Hawaii Real Estate Broker Exam — All Questions

Hawaii sellers sometimes finance a sale with an agreement of sale. HRS section 501-101.5 defines it as an executory contract in which:

• a.a lender holds legal title in trust until the promissory note is paid off
• b.the buyer takes legal title and gives the seller a purchase money mortgage
• c.the seller keeps legal title to the real estate until the buyer performs✓
• d.an escrow depository holds legal title on behalf of both of the parties

The statutory definition is: "'Agreement of sale' means an executory contract for the sale and purchase of real estate which binds one party to sell and the other party to buy real estate which is the subject matter of the transaction, and in which the seller retains legal title to the real estate," and it includes subagreements of sale. That retention of legal title is the whole point and the whole risk: the buyer takes possession and equitable ownership while the seller stays on the title until the price is paid. Hawaii protects the buyer's position by recording. For Land Court property, section 501-101.5(a) gives a duly filed agreement of sale priority over a later conveyance by the seller and over a judgment against the seller not filed earlier, and section 501-101.5(b) extinguishes such claims on the buyer's satisfaction and the filing of a transfer of title. Conveyance tax is paid on the agreement of sale itself, and HRS section 247-3(6) then exempts the deed later given pursuant to it where that tax was fully paid. A purchase money mortgage is the opposite structure, since legal title passes to the buyer at once.

A client bought a unit from the Hawaii Housing Finance and Development Corporation four years ago and now wants to refinance. Under HRS section 201H-47:

• a.no refinancing at all is permitted in the first ten years after purchase
• b.refinancing is unrestricted because the restriction applies only to a sale
• c.the loan may not exceed the restricted price and HHFDC must consent✓
• d.the corporation's share of appreciation becomes payable immediately

Section 201H-47(a)(3) permits refinancing but fences it: a purchaser "shall not refinance the real property within ten years from the date of purchase for an amount in excess of the purchase price as determined by paragraph (1)(A) to (C); provided further that the purchaser shall obtain the corporation's written consent if any restriction on the transfer of the real property remains applicable." Two other limbs of the section matter to a broker. Section 201H-47(a)(1) gives the corporation, for ten years after purchase, "the first option to purchase the real property" at a price capped at the original cost, the cost of the purchaser's improvements, one per cent simple interest, and any appreciation share already paid, and that interest is a statutory lien superior to most other liens. Section 201H-47(a)(4) frees the property from price restrictions after the tenth year, subject to repaying the corporation the balance owed, any subsidy or deferred sales price, interest, and its share of appreciation. Listing such a unit at an unrestricted market price inside the ten years offers a price the seller is not free to accept.