[§166-8.5]  Rights of holders of securityinterests.  (a)  For the purpose of this section:

"Institutional lender" means afederal, state, or private lending institution licensed to do business in theState of Hawaii in making loans to qualified applicants under section 166-7 onthe basis of a lease for security, in whole or in part, together with any otherentity who acquires all or substantially all of an institutional lender's loanportfolio.

"Making a loan" means lending of newmoney after June 28, 1999 or the renewal or extension of indebtedness owing bya qualified applicant to an institutional lender.

"Security interest" means anyinterest created or perfected by a mortgage, assignment by way of mortgage, orby a financing statement and encumbering a lease, land demised by the lease, orpersonal property located at, affixed or to be affixed to, or growing or to begrown upon the demised land.

(b)  Board action shall be required when aninstitutional lender acquires the lessee's interest through a foreclosure sale,judicial or nonjudicial, or by way of assignment in lieu of foreclosure, orwhen the institutional lender sells or causes the sale of the lessee's interestin a lease by way of a foreclosure sale, judicial or nonjudicial.  Theinstitutional lender shall convey a copy of the sale or assignment as recordedin the bureau of conveyances.

(c)  Notwithstanding any provisions of thischapter or any law to the contrary, if any lease is subject to a securityinterest held by an institutional lender, and provided the institutional lenderhas given to the board a copy of such encumbrance as recorded in the bureau ofconveyances:

(1)  If the lease is canceled for violation of anynon-monetary lease term or condition, or if the lease is deemed terminated orrejected under bankruptcy laws, [then] in either event, the institutionallender shall be entitled to issuance of a new lease in its name for a termequal to the term of the lease remaining immediately prior to the cancellation,termination, or rejection, with all terms and conditions being the same as inthe canceled, terminated, or rejected lease, except only for such liens,claims, and encumbrances, if any, which were superior to the institutionallender prior to the cancellation, termination, or rejection.  If a lease isrejected or deemed rejected under bankruptcy law, the lease shall be deemed tobe canceled and terminated for all purposes under state law;

(2)  If the lessee's interest under a lease istransferred to an institutional lender, including by reason of the provisionsof paragraph (1) by reason of acquisition of lessee's interest pursuant to aforeclosure sale, judicial or nonjudicial, and by reason of an assignment inlieu of foreclosure, then:

(A)  The institutional lender shall be liablefor the obligations of the lessee under the lease for the period of time duringwhich the institutional lender is the holder of lessee's interest but shall notbe liable for any obligations of the lessee arising after the institutionallender has assigned the lease;

(B)  The provisions of subsections 166-6(a)(1)and (2) shall not apply to the lease or the demised land during such time theinstitutional lender holds the lease; provided, however, that for non-monetarylease violations, the institutional lender shall first remedy the lease termswhich caused the cancellation, termination, or rejection to the satisfaction ofthe board; provided further that the new lease issued to the institutionallender shall have a sunset date (one hundred twenty days from the effectivedate of issuance), when the institutional lender shall either sell or assignthe lease, after which date the provisions of subsection 166-6(a) shall becomeapplicable to the new lease;

(3)  As long as there is a delinquent loan balance securedby a security interest, the lease may not be canceled or terminated, except forcancellation by reason of default of the lessee, and no increase over and abovethe fair market rent, based upon the actual use of the land demised and subjectto the use restrictions imposed by the lease and applicable laws, may beimposed or become payable, and no lands may be withdrawn from the lease, exceptby eminent domain proceedings beyond the control of the board, except withprior written consent by the institutional lender and such consent shall not beunreasonably withheld; and

(4)  If the lease contains any provision requiring thepayment of a premium to the lessor on assignment of the lease, any premiumshall be assessed only after all amounts owing by any debt secured by asecurity interest held by [an] institutional lender shall have been paid infull.

(d)  Ownership of both the lease and thesecurity interest by an institutional lender shall not effect or cause a mergerthereof, and both interests shall remain distinct and in full force and effectunless the institutional lender elects in writing to merge said estates withthe consent of the board.

(e)  The board may include in any consent formor document such provisions not inconsistent with the intent of this section asmay be required to make a lease mortgageable or more acceptable formortgageability by an institutional lender.

(f)  The purchaser, including junior lienholder, of the institutional lender's security interest, and the same isassigned to such purchaser, then the rights herein shall be exercisable by suchtransferee as successor in interest to the institutional lender, except thatsuch purchase shall conform with subsection (c)(4) and, further, the transferof such rights shall be reserved unto and exercisable only to an institutionallender.  Other purchasers may not be precluded in acquiring the institutionallender's security interest but cannot have exercisable rights as successor ininterest to the original institutional lender. [L 1999, c 160, §19]

 

Revision Note

 

  "June 28, 1999" substituted for "the effectivedate of this Act".