Hawaii Condo Law

A lot of the laws about community associations exist because of Fannie Mae & Freddie Mac. Fannie Mae and Freddie Mac are Government Sponsored Enterprises created by the U.S. Congress. Although they are government sponsored, they are privately-owned corporations without government guarantees or protections. They purchase mortgages on the secondary market, pool them, and sell them as mortgage-backed securities to investors on the open market.

Fannie Mae and Freddie Mac each have standards for the mortgages they are willing to purchase. These two sets of standards include requirements for community associations. For instance, Fannie Mae and Freddie Mac have insurance requirements for condominium associations. If your condominium association doesn’t meet their insurance requirements, standard mortgages are not available for the units in your condominium. Developers and owners want standard mortgages to be available for the units in a community association because it makes it easier to sell the units. All things being equal, a unit in a non-conforming project will be more difficult to sell and may affect the value of the units. As a result, it is common for statutory requirements and governing documents to comply with the Fannie Mae and Freddie Mac guidelines.

In addition, the free markets also tend to follow the guidelines. For instance, it is difficult to find association insurance policies in Hawaii that do not meet the Fannie Mae and Freddie Mac guidelines. The insurance companies want to have policies that will appeal to the biggest market. Creating insurance policies that are not in demand doesn’t make financial sense. Therefore, even if you wanted to purchase a non-conforming insurance policy for your association, you would have a hard time finding such a policy.

Until the new condominium law, there was no formal statutory definition of a conflict of interest. HRS §514B-125(f) now defines:

“Conflict of interest”, as used in this subsection, means an issue in which a director has a direct personal or pecuniary interest not common to other members of the association.

Until the new condominium law, there was no formal statutory definition of a fiduciary duty. HRS §514B-106(a) now states:

In the performance of their duties, officers and members of the board shall owe the association a fiduciary duty and exercise the degree of care and loyalty required of an officer or director of a corporation organized under chapter 414D.

1. In good faith;
2. With the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
3. In a manner the director reasonably believes to be in the best interests of the corporation.

Until the new condominium law, there was no formal definition of a resident manager. HRS §514B-3 now states:

“Resident manager” means any person retained as an employee by the association to manage, on-site, the operation of the property.

Pursuant to HRS §514B-137(a), the Association is responsible for the operation of the property. What is operation of the property. The condominium property act defines it very broadly in HRS §514B-3 as follows:

“Operation of the property” means the administration, fiscal management, and physical operation of the property, and includes the maintenance, repair, and replacement of, and the making of any additions and improvements to, the common elements.

One of the changes in the law is the adoption of terms from the Uniform Common Interest Ownership Act (UCIOA). UCIOA is a model act that has been adopted in some form by 17 states. The new law follows UCIOA’s use of the term “unit” rather than “apartment,” in part to reflect that condominium units are not only apartments. They can be parking stalls, boat docks, commercial spaces, warehouse spaces, etc. Hawaii Revised Statutes 514B-3 definition is:

“Unit” means a physical or spatial portion of the condominium designated for separate ownership or occupancy, the boundaries of which are described in the declaration or pursuant to section 514B-35, with an exit to a public road or to a common element leading to a public road.

The legislature created a pilot project that would permit condominium owners or association to have an administrative hearing for certain disputes. An administrative hearings officer of the State Department of Commerce and Consumer Affairs would hear the dispute.

A non-Judicial Foreclosure is a procedure for selling real property that is subject to a lien, mortgage or other security interest. The purpose of a non-judicial foreclosure is the same as a judicial foreclosure. The difference is that a judge is not involved in the procedure. The foreclosing party must either be a condominium association, timeshare association or a mortgagee with a power of sale provision in the mortgage. The mortgagee or the association handles the duties of the commission including publishing notices of the auction, taking bids, and payment of the proceeds. As in a judicial foreclosure, the proceeds of the sale are used to pay the cost of the public sale, real property taxes, the money owed on the property and any liens and security interests. If there are any funds left, it is paid to the former owner of the property. Since there is no judge, a deficiency judgment is not available in a non-judicial foreclosure.

A judicial foreclosure is sometimes referred to as a standard foreclosure. In a judicial foreclosure, a lawsuit is filed and a judge orders the appointment of a commissioner and the sale of the property at a public auction. The commissioner handles the details of the public auction. Bidders are normally required to put a deposit down unless the bidder is one of the mortgagees or lienholders. The sale and the proposed purchase price must be approved by the judge to make sure it is adequate. The proceeds are used to pay the commissioner’s fees and cost, real property taxes, the money owed on the property and any liens and security interests. If there are any funds left, it is paid to the former owner of the property. If there is insufficient funds to pay everyone, the judge can enter a deficency judgment for the difference.

One alternative to a judicial foreclosure is a non-judicial foreclosure.

Section 207 of the Telecommunications Act of 1996 required the Federal Communications Commission to adopt regulations that would permit individuals to place antennas for the reception of video programing services despite governmental or community association restrictions. The FCC referred to these devices as Over The Air Reception Devices. The FCC adopted OTARD regulations which prohibit many restrictions about antennas and similar devices.

For instance, restrictions requiring “prior approval” of satellite dishes and broadcast antennas, commonly found in association governing documents, are now preempted for antennas covered by the rule. Devices that only transmit signals remain subject to private restrictions. Examples of antennas covered by the rule include those that provided direct broadcast satellite services (e.g. Direct TV), multipoint distribution services (i.e. wireless cable), television broadcast signals and wireless signals used to provide telephone service or high speed internet access to a fixed location.

Homeowners and their tenants have the right to erect covered antennas on individually owned property, or property in which they have a direct or indirect ownership interest and over which they have exclusive use or control (limited common elements in condominiums). Homeowners may not install any antenna on common elements of a condominium, or common areas of a planned community association owned by the association under OTARD.

The FCC allows some flexibility for associations to regulate covered antennas so long as such rules do not impair homeowners’ rights under OTARD. A rule impairs rights if it precludes reception of an acceptable quality signal, unreasonably prevents or delays installation, maintenance or use of an antenna, or unreasonably increases the cost of installing, maintaining or using an antenna. Reasonable safety requirements may be imposed under OTARD even if it impairs rights under OTARD, but you must be very careful in crafting safety requirements. Community association rules must be carefully crafted to comply with OTARD.

I, along with attorneys Stephen Marcus, Tom Hindman, Marvin Nodiff and Karyn Kennedy drafted model rules for the Community Associations Institute along with a publication on OTARD. The out-of-print publication is being revised with an anticipated publication date of early 2007. The FCC has an Information Sheet that is for the most part accurate.