask for this year's records and see if that leads you to want the second, third, and fourth year's records. Just don't get angry at who and everybody and say, I want everything, I'm entitled to it, because there's probably going to be a huge cost to it. And the statute allows the association or its managing agent to recover costs. That's correct. And that means the cost of copying and the cost of retrieval and the administrative fees to have the employees sit in a room and watch you to make sure you don't mess with the records. Right, and what's misunderstood, if you look at the statute, it says something to the effect that every association is entitled to eight hours of free administrative time. Well, some owners take that, that every owner gets eight hours of free time. So if I have a 500 unit condo and they're in boiling litigation, I somehow have to give 4,000 free hours of time, which is not what the statute says. The statute says the association gets eight hours. So the first person who comes in, if they use ten hours, they're going to be billed for two hours and they're going to have used up to eight hours and every subsequent person is going to have to pay for that. So if the neighbor comes in the following day and wants services, he's got to pay for every. That's right, the entire time and if we need eight hours free. If we knew two people were coming in in advance, we would say to them, each of them were allotting four hours to each of you because the other person will complain, you let them in one day early and you know how it goes. Everybody complains about it to somebody else, but it all begins because more times than not, someone is angry about something. They don't like the fact their maintenance fees were raised or there was a special assessment or they didn't like the contractor that was chosen and so instead of trying to narrow down what they want to see, they just say, I want everything and as soon as they say that, it's not uncommon for a management company to ask for a thousand dollar deposit depending on the extent of what they've asked for. And when somebody you know comes in and you know requests a review of the documents, can they be refused? Well, if they want to review the documents, they should make an appointment. I mean, we've had people walk in and demand to see this and want to see it right now. Well, they're asking for a copy of this mass last minutes of the meeting, someone will probably just give it to them to make it easy, but you really need to respect the fact that management companies are under contract and serving for their clients. They can't be expected to drop everything because you walked in the door without an appointment and you're saying, I want this now. But if somebody comes in and says, you know, I want the minutes for this, this and this, can the managing agency know you can't have them? No. In fact, I would be saying to a management company that even the board can't tell them not to give it to them because the statute provides for them to have those documents. Management companies are typically licensees being that the manager is a principal broker subject to real estate laws and they can't violate the law as a licensee. So if somebody comes in and makes a law for request, they have an obligation to fulfill it in a reasonable amount of time. And so if an owner goes into the managing agent or even makes a request to the board and that owner gets a refusal to produce or let's say no response at all, is there somebody that the owner can go to complain to? Well, that's the regulated industry complaint office is, frankly, RICO, which is manages licensees doesn't we manage the board and other people's licensees back to the broker of the management company. They regulate this to the extent it's probably their only primary regulation authority over condos is this production of documents. So they have a form they could fill out and say, I didn't get these documents and I'm entitled to them under the statute. But again, some of the complaints I've had filed against our company has been I want to see the bids, not the contracts themselves. Well, the statute doesn't provide for the bids. And we've had many owners come to us and say, I want to see the bids so I can call the vendors and tell them I'm going to sue them if they accept this job. So they're not entitled to the bids. They're not entitled to everything they may think they would like to say. Okay. And the RICO, the regulated information complaint office, their forms regarding complaints and explanation of the process, it's on the website, isn't it? It is. It's a state of Hawaii website. And they're responsive. And but again, I always tell boards or members who are unreasonable, try to sit down and talk with the board of the management company and narrow their request because RICO is not going to force them to produce a document that's not under the statute they're entitled to see. Okay. Well, we're going to take a break now. And then when we come back, we'll be talking about the documents that realtor's request. Oh, that's a fun one. Yeah. Okay. So I'm Yukari Kunisue. I'm your host of New Japanese Language Show on Think Tech, Hawaii called Konnichiwa, Hawaii, broadcasting live every other Monday at 2 p.m. Please join us where we discuss important and useful information for the Japanese language community in Hawaii. The show will be all in Japanese. Hope you can join us every other Monday at 2 p.m. Aloha. Hello, everyone. I'm DeSoto Brown, the co-host of Human Humane Architecture, which is seen on Think Tech, Hawaii every other Tuesday at 4 p.m. And with the show's host, Martin Desbang, we discuss architecture here in the Hawaiian Islands and how it not only affects the way we live, but other aspects of our life, not only here in Hawaii, but internationally as well. So join us for Human Humane Architecture every other Tuesday at 4 p.m. on Think Tech, Hawaii. Okay. We're back with Richard Emory, and we're talking about documents relating to condos that are requested by owners and realtors. And the second part of our program is documents that realtors request in connection with a sales transaction, a sale of a condo. Correct. Okay, and so what kind of documents are we talking about now? Well, this is the interesting thing. When you look at the current 514 Beach statute, it says these documents are that an owner or their agent can get these documents. So these documents we just talked about under 154, 514-154, their agent's entitled to. So what happens is a buyer and a seller enter into a real estate contract to under paragraph M, as in Mary, to provide certain documents, which is like the last three board minutes, the last year's annual meeting minutes, the budget reserves study, the financial statements. And this is so that the prospective buyer can make an informed decision as to whether they want to complete the purchase in that project. Right? And so owners and some time realtors say, well, why don't I get that for free based on this paragraph? Well, we have to look carefully again at what you're talking about. You're talking about a time-sensitive transaction that people need these documents within 10 days. And there's a lot of issues because within that schedule of documents they want our two documents, one of them called the RR105C. The RR105C is a Hawaii association or realtor form. It is not an association document. The document is not kept in the ordinary course of business. It's required by lenders per unit on a specific date in the sense it's not a static document, just sits there. It has four pages of legal questions that could have changed last week or last month or last night based on a decision of the board. But it discloses whether it was a maintenance fee increase, condition of the property, et cetera. Well, the realtors, the buyer and seller agree that they're going to produce that RR105C, well, the association doesn't have an RR105C. What has to happen is someone has to order the management company to prepare an RR105C and to certify it and deliver it. And so there's a cost for that. It's not free. It's not free. And there's liability associated with it. Because I'll give you an example of liability. We completed an RR105C and the question was, is there asbestos in the property? Our answer was no. Because the RR105C is a managing agency disclosure of the common elements. And so the association previously had hired a company to remediate, remove all the asbestos. And there is no asbestos in the common elements. And the managing agent knew this? Knew that and said no. Well, the buyer found out in the apartment there was asbestos. And if you look at the history, some people had taken that out and some had not. We as the managing agent would know it. And so they thought and complained that they wanted us to pay the $3,500 to have the asbestos remediated and part of their kitchen remodeling program. And we took to this and no, it was a disclosure. And what we disclosed was accurate. And frankly information came out that the resident manager told the buyer that it was asbestos and a bunch of other things. So it kind of died a natural death. But the point is there's liability for the management company. And what's ironic about this thing, not only does the buyer want the RR105C, the lender wants the RR105C. And they each order their own RR105C. Because they want to make sure they got it directly from the management company and the date they ordered it based on that specific unit, even though it's the common elements for their file. And why would the lender want this information? Well, and that is information about is there a future assessment, which might affect the credibility of the buyer's credit, for example. They don't want to ensure something where the building is not well maintained. You could have, it has information about lawsuits file. So a lawsuit could result in a judgment against the association, depending on the type of lawsuit it is. Do they ask questions about owner occupancy? They do. And so how does owner occupancy affect the lender? Well, I think, you know, if you look at these government loans to FHA, you know, they want a certain percentage to be an owner occupied building. They don't want to do condo hotels with front desk operations. They don't meet their lending criteria. So they get kind of a broad brush. And I would tell you this, even though we have this RR105C that was developed by the White Society Realtors in about 1992 or three, we still have lenders that give us a supplemental questionnaire with a whole bunch of additional questions, because they're concerned about the lending criteria. The second thing is called the statement of account. That's ordered by us, not by us, by the escrow company, saying I want to pay off as of the state. Well, in most large companies, an owner can go and look at their ledger online, and they could theoretically print that out and give it to the lender and say, here's my current ledger. The lender won't take that, because you can see you could have a unit closing, and this is mid-June, closing in early July. Well, what would not be the ledger is any assessment due July 1, for example. If there's a payoff of the loan balance, if there's delinquency in fines and things like that, you can't always put fines in the ledger if there's a dispute about it. So the escrow company comes and says, I want a certified balance of payoff in the state, and requires research about other fines outstanding what's the deal with the situation. And so it takes special time, and there's a fee for this signature and certification, because you could be assured that if we gave the wrong amount, there was a balance left on the unit at the end of the day, we didn't do our due diligence, who they're going to ask to pay it. Right. So realtors don't understand that there's a great deal of work, that it's not just a bunch of static documents that- So are you saying that some people think that this should be free? Yes. There's actually a class action lawsuit right there today, where a returning representing an owner who had to pay for a documents and closing. And ironically enough, this owner had to stop payment on his maintenance fee check. It would have been the perfect example if you'd taken the ledger and closed on it, you'd be wrong. But there's a realtor, there's a lawsuit now saying that you have to provide these documents for free. And the argument they use is several arguments in this, but one is these are all association documents, and the RO-105C and statement of account are not association documents, they're not kept in an ordinary courts of business. And they don't relate to the association, they relate to the specific unit. But with regard to the statute 514B, it says that if an owner is able to download a document from an association website, it must be for free. Well, what is downloading a document? Well, downloading a document is not a realtor going into a site, ordering documents online, certifying they're willing to pay for the RO-105C, and then later us sending them a link to a Dropbox, where they can go and download it and read it. It's not the same animal. And the documents that you talked about, the realtor documents, these are blank forms that have to be filled in by somebody. Somebody has to sit down and answer the questions and fill in the blanks. Right, and they have to be reviewed, because you can imagine the problem of an owner that is told there is no assessment, he finds out there is an assessment. So we've certified there is no assessment, he finds out the next day that we knew there was, because a night before last, and the minutes haven't been published yet, but we were there at the meeting, and at that board meeting they voted for an assessment. So it takes personal time, and frankly I have to say one thing about Hawaii, we've had a really good track record in the real estate industry, a very few lawsuits on closing with realtors and disclosures and things, because there's a lot of due diligence, a lot of requirements, a lot of good rules to the Hawaii Association of Realtors. Well we can't, as the managing agent, even though we have no legal obligation to fill out this form, not do our due diligence, which requires us to put personal time in it, which requires us to ask for reimbursement and pay for it. Right, and like I said, these forms are not something that's prepared for, prepared by the Association. No. For the unit owner. No. And it's a request made in response to a specific transaction, affecting only the unit owner who's selling his unit. Correct, and they're due within 10 days. So it's not a matter of you can just kind of put it in the work process file, someone has got to put this in their queue to work on it, to make sure the realtor gets their documents timely, so that they can close their transaction. Right, and because if the transaction doesn't close, then there are consequences for everybody, including a lender who probably is ready to close and has documents ready, and if he's told that, oh, well, we can't close because we don't have all our documents, that means closing gets moved down and extended and everything else has to change, and maybe all the numbers, all the final escrow closing numbers all have to be adjusted. Could affect the loan guarantee that they're promised a loan at this rate of interest if it takes too long. Right. It could affect a lot of things. So I think it's a very important matter, and I don't think we did an analysis, the other day of when you back out to R105C in a statement of account, management companies are charging less than 20 cents a page for the documents that are static, you know, which is certainly reasonable. Right, and you know, for the information that is provided in these documents, it would probably be unreasonable for somebody in the industry to expect that they would get it for free. Yeah, the last kind I'd make is sometimes you have an association that also belongs to a master association, it also has a rec association. And so they get in order of the documents for all three associations, so the costs are about triple because of the nature of that project that they have, the regular association, the master, in some cases a rec association or a road association, and the realtor wants the buyer to have all the documents related to that, because you could have an incidental association like a road association, it's about them a big assessment to repay the road. Right. And so in those cases, you end up with three sets of documents, one for each association. Okay, well, you know, and this goes to full disclosure to a prospective buyer, which is very important. And you know, and so, you know, I think that the costs associated with preparing these documents is probably warranted. And right now we are out of time. So we're going to have to come back and have another discussion on this, you know, down the road. Thank you very much for joining me on the show. And please tune in next week for another episode of Condo Insider, the show about condo living. Thank you.