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Condominium associations sued by disgruntled tenants may slip away unscathed after the Legislature passed a bill this session that clarifies the powers the associations have to foreclose on properties.
Senate Bill 551 would clear up the legislative intent behind statutes enacted since the 1990s regarding condo associations’ right to foreclose on owners who failed to pay their fees without going through the courts. Tenants — supported by a recent ruling of the Intermediate Court of Appeals — argued the associations need to spell out in their bylaws that they can foreclose on noncompliant owners.
By passing SB 551, the Legislature is saying that is not the case, and is also retroactively applying that standard to cases still pending in the courts.
The bill’s fate is now in the hands of Gov. David Ige.
At the center of the lawsuits is an argument over whether or not condo associations should be required to state that they have the power to conduct nonjudicial foreclosures in their governing documents. Those types of foreclosures allow associations to collect liens from maintenance fees without having to wade through a lengthy court process.
Opponents of the measure contended lawmakers never intended to give the associations authority to conduct nonjudicial foreclosures. They complained it was pushed by law firms and association boards named in a class action lawsuit from 2016.
Proponents of the measure say that they need the power of nonjudicial foreclosure to collect unpaid fees from owners. Otherwise, the unpaid fees that typically go to common expenses would need to be picked up by other residents.
“The bill is very important to confirm and clarify legislative intent,” Anne Anderson, an attorney at Anderson Lahne & Fujisaki, said Friday. “Hopefully, Hawaii’s courts will take notice of that while evaluating their rulings.”
The bill would add provisions to laws governing foreclosures and condos that say the associations don’t need to have a clause in their own bylaws since foreclosure power is already granted by the state.
The issue of legislative intent that lawmakers want to address stems from a 2015 case between Christian Sakal and the condo association for the Hawaiian Monarch condo complex in Waikiki.
Last July, ICA judges ruled that the power of foreclosure must be spelled out in an association’s bylaws.
“Nothing in the legislation or legislative history of Hawaii condominium law supports a conclusion that, at any time, the Legislature enacted or intended to enact a statute granting powers of sale over all condominiums in the State to their respective associations,” Judge Katherine Leonard wrote in a footnote of the court opinion.
But lawmakers contend in the preamble to SB 551 that it was always the Legislature’s intent to give associations the power to foreclose. They noted a 1999 committee report on a bill that granted that power.
The state Supreme Court is considering the Sakal case now. Attorney Frederick Arensmeyer, who represents Sakal in the case, did not respond to a request for comment Friday.
In written testimony to lawmakers, Arensmeyer said that without a power of foreclosure clause in governing documents, such foreclosures would be an “unconstitutional regulatory taking of private property without just compensation to the impacted homeowners.”
SB 551 could also affect two lawsuits pending in District Court from 2016. One is a class action in which more than 160 parties are suing more than 70 condo associations and the law firms representing them, including Porter McGuire Kiakona & Chow and Ekimoto & Morris.
The class action suit, brought by the law firm Imanaka Asato, also relies on the argument that the Legislature did not intend for associations to have the power to foreclose.
Steven Chung, the attorney for the plaintiffs, did not respond to a request for comment.
Chung also represented a military couple in Ewa who won a minor victory in a lawsuit against their condo association. In 2017, U.S. District Court Judge Leslie Kobayashi ruled that the association did not have the power to pursue nonjudicial foreclosures under state law.
The parties in both of the pending cases have been meeting in status conferences, according to the court record.
Chung opposed SB 551 in written testimony, maintaining nonjudicial foreclosures were unlawful because of the apparent lack of a clear legislative intent.
Laree McGuire, a partner in one of the law firms being sued, said that the Legislature had to apply SB 551 retroactively.
“The court would look at it as a new statute, and not one that addresses everything that came before,” she said.
McGuire worked with Anderson to propose amendments giving condo owners more protections from the associations.
Many of them made it into the bill’s final version, including a protection from associations attempting to foreclose for collection of legal fees or late fees and an exemption for active duty military deployed out of state. Associations need to file the foreclosure with a court if they are going after deployed military personnel.
McGuire said that one of the most important protections was a new section that requires mediation between the associations and the people they are trying to foreclose on.
If the owner requests mediation within 30 days after a notice of intent to foreclose, the association would not be able to immediately pursue nonjudicial foreclosure. If the mediation wasn’t completed within 60 days after that, then the foreclosure could proceed.
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