 Good afternoon, and thank you for joining us for another episode of Kondo Insider. My name is Jane Sugimura, and I'm your host today. And this is a show about Kondo living and for people who live and work in condominiums. And this is a significant portion of the community in Hawaii. I mean, we've got, I've been told that we've got about a third of the people who at least who live in Oahu who live in condominiums. And so hopefully we have, you know, a lot of viewers out there who are watching the program. And today our program is a call to action. And this is about Senate Bill 551, about non-judicial foreclosure that was recently passed by the legislature and sent to the governor for review and approval. And if he passes the signs of bill, it becomes law, if he doesn't pass it, if he vetoes it, then it doesn't become law. And I have as my guest, one of the people who helped get the law passed this year, Larry McGuire, who is a partner with the law firm of Porter, McGuire, Keakona, and Chao. Thank you for joining me, Larry. Thank you. Thank you for having me. I'm going to be here. And your firm does a lot of condominium and community association law. Yes. I'd say probably about 80% of our practice. And can you tell our viewers what kinds of things you do for associations? Oh, my. Well, associations are like many municipalities. So we do everything. We collect their maintenance fees. We enforce their covenants. We draft their governing documents. We amend their governing documents, restate their governing documents. If they have any issue with construction defects, you know, if there's a problem with their building, we address that. If they need repairs, we help them obtain contracts in order to obtain the repairs. You name it, we do it if it relates to condos. And this Senate Bill 551, I mean, that hits all the areas that you basically practice in, right? Well, it does in the sense that it relates to our ability to collect maintenance fees. Let's talk about maintenance fees. You know, a lot of people out there, they don't really understand condominium finances. So can you give us a really short class on how does a condominium operate? How does it operate? Well, you know, condominiums are creatures of statute. So every issue that deals with the condominium, there is a statute that governs that particular issue. And so condominiums operate on a zero-base budget, meaning the funds that they obtain to operate are obtained from the maintenance fees and the reserve fees that they collect from their owners. And this is a monthly fee that the unit owner pays to the property management company. And so these fees are what the association uses to operate. This is what pays their bills. So they can pay the electric bill, the water bill, pay to maintain the grounds. I mean, you name it, these fees are what pays for that. And so what happens if you have 10 people in a 100-unit association who don't pay their fees? That's a real problem. I mean, that's 10% of all your owners. Think about you running your household. If all of a sudden your income was reduced by 10%, that would be quite a hit for you in terms of your ability to pay your bills to operate your own personal budget. The same thing applies to condominiums. If certain owners don't pay their bills, if 10% of the owners don't pay their bills, then that is a real hardship on the other owners because they are the ones that have to make up the difference. And how do they make up the difference? They end up having to special assess or get a loan in order to acquire the difference. And so that results in increased maintenance fees for the next year. And that's why, in the annual meeting time, sometimes you have a lot of angry owners who show up at the meeting and they want to know, why did my maintenance fees go up this year? That's right. And in times when we have a bad economy and people are out of work or maybe they're laid off, you know, they can't pay their bills, that's what happens. That's right. And so the alternative is to collect from those owners who have not paid their bills. And Senate Bill 551 is critical to associations' ability to do that. Okay. And what does 551 deal with? All right. Well, last summer, July of 2018, the Intermediate Court of Appeals passed, excuse me, they issued an opinion, which in essence stated that the legislature did not intend for associations' condominiums to do non-judicial foreclosures unless they had a power of sale provision which allowed them to do non-judicals in their governing documents or unless they had an agreement with that particular owner, allowing them to foreclose on that particular owner. And we know that no such language exists in the governing documents and we know that there are no agreements. What is the basis of the associations doing non-judicial foreclosure? This has been going on for 20 years. And what I mean by that is back in 1998 and 1999, the legislature recognized that there was a real problem with associations and their delinquencies. And it was a hardship on the remaining owners, the timely paying owners, because they were having to increase assessments in order to pay for those owners who weren't paying their bills. And so the legislature passed in 1999 Act 236, which allowed associations' condominiums to do non-judicial foreclosures. So the language is in the statute. Oh, yeah. Definitely. Initially passed in 514A-90 and then in 514A-92, subsection B, subsection 13, passed a provision that said all bylaws, all condominium bylaws, were deemed to include a power of sale provision which allowed them to do non-judicals, non-judicial foreclosures. So even though you had, you know, there was no written agreement between a unit owner and the association, the language of the statute said that the bylaws of every association, that was then in existence, would contain a provision that there was an agreement between every unit owner and the association. Yes. Yes. Okay. So the legislature could do non-judicial foreclosures. And in the Sacal case, the Intermediate Court of Appeals ignored the last 20 years of legislative history and said they found no legislative history. So we had to go to the legislature this year and the legislature corrected the record to show in fact that there was a complete history of dating back to 1998, 1999, 2004, 2012. I mean, there was an incremental history that showed as far back as 1998 associations were allowed to do non-judicial foreclosures. And then as time went on, they added more consumer protections to that because you had the owners on whom the association was foreclosing basically saying this is a hardship, we need more protections, and more protections were added to address their concerns. And in this last legislative session, we addressed even more protections, input even more protections in Senate Bill 551 to address those concerns. Well, we'll get to those additional protections, but you know, the so-called decision, what happens? What is the impact of that decision? I mean, what is so important that you and others had to go to the legislature to get Senate Bill 551 enacted? We had several attorneys in town that were filing multiple lawsuits. One attorney had filed a class action lawsuit seeking to sue multiple condominium associations over 50 condominium associations for doing non-judicial foreclosures. And that was entirely wrong in light of the legislative history. And for these, and the non-judicial foreclosures that had occurred, I mean, that was based on the fact that people weren't paying their maintenance fees. Right, exactly. And it was based on the legislative history and the laws that were enacted in order to do those non-judicals. And so the whole upshot of 551 is basically to stop these new lawsuits that are now saying, okay, now be based on the so-called, we don't really care about the merits of the non-judicial foreclosure and the fact that, you know, this was made, this was done so that you were allowed to do the non-judicial foreclosures in order to recover your maintenance fees. We just got to sue you because, I mean, you weren't allowed to do it according to the so-called court. That's right. That's right. I mean, we haven't had, you know, there were some other lawsuits that had filed prior to Sacal, but Sacal really opened the floodgate. And so what this does is it threatens the associations who are just complying with the law. Correct. Correct. With new lawsuits. Yes. New lawsuits by people who, in the first instance, lost their homes or went through foreclosure because they weren't paying their maintenance fees. That's correct. And now as a result of this so-called decision as well, insurance companies have, in essence, as I understand it, refused to insure for non-judicals. In other words, associations were going to be hanging out in the wind, and they weren't going to have coverage for non-judicial foreclosures. And so this means that it would have been more expense for the associations just because that they were complying with the law that was okay at the time they were doing the non-judicial foreclosures. Correct. And so they're basically being punished in retrospect for something that was legal. Correct. That's correct. And that's the part that's really hard to take. Correct. Yes. Right. And so what happened this session with 551? Well, we went to the legislature, we explained the situation. They went back and looked at the legislative history, and they agreed with us. And so what they did was they passed the session laws that showed the lengthy legislative history in the preamble. And then what they did is they amended the prior law to add additional consumer protections to allow basically to address the concerns of those folks who were losing their homes to non-judicial foreclosures. You know, I mean, for example, one of the issues that arose was people had a misunderstanding as to what the non-judicial related to. In other words, some of the folks believe that the association by foreclosing would also stop the mortgage. In other words, they would no longer have to pay their mortgage. And that's incorrect. And so one of the provisions that's now included in the bill is a notice to all homeowners that lets them know that this notice, this non-judicial relates only to the association's lien. The foreclosure on the association's lien, it does not relate to any of your other creditors, including your mortgage lender. So you need to check with your other creditors to see what effect, if any, this association foreclosure has on your other loans. Okay. Well, you know, what we're going to do now is take a one minute break and we're going to come back and we'll be talking about some other provisions in the new law. All right. Okay. Sounds good. Aloha. I'm Cynthia Sinclair. And I'm Tim Apachella. We are hosts here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii non-profit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Thanks so much. Aloha. I'm Lauren Pair, a host here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii non-profit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Okay. Well, welcome back to the second portion of Conwon Cider. And today's episode is called Action on What to Do About Senate Bill 551, and I have as my guest, Larie McGuire, who is a partner with Porter McGuire, Kia Conan Chow. And we are talking about Senate Bill 551, and Larie was talking about what is in the bill? What is this Senate Bill 551 do? You were talking about it has some consumer protection provisions that were added, and one of the consumer protection provisions was this notice that tells the delinquent homeowner that the debt is only for the association maintenance fees and it doesn't affect the mortgage or any other loan that might be uncovering the property. What else does Senate Bill 551 do? All right, yes. Well, one of the things that we had heard about while we were in the legislature was how it was affecting military personnel. And so we've added a provision that in essence states that if you are active duty military and you are at that time deployed outside the state of Hawaii, then the association may not do a non-judicial foreclosure. If they do foreclose while you are on deployment, they must go to court to do that. And so that is a great asset for those folks that are in the military, and we have quite a few of them here. Yes, because we have all these people who are stationed at the various military bases. And the reason why too, it goes to judicial foreclosure, there is something called the Soldiers and Sailors Relief Act, and that act basically says that if there is a military person who is deployed and they are being sued for foreclosure for non-payment of sums, that they are entitled to appointment of an attorney. Correct. Exactly. So the Soldiers and Sailors Relief Act requires appointment of counsel. Exactly. So that means that even if they don't want to get counsel, they get counsel. Correct. And usually it's the plaintiff, the creditor who ends up paying for this attorney. Right? Well, it varies. You're right. It varies. Yes. Initially though, definitely. But it's to make sure that the military person is represented in the foreclosure. Right. Exactly. And those types of foreclosures are not part of the non-judicial. And what else is there that... Now we have a mediation provision. So basically whenever you serve a notice of default and intent to foreclose on the owner, you have to notify them that they have the opportunity to mediate before this goes forward. So 30 days after service, they have within that 30 day period after service on them of the notice to contact us, counsel, to set up the mediation process in order to mediate any disputes that they may have as to the amounts due and owing. And then you must complete that mediation within 60 days of them notifying you that they would like to mediate. So that's an asset. Slows the process down. It brings in a third party, the mediator, who can look at the big picture. And if there is a way to resolve it, then that's the point where it will happen. And that really opens the doors for settlement. So that's a benefit as well. Okay. And this new bill too has a provision that clarifies... And in the previous legislation, it did clarify that you cannot do a foreclosure where the delinquency is based on late charges and attorney's fees and... Legal fees, penalties, fines. So this statute makes it very clear that that can't happen. That's right. If you're going to do that, if you're not foreclosing on maintenance fees and assessments and you're only going after legal fees, late fees, fines and penalties, you have to file in court a judicial foreclosure action. And one thing too, going back to why this Senate bill is important. Why do the associations do the non-judicial foreclosure? What is the benefit to them for doing the non-judicial versus the judicial foreclosure? A judicial foreclosure is litigation. You're in court and litigation is very expensive. Judicial foreclosures can take years to complete. I'm aware of some right now, some lender judicial foreclosures where lenders are foreclosing on the mortgage that started back in 2008 and they're still ongoing. So the problem is you will start a judicial but you're not sure when it's going to end because you're not the only party to the suit. So for example, oftentimes owners will obtain counsel and when you file suit, you have to bring in all the other creditors who have liens on title and those creditors can file motions if they want to. So I mean this litigation can go on for years at a time and the problem with that is oftentimes during that period of time that owner is not paying their maintenance fees and their reserve assessments. So the delinquency is growing, you're still in litigation. You're paying you, meaning the condominium association, is paying the attorney to go through that court process and in the meantime nobody's bringing in any money to pay for that. So it's very expensive and it takes a very long time. If you do a non-judicial, you can typically from start to finish end in probably I would say eight months to a year and especially now with the mediation provision, it may take it between eight months to 15 months. But in any event, it is less expensive than the litigation and then oftentimes at the auction nobody will be there to bid on the auction because that particular owner may have a mortgage on title and so the association is foreclosing subject to that mortgage, which means at any time that lender can come in and foreclose, the lender is not required to step up at that time just because the association is foreclosing. And so oftentimes when you get to auction, nobody's there to bid. Only the association is bidding, so oftentimes the association is the one who purchases the unit at auction and once they get that unit, then they rent out the unit and the rents that they obtain can go to offset the delinquency. And so at least the association has the money's coming in until such time as that owner's lender, the prior owner's lender comes in and forecloses. And when that lender comes in and forecloses, then you lose that unit. So the association is able to get the rents for a period of time and use those rents to offset what's owed, should they choose to do so. Okay, so that means that at least they're getting some cash flow to help pay the bills for the association? Because otherwise it's a real hardship on those owners, the paying owners, and as you know here in Hawaii, we have lots of seniors who are on a fixed income and so they buy into a condominium and many of them have never lived in a condominium. So they had no idea what they were getting into in terms of the fact that now they have not just a mortgage payment, but they have a maintenance fee that is subject to rise every single year, but their income, many of them aren't social security. That income is gonna increase only a small amount each year, but their maintenance fees may go up quite a bit depending on how many delinquencies that association has. Right, and so that means that it's really important for everybody, I mean, theoretically, if everybody pays their maintenance fees, then there won't be this issue of every year that maintenance fees are gonna go up and down. But if you have delinquencies and in times when you have economic hardship when people are out of jobs and not working, then it just gets worse. Right, right, and that's what we had, if you recall, about eight years ago, eight, you know, 2008, 2009, 2010, had we not had the ability to conduct non-judicial foreclosures, many associations, I think, would have filed bankruptcy. They would have had to, because they had just a huge percentage of their owners were delinquent. And in fact, I think that during that period, that I didn't realize how important it was for the owner-occupancy ratio. I know that, I know it came up in a conversation about how many owner-occupants are in your building and I figure, who cares? But, you know, when you have times of economic stress and you have investor owners, like a lot of people on Maui had in Key 8, right, you had a lot of mainland owners and they basically abandoned their units. And so if you were 80% investor-owned and 80% of your owners decide they're gonna walk because they can't afford to have the second home, then your cash flow stops. Oh yeah, it was a nightmare. It was kind of crazy and I'm thinking, ah, this is why they ask. And so for those of you out there, this is another reason for you when you're starting to buy condos or you know something, you ask for the owner-occupancy ratio because you want a lot of owner-occupants. Because those people, they are more engaged in the operations of the building and they're more likely to not want the... They'll pay their bills. Yeah, they pay their bills, right? And so the owner-occupants you have, the better financial, the chances are, the better financial condition you're gonna be in. So why are we here talking about Senate Bill 551 today? Because we want the governor to sign this bill. We want the governor to pass this bill and so we are here to ask all of the owners, all of the viewers out there to contact the governor. And we have indicated a website and in fact, if you go to this website and there's the governor's phone number and there's a website, if you go to that website and click on it, there's a box that says Legislative Response. So you click that box and you just say, please Governor Igay, please pass Senate Bill 551. Yes. We have enough people going on to the website and by calling that number, don't think that the governor is gonna answer the phone because I know a lot of people are scared to go, oh, I don't wanna call the governor. Who wanna be picked up the phone? What do I say? You're gonna be talking to a legislative assistant. You probably won't even get the governor's secretary. But anyway, you will be talking to a person who will be just taking messages. And so if you say, please tell the governor to sign Senate Bill 551. They will say thank you and they will make a notation of your message and they will notify the governor that there are this many calls for these bills and these are the yeas and these are the nays. And the governor sometimes is influenced. And so our thinking is that the more calls we can make to the governor or emails to the governor, telling him to pass Senate Bill 551, that will demonstrate to the governor that all of us who live in condos who are making the call to him and who vote, who vote, it doesn't hurt to say, I'm a voter and I would like the governor to sign Senate Bill 551. And so that's why we're here today talking to you guys and asking you to help in getting this bill passed because it's gonna benefit anybody who lives in a condominium. It's gonna benefit everybody who lives in a condominium. Definitely at one point or another. We will all benefit from it. It will help you in your pocketbooks. Yes. And so this is the time, this is why this is a call to action. And we thank you very much. I thank LaRae for being with us today. Thank you. Thank you very much. My pleasure. I know you're hard work on getting this bill passed. And you're one of many, but thank you. I started to say it was a team effort. Yeah. You were one of them as well. Right. And so, you know, thank you very much. And to our viewers, please call in to the governor or email him. Remember, pass Senate Bill 551. That's a message we wanna get to him. And thank you very much for joining us for this episode. And please make sure to tune in next week at three o'clock for another episode of Condo and Cider. Thank you. Mahalo.