 Aloha and welcome to another edition of Kondo Insider, Hawaii's show about association living. I'm back from vacation and looking forward to an exciting show today regarding foreclosures in Hawaii. I want to remind everybody that about 37% of our population lives in an association and the purpose of this show is to help owners and board members alike understand the obligations of living in an association. If you're following this and have a question, you're welcome to dial our hotline at 415-871-2474 and we'll do our best to answer it. Some of you may have read in the paper recently that there have been several class action lawsuits filed locally by local attorneys against current Kondo attorneys here in Hawaii alleging that they violated the foreclosure law and seeking large penalties for violating the law. So I asked a good friend of mine, Kapano Kiyakona, to come down who's a lawyer here locally to talk about these class action lawsuits and what the effect may be and what the issues may be. So welcome to the show. Oh, thank you. It's good to be here. Yeah, why don't you tell us a little bit about yourself personally? I'm born and raised here in the state of Hawaii. Actually born and raised in Kailua. I still live on the windward side. I grew up, went to Kalahau High School, I went away for school, came back right after. I've been doing Kondo law for at least a decade now and I've been enjoying it. Well, you haven't aged much, but Kondo law, you know, I tell everybody I listen to whining all day, so I do redwining all night when I think about the Kondo world. It's a tough business to be Kondo with you, you know. And how about the firm you work for? What do they do and how big are they? Porta McGuire, Kiyakona and Chow. We have 13 attorneys and we primarily focus on Kondo association law. We do some commercial litigation, some family law. And what we do is we make it our point to assist boards and assist the association in doing their job a lot easier. Would it be fair to say that when you look at association law in Hawaii, because you have 13 lawyers, you're probably the largest firm in Hawaii? I think we're up there. I think we're one of the larger firms. You certainly are one of the largest firms in Hawaii and certainly I've worked with your firm quite a bit as well as the other firms and I would say you're very good at what you do and you're very helpful to clients and boards and homeowners alike understanding their obligations. Before I begin on this class section, maybe just a little bit of housekeeping. Tell us the difference between a judicial and non-judicial foreclosure. Certainly. Judicial foreclosure, as the name implies, it goes through the judicial process. It means it's overseen by the court. You file a complaint with the court. You file motions with the court. They appoint a commissioner to go through the sale itself and there's a motion to confirm the sale. It's a long process and it can get quite expensive. A non-judicial foreclosure is outside the court system. It's handled by the attorneys. There is a set place on each island in each district where the foreclosure auction is to take place. Here the non-judicial foreclosures happen right in front of the Queen Lily Okolani statute by the state capitol. Now, taking just judicial foreclosures for a second and just approximate, briefly how long does it take and how much? The cost can range and it depends on whether you're able to serve the person or not. There are various requirements on that. But you're talking about cost at least $8,000 to $10,000 to do a judicial foreclosure. From beginning to end, how long? From beginning to end, again, that's a range, but normally at its earliest I've seen them happen with the lenders. I've seen one done in eight months, but that was an anomaly. It has often taken years to complete, yes. How about non-judicial foreclosure? What's that cost versus the timing? Non-judicial foreclosure, the large cost will be in your publication cost. That's where a significant amount of money comes from. But it can be done around for $4,000, $4,000 to $5,000. And how fast? From the point where it's given to the attorney, you can have something done within six months. Now, the difference between the two, in some respects, when you do a non-judicial foreclosure, you're really getting possession. You're not really assuming the lenders' obligation or the property taxes for an association. You're really getting possession, I guess, theoretically, so they can rent it out to help mitigate their loss of maintenance fees. Correct. The objective for the association is mainly to get people to pay, but if they take possession of the property, then their goal is to rent it out, recoup their costs, and eventually the lender will step in. Yeah, and so they're not paying that mortgage or absorbing the liability of having that mortgage. They just have gotten possession, and they're going to rent it out to try to help cover the lost maintenance fee and come for lack of a better word. Correct. I've always explained that to people, that four people went to dinner, and you get the bill for the dinner at the end, and only three of you have the money to pay for it. The restaurant's not saying, well, I'm only going to charge you for three people, I'm going to charge you for all four, and the three have to come up with the money to pay the difference. And very much like a condo, if you have 100 units and one person doesn't pay, their budget's based on everybody paying, so the remainder of your owners who are in good standing have to pay the deficit of an owner, and that's why it's important they foreclose promptly if they can't make a deal with an owner to catch up or make some kind of program, because I think it's very important that they foreclose promptly, and if they don't have someone who's willing to step forward and make a plan for lack of a better word. And I would add to that, I mean, if you look at it from the overall association perspective as well, what we've seen in some of our associations is owners talk, so they know that there's no consequence to not paying your maintenance fees, and so there are some unscrupulous owners out there who will refuse to pay their maintenance fees because they see there's no consequence to their neighbor for doing the same. And we're going to get more detail on this later, but just start to show by saying, give us a summary of what these class action lawsuits are saying. What are they alleging is being done wrong? Where do they feel there's a problem within the current statute? So the problem they're arguing about is for an old statute. The statute changed in May of 2011, so what they're arguing about is the statute as it existed prior to May of 2011. And what they're claiming is that under that statute, there were two parts. The first part was 6, 6, 7, 5 through, I want to say, 10. And then 6, 6, 7, around 22 to 43 or something. So you have part one and part two. Their allegation is that associations were foreclosing under part one, and they weren't allowed to foreclose under part one. They're claiming that associations were only allowed to foreclose under part two. And what is the difference between part one and part two? Part one is what the lenders were using. Part two had this weird provision that required after you had done the foreclosure that the foreclosed upon owner would have to sign the conveyance deed. So basically you foreclosed on an owner and they have to agree to that foreclosure. And so they'd make it almost, why do it if that's the case, right? Certainly, I don't know of anyone that was able to foreclose under part two. And when they amended the law in 2011, did they fix that part of it? Is that what they did? When they amended the law in 2011, they really kind of revamped things. So it made an overall change to both part one and part two. So it was a full alteration. I don't know if you recall, they had a foreclosure commission that went through and it actually put the brakes on non-judicial foreclosures for, I want to say, approximately a year. Well, yeah. So let's just kind of back up a little bit and talk about, in simple terms, the foreclosure process under non-judicial foreclosures. It begins with the association using the management company, giving what I call a 30, 60, 90 day warning. I don't look at those as fair debt letters as much as like late fee notices, more kind of notices before the legal process begins. And so my experience is most management companies or boards after 60, more likely 90 days are saying we haven't heard from you in three months. They turn it over to their attorney. And so what do you do then? We get it. We review the ledger, make sure we check the addresses and we send the demand letter. The demand letter expires in 30 days. If we don't hear back from them, we file a lien against the property. Once that lien is completed, we'll send another demand letter and let them know, hey, we're going to move forward if we don't hear back from you and if you don't pay. When that, if they don't pay, do a notice of default and intent to foreclose. And then you actually have, at the front of the Queen Lily Okolani statue, I think you said it wherever it was, that you then hold an auction. There's actually one more step after the notice of default and intent to foreclose presently. What happens is, is once the notice of default intent to foreclose is submitted, there is a 60 day cure period. Within that time, they can ask for a payment plan, things like that. Once that 60 days runs up, then you have a notice of non-judicial foreclosure. Is it fair to say that any owner who's delinquent, who unfortunately has this process initiated against them, has been given adequate, several notices? This doesn't happen by surprise, you know, that they've been giving lots of notice, a lot of opportunity to address the matter with the board or its attorney. Certainly most of the owners receive the notice. If they're saying they didn't, it's because they've skipped town a lot of times. We use whatever information they've provided, both the managing agent and the department of taxation, their property taxes. So we do what we can to make sure they get notice. It's always better for them to pay and keep people in their places. I would assume if the owner had died, let's say for example, it's probably then goes to probate court or some other, there's not some automatic foreclosure process where you have a deceased person that you can, it must slow down a little bit, they give them a fair opportunity to address that matter. Well, I'm going to give you the lawyer answer here, right? It depends. Because depending on how the property is owned, it may pass automatically to someone else. But if the sole owner was deceased, then there would be... But the important message is that owners are notified. So a delinquent owner, it's not a surprise to them that all of a sudden, how did this happen? I've read people in the paper say, I don't know. I came home and they were evicting me. I didn't know this was happening. Unlikely. Very unlikely, very unlikely. Especially considering notice is posted on the door of the foreclosure. Is it fair to also say that if you're an owner and you have a problem, the best thing is to get with the board and address it and try to find a way to solve it before... Because under the statute, these legal fees are going to be assessed against them. And if they're already having trouble paying their maintenance fees, more legal fees is not going to help them. Is it best to say that if you have a problem and... Because most boards that I know don't want the property back. They'd rather have a paying owner and have a payment plan, reasonable payment plan, that before they would take this action and the more you ignore it, you kind of force yourself into this legal proceeding, which is making the debt worth it worse. And so it's better that they go ahead and they try to meet with the board or discuss this with them. Absolutely, absolutely. And most of the vast majority of the associations give a 12-month payment plan. So you've got 12 months to pay off the delinquency. I think that's in the statute, right? That an owner has an automatic right of a 12-month payment plan. But I think that requires them also to stay current with their existing maintenance fees. So you could take your delinquency and you could then add that, divide that by 12 plus your current maintenance fees. And by law, the board would have to grant that to you. Correct. And I would just say from experience, I know where there's been problems and I certainly have empathy for homeowners who have gotten to some surprise. Maybe it's illness or death or loss of job. They don't want to lose their home and boards don't really want that. I've seen even some boards give longer payment plans to try to give people a chance to keep it. But where they take action is when they get no reply. And people just ignore it because they're afraid of the consequences. So I would just say in general terms, it's better to do that. It's better to stay in contact and please keep current on your payment plan. Boards tend to have some empathy for people. But if you're on your third shot at a payment plan, the board's gonna have some trouble with that because they have their fiduciary duty to their other owners. Well, this is fascinating. I got a lot more questions, but we're gonna take a short break. We'll be back in one minute, talk more about foreclosures in Hawaii. Aloha. Hello, this is Martin de Spang. I wanna get you get excited about my new show, which is Humane Architecture for Hawaii and Beyond. We're gonna broadcast on Tuesdays, 5 p.m. here on Think Tech Hawaii. Hello, I'm Marianne Sasaki. Welcome to Think Tech Hawaii, where some of the most interesting conversations in Honolulu go on. I have a show on Wednesdays from one to two called Life in the Law, where we discuss legal issues, politics, governmental topics, and a whole host of issues. I hope you'll join me. Aloha. My name is Reg Baker, and I'm the host of Business in Hawaii with Reg Baker. We're a show that broadcasts live every Thursday from two to two-thirty. We highlight success stories in Hawaii of both businesses and individuals. We learn their secrets to success, which is always valuable. I hope to see you on our next show. Aloha. Welcome back to Kondo Insider. We're here talking with Kapono Kiyakona about the recent class action lawsuits found in Hawaii against attorneys, alleging that they violated the current statute in their collection process for non-judicial foreclosures, and we're talking about how that whole system works and about that lawsuit. We kind of ended up with a discussion about the importance of owners, if in fact they have a delinquency, to reach out to their board and try to find a way to solve this because these fees mount up a lot of time because owners just ignore the demand letters and because they don't have an immediate solution or they're afraid of the consequences, they don't reply to all these legal letters and all of a sudden they're in foreclosure with a greater debt because of the legal fees and what not to put words in Kapono's mouth, but we were saying that it's highly unlikely, if not impossible, for owners to be foreclosed upon without a lot of notice. This isn't a surprise to an owner where all of a sudden they get a notice on a Friday and the foreclosure's on Saturday. There's lots of statutory obligations with regard to this. That is fair enough, yes. So let me see if I understand this class action well soon a little bit. So you have an owner who's delinquent. They've been given lots of notice from the management company, lots of notice from the lawyer, you follow the lien, you're given notice of the foreclosure auction. Under the statute, they have a right to a payment plan up to 12 months. And so yeah, but delinquent person who hasn't paid his bills and now they're trying to say the attorney somehow violated something, so you have to pay the bill. Basically. It's even more simplified and directed, I think. Their main contention is that the associations weren't allowed to foreclose under that part of the statute that they were using, that they had to use this other part that required someone to sign the conveyance deed. And how much, what are they looking for is for it? What is the claim? Is there a dollar amount or an estimated amount? Because it's a class action suit, so they're representing in theory a whole unknown group of people of hundreds probably. I haven't seen any specific demand yet on the numbers. All I did was read the newspaper and I believe they threw out a multi-million dollar number for that. I think it was tens of millions of dollars, you know. So where would that money go if they got any? Well, with a lot of class actions, a lot goes to the attorneys, as you'll find. I don't know. I think it's an interesting consideration, especially when you look at a lot of the foreclosures that the association did happened right before the lender foreclosures were completed. So you have these situations where you look at it and you say, okay, well, what are your damages because you hadn't been paying your mortgage for the last three years? And how are you gonna say that you were harmed by the association action? Right. I mean, I can see this, but to me they're arguing out of technicality. And I have a hard time personally understanding, are they trying to get their property back? Is that one of the claims? I don't think so. I don't think so. The claim is purely for monetary damages. They're saying they were harmed by the association moving forward with their foreclosure, exercising the statutory right of the association to foreclose. What was the association of harm because they didn't pay their bills? Oh, absolutely, absolutely. We had, when we took over for some, they had huge delinquencies of people because people weren't paying. And what it was is, if you recall that timeframe, it was sort of the leftovers from the housing crisis. People had walked away from homes and that was the problem many associations had to deal with. We had a project on Maui, which was I think 67 units. And mostly second homes, they may have used it for a vacation rental, but all of it legally and legitimately as far as the zoning and what they were at. But we had a third of the owners after 2008 simply walk away from their property, which means they weren't paying the lender nor they were paying the association. And if you can imagine the impact on an association of a third of your owners stopping their payments and how that affects funding reserves, how that affects just meeting the basic obligations to run the basic bills of electricity and pay them. So that particular association had to do a special assessment on a monthly basis for the deficit and cash flow lost by delinquent owners. And their hope was as they got through this non-judicial foreclosure process, because as you said earlier, that's quicker than the foreclosure process of a lender that they could get possession and at least mitigate that loss through renting it out, which seems only reasonable and fair to me. It's hard for me to imagine how you can argue that if you didn't do your job and pay your share, how you can say I'm harmed because of some technicality that exists with respect to this alleged foreclosure law. And that's what a lot of people, they have that empathy for the owners and they forget that the people that are paying regularly, like your project on Maui, they have these huge unexpected bills because other people aren't carrying their load. And all of a sudden you're left with the association, the board, the other owners are left with the idea of, okay, well what do we do? What do we need to do? How do we get these funds back? And foreclosure is a necessity. I think non-judicial foreclosure has been recognized by the legislature as a very important agreement to give fast opportunity to get possession of the property. Again, they're not responsible for the mortgage and not responsible for property taxes, but they're able to rent it out and get some cash flow. Oftentimes the rental income exceeds the maintenance fees and they're allowed to then keep the difference which helps mitigate the loss of cash flow. And of course, when a commissioner is appointed under the regular foreclosure, then that all changes. But it's a method to try to help restore the financial viability of an association. Absolutely. And the legislature, when they change the law, they recognize that. Because we all have a few more minutes left on the show, have there been any court hearings on this so far and what's happened with that? There are numerous cases filed on this, some class actions, some just single owners. There has been a hearing on a motion to dismiss filed on behalf of one of the law firms. And that hearing was before the line court judge, Judge Chang, and Judge Chang granted that motion. They dismissed it. He said, look, the association has the right to foreclose under the part of the statute that they were using. And so there's no claim against the attorneys for that. We are hopeful that the other courts will follow along with that. There are motions pending in other courts and we'll see how those come up. The foreclosure, the class action lawsuit, I believe is set for January with the motion to dismiss. So basically the attorneys have filed either motions to dismiss or motions for summary judgment saying this is not correct your interpretation of the statute. So they just want the judge to rule on a basis of the law that they had the right to do it. And so far, Judge Chang, on their first case to come forward, ruled in favor of the attorneys by dismissing the lawsuit. And I think he did for the most part that with prejudice. Can you tell our audience the difference between with prejudice and without prejudice? Certainly. If something's dismissed with prejudice, it means it cannot be brought again by that person. If it's without prejudice, they have the opportunity to change whatever defects there were in their complaint and file again. So that's a pretty solid statement. Yes, yes. Now is that probable or likely or maybe under the rules they can't do this? Will other judges know of Judge Chang's ruling? I mean like the federal judges and the other judges in state court that may have similar claims? They're likely to know about it. They're not bound by it, but they're likely to know about it. And we hope that they will follow his ruling. And as I said, Judge Chang is the judge that handles the land court appeal. So he handles these types of things regularly. He's seen it before. He's familiar with the statute. And so it's something that we trust he made the right call and we trust that other judges will see that. And do federal judges typically know what state judges have ruled and their deliberations? I mean, I'm not saying they're bound by it, but do they usually typically know other actions that have been taken place? As part of disclosures in federal court, you will list other cases that are similar that deal with the, that are somewhat related. And so they should know about this ruling. So it sounds like from your first case anyway, this case is going to have a short life. These cases may have a short life. We don't know how judges are gonna rule and every case may have some difference in facts, but the reality of the part two and whether the condos have the right, at least the first adjudication side with the attorneys that they follow the right process under the statute. Correct, correct. Now is your firm still doing that? Did I show foreclosures? Absolutely, absolutely. The thing to remember is these lawsuits are only challenging foreclosures that were started before May of 2011. So anything that happened after May of 2011 was done under a different law. So the arguments that they raised are inapplicable. Yeah, I can see that. And frankly, there's a degree of equity in this is that here you have a nonpaying owner who's been giving all this notice and still didn't make any arrangements to refuse to pay. And then all of a sudden he lost his unit to no surprise he should have known. Meanwhile, I had similar problems maybe with his lender and now he's saying, no, you have to pay me. There seems to be an equity in that concept to me, but you know. It is unfair, it is unfair to current owners. That's the thing. It's unfair to those owners that paid. So if you were a board of directors, what advice would you have that would you tell them that continue to collect money and do nonjudicial foreclosures? I mean, it seems to me not having income is very harmful to the association. Absolutely, absolutely. They shouldn't let us stop them what they're doing. Then the nonjudicial foreclosures are appropriate under law and they should go forward. They have a fiduciary duty to collect the maintenance fees. And when they stop doing this, that's when they get in trouble. Well, this has been a very interesting show today. And I think the message is that there have been some class action lawsuits filed and we've helped explain to you what the issues are before the association. But remember this, boards are fiduciaries. They need to have the money come in and based on their discussions with their attorney and what's the facts of our case, they need to continue to represent their board well and make sure that owners pay their obligations, in my opinion, under the current statute. Next week we have another exciting show. Condo Insiders every Thursday from three to 330. We hope you enjoy our content and we look forward to seeing you then. Aloha.