 Think Tech Hawaii, civil engagement lives here. Thursday, three o'clock, welcome to Condo Insider, Hawaii show about association living. I hope some of you in the last two days had a chance to go down to the Douglas trade shows at the Blaisdell and see all the products and services and seminars available to associations that's well run every year by Ken Cantor. I had a chance to be a speaker there and about three or 4,000 people go through. So if you miss it this year, I hope you can go next year. I've invited Jane Sugimer to come back today. You all know Jane's a co-host with me on Condo Insider. We take turns on this duties and I give her all the credit because she's a lot smarter than I am on association matters. But I always enjoy her here because there's an issue that is often misunderstood by homeowners and boards alike that creates all sorts of consequences that are good and bad depending on the circumstance. And the magic words are priority of payment. So first of all, let me welcome you back over and over again. I wish, I think you should take over my job full time you know that I could retire. No, you're doing a wonderful job and thank you for having me back. And yeah, you know, the topic today is very, very timely because it's part of a bill that's passing through the legislature. Well before we begin, I just want to take this commercial message opportunity to say because I think one of the greatest industry organizations is the Hawaii Council of Community Associations used to be called the Hawaii Council of Association of Apartment Owners but it's the same entity and you're the president, been president for a long time. It's so important that boards have good education and homeowners have good education. Just briefly remind us about HCCA and who they are. Yes, I mean we are an organization we have in our group, we have professionals like you from the property management companies. We have people who sit on boards of directors and we have some homeowners who are involved and we are also involved with property managers and what we like to do is we educate, we have these quarterly and more often seminars for the public, for the condominium association and the community that works and lives in condos and to teach them about condominium law and to educate them about issues that affect everybody who live and work around condos and we advocate in the legislature, in the state legislature and in the city council. Right now we're involved in the mayor's bill to retrofit condominiums and I think we've got a resolution that will be very helpful to the condos but that's not today's show and we will get to that. But those are some of the things that we are involved in. Well, it's a great organization. I can tell you being a part of the organization as well as attending your seminars, we get two to 300 people there. Yes, we do. And the seminars have really hot topics, quality education, opportunities for questions and answers and the best of all, you can join as an owner for $10 a year. Right. It's pretty good value when you look at what costs are today, you know, and so. And there are these shows that are free and you can look at them on any device at any time of the day or night and, you know. And your organization through the small money we were able to make on these seminars is able to fund condo and cider and I want to raise by the way, you can double it, how about that? From zero to zero. You got that. So anyway, but I think our mission of education and making sure that laws are good for not only just boards and management companies but the owners and vendors and everybody else, it's a very balanced organization. Right, and we are interested and our focus is on trying to get everybody to work together to make condominium living a positive experience. And about 40% of our population lives in some type of association, so the big item. So anywhere, you know, I've been in this industry 25 years. Priority of payment is misunderstood and you say it to most people, particularly owners, they say, what's that? That, right. So why don't we begin the first part of the show, just talk about the landscape today and then the rest of the show, we'll talk about the bill that's after the break and what the future may take. Okay. So tell us about priority of payment. Priority of payments is in this condo statute. It was in 514A, it's in 514B. And the whole purpose of the condominium, of the priority of payments provision in the statute was to ensure that the association would be able to collect the maintenance fees that they need to run the operations of the association, right? The owners or assessor maintenance fees, those maintenance fees go to pay for the common utilities, the electrical, the water, it goes to pay for the employees that keep the building running and to pay for the property management company that administers to the building every month. And so the building needs money. And so if people don't pay on time, it causes a problem because then the condominium doesn't have the money to pay for the gardener to come or to pay for the electricity or pay for the water. And these are all things that they have to pay for. And the priority of payments basically says that you have to pay your maintenance fees. And the maintenance fees are called assessments, okay? And they're defined in the statute. And late charges and attorney's fees are not assessments. That is clear in the statute. But what the priority of payments says is that if you don't pay your maintenance fee, let's say it's $100, okay? You don't pay that month. The next month, when you pay, or let's say you pay late, you pay on the 15th, which is late, okay? So now you owe a $25 late charge, okay? So that means that next month, when you pay your maintenance fee on time, $100, 25 of it goes to the late charge first, okay? Because that's what priority, there's a priority of payments. And it says that if you don't make your payments on time, it goes first to the late charges and then to attorney's fees, you used to collect these things. So if you have those items that are being charged to your account, when you pay your maintenance fee and you pay it $100, it will go first to the late charge and maybe to attorney's fees, which means you're late. And if you don't know that that's what's happening, the next month when you pay your $100, now you're two months late, you know? And finally, after a while, you might get a bill. And you're gonna say, why am I six months late? Nobody told me and it's because, you know, because of the policy, the management company will automatically apply it to the late charge first and to any attorney's fees and any fines before they apply it to the assessment. And what creates a whole lot of problems is the unit owner doesn't usually get written notice that this is happening. And the reason why is because the statute says if the association wants to adopt the priority of payments rule, they need to have a, they need, the board needs to adopt, you know, have a motion and adopt it. And then they need to send to every unit owner notice of what that the priority of payments rule is now in effect. In other words, let's say the association's been around for 10 years and they never adopted the policy. They can't do that even though it's in the statute. And then if one of the board members finds us, oh, that's a good thing, why don't we do that? It'll help us collect our maintenance fees. So you have a meeting this month and the board adopts it. That means that you tell your property manager to send notices, written notices to all the unit owners to say that the board has adopted the priority of payments rule and this is what's gonna happen. If you don't pay your assessment on time, then you're gonna be assessed a late charge. And when you pay your, when you get around to paying your assessment, it will be charged first to the late charge and any penalties because of the late, late, late payment and maybe attorney's fees. And so that means that you are going to always be behind. And so this causes a lot of problems, I think, with the buildings. Well, let me put my perspective on it. We all know that associations are what I call zero-based budgets. So when they pass the budget for maintenance fees and we're just gonna cover reserve contributions, electricity, maybe management employees, things like you said, it's based on the assumption that everybody's gonna pay. Right. And so if someone doesn't pay, in theory, you're short if you have a balanced perfect budget and paying either your electricity or putting money in reserves, whatever it may be. So the statute allows them to charge late fees. Right. And if they still don't wanna pay, then they can be charged legal fees. Right. We're at a collection of that matter. But along the way, you sometimes get fines and you have other charges which we'll talk about in a minute. So the idea behind it, as I understand it was, that when a person makes a payment, the priority payment specifies in what order that money will be applied to outstanding charges. Right. I'll guess that. And I'm gonna just, so there is a standard, if I'm gonna just read it real quick for you, this is normally, it doesn't apply to everybody, but this is kind of the industry standard. At first goes the legal fees. Second goes the fines. Third goes the late fees. If you happen to have separate meter billing on the association, then it goes to utilities. Then it goes to what we call other and some associations have storage lockers and parking fees and other types of things. And then it goes to special assessments. And then finally, the last dollar goes to regular assessments, which is maintenance fees. Right. And if they didn't pay and they got somewhere up before and they only paid their maintenance fees, they have a shortage which then they can be foreclosed on because the money was applied to something else. Right. Is that a pretty fair way to analyze it? Yes, that's a fair way to analyze it. So you know, it's interesting because I've seen it recently in court cases locally here in the last couple of months where judges have said, well, show me where you notified all the owners of your priority of payment policy. When did you adopt it? And sometimes this has been for decades and nobody really knows where the priority of payment policy. They know they've been doing it for decades but finding the minutes of the notice 20 years ago becomes an impossible task. And the judges said, well, that you can't prove that. So notice to the owners is a very important part of this and because it's a disclosure kind of an issue. Right, and part of the problem is the fact that most owners don't even know. They don't have a clue about the priority of payments issue until they get caught in the morass and they can't figure out how to, you know, fix it. Yeah, and the second part of that equation from my perspective is, they don't know about the priority of payment policy and then most of them don't know about Act 187 and their opportunity for almost free mediation where the first hour is split between the owner and the board in this case and the balance is paid through the condo education fund which is paid by our registration fees that they have almost free opportunity to go resolve this. And frankly, unfortunately, some owners, they take this fine they've got for the parking in the fire zone and it basically thunder knows that it and even though they're getting notices, do nothing about it and all of a sudden it's $100 and there's a late fee and $100 and it goes on and it goes to the lawyer and you have the first lawyer's letter and all of a sudden they're being foreclosed on for $5,000 because they have ignored it for lack of a better word. Right, and that's what the problem is that until it gets to a substantial amount of money, it seems like either the unit owner ignores the communications that's getting from the association or the association is not giving proper notice and what is really egregious is when you have these sure-pay situations. When nobody gets notice, when you're on a sure-pay, you don't get a monthly notice to show you what you owe and so when this priority payments happens, because it happens automatically and you don't get a notice of what is owed and what's being applied, sometimes you don't find out until it's a huge number and maybe it's like $1,000 and it's like, wait a minute, where did this happen? How come I owe $1,000? And then you have to look at the prior statements and say, ah, there it is. That's where you missed the payment and then it started being applied to all the late charges and you can't, and because you didn't get a statement because you're on sure-pay, you didn't know. And in that case, it's like, who's at fault? And fairness, and then we're gonna take a break. Let me just say this. Management companies typically send a 30, 60, 90 day, like this is a friendly reminder and it would show that $25 late fee they didn't pay or it'd show $25 due. The problem is owners always look at that and say, oh, the check just missed it in the mail and they ignore that. They get these little friendly reminders because they're not official, they're saying, oh, by the way, that should trigger the memory to say, why do I have a $25 balance? But it doesn't. So we get into this issue where you get a lot of upset people and I'm gonna tell one little war story but right now we're gonna take a short break, come back and what's happening in the legislature on this issue but we're gonna be right back with Condo Insider talking about priority of payments. Be right back. We have this crazy thing going on today. I was just walking by and all these DJs and producers are set up all around the city. I just walked by and I said, what's happening, guys? They told me they were making music. Get the way you want. He said that, I'm excited. I saw her do it. Welcome back to Condo Insider. We're having a very emotional discussion even off camera during the break. We're having this vigorous debate about priority of payments that no one seemed to know about that everybody uses where when you make your payments, they're applied in a specific order maybe not through your maintenance fees because you have a fine or a late fee or a legal fee or something else involved in that and it's kind of designed around associations need a hundred cents and a dollar to pay its bills so it's kind of steered towards protecting associations' financial interests and I wanted to tell you because we were talking about that and I just wanted to tell you a quick short story. Sometimes it can be abused. I've heard of a factual situation where a board didn't like a particular owner and they basically said, let's start finding him for his truck that he has, it's too long. Even though he owned it for five years and what if the fine's built up and he won't do anything about it and then we'll foreclose on them and we'll get him out of the building and that's not right either. No, that's not right. And so the thing we have as a challenge as an industry is to explain to everybody what it is and also makes you all aware of their value of mediation rights. Right. But let's go right to the legislature. So what's going on? This issue is before the legislature this year. Right, well it's been before the legislature for the past two or three years and to put it in a nutshell, the priority of payments, the concern raised by one of the legislators is that she has heard stories where people are being foreclosed because of the priority of payments issue and where the, let's say you've got a $5,000 bill and a foreclosure is initiated and that person could lose their home. But out of that $5,000, maybe $1,000 is assessments and another $1,000 are late charges and fines and penalties and the other $3,000 are attorney's fees. And she feels, she felt that it is wrong for a person to lose their home where the total amount of the so-called amounts that you owe the association aren't assessments. And so what she basically did is prepare a bill that says that if you are the unit owner and the association hands you a bill and you dispute that bill because of the priority of payments, some of it is assessments, which are maintenance fees, some of it is late charges and penalties and some of it is attorney's fees. Under the bill, you can, and under the condo statute, there's something called Pay Now Dispute Later. In other words, if you want to dispute with the association, you've got to pay everything, okay? So that means in this situation where there's $5,000, if that unit owner wanted to dispute it, they had to pay the $5,000, even though they disputed the $4,000 in late charges and attorney's fees. The bill would say no, no, no, you pay only the assessments, which are the maintenance fees that are in dispute and you have to keep your maintenance fees current, but during the, what you do is you pay it and then you can dispute the late charges and the attorney's fees and you have 30 days to go into mediation, you have 60 days to complete it. And that's what the bill contemplated. And that way it's almost like a compromise between the association and the unit owner because the association would get 100% of their assessment, which is the maintenance fee that they are charging the unit owner. What they're not getting paid right away are any late charges or penalties or attorney's fees connected with trying to collect that assessment. And the unit owner would have the opportunity to dispute that in mediation and if they lose that mediation or an arbitration, a subsequent to that, they would still have to pay that amount. So it's not like the association is out of pocket, you know. It gives them due process for lack of a better word, the arose. And I think some owners, you know, they get behind, that just happens. Sadly, it happens that a lot of people ignore it, we're actually under the statute, but I think an owner who is delinquent on regular assessments maintenance fees has a guaranteed right of a 12 month payment plan to catch up, plus he has to stay current so we can't get further and isn't that correct? That's correct and you know, the statute, I mean, the statute does, you know, talk about payment plans in foreclosure. And you know, to me, I think it's, you know, I've been a board member, I've been on my association board for over 30 years. I've been president for almost 10. And you know, I can say from experience that I see myself and my colleagues, you know, who sit on boards, we represent unit owners. And so we should be looking out for their benefit. And this priority of payment stuff, you know, if the unit owners would go to their board members and the board members are the ones who deal with the property management. And property management companies make mistakes. They handle thousands of accounts and you can't expect them to always be, you know, on track on every single account for every single association. So that's why I think it's important for board members to become proactive and have the unit owners come to them and say, you know, I got this bill and I don't understand why I'm getting these late charges and can you look into it? And they should be the ones, you know, to kind of resolve this and try to, because I think on the whole, most unit owners will pay their bills. They understand they have to pay their assessments. They just don't want to pay the late charges and attorneys fees unless they have to. Well, and some of it's actually unintentional errors by the homeowner. Let me give you an example. You own two or three units in an association. So you send in one coupon with a check for the three units. You know, a lot of this is done electronically today. So that one check they wrote with one coupon for one unit, they end up with a credit balance on that one unit because the computer didn't know any better. And the other two units have delinquencies and the owners thinks he mailed all of three of them. So I think it's important that the homeowners have enough diligence to look at their account. I know in our company, we're in May releasing an app for your mobile phone. Now the seniors don't always have mobile phones, but an app on your mobile phone, they had got that notice, they could go online instantly with their phone and look at what the issue is and deal with it on an app online. So, but it's not always just the manager coming up doing a good job making a mistake. A lot of times owners contribute to the problem because they don't include the coupons. They bundle the checks together. I've seen checks for two or three associations in one check and then we have three coupons. And how do you do that, you know? Because the check's going to be made out the name of association. You really can't write a check from one association to another. It becomes complicated, right? Right. And you know, so the owner, so the people sit on the board because these are their constituents, so to speak. I mean, they got to be the conduit, the communicators, you know, between the property management company and the unit owners. But, you know, going back to the legislation, that's the way it was originally written, but it's been amended. Uh-oh. Okay. That doesn't sound good. And the amendment took out the mediation of the dispute. And, you know, and basically, you know, the bill said the pay now, I mean, you know, pay now, dispute later, means that you only pay the assessment and you can dispute the late charges and the attorney's fees. Now that portion has been taken out and what it was replaced with is now the associations will have to give on an annual basis a notice to all of their unit owners about the priority of payments and exactly what it is. And if you have, if you're on the sure pay on any renewal of that sure pay, which is every, you know, every time like maintenance fees change, you have to renew the sure pay, right? Because it's going to be a different amount. On that renewal portion, you have to put a notice about the priority of payments and what it is and the fact that, you know, if you're late, that, you know, there's a certain order of payments and that's where your payment will be applied. And I have a problem with those changes only because number one, I mean, I prefer the other one, which would have allowed a unit owner to dispute, you know, the late charges and the attorney's fees. And now there is no opportunity to do that. And, but, you know, what I think, you know, what I'm going to be doing, because right now the bill has just crossed over from the house to the Senate and we're going to have to amend that bill. If that's how they want to do it, if that's how the legislators want to do it, then we're going to have to put in a proviso that it only applies to those associations who have previously adopted the priority of payments, you know, plan, because the statute says, I mean, the only way you can do this is if the board adopts the policy, there's got to be a motion and there's got to be action by the board to adopt the policy and then a notice has to go out to all unit owners. Yeah, our thoughts on that as a manager coming, of course the bill hasn't passed yet. Is that we don't disagree with the disclosure, reminding the owners every year, this is how it works. We don't have a problem with, even with the boards have adopted the policy, reaffirming the policy currently in the board meeting minutes. What we don't like is the pay now dispute later portion. It's easier for us to have that policy. But the reality of it is, homeowners are innocent people who don't understand if they have that fine or late fee or legal fee, why not, yes, insist on you have to be current with your regular assessment maintenance fees. But you have the opportunity to use this mediation because sometimes it's used against you and you could own a lot of money because you made one payment late and the late fees compounded and then you got a small fine and then they sent it to the attorney at a small number and an attorney's letter is a couple of 300 bucks by the time you send the first letter out and if they don't answer it gets compounded. So we agree with you on that. But I also know that we're at the end of our show. We could debate this for a long time. So any last comments real quick, one in 15, 20 seconds, what you wanna say about priority payment? I think it's a bad idea. I think, I mean, I think it helps associations but we gotta fix it. We gotta fix it because it's creating a lot of problems and the current version of the bill I don't think addresses that fix. And I think it still needs to be worked on. Well, I'll support you that and help you with that. I wanna thank all of you for attending and watching Kondo Insider today. We've had a vigorous debate about priority payments. Any event you should know it exists and there are risks and liabilities for you as homeowners if you don't pay your bills on time or all the charges assessed by the association. We're hopeful this legislative session we can approve upon it. So you have a chance for a value of mediation or some other dispute resolution and we're working on that. We wanna thank you for watching Kondo Insider. Thank you, Jane, for being here as usual. Thank you. I'm disappointed you didn't fire me but we'll have to work on that. So anyway, thanks again and aloha.