 Aloha. Welcome again this week to Kondo Insider, Hawaii's show about living in an association meant for board members, owners, and anyone else interested in association-type issues. And today we're on part five of our four-part series on 514B Hawaii's Condominium Law. Yep, that's what I said, part five of four-part series, that the real estate commission this year determined that the continuing education for realtors would be 514B and they were required to take a four-hour course on HRS 514B. We're trying to take that show in bits and pieces and originally thought to do it in four parts and we're on the fifth part which we've called the pre-final chapter of 514B because I think by the time we get through this we'll probably have to go to next week a little bit because there's so much material. But welcome back my good friend Scott Shirley. Well thank you, I'm like a bad penny, I always show up. Yes, you know how that goes. Turn up and by the way, as you mentioned on the real estate commissions course it was a four-hour course but I think at the rate you were and I were going we're turning it into a six to eight hour course. Well it could be, but we're much more interesting than the regular course so what can I say. And originally when I sent you the outline for the show I said this is the Good Riddens show for Scott, I'm tired of you. It's actually on the script, Good Riddens. I know, but the reality of it is you're doing a great job and your insight is very important and but I really have some doubts about we're gonna get through this whole thing today. I just want to briefly review for everybody kind of where we've been. This is about 514B and we've talked about government structure, you know like declarations by-laws, we've talked about government process, voting and elections. Last week we talked about fiscal matters, financial statements, budgets and those types of things. And before we go on to our final chapter even though maybe the not the final day which is called common management issues, I want to finish up what we didn't, we're kind of doing this every week you know. We have one little piece that we didn't quite get in last week. Which takes us to the halfway point of the show. Yeah, all right well let's deal with it anyway. We have the budget, the board is going to assess the owners now for based on the common costs. Can an owner withhold those payments because they don't like the budget or they don't agree with the board? Absolutely not. And of course one of my favorites especially when it comes to reserves is why am I paying for retiling to the pool? I never used it or why am I paying for the elevator? I live on the ground floor and it's because you own a common interest in everything on the property. So you own part of the pool whether you use it or not and you got to pay for it. And so my understanding of the statute is that even if they protested it I think there was something unlawful about it or use some excuse. It's always about the money. The statute clearly says pay now dispute later. You don't have you don't have the ability to withhold subject to the dispute being resolved is pay first resolve your dispute later. Is that right? That's exactly right and I think you remember I think it was last years legislature somebody tried to sneak a bill in that said you could withhold your payment until your dispute is resolved and fortunately that bill did not go anywhere but I'm thinking to myself everybody in the building would dispute at that point. That way they don't have to pay. You know actually this year that's House Bill 1499. Is it really? It's still alive. But the difference is and can you just briefly explain what a priority of payment is when you look at people pay their maintenance fees? Well generally speaking and I think you actually could probably explain it even better than I because you're the condominium financial expert or so I've been told. Including myself. Well the priority of payment basically boils down to when you send your maintenance fee payment in or your assessment in it's broken down as to where it goes and actually some maintenance fee payments actually coupons would actually show that like this is how much is going for going into the reserves every month out of your maintenance fee payment and I think this priority payment issue has become a big issue at the legislature over the last couple years. Yeah the primary application of that is that the priority of payment means when you pay your maintenance fee you may think you're paying the maintenance fee but you're not paying the maintenance fee because if for example you have legal fees or late fees or fines your maintenance fee payment first gets applied based on a priority first illegal second to late fee third to fines thus leaving a balance if you're disputing this fine for example of an unpaid maintenance fee which they can foreclose on well not only that they can add late fees on to that maintenance fee because it wasn't a full maintenance fee once they did the priority of payment and because we're all so smart what happens is the owner just thumbs his nose and said I'm not going to pay it and all of a sudden he keeps paying his maintenance fees realizing as they keep sending you legal letters telling you you better pay this and you don't that these funds you're paying are going towards the fines in the legal fees so back to House bill 1499 just to clarify it so the new if this is a pass which I believe it will be passed what it basically says that the associations have an obligation to tell the owner as they begin a collection process that they have rights to mediate fines and legal fees related to fines and they have to do that with a specified period of time so that in fact that if they feel that fine with an appropriate or some legal fees charged them related to a fine or a house rule whatever it may be is an appropriate they get to have a hearing because the association cannot use that priority of payment policy until such times they've had a chance for mediation and attempt to resolve the dispute amicably and I think this is something that's been in the works for a couple years to try to resolve that problem because you're hearing more and more of it yeah and going back to the maintenance fee issue no matter what you can't with all maintenance fees or common assessments which would be a special assessment or a regular assessment which is the maintenance fee we discussed that in our last show so you got to be careful as an owner and there's a board in the future if this law gets adopted and you know we're already in the conference committee and and with it that bill believe it or not and both the House and the Senate side there are no amendments and no opposition or really yeah so that to me means this will happen you know along with the other six bills we're dealing with may or may not again you have me fooled but I agree with you well I can bite your back if you don't agree with it the hell with you you know so anyway let's just sum this up before we go on to the common management issues and say to everybody let's be careful we want to treat our owners with respect yes if they have an issue maybe they forgot they had a death in the family try to treat people as adults not in a traffic cop mentality and have meetings and try to find ways to resolve it and then if you have a person who doesn't want to follow the rules and has these fines all this is going to do is require notice to them of the policy the priority of payment policy and a right to be heard before you can implement it which is which is pretty much due process and fairness to everybody and I I agree with you a hundred percent on that I was just talking to owner in an association the other day who really summed it up in the way I was thinking it to the way the board was treating her and the resident manager was treating her and I finally said you bought a condo you didn't buy into a prison yeah because the way they were treating her in this process so treat them with respect well one hopefully it's never happens but it does so you have an owner who's now delinquent and they're not paying remember whatever the cost of the association is that's about a hundred units it's actually based on percentage of common interest but they divide it by a hundred and everybody pays one one hundred share so if ten people don't pay you're ten percent short of meeting your obligations yes that's right and so associations have the ability to foreclose and there's a what we call judicial foreclosure and a non-judicial foreclosure you want to try to answer the difference between the two well it's very simple on the non-judicial it doesn't have any court oversight it's real it's supposed to be quick and easy just notice in the paper notice to the owner and boom it pretty much can happen however as you and I have noticed over the years there's been lots and lots of legislation especially after the mortgage meltdown trying to help homeowners trying to help associations and numerous changes were made to the non-judicial foreclosure act and the trend I'm actually seeing now and talking to some attorneys is there they're leaning more towards the judicial side I define it and explain it this way associations need that cash flow that maintenance because again 10% didn't pay your short 10% so non-judicial allows the association to foreclose and get possession of the unit so they can rent it out and get the rental income and any property tax leans or the the bank's mortgage are still in place it's just the association's not paying it anymore and we and they wait till the bank or the property tax department forecloses on the unit and and also knowing that judicial usually take quite a some of time to three four years maybe the statute was even changed that even if the association was in the process of a non-judicial and a judicial started they could actually continue with their non-judicial knowing that that judicial one is going to take a while yeah typically I hate to say it's three to four years now on a regular foreclosure which would extinguish all these other leans like the property tax and the mortgage etc but the association simply want possession so they can rent it out so they have income to cover these monthly costs until such time as the lender or in the case of the property taxes you know the county forecloses or you know it takes possession and sells it and in a lot of cases that's the only way the associations have been able to stay relatively solvent especially a few years back when 2008 was a horrible thing you bet I would just remind everybody that under the statute if you're delinquent don't stick your head in the sand deal with the board because the statute gives you an automatic right to a 12-month payment plan to cure the delinquency and in addition to that you still have to stay current with yes you're not getting further in debt so let's move on because you know we're pretty much almost through the first half of our show and we haven't even gotten into the final chapter yet you know I get I need to teach you how to summarize as quicker and faster and or have them change the laws so they're shorter or whatever oh so it's my fault it's all your fault you know anyway so last question on that though if a new buyer comes in to foreclose to foreclosure let's say are they obligated for the other owner's fees that's actually a tricky question you threw that at me on purpose didn't you I did yeah and all times up what's the answer I've actually seen where they have been able to put it against the new owner the problem with that though is is why would you want to buy it in a complex where they're going to do that to you yeah it really is realistically they're not but the statute provides for example the lender has an obligation for six months of the past six months maintenance fees and that's really important people understand that when you assess people like twenty thousand cash or or versus four hundred dollars a month you create certain liabilities for yourself if you assess twenty thousand cash it gets foreclosed on and a new owner comes into an auction and buys it a judicial auction by the way not a non-judicial that everything old is extinguished so they may not get the money where in fact if it was four hundred dollars a month they may lose some of the monthly payments they wouldn't lose the future payments yeah so it again for a buyer it behooves them to find out as much as they can about the situation before they try to buy into something like this well I have to tell you that we're now at our time for our first break we haven't even gotten into the subject matter for today but we have had a healthy discussion to bring to a resolution the fiscal and budget side of it and I would just remind everybody out there if you have a problem with your maintenance fees of the issues go to your board talk to them try to find your own resolution because the association certainly needs to protect itself by having adequate cash flow and so sometimes they have to foreclose to protect their interest so on that note we're gonna take a short break at condo insider and we resume the pre-final chapter 514b okay so I'm crystal if you haven't entered a clock talk before you better do it because you're missing out on all the information we talk about sex we talk about religion we talk about everything and nothing so we've got two gentlemen here gonna validate that right Greg Kinkley and Roy Chu what's your take on this important sense of talking about these issues it's very important it's do I think expressing ideas and exchanging ideas that we come to a better understanding of the world and each other and without that we live in ignorance and fear fear is based on ignorance amen what more could I say than that something in Yiddish I think Roy very come listen to the clock talk Tuesday mornings hello this is Martin Despeng please join me on my new show humane architecture like the one in the back that you see of our architect David Rockwood the show is going to be on Tuesdays 5 p.m. here on Think Tech of Hawaii in downtown Honolulu see you then well welcome back to condo insider we're again in the discussion of condominium statute 514b and that the break just before the break we finished last week show yeah we finally finished last week show so now we're going to go on the common management issues and if I counted them correctly there's six seven and including get good riddance of Scott that's eight but let's deal with the first seven and talk about some of the common things that come up with regard to 514b the common areas the common management issues and the first is an owner wants to make an addition or modification to his unit what's the what's what's the rules what's the risk what's the policy well it depends on exactly what they want to do if they're just going to be painting an interior wall purple that doesn't really require anything but if they're going to start knocking walls down messing with electricity we had a building one time where the owner decided they were going to change some electrical stuff and shorted out one whole section of the building because they did it themselves no electrician so some condos actually have rules in place so that you're not using a jackhammer on a Sunday afternoon on the top floor and things like that plus the issue comes into play are you affecting a common area or a limited common area in your modification yeah I think the basic what the statue said what the act says that if you want to make a modification particularly to the exterior mm-hmm so you want to add a fence to your private yard area of your town is for example that in fact you have to have 67% of the owner's approval on this exterior modification before it can be accomplished the general recommendation is always submit your writing to the board what you want to do because even within the unit if you're taking out a structural wall or changing the plumbing or electrical beside a requirement to use a licensed contractor you would again need to have approval to do that because it could have effects on the other units and the structural integrity or safety issues along that line so you as an owner cannot just go do it well another key issue there is make sure you know what the rules are because some associations will not allow you to take the carpet out and replace it with tile or hardwood especially older buildings on the upper floor without board approval right and they're going to require some special sound underlayment to keep the noise from transmitting I've seen that a dozen times where an owner to change the carpet the wood floor didn't put any underlayment underneath it so their neighbor below them is complaining because they can write footsteps all the time you know so my thoughts have always been a lot of times you'll find the rules within the house rules or some design guidelines for the property if you're going to make a major change which would be new flooring change a wall plumbing electrical provide notice to the board you betcha and then you can get a clear understanding what you can do and you can't do because there was a case recently on Maui where a person enclosed their atrium without permission the legal fees went on for like four years this fight the legal fees for the owner was around $400,000 the legal fees for the association was like $250,000 plus the atrium was there at the end a judge ruled that the owner had to pay back 600 pay his own legal fees plus the 250,000 for the association plus remove the atrium because he that they never got approval on the way their documents were written it was a very expensive lesson a very expensive lesson so probably more than the unit was worth at that point well this is an ocean front unit in the high-end Maui so just say his equity has been greatly reduced by the end of this he doesn't have an atrium anymore so be careful if you're going to make a modification or to the project or even outside inside think it through I mean if it's just replacing your garbage disposal it's already there you don't need more approval for that but if you're going to change anything change the location of the pipes change the electrical you need to get approval and some of those approvals may require the owners to the exterior of 67% of the owner I've actually seen pictures where somebody wanted to completely rearrange their bathroom and they wanted the toilet over on the other side the contractor that they hired was in that bathroom jackhammering to rearrange stuff and the floor of that bathroom literally fell into the next unit right so that's going to the concrete slab which is a common element and you can't do that and and you got to think it through so go go to the board put it in writing be careful insurance is the association have to have insurance of course it's mandated by statute that the what is the insurance what are the insurance types well we have liability the fidelity bond directors and officers insurance for the board members and generally that all that insurance that is required under statute is covering not just the board but the exterior of the building the common elements maybe some to extent the limited common elements yeah that's the building policies you have building insurance you have liability someone gets hurt on the property a fidelity bond which protects you against theft by the board or employee and then you're going to have a director officer liability of someone challenges the board's decision ensues the board or the association directly and those are mandated by law but one of the things that we discusses on another show one of the things people don't realize that within that building insurance the statute requires them to ensure for water leaks for a better work so if that ice maker breaks the owners washer breaks or they didn't repair their toilet seal and that causes the league that is covered under the master policy of the association and the owner because he pays maintenance fees is entitled to all of the benefits of that policy and so therefore you know you have to submit it to the insurance agent for the association you may also submit it to your own insurance carrier yes but you cannot not submit it to the association this water claim well I think the other thing that people need to be aware of it and owners are becoming more savvy on this on insurance issues than they were say five six seven years ago is that the master policy says it will replace and repair as built and if the building was built in 1977 then that's for Micah linoleum and things like that what about your own homeowners policy is that going to cover the difference like you put in redwood or cherry wood cabinets and fancy stuff and we actually believe we don't have a caller calling in with a question but I want to answer one thing before I take a question and that is that because insurance is very expensive you can imagine an insurance carrier who provides insurance and all these water claim protections for a hundred unit projects so they have a hundred potential potential liabilities risk so what associations are doing now is saying we're gonna buy high deductibles five or ten thousand dollars under the master policy and require owners to buy an H06 policy and the H06 policy may have a $250 deductible so on a $10,000 deductible of the association the other 9,750 is covered by the H06 policy of the homeowner the reason they're doing that so often misunderstood that it probably saves that homeowner they're paying 250 for this policy year it probably saves them 500 to a thousand a year you gotcha because of the fact they've spread the risk the whole bunch of independence small insurance companies all over for the homeowner policy that's why it's not let's go to the question and it says I am a homeowner currently having a dispute with my board and their lawyers and we are currently requesting mediation my question is during our mediation is that within our rights to request reimbursement for my lawyer fees or is that more under arbitration than mediation and I can answer that question I think you should the statute provides each party pays its own legal fees yes so within the mediation each person that they they don't have to bring a lawyer they can do it themselves without a lawyer but typically the problem is the board hires a lawyer and so they hire a lawyer depending how complex the problem is but the the legal fees if you decide to bring a lawyer the statute provides each person is on their own yes they have to pay those fees themselves and so thank you for calling it with the question was a great question and hopefully we've answered that for you going back to our issue for the common management issues because as we predicted you know I didn't know you could had predict these things we're not gonna have enough time we'll finish this show next week I think we will finish it next week and then we'll give you some other interesting topics because of all sorts of interesting changes in the industry but anyway the next question is aging in place so you now have a homeowner who's a senior and you have concerns about their ability to live in the property and whether it's safe for them or they're casting a hazard for the other residents what can the board do well the board can well before I get to that answer I'd like to point out you know I one of the areas I special isn't specializing in is fair housing and they have these two categories for senior living and the first category is 55 and older I want to know who the hell determined that 55 was senior isn't 55 the new 40 or something to that could be but this this issue of doing an assessment of the owner is so that the board can understand or determine can this owner live on their own anymore and in some cases we had one in one complex where she almost burnt her unit down three times by forgetting the stuff she had on the stove so we had to do an assessment on her ability to live alone I guess that's the key issue the act provides that the board has the authority to request an assessment of that person's ability to live there and what accommodations they may need to make it safer or better for them and they can require that now they don't have a legal obligation to do it no they have the issue but they can if they have a senior issue and I would just briefly tell you that because I've managed senior living is over 55 associations and and frankly most people over 55 don't want to live there it's the ones are over 80 because all the rules and requirements and that's probably another whole show to all I care about is my discount I'm gonna get but in those cases we've had people who have had matches with urine and smells and stench and hoarding that in the end the association had to follow a lawsuit yes to actually get the attention of the of the relatives of the children because of the fact that people want to stick their head in the sand and not doing about the problem so in the end you can get the assessment and maybe it's something the board can do and accommodate but in the end if they really want to if they feel they legally must make a change to protect everybody else in the property they're probably have to file a lawsuit to do it and it's sad I think both you and I have been through that process before with these type of situations and it's usually when you file the lawsuit that services and family finally start to come forward to try to help it's interesting because adult protective services told me at one time that following the lawsuit to take away their home gives them the legal authority to get involved otherwise if they're eating out of the trash can I whatever it may be they're gonna say they're getting nutrition they have no involvement it's crazy that sounds crazy as that sounds you probably know that my next words to you are we're out of time you know but again I want to thank you for being here it's always a great deal of fun to talk with you about these things and we joke and tease a little bit on this show but these are serious topics so we're not meant to offend anybody by some of our jokes it's all his fault anyway but that being said we look forward to seeing you all on condo and cider hearing from you all next week on condo and cider every Thursday 3 to 3 30 on think tech Hawaii and we thank the caller for calling in we hope if anyone else has questions they will next week aloha and the best to you all