SB 2765: Condominiums; Associations; Rental Income; Foreclosures; Third‑Party Commissioners

A BILL FOR AN ACT

RELATING TO CONDOMINIUMS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that condominiums are a significant and valuable housing resource in the State, especially with limited space available for new development.  The structure of condominium ownership requires each owner to share in the total cost of maintaining common elements, such as building exteriors, landscaping, and recreation rooms, in addition to paying insurance premiums.  All owners pay for such maintenance through payment of their share of common expense assessments.

     The legislature further finds that it is crucial that condominium associations are able to secure timely payment of common expense assessments to provide services to all residents of a condominium community.

     The legislature notes that increasing delinquencies, related enforcement expenses, and lengthy delays in the judicial foreclosure process exacerbate the financial burden on association owners.

     The legislature further finds that associations are treated differently from other parties that acquire title through foreclosure, and that this treatment burdens association members who pay their share of common expense assessments on time.  In particular, associations that have acquired title to a unit through a judicial or nonjudicial foreclosure face additional administrative and financial burdens of accounting for rental income.

     The legislature further notes that many associations do not obtain "excess rental income" as defined by section 514B-146(n), Hawaii Revised Statutes.  However, in cases where another lienholder is foreclosing on a unit acquired by an association, associations with excess rental income are also unfairly burdened by the requirement to disgorge "excess rental income" received before the appointment of a commissioner in a subsequent foreclosure.

     Accordingly, the purpose of this Act is to clarify that condominium associations that have acquired title through foreclosure may retain rental income received before the appointment of a commissioner, but the association may be required by a court to remit rental income received after the appointment of a commissioner to be held until an order of distribution is entered by the court.

     SECTION 2.  Section 514B-146, Hawaii Revised Statutes, is amended by amending subsection (n) to read as follows:

     "(n)  After any judicial or nonjudicial foreclosure proceeding in which the association acquires title to the unit, any [excess] rental income received by the association from the unit [shall] may be [paid to existing lien holders based on the priority of lien, and not on a pro rata basis, and shall be applied to the benefit of the unit owner.  For purposes of this subsection, excess rental income shall be any net income received by the association after a court has issued a final judgment determining the priority of a senior mortgagee and after paying, crediting, or reimbursing the association or a third party for:

     (1)  The lien for delinquent assessments pursuant to subsections (a) and (b);

     (2)  Any maintenance fee delinquency against the unit;

     (3)  Attorney's fees and other collection costs related to the association's foreclosure of the unit; or

     (4)  Any costs incurred by the association for the rental, repair, maintenance, or rehabilitation of the unit while the association is in possession of the unit including monthly association maintenance fees, management fees, real estate commissions, cleaning and repair expenses for the unit, and general excise taxes paid on rental income;

provided that the lien for delinquent assessments under paragraph (1) shall be paid, credited, or reimbursed first.] used for the benefit of the association; provided that a court may require that rental income received after the appointment of a commissioner in a subsequent foreclosure of a lien against the unit shall be remitted to the court-appointed commissioner to be held until an order of distribution is entered by the court."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 3000.

Report Title:

Condominiums; Associations; Rental Income; Foreclosures; Third‑Party Commissioners

Description:

Clarifies that condominium associations that have obtained title to a unit through foreclosure may retain rental income received prior to the appointment of a commissioner in a subsequent foreclosure, but the association may be required by a court to remit rental income received after the appointment of a commissioner to be held until an order of distribution is entered by the court.  Effective 7/1/3000.  (HD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

RELATING TO CONDOMINIUMS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that condominiums are a significant and valuable housing resource in the State, especially with limited space available for new development.  The structure of condominium ownership requires each owner to share in the total cost of maintaining common areas such as building exteriors, landscaping, and recreation rooms, in addition to paying insurance premiums.  All owners pay for such maintenance through payment of their share of common expense assessments.

     The legislature further finds that it is crucial that condominium associations are able to secure timely payment of common expense assessments to provide services to all residents of a condominium community.

     The legislature notes that increasing delinquencies, related enforcement expenses, and lengthy delays in the judicial foreclosure process exacerbate the financial burden on association owners.

     The legislature further finds that associations are treated differently from other parties that acquire title through foreclosure, and that this treatment burdens association members who pay their share of common expense assessments on time.  In particular, associations that have acquired title to a unit through a judicial or nonjudicial foreclosure face additional administrative and financial burdens of accounting for rental income.

     The legislature further notes that many associations do not obtain "excess rental income" as defined by section 514B-146(n), Hawaii Revised Statutes.  However, in cases where another lienholder is foreclosing on a unit acquired by an association, associations with excess rental income are also unfairly burdened by the requirement to disgorge "excess rental income" received prior to the appointment of a commissioner in a subsequent foreclosure.

     Accordingly, the purpose of this Act is to clarify that condominium associations that have acquired title through foreclosure may retain rental income received prior to the appointment of a commissioner, provided that the association may be required by a court to remit rental income received after the appointment of a commissioner to be held until an order of distribution is entered by the court.

     SECTION 2.  Section 514B-146, Hawaii Revised Statutes, is amended by amending subsection (n) to read as follows:

     "(n)  After any judicial or nonjudicial foreclosure proceeding in which the association acquires title to the unit, any [excess] rental income received by the association from the unit [shall] may be [paid to existing lien holders based on the priority of lien, and not on a pro rata basis, and shall be applied to the benefit of the unit owner.  For purposes of this subsection, excess rental income shall be any net income received by the association after a court has issued a final judgment determining the priority of a senior mortgagee and after paying, crediting, or reimbursing the association or a third party for:

     (1)  The lien for delinquent assessments pursuant to subsections (a) and (b);

     (2)  Any maintenance fee delinquency against the unit;

     (3)  Attorney's fees and other collection costs related to the association's foreclosure of the unit; or

     (4)  Any costs incurred by the association for the rental, repair, maintenance, or rehabilitation of the unit while the association is in possession of the unit including monthly association maintenance fees, management fees, real estate commissions, cleaning and repair expenses for the unit, and general excise taxes paid on rental income;

provided that the lien for delinquent assessments under paragraph (1) shall be paid, credited, or reimbursed first.] used for the benefit of the association or the unit owner; provided that a court may require that rental income received after the appointment of a commissioner in a subsequent foreclosure of a lien against the unit shall be remitted to the court-appointed commissioner to be held until an order of distribution is entered by the court."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 2050.

Report Title:

Condominiums; Associations; Rental Income; Foreclosures; Third‑Party Commissioners

Description:

Clarifies that condominium associations that have obtained title to a unit through foreclosure may retain rental income received prior to the appointment of a commissioner in a subsequent foreclosure; provided that the association may be required by a court to remit rental income received after the appointment of a commissioner to be held until an order of distribution is entered by the court.  Effective 7/1/2050.  (SD1)

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

A BILL FOR AN ACT

relating to condominiums.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

     SECTION 1.  The legislature finds that condominiums are a significant and valuable housing resource in Hawaii, especially with limited space available for new development.  The structure of condominium ownership requires each owner to share in the total cost of maintaining common areas such as building exteriors, landscaping, and recreation rooms, in addition to paying insurance premiums.  All owners pay for such maintenance through payment of their share of common expense assessments.

     The legislature further finds that it is crucial that condominium associations be able to secure timely payment of common expense assessments to provide services to all residents of a condominium community.

     The legislature notes that increasing delinquencies, related enforcement expenses, and lengthy delays in the judicial foreclosure process exacerbate the financial burden on association owners.

     The legislature further finds that associations are treated differently from other parties that acquire title through foreclosure, and that this treatment burdens association members who pay their share of common expense assessments on time.  In particular, associations that have acquired title to a unit through a judicial or nonjudicial foreclosure face additional administrative and financial burdens of accounting for rental income.

     The legislature further notes that many associations do not obtain "excess rental income" as defined by section 514B-146(n), Hawaii Revised Statutes.  However, in cases where another lienholder is foreclosing on a unit acquired by an association, associations with excess rental income are also unfairly burdened by the requirement to disgorge "excess rental income" received prior to the appointment of a commissioner in a subsequent foreclosure.

     Accordingly, the purpose of this Act is to clarify that condominium associations that have acquired title through foreclosure may retain rental income received prior to the appointment of a commissioner, provided that the association may be required by a court to remit rental income received after the appointment of a commissioner.

     SECTION 2.  Section 514B-146, Hawaii Revised Statutes, is amended by amending subsection (n) to read as follows:

     "(n)  After any judicial or nonjudicial foreclosure proceeding in which the association acquires title to the unit, any [excess] rental income received by the association from the unit [shall] may be [paid to existing lien holders based on the priority of lien, and not on a pro rata basis, and shall be applied to the benefit of the unit owner.  For purposes of this subsection, excess rental income shall be any net income received by the association after a court has issued a final judgment determining the priority of a senior mortgagee and after paying, crediting, or reimbursing the association or a third party for:

     (1)  The lien for delinquent assessments pursuant to subsections (a) and (b);

     (2)  Any maintenance fee delinquency against the unit;

     (3)  Attorney's fees and other collection costs related to the association's foreclosure of the unit; or

     (4)  Any costs incurred by the association for the rental, repair, maintenance, or rehabilitation of the unit while the association is in possession of the unit including monthly association maintenance fees, management fees, real estate commissions, cleaning and repair expenses for the unit, and general excise taxes paid on rental income;

provided that the lien for delinquent assessments under paragraph (1) shall be paid, credited, or reimbursed first.] used for the benefit of the association; provided that a court may require that rental income received after the appointment of a commissioner in a subsequent foreclosure shall be remitted to the court-appointed commissioner."

     SECTION 3.  This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect upon its approval.

Report Title:

Condominiums; Associations; Rental Income; Foreclosures; Third‑Party Commissioners

Description:

Clarifies that condominium associations that have obtained title to a unit through foreclosure may retain rental income received prior to the appointment of a commissioner in a subsequent foreclosure; provided that the association may be required by a court to remit rental income received after the appointment of a commissioner.

The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.

STAND. COM. REP. NO. 3030

Honolulu, Hawaii

RE:     S.B. No. 2765

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature             

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Judiciary, to which was referred S.B. No. 2765, S.D. 1, entitled:

"A BILL FOR AN ACT RELATING TO CONDOMINIUMS,"

begs leave to report as follows:

     The purpose and intent of this measure is to clarify that condominium associations that have obtained title to a unit through foreclosure may retain rental income received before the appointment of a commissioner in a subsequent foreclosure; provided that the association may be required by a court to remit rental income received after the appointment of a commissioner to be held until an order of distribution is entered by the court.

     Your Committee received testimony in support of this measure from the Community Associations Institute, Associa Hawaii, Association of Apartment Owners of Honolulu Tower, and six individuals.

     Your Committee received testimony in opposition to this measure from the Law Offices of Mark K. McKellar, LLLC, and one individual.

     Your Committee received comments on this measure from two individuals.

     Your Committee finds that under existing law, the State's circuit courts have determined that condominium associations should be treated differently from other parties that acquire title through foreclosure.  Unlike other entities, associations that have acquired title to a unit through judicial or nonjudicial foreclosure face additional administrative and financial burdens of accounting for rental income.  Furthermore, many associations do not obtain "excess rental income" as defined in section 514B‑146(n), Hawaii Revised Statutes, and, in cases where another lienholder is foreclosing on a unit acquired by an association, associations with excess rental income are also burdened by the requirement to disgorge excess rental income received before the appointment of a commissioner in a subsequent foreclosure.  This measure will clarify existing law to ensure that condominium associations are treated fairly and not subject to unique and burdensome requirements.

     As affirmed by the record of votes of the members of your Committee on Judiciary that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2765, S.D. 1, and recommends that it pass Third Reading.

Respectfully submitted on behalf of the members of the Committee on Judiciary,

STAND. COM. REP. NO. 2392

Honolulu, Hawaii

RE:     S.B. No. 2765

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which was referred S.B. No. 2765 entitled:

"A BILL FOR AN ACT RELATING TO CONDOMINIUMS,"

begs leave to report as follows:

     The purpose and intent of this measure is to clarify that condominium associations that have obtained title to a unit through foreclosure may retain rental income received prior to the appointment of a commissioner in a subsequent foreclosure; provided that the association may be required by a court to remit rental income received after the appointment of a commissioner.

     Your Committee received testimony in support of this measure from the Hawaii Legislative Action Committee of the Community Associations Institute; Honolulu Tower; Associa; Law Offices of Mark K. McKellar, LLLC; AOAO Lakeview Sands; and twelve individuals.

     Your Committee received testimony in opposition to this measure from the Mortgage Bankers Association of Hawaii and two individuals.

     Your Committee received comments on this measure from one individual.

     Your Committee finds that existing law requires a condominium association that acquires title to a property through foreclosure to disgorge any excess rental income to a superior lienholder after a subsequent foreclosure.  Lengthy delays in foreclosure proceedings can lead to years of forgone assessment revenues and large disgorgements to superior lienholders, resulting in significant financial burden for condominium associations.  This measure would enable fairer outcomes by allowing condominium associations that acquire title through foreclosure to retain rental income earned before a subsequent foreclosure.

     Your Committee has amended this measure by:

     (1)  Inserting language that clarifies that rental income received by the association from the unit may be used for the benefit of the unit owner;

     (2)  Inserting language that clarifies that a court may require that rental income received after the appointment of a commissioner in a subsequent foreclosure of a lien against the unit shall be remitted to and held by the commissioner until an order of distribution is entered by the court;

     (3)  Amending section 1 to reflect its amended purpose;

     (4)  Inserting an effective date of July 1, 2050, to encourage further discussion; and

     (5)  Making technical, nonsubstantive amendments for the purposes of clarity and consistency.

     As affirmed by the record of votes of the members of your Committee on Commerce and Consumer Protection that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2765, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2765, S.D. 1, and be referred to your Committee on Judiciary.

Respectfully submitted on behalf of the members of the Committee on Commerce and Consumer Protection,