Hawaii Real Estate Broker Exam — All Questions

A Honolulu condominium is offered as a leasehold. Compared with a fee simple unit, the leasehold buyer:

• a.owns the land beneath the building and leases only the parking stall
• b.is exempt from real property tax for the duration of the lease term
• c.acquires the fee simple automatically when the lease term expires
• d.holds the unit for a fixed term and pays lease rent to the fee owner✓

Leasehold is common enough in Hawaii that the licensing law addresses it directly. HRS section 467-1 defines "real estate" to include "lands, the improvements thereon, leaseholds, and all other interests in real property," so selling a leasehold is licensed activity like any other. HAR section 16-99-11(d) then requires that "a leasehold property advertised for sale in any medium shall be identified by the word 'leasehold'," precisely because the difference is easy to miss in a listing photograph. Substantively, the buyer takes a term of years with the right to occupy and pays lease rent to the fee owner; at the end of the term the land and, depending on the lease, the improvements revert unless the lease is extended or the leased fee is bought. Leasehold status confers no exemption from real property taxation, gives the buyer no ownership of the land under the building, and produces no automatic conversion to fee at expiry, which is why the remaining term and the rent renegotiation dates are the first things to check.

HRS section 509-2 allows Hawaii real property to be held as tenants by the entirety by:

• a.any two people named in a single conveyance
• b.spouses or registered reciprocal beneficiaries✓
• c.business partners who record a partnership agreement
• d.a parent and a child who occupy the same dwelling

Section 509-2(a) lets a person convey to themselves and a spouse or reciprocal beneficiary, or spouses to themselves, or reciprocal beneficiaries to themselves, as tenants by the entirety, without conveying through a third party, and directs that each such instrument be construed as validly creating that tenancy "if the tenor of the instrument manifestly indicates such intention." The reciprocal beneficiary relationship is a Hawaii status, registered with the State, and its inclusion here is what separates Hawaii from the states that confine the entirety estate to married couples. The protection the estate carries is preserved when the property is moved into revocable trusts: section 509-2(b) and (c) keep the immunity from separate creditors so long as the relationship continues, both remain beneficiaries, the parties' names appear in the trust name, and notice of the intention to continue holding as tenants by the entirety is filed or recorded in land court or the bureau of conveyances. Any other two people can take as joint tenants or tenants in common, but not by the entirety.

A contractor who has not been paid for work on a Hawaii property wants a mechanic's and materialman's lien. Under HRS section 507-43 that lien attaches:

• a.when a notice of lien is recorded at the Bureau of Conveyances
• b.when a circuit court finds probable cause and orders it to attach✓
• c.when the owner receives the contractor's written demand for payment
• d.automatically on the day the last labor or material was furnished

Hawaii does not let a claimant create the lien by filing. HRS section 507-43(a) requires an application to "the circuit court of the circuit where the property is situated," accompanied by a written notice of lien, served on the owner, anyone with an interest, and whoever contracted for the improvements. The application and notice are returnable not less than three nor more than ten days after service, and at that hearing the court decides "whether probable cause exists to permit the lien to attach." The statute then says plainly: "The lien shall not attach to the property until the court finds probable cause exists and so orders." Deadlines bracket it on both sides. Section 507-43(b) requires filing "not later than forty-five days after the date of completion of the improvement," with a further seven days to file a certified copy of the order in the land court office for registered land, and section 507-43(e) expires the lien three months after the order unless enforcement proceedings begin. A demand letter starts nothing, and completion of the work starts only the forty-five day clock.

In Hawaii's Regular System, an unrecorded deed is void under HRS section 502-83 against a later purchaser who:

• a.pays value, whether or not that purchaser records the conveyance at all
• b.records first, whether or not that purchaser knew of the earlier deed
• c.pays value in good faith, lacks actual notice and records first✓
• d.takes possession of the property before the earlier buyer manages to

Section 502-83 requires all deeds, leases for a term of more than one year, mortgages and other conveyances to be recorded in the bureau of conveyances, and then supplies the consequence: "Every such conveyance not so recorded is void as against any subsequent purchaser, lessee, or mortgagee, in good faith and for a valuable consideration, not having actual notice of the conveyance of the same real estate, or any portion thereof, or interest therein, whose conveyance is first duly recorded." Four elements have to line up, which is what makes Hawaii's Regular System race-notice rather than pure race or pure notice: good faith, valuable consideration, no actual notice, and recording first. A buyer who knew of the earlier deed gains nothing by winning the race, and a buyer who never records is not protected however much was paid. Possession does not substitute for recording, and Hawaii case law treats actual possession under an unrecorded deed as constructive notice that defeats the later purchaser's good faith. Land Court parcels follow section 501-101 instead, where registration is the operative act of conveyance.

Hawaii sharply limits adverse possession. Under HRS sections 669-1 and 657-31.5 a good faith claim today may be made only to a parcel of:

• a.any size, after ten years of open and notorious possession of it
• b.one acre or less, after seven years under color of title
• c.any size, if the claimant has paid the taxes for five years
• d.five acres or less, after twenty years of adverse possession✓

Section 669-1(b) allows an action to establish title "to a parcel of real property of five acres or less" by a person in adverse possession "for not less than twenty years," and requires the claimant to show good faith, defined as a reasonable belief in an interest in title "based on inheritance, a written instrument of conveyance, or the judgment of a court of competent jurisdiction." Section 669-1(c) adds the frequency limit: such a claim "may be asserted in good faith by any person not more than once in twenty years, after November 7, 1978." Section 657-31.5 imposes the same acreage and once-in-twenty-years conditions on a defendant asserting adverse possession, so the restriction works offensively and defensively alike. Parcels larger than five acres can be claimed only where the twenty years ran before 7 November 1978. Nothing shortens the period to ten or seven years, no color-of-title shortcut exists, and paying taxes is evidence of a claim in some states but is not a Hawaii route to title.

After a nonjudicial foreclosure of Hawaii residential property, HRS section 667-38 provides that the foreclosing mortgagee:

• a.may pursue a deficiency judgment after a further court hearing
• b.may not pursue a deficiency judgment against any borrower at all
• c.may not pursue a deficiency judgment against an owner-occupant✓
• d.may pursue a deficiency judgment for six years after the sale

The section reads: "Upon completion of the nonjudicial foreclosure of residential property pursuant to this part, the mortgagee or other person, excluding an association, shall not be entitled to pursue or obtain a deficiency judgment against an owner-occupant unless the debt is secured by other collateral." Three limits are built into that sentence and each is tested. The protection runs to owner-occupants, not to investors or second-home owners. It applies to the power of sale route in Part II, so a lender that forecloses judicially is outside it. And associations are expressly excluded, which is why an unpaid condominium association keeps its remedies. The debts of other lien creditors are unaffected except as the part provides. Hawaii gives the borrower a related lever in HRS section 667-53, which lets residential property owners convert a nonjudicial foreclosure to a judicial action, and HRS section 667-24 requires the mortgagee to rescind and release the recorded notice of default within fourteen days if the default is cured.