Senate Bill 551 clarifies condo associations’ right to conduct non-judicial foreclosures, which could save condo owners from footing the bill in a multimillion-dollar class-action lawsuit.

Even those who live in a condo may not realize how much the actions of a few residents affect the lives of everyone living there. Condo living means sharing common areas with your neighbors, like the pool or the barbecue area. It also means sharing the costs of maintaining those areas, as well as the general day-to-day costs.

Condo associations run on maintenance fees. Each owner pays their fair share to keep the lights on and the water running — at least, that’s how it should work. Unfortunately, every condo association has to deal with people who pay their bills late, or don’t pay them at all.

Too many delinquencies affect an association’s ability to operate smoothly, which means the board needs to trim costs or make up for the shortfall. This often results in increased maintenance fees for everyone else.

Condo owners agree to pay their maintenance fees when they purchase their property. When they don’t, it hurts all the other owners because it forces them to pay more than their fair share.

That’s why the Legislature gave condominium associations the power to utilize non-judicial foreclosures almost 20 years ago in Act 236 (SLH 1999). Associations use non-judicial foreclosure as a remedy to collect delinquent maintenance fees from owners who are in default for a significant period of time. In these cases, it’s the only way the association can hope to collect on thousands of dollars in unpaid fees.

SB 551, which was passed this session, clarifies that back in 1999 the Legislature did intend to give condo association the right to pursue the remedy of power of sale or non-judicial foreclosure as expressed in HRS Chapters 514A, 514 B, and 667.

Condominiums dot the Honolulu landscape. The author urges Gov. Ige to not veto a bill intended to help condo associations in non-judicial disclosure matters.

Cory Lum/Civil Beat

Unfortunately, Gov. David Ige has said he intends to veto this bill. Why does this matter for virtually every condo owner in the state?

In 2016, a few homeowners and their lawyers decided to sue their condo associations for conducting non-judicial foreclosures. Many associations have been named in the lawsuits so far, and more could be added.

If SB 551 does not pass, the homeowners suing the association — owners who were foreclosed on because they often owed thousands of dollars in maintenance fees and other charges — could end up pursuing claims for millions of dollars or more in damages.

Who Will Foot The Bill?

Associations are required to carry liability insurance, which may cover some of the damages. The rest of the expense will fall to the association’s current owners – i.e., condo owners could have to pay a special assessment or see a substantial increase in their monthly maintenance fees to pay for the lawsuits.

In contrast, the owners who did not pay their bills in the first place could receive a windfall, which will come from the responsible owners who do pay their bills.

Every condo association has to deal with people who pay their bills late, or don’t pay them at all.

If you consider that many condos are home to those who live on fixed incomes, the results of this lawsuit alone could be devastating to them. What’s more, it could open the door for other similar lawsuits, which will affect even more responsible condo owners.

SB 551 will help protect associations from unfounded lawsuits. More importantly, it will protect condo owners — the ones who pay their bills, from the ones who don’t.

The bill affords consumer protections to prevent non-judicial foreclosure in certain cases, such as for active-duty military members. It also requires mediation for homeowners who request it, and allows owners 60 days to cure a default before the non-judicial foreclosure can proceed. It allows homeowners to set up payment plans and receive financial counseling. It does not seek to take people from their homes, but it does give associations the ability to collect unpaid dues so they can continue to operate for the rest of their members.

SB 551 clarifies the rights that condo associations have been exercising for decades. If the governor allows it to pass, he will be protecting the majority of condo owners from experiencing major hardship.

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