 ThinkTek Hawaii, civil engagement lives here. Aloha. Welcome to Kondo Insider. This is a very interesting show, and board members and owners alike should pay a lot of attention because this is a new law and some new issues, maybe a few unintended consequences. But you're watching Kondo Insider, Hawaii show about association living. About 38 percent of our population lives in an association, and our show is to help educate board members and homeowners about their responsibilities and about quality living in an association. I'd begin, everybody's probably looking at the screen at my little shirt. I've told you over the last couple of episodes that I've been attending the Citizens' Police Academy here on Oahu, and I graduate tonight. I'm surprised I'm graduating, but I did. They keep telling me that there's no age barriers, but I'm sure they don't want someone falling asleep in their squad car. So anyway, but that's why I have this shirt on today, and today I've invited a good friend of mine, Terny, here locally, Larie McGuire, to come, and we're going to talk about Act 195 that some have called the Death to Priority of Payments, which many of you may not know who that is. So, Larie, welcome to the show. Thank you for it. Thanks for having me. Tell us a little bit about you and your background and your firm. Okay. My name, again, is Larie McGuire, and I'm a partner with Porta McGuire, Kiyakona and Chow. I have been with the firm since 1999. We probably, 80% of what we do deals with condominiums and homeowner associations, and the other 20% would be probably litigation of some sort. Related to condos and those types of things? Yes, most definitely. Primarily construction defect litigation. Is there a lot of litigation with condos? Indeed, there is. Why do you think that is? Definitely. Well, you have a lot of issues in condominiums. They're basically small municipalities, they're cities that are run by boards and they're filled with lots of people who have differences, and just everything under the sun arises in a condominium association or a homeowner association. Well, I think I've been around associations for over 25 years, and yet they're based on the principles of self-governance, but you get people with different points of views, and I've always said if they would talk more, use some of the dispute resolution options, they might be able to avoid some of the conflict anyway. But anyway, let's talk about Act 195. All right. And the key buzzwords on that to me are priority of payment and pay first dispute later under the former statute. Describe that for our audience a little bit what those two concepts are. Okay. Well, in terms of a priority of payment, what they're talking about is a priority of payment policy, and what that is is, in essence, it is prescribed by statute, and what it does is a board will pass a policy that allows them to prioritize the application of a particular payment to different categories of items. For example, you have common assessments, you may have late fees, legal fees, interest, fines, so the priority of payment policy would allow the board to apply a particular payment to these various categories in order of priority. I think one of the things people don't seem to realize, we live in an electronic world today. People either have the stones we call sure pay, an amount deducted from their account, and or they'll write a check and mail a coupon to some bank lock box that has high-speed process or the process on it. So the association, the management company, the agent gets a check for $1,200, and no one is manually sitting there looking at how that money is going to be applied. That check is received, and then those credits off that $1,200 was paid, in my example, gets applied in a specific order. Correct. But typically, before that payment comes in, that homeowner has received a notice from the management company that has itemized the various options or the various categories within that $1,200 payment. So that $1,200 payment probably contains common assessments, maybe reserve fees, interest if that applies, utilities possibly if that applies, bulk cable. So owners know this, and so when they send in their sure pay payment, it's based on a prior notice they've received that's itemizing all the various categories of items that they owe for. Well, how does that relate to a pay first dispute later? Okay, sure. Previously, under the law, the law was whenever you receive a bill from the management company, if you have a dispute with regard to that bill, you couldn't dispute any item on that bill until you paid the full amount of that bill. Once you had paid the full amount, then you could dispute the bill. So for example, if there were legal fees or late fees or fines included in that bill, you had to pay it before you could dispute that bill. Now however, under Act 195, they have changed the law such that you still have to pay first dispute later with regard to common assessments only. And so for example, those common assessments would be the maintenance fees, the reserve fees, any special assessments that are assessed to all owners based on PCI, any utilities like bulk cable, if that bulk cable bill goes to all owners, that's a part of the common assessments. If you have metered utilities that go out to all of the owners, that's a common assessment. So any common assessment items, if an owner is disputing any of these items, that owner must pay that first and then the owner will have a right to mediate or dispute that. However, with regard to anything else that's not a common assessment, that owner no longer has to pay that first. They can now dispute that first and then pay it later. So they have a right to go to mediation to dispute that before they have to pay it. Well, it's interesting because we were talking briefly before the show, and I was giving you an example that, what I'm going to call the horror story of one of these, it was in North Carolina where the owner put an American flag in a flower pot and the board said you're not allowed to have a flag in the flower pot and without going through the case, which has a lot of interesting wrinkles to it. The reality of it was that he did not pay it, and so as he was making maintenance fee payments, they were paying his fines first, leaving him a balance on his maintenance fees or regular assessments as we call them, and then they found foreclosure to foreclose for unpaid maintenance fees, and that's gotten into a major legal issue and hasn't gone to trial yet, but that's kind of the concept behind this, that should owners have due process rights on these non-common assessment bills before they get into the situation that the board through its own desire has said I'm using that money to pay the fine and leave me unpaid maintenance fee. I think that's the fundamental issue. Yeah, I agree, and I think that's what the legislature is attempting to resolve. I think that they have received complaints from owners in the past, and this is their effort to try to resolve that situation, so that owners now do have proper due process rights with regard to these issues that they may challenge. And the thing I think we have to understand is that they may have due process rights. In the end, it doesn't mean they don't own the money. Correct, correct, but they have an opportunity to be heard. Right, I was thinking the day that sadly, you know, I had like I have an electric car, but I had it in the shop, and they gave me a loaner electric car, and you get custom to parking in metered stalls because you get free parking. I didn't realize that the loaner they gave me didn't have electric vehicle license plates on it, so I got a $35 parking ticket, and I noted that in my $35 parking ticket, which I just paid, that I had to write the judge and say this is my side of the story, or I had to write to have a trial be heard before the judge, before paying the ticket. And I guess that's what the fundamental issue is here. Should owners have those same types of rights on, I'm going to call them non-common expenses, and how do you feel about that? I always think it's a good idea to allow someone to be heard. I think that you will oftentimes incur litigation in situations where people don't feel like they've been heard. In other words, it's the principle of the matter. They want to be heard before they're going to pay that, and if you give them that opportunity, whether they utilize it or not, if you've given them that opportunity, more likely than not, if they do owe it, they'll pay it. They may not even dispute it, as long as they have the right to dispute it. I think it goes against the grain of people. If you tell them, even if you dispute this, you have to pay it before you can do anything about it. Now I'm going to make this statement, and you tell me if I'm wrong before I ask you this question, to all of our viewing audience. We've clearly told you this does not apply to common expenses. So if that charge is for a special assessment applied to all owners, your regular maintenance fees charged to owners, any bulk utilities like cable and or electricity, the submitter that is charged to all owners, some association management companies break out the reserve contributions from the maintenance fee. This does not apply. You have to pay first dispute later. This new law does not apply to the regular assessments applied to all owners. So let's give you a few items, and I want you to say they can dispute. This is all about whether they have the right to dispute it before paying it, all right? In other words, it's a common expense assessment or it's not. That's right. So let's take a couple of them. Okay. I have a claim in my association. They've assessed me the $5,000 insurance deductible. No, that's not a common assessment. That applies only to that particular owner. Okay. So then let's look at the fact that sometimes owners don't buy an HO6 policy and they're notified by the association. If you don't buy an HO6 policy, we're going to buy one for you and charge it back to you. That's not a common expense assessment that applies only to that particular owner. So the association offers, let's say a boat dock or a storage locker or some service because they have extra stalls to an owner that they can pay hypothetically $25 a month for. And when the association rents these additional availabilities to owners, can that be, is that a common expense or not? No, it doesn't apply to all owners. I think that's the easiest way to look at it. Does this expense apply to all owners? If it does, more likely than not, it's a common expense assessment. And if it only applies to one owner or a handful of owners, then it's not a common expense assessment. And so things such as legal fees, late fees and fines are going to fall into this category. You have a right to dispute them before paying for them. Exactly. And that's the big change in the law. You know, I was a part of the legislative effort when this was discussed and it's frankly a lot easier for associations and management companies to have the original policy. Because associations are zero sum type budgets. You know, they don't have extra profits or whatever. When they're charging these things, you know, and actually paying the lawyer for the collection action, that's a good question. How about the legal fees for collection action? Are they? No, that only applies to that particular owner. And I think the best way to look at it is think in terms of what does the association need in order to operate? So your common expenses go to pay for the operation of the association as a whole. The non-common expenses do not, like late fees and fines and interest. These are things that apply only to a particular owner and are not necessarily for the operation of the association as a whole. They may they may assist the association in operating smoothly because you want people to pay on time. You want people to abide by the governing documents and not violate the covenants. So they may assist in the in the smooth operation of the project, but they're not necessarily necessary for the operation of the project. So we're gonna take a break in one minute, but let me just summarize by saying what you said. If it's a common expense charge to all the owners, you have to pay first before you can dispute it. All these other charges from fines to special services you get as a one-off owner, they're not common expenses. They're individual charges. You have a right to pay or dispute before you pay. And that's what the basic change in the law is. And frankly, even though it's inconvenient for associations in some ways requiring more efforts to collect, it's important to know that disputing doesn't mean you're not guilty. You don't have to pay in the end. But the reality of it is this is an effort to balance, like all owners should have due process on non-common charges to have a hearing and go to mediation before you have to pay. So on that note, we're going to take a short break, but Act 195 deals with a couple other items. And we're going to get into that as soon as we return. Aloha. My name is Mark Shklav. I am the host of Think Tech Hawaii's Law Across the Sea. Law Across the Sea is on Think Tech Hawaii every other Monday at 11 a.m. Please join me where my guests talk about law topics and ideas and music in Hawaii, Anna, all across the sea from Hawaii and back again. Aloha. Hello, 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. Welcome back to Kanda Insider. We're with Larima Guire talking about Act 195, but we've classified as the death to priority of payments and certain changes with pay first dispute later. And we were just finished up talking about what's applied under the law. So we have a situation where you now have this non-common expense and the owner says, I want to dispute this. And there's all sorts of visions in the law that says about notice you have to do this within a certain amount of time. And this is the steps and sequences. Tell us about that. Okay, well, typically, if you're going to dispute these these non-common assessments under the law, you have 30 days to seek mediation. So let me back up for a second, because if you're if you're at a situation where it's in the very beginning, and the association has sent you a notice, and there are no attorneys involved, the association has sent you a notice and they're telling you this is what you have to pay. And one of those items, let's say is fines, you want to dispute those fines. So what you're going to do is you're going to ask the association to send you basically a debt verification letter. You want to see the ledger laying out the fines because you think you've already paid that particular fine or something, you know, some there's some dispute. And so they will the association will now send you a copy of your ledger. At that point, if you then have a question about that ledger, you can then send the association another request, another question about that particular issue that dispute, they then have to send you a subsequent notice. So this would either come from the association or counsel for the association. And in that subsequent letter that they send you, they apprise you of your right to mediate. So of the right to mediation, the owner then has 30 days to demand mediation, they have to do it in writing, they write to the association or to the association's counsel, whoever they've been communicating with and demand mediation. At that point, from that 30 days, 60 days begins to run, wherein you have to complete the mediation. So if the owner demands mediation, the parties go forward with mediation. And let's say they don't complete the mediation within 60 days, the association can go forward and pursue collection. If or if the parties determine in mediation that they're not going to resolve it, the association can move forward. So the mediation, and I would want to point out to our viewing audience that back in 2015, we used to always have since 514A came about in 1971, the rights to what they call mediation and this non-binding arbitration statute. But the mediation was what we call facilitated mediation, where it's kumbaya, that's all agree. And when you disagree, it's hard to get people to agree, where in 2015, a valued mediation came forward, which is typically before a retired judge. And I always look at it like a settlement conference judge that the gloves can come off and the mediator who's a respected retired judge can say, if I was a judge in your case, this is what I would rule and put more pressure to get the sides to come to some meaningful agreement. And France has been very successful. So under this provision we're talking about, once that owner gets the notice and says, I'm going to dispute this, they have 30 days to file for the mediation, which has to be completed within 60 days. And I think the statute provides that there's reasonable causes for delay like a hurricane, that there's provisions to allow it to slop over a little bit because of circumstances beyond anyone's control. But then at the end of the 60 days, and you've had your due process and right to be heard, and you haven't resolved it, the association can go forward and pursue collection. Correct. So, you know, I happen to say I see a lot of these types of disputes on, and I tell associations all the time, look, you don't budget for fines. The easiest solution before it gets this far is to sit down with the owner and take the position which I take, as you say to the owner, look, we don't agree it's important you follow the parking regulations because we are going to suspend the fine for one year. And so you're not going to have to pay anything. If you don't commit this offense again in one year, we will consider being withdrawn and the fine removed. It gets down to the money a lot of times, right? They don't want to pay. And you need to have what I'm going to call a face saving ways to resolve issues. And so you say to the owner, look, we don't agree with you, but this is our parking rules. We are going to enforce them. In this particular case, we're waiving the fine and suspending any action for one year provided you don't do it again. And you're out of dodge, pretty cheap and pretty quick and you've got compliance, hopefully. Well, and that's a good part about mediation. Oftentimes, the owners just want to, they want to voice their opinion. They want to talk about it. So when you go into mediation, there are creative ways, creative measures that you can use to resolve it. The board has all types of authority in order to come up with creative ways. Like you said, they can, they can put the fine in a balance for a year. And if the person doesn't violate anymore, they can, they can dismiss the fine. Same with late fees, you know, they can, they can get rid of all the late fees in order to settle it. So you've got discretion in order to reach a settlement. And like I said, more times than not, people just want to be able to talk about it. They want to be heard. They want to be able to, to understand what's the issue here. Why is this important? Why do they need to paint their house? Why do they need to put in new hedges? You know, what's the basis for this? Well, we only have two or three minutes left. So what morphs out of this where we are today is you now have an owner who is truly delinquent under maintenance fees. And they've entered into a payment plan that could catch up over 12 months and stay current typically. How does this play into that? That all of a sudden they're getting a fine theoretically. Does that disrupt the payment plan under this new law? Okay. Under the new law, if, if you're moving forward in a foreclosure, this is that particular aspect of it. And you have filed, recorded a notice of default intent to foreclose. And that person once or owner wants to enter into a payment plan, you can do that and that NDIF, notice of default intent to foreclose is then put on hold for the duration of that payment plan. And so, so long as you move forward and you comply with that payment plan, you'll be, it will be held in abeyance. But, if the association finds you for a covenant violation, once you've entered into that payment plan, that fine, those fines are not considered a default of that payment plan. And so, if that owner then wants to challenge those fines and any legal fees related to those fines, they can do so separate from that payment plan and go through mediation. And they can continue to do that so long as they remain current on the payment plan. If they default on the payment plan, however, then all bets are off. So, if they default and then say there's no fines related, they just don't make the payments under the payment plan. Does the association... Well, that is a default. Yeah, that's the default. If you're not making the payments. So, the association, they don't have to start all over against what you're saying. No, no, they don't. So, they get to, they get to just pick up where they left off. Yes. For default. Yes. And are there any rights of redemption where I forget the technical term, but all of a sudden, they're in default, you've now said, okay, you're in default, we're going to foreclose, and then they rush in with another check right away to catch up on the payment plan. What happens then? Well, technically, as a matter of law, you don't have to accept that payment. However, I would caution, as counsel, that if somebody wants to pay you for money they owe, take that check. Resolve that. Resolve that. I agree that too, because I think you have to look at the associations and governance is that they're out to protect all the people and make sure they have a home and quiet enjoyment, and life's not perfect. People get divorces, they have financial issues, they get sick. The board doesn't look in a positive way of things they can do without jeopardizing the association to help owners that may be struggling a little bit to deal with issues. And the same is true with fines in the sense that of getting hard head about it, look for ways to compromise without giving up your need to have uniform enforcement of the rules for lack of a better work. To resolve that, so you move forward in a positive way. Final comment about this bill, it has a sunset provision. What's that mean? That means that the bill, the sunset provision actually is June 30th, 2020, and that means this law, the new law Act 195 will expire June 30th, 2020. That way, if we come up in the next two years with any difficulties, with any problems, the legislature then can decide whether or not it wants to resolve the problems or just let the law expire at that time. Being on the legislative action committee, that was the issue. There was a lot of debate about this law, and the legislature just said, we like the intent. Let's give it a try for a couple years and see what happens. And that's basically why the sunset date got put into the law. Now, I want to thank you for coming today. You gave us a very clear and concise understanding of a complex bill that all the management companies are aware of this bill and are taking action internally to make sure that their clients are not in jeopardy by not complying with the law. But thank you for being here today. Thank you. And thank all of you for watching Kondo Insider. I'll be out of town for a couple weeks. My co-host Jane Sugimura is going to be conducting the show, and next week we have the fire chief talking about all the changes in Bill 69 and some of the recent resolutions arguing about the fire matrix to bring us up to date of the current status of Bill 69. Aloha for watching. See you again next week.