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GUIDE FOR HOME SELLERS AND HOME BUYERS

by Prudential Locations, LLC Oahu Hawaii

Choosing a real estate agent is an important decision. When you decide on Prudential Locations, you receive an agent completely committed to serving you in finding the right home. You also get the entire Prudential Locations team supporting your agent. Our team of sales managers, research analysts, realtor assistants, computer programmers and staff are unmatched in the industry.

Buy or sell with me and receive 1 year Home Warranty for FREE

To receive e-mail updates of NEW or SOLD listings in any building or neighborhood on the island email : elena.roud@pruhawaii.com

 or call ELENA 808-224-7274  NO OBLIGATION.  FREE Hawaii MLS Access! Click here to search the database of thousands of homes for sale state wide, condos for sale, townhouses for sale and land for sale on the beatiful Island of Hawaii (Honolulu, Oahu, Waikiki, etc.)

A. DISCLOSURE OF AFFILIATIONS AND RELATIONSHIPS

As our client or customer, you should know that approximately 170 licensed brokers and sales agents have their licenses with PRUDENTIAL LOCATIONS, an independently owned and operated member of Prudential Real Estate Affiliates (PREA). Both the company and its sales associates have affiliations with a variety of professional organizations including the National Association of Realtors, the Hawaii Association of Realtors, the Honolulu Board of Realtors, etc. William S. Chee, CEO of PRUDENTIAL LOCATIONS, served as the 1993 President of the National Association of Realtors; Helen M. Lindemann, Sales Division Manager, has served as President of the Hawaii Association of Realtors; others serve as officers and members of boards and committees. Both PRUDENTIAL LOCATIONS and its sales associates also have ties with other businesses in the State of Hawaii, own stock in companies such as Bank of Hawaii, Bancwest Corporation, Citigroup Inc., Homestore, First American, Fidelity National Financial, Old Republic and other companies which may or not may not be involved in the real estate, banking, and title insurance industries; and buy and sell property for their own accounts (note: stocks mentioned are current at time of printing as stock portfolio changes from time to time). One of the company’s officers serves as a director of Hawaii National Bank.

PRUDENTIAL LOCATIONS is a subsidiary of RESCO Inc. and is affiliated with Wells Fargo Home Mortgage of Hawaii, a loan broker and lender and LRC Inc., a sales referral company and Real Estate/Title Solutions, LLC, a title services company. Neighbor island affiliates include Prudential Orchid Isle Properties in Hilo, Prudential Iwado Realty, and Prudential Maui Realtors.

PRUDENTIAL LOCATIONS maintains an ongoing relationship with Alston, Hunt, Floyd & Ing, Attorneys at Law, a Law Corporation. Paul Alston of that firm is a director of PRUDENTIAL LOCATIONS’ parent company, RESCO. The law firm does legal work for the company, its affiliates, and many of their agents and may draft documents in transactions involving clients of PRUDENTIAL LOCATIONS.

The fees generally charged by these companies for services in connection with real estate transactions are competitive with those generally charged in Hawaii. A schedule of typical fees is set forth in the Exhibit section of this packet. A sample title insurance policy is also provided in the Exhibit. PRUDENTIAL LOCATIONS and its agents frequently recommend these companies to its clients because our experience has shown that they provide skillful and prompt service. We are confident you will be pleased with their service, but you may choose other qualified companies or individuals.

At any time, if you feel that the private interests of PRUDENTIAL LOCATIONS, its agents, or any of its affiliates come in conflict with your interests as a client of PRUDENTIAL LOCATIONS, please tell us immediately. We value your business and will do our best to promote and protect your interests.

B. AGENCY (REPRESENTATION)

PRUDENTIAL LOCATIONS represents many property owners. In showing you properties, we will probably show you some which are being offered by people who are our clients. We understand that you want us to show you homes owned by people whom we represent, as well as homes listed by other real estate companies. Whenever we have a relationship with a seller of a property, we will disclose this to you before presenting any offer. Please be sure to ask us any questions you have concerning that relationship.

In the event you are interested in purchasing a home from an owner we represent, you understand that we must honor the contractual agreement we have with the seller, and that we will receive payment from the seller for the transaction. In these circumstances, although we can show you the property and discuss its relative merits, we will not be able to share with you any confidential information we have received from the seller. By the same token, we will not compromise your interests by sharing any confidential information that you may give us in the course of our relationship.  As you can see, the existence of a dual agency will place some limitations on our representation of you. It also places the same limitations on our representation of sellers. Whenever we find ourselves representing both your interest and those of the seller, we will help facilitate the transaction between you and the seller so a sale can be made. We will also respond accurately to your questions about the property and disclose all material facts we know about the property.

Multiple Locations’ Buyers. Locations represents many buyers, so it is possible that another potential buyer who is also a Locations’ client will submit an offer on the same property you are interested in or have submitted an offer on. The property could be a Locations’ listing or another brokerage company’s listing. Just as we will not share confidential information with a seller, we will not share confidential information with another buyer, but we want you to know that our role as agent for more than one buyer could present a conflict, even when different salespeople are involved. Lastly, please understand that, in some circumstances, we may not be aware that another offer has been submitted on the same property; this is only known by the Seller and it is the Seller’s decision whether or not to inform those who have submitted offers that there is more than one offer on the property.

We understand that you wish to continue our relationship even when we represent a seller and/or other buyers.  You agree that, regardless of our limitations on any given transaction, our work for a seller and other buyers will not impair our right to compensation in the event that a purchase is made.

C. SELLER’S DISCLOSURE LAW

The Mandatory Seller Disclosures in Oahu Real Estate Transaction Act (Chapter 508D, Hawaii Revised Statutes) requires a Seller of residential property to disclose material facts about the property. “Material fact” means any fact, defect, or condition, past or present, that would be expected to measurably affect the value to a reasonable person of the residential real property being offered for sale. Material facts are based on the Seller’s or the Seller’s agent’s observation of: visible, accessible areas; certain information relating to flood, tsunami, noise and military zones; and information within the knowledge and control of the Seller. The Act provides for a two-year statute-of limitations if disclosures are made as required by law. Upon receipt of the disclosure statement, the Buyer has fifteen (15) days to examine it and continue the transaction or rescind the offer and receive a refund of deposits. If any of the information contained in the disclosure statement materially changes after it is delivered to the Buyer, the Seller must provide the Buyer with an update, and the Buyer then has the same options to approve or rescind.  The disclosure statement should not be considered a warranty of the condition of the property or a substitute for any expert inspections, professional advice or warranty that the Buyer is encouraged to obtain.

Finally, the Act contains exemptions and exclusions that apply in certain circumstances. A copy of the Act itself is available at our offices.

D. PROFESSIONAL INSPECTIONS & OTHER RECOMMENDATIONS

Recommendation of Professionals. As you know, PRUDENTIAL LOCATIONS is licensed as a real estate company only. We are not attorneys, certified public accountants, home inspectors, termite specialists, mold specialists, construction professionals, etc. Our inspection of the property, for example, will be that of a lay person, not an expert, even when we perform diligently. You are, therefore, encouraged to contact professionals of

your choice should you have any questions about any aspect of the purchase of a property.

Cautions: If you decide to use non-professionals or friends/relatives who may not be experts, you do so at your own risk. If you fail to do the inspection by the deadline set forth in the DROA, you will waive your right to an inspection.  PRUDENTIAL LOCATIONS does not endorse particular professionals; you should procure the services of a company or professional of your choice.

Professional Property Inspection. The DROA gives the Buyer and his representatives the right to inspect the property. Although there is a cost to you, we consider this inspection of critical importance. We strongly recommend that you employ and rely on qualified experts of your choice for different aspects of the inspection, e.g. a contractor, professional home inspector, electrician, plumber, environmental professional to inspect for mold, etc. Because real estate is a major purchase, you should know as much about the property as possible so that you may make informed decisions. Condominium units vary greatly. Some have features like single-family homes; others are small apartments.

Some are wood structures; others are concrete. It is your decision whether you want a complete professional inspection or an inspection of certain items of concern.

Inspection of Public Records and Applicable Laws. The property inspection provision in the DROA (term C-51) is extremely comprehensive. In addition to inspection of the physical improvements and inclusions, this provision includes inspection of public records and applicable laws and regulations. We strongly recommend that public records such as building permits, zoning and land use restrictions, etc. be reviewed by qualified

construction professionals whose expertise you can rely on.

Condominium and Townhouse Records. If you are purchasing a condominium, you will be provided with Association minutes and other condominium records. We recommend that you take the time to carefully review the records and ask questions about any items of concern. The condition of a project and anticipated repairs or litigation can adversely affect values and salability. (If you are purchasing a property subsequent to a judicial or

non-judicial disclosure, also see Buyer Special Assessment Following Foreclosure under OTHER PROPERTY CONCERNS AND DISCLOSURES below.)

Home Warranty Policy. Several companies in Hawaii offer home warranty policies that insure certain appliances and electrical and plumbing fixtures. If the Seller does not obtain such a warranty for you, we strongly recommend that you obtain one at your cost. This can help to avoid problems that often arise after closing with respect to these items.

Title Insurance. Buyer often do not pay much attention to title insurance. However, it is an important insurance policy that remains in effect for as long as you own your home and, because policies vary, the kind of policy you obtain will determine what “hidden risks” and title defects are covered. For example, most standard policies cover forgery and fraud, but not all policies cover boundary discrepancies and mechanics lien claims. A more comprehensive policy may cost more, but the peace of mind it purchases may well be worth the added cost. You should inquire about coverage and differences in cost.

In addition, the title company you select is important because insurance benefits are not guaranteed by the government. To provide more value to our customers, we have researched title providers and affiliated with First American Title of Santa Ana, California. Our research indicates that First American, which traces its roots to 1889, has been the leading provider of title insurance nationally for much of the past decade and has a strong record of financial strength and claims-paying ability. Of course, you should obtain a policy from a company of your choice. We recommend you select a company with strong financial strength nationwide and a policy with comprehensive coverage. Other recommendations are also provided under separate topics in this packet.

BUYER’S DECISIONS. You will be provided a form and asked to indicate your decisions regarding our recommendations so that we may act accordingly. A copy of the form is included in the Exhibit for your review. If you decide not to follow our recommendations, we would like you to state that you have declined to do so.

E. BUILDING PERMITS, NON-COMPLIANCE, AND NON-CONFORMITY.

Many residential properties in the State of Hawaii are not in compliance with building permit and Uniform Building code requirements. Some violations are minor; some are of greater concern and may adversely affect value.  It is strongly recommended that buyers obtain a permit file to obtain information found in the public records.

Buyers should be aware, however, that records may be inconsistent, incomplete, inaccurate, and/or illegible.  Therefore a permit review may or may not reflect the true and correct history and status of the property.

There is risk in purchasing property that does not have proper building permits and approvals, and/or which do not comply with city, state, and federal laws and regulations. Adverse consequences that could result include a fine/citation and the necessity to remove, rebuild, and/or discontinue use. Improper and/or illegal construction or land use can also create hazardous conditions as well as impact a buyer’s financing and resale of the property. 

For all these reasons, buyers are advised to obtain sufficient information to make an informed decision. It is advised that buyers and their representatives use the inspection period in the DROA to inspect both the property and the public records. The buyer should engage and rely on construction professionals such as architects and contractors who are qualified to properly examine and analyze a permit file and other records in matters relating to building permits, zoning and land use, occupancy limits, protected view channels in certain subdivisions, etc.

F. PROPERTY BOUNDARIES AND ENCROACHMENT

For single-family residences as well as CPR and other types of properties with boundaries, a common area of dispute is boundary discrepancies. We therefore suggest that, even if staking pins are visible, a survey is done by a qualified surveyor and that a survey map showing any encroachments be obtained. If the Seller does not agree to this, we recommend that you request and pay for it. The cost to remedy encroachment and other boundary problems can be much greater.

A 1997 law establishes acceptable tolerances for encroachments which are “tolerable” or “de minimus." However, even when discrepancies are “de minimus,” a survey is still recommended so that you are aware of any improvement that may extend into neighboring properties and, if so, to what extent. Neighbors’ improvements can also extend into the subject property. The law does not apply to shoreline boundaries, encroachments into public or government property and building requirements such as setbacks. A copy of the law is available upon request.  If you have any questions about the walls/fences, boundaries, etc., please ask. After you receive the surveyor's report, you are encouraged to contact the surveyor to discuss the results and any discrepancies with him.

G. TERMITE ISSUES

Areas of Concern. Termite problems fall in three areas which may exist alone or in combination: 1) termite INFESTATION, 2) termite DAMAGE which can be the result of past or current infestation and 3) CONDUCIVE CONDITIONS which must be attended to.

Limitations of Inspection and Disclosure. The Termite Inspection Report (TIR) addresses the major areas of concern listed above, but only to a limited extent. You should read the attached DROA “TERMITE PROVISIONS” section and state-approved TIR form in the Exhibit in order to better understand the scope and limitations of a termite inspection in the state of Hawaii.  The TIR addresses only VISIBLE evidence of ACTIVE infestation and VISIBLE DAMAGE in ACCESSIBLE areas  AT THE TIME OF INSPECTION. It does NOT address inactive infestation, or damage occurring in inaccessible  or non-visible areas, nor the effect of termite damage on the structural integrity of the Property’s improvements.  Also, the TIR is good for only 15 days and does not come with any warranty or guarantee.

You should also be aware that, because termites like the Formosan variety can work very rapidly, in spite of a clear TIR or treatment, infestation or re-infestation can occur within a short period of time. And, notwithstanding the statement in the DROA, “Seller agrees to disclose, in Seller’s disclosures, any prior and/or current infestation and damage of which Seller is aware,” there may be hidden infestation and/or damage which Seller and Seller’s

agent are not aware and which may not be revealed in the TIR.

Review the Report. When you receive the TIR, please review the report carefully. If you have any questions or would like to know more about infestation, damage, and conducive conditions, we encourage you to call the termite inspector to address your specific concerns. If you would like to be present at the termite inspection, please ask

your agent to make arrangements for you.

Infestation and Treatment. The DROA provides that purchase of the property is contingent upon timely delivery of a TIR stating there is no visible evidence of active termite infestation. Seller is responsible for any treatment recommended in the TIR. Either the Buyer or Seller may select the Pest Control Inspector.

Termite Damage to Structure. As indicated above, the TIR does not address termite damage adequately.  Therefore, when a professional inspection is done with a contractor or other qualified professional (DROA term C-51), ask the inspector to look for damage and to assess the structure of the improvements.

If the TIR indicates visible damage that is structural or otherwise “material,” you will have the option to cancel the DROA or accept the property “As Is.”

H. OTHER BUYER CONCERNS & DISCLOSURES LEAD PAINT. In 1996, two Federal Agencies (EPA & HUD) joined together to ensure that the public receives the information necessary to prevent lead poisoning in homes that may contain lead-based paint hazards. Please see the Lead Paint Fact Sheet in the Exhibit section of this packet. Additional literature is available in our offices.

ASBESTOS. Asbestos may be present in ceilings, flooring and other materials. It is very important that asbestos fibers not be released into the air. If you would like to determine the content of material, we recommend that you contact a qualified laboratory to conduct a test. Our agents cannot be involved in removal or abatement.

MOLD. Warm temperatures, high humidity, frequent rain, and moisture are conducive to the growth of mold and other types of potentially harmful growths (collectively, "Mold"). Some people may be affected by Mold. A property could have hidden mold and the seller will not be aware of the problem. If you have any concerns about mold, it is important that you hire an environmental professional and/or other qualified professionals to assist you in your inspection of the property.

CONDOMINIUM ASSOCIATION BUDGETS. In 1991, the Legislature passed a law requiring all condominium associations to (i) adopt and follow budgets and (ii) establish adequate reserves. The law’s intent is to require condominium owners and boards to realistically evaluate the actual cost of running their project – not just the day-to-day expenses but the long-term costs of major repairs and replacement. The Real Estate Commission has written a pamphlet that answers some of the most common questions about this law. Your PRUDENTIAL LOCATIONS agent will be able to provide you with a copy of the pamphlet.

PLANNED COMMUNITY ASSOCIATIONS. If you are planning to purchase property in a planned community where there is a community association, ask if there are restrictive covenants, association fees, or any other information you may be interested in as a prospective owner.

(Act 39) BUYER SPECIAL ASSESSMENT FOLLOWING FORECLOSURE. If you are buying property from a foreclosing lender, following judicial or non-judicial foreclosure, the AOAO (association of apartment owners) has the right to assess you for any delinquent common expenses up to $1,800 that has been assessed and budgeted during the six-months prior to the “completion” of the foreclosure. Please discuss this with your agent. A copy of the bill is available upon request or at the web site www.capitol.hawaii.gov/sessionscurrent/bills/sb2333_sd2_.htm.

HOME EXEMPTION FOR PROPERTY TAX - Claim for Home Exemption. Under Hawaii law, a homeowner may qualify for an exemption, which would reduce the net taxable, assessed value of a property in determining the property tax. You are entitled to the basic exemption (currently $40,000) if you own and occupy the property as your principal home. Upon the close of escrow, it is the homeowner’s responsibility to file a claim (Form P-3) with the City and County of Honolulu Real Property Assessment Division on or before September 30 preceding the tax year for which you claim the exemption. Form P-3 is included in the Exhibit of this packet. The form provides the phone/fax numbers of the city’s assessment division as well as the city’s web site where you can obtain further information, such as special circumstances, and forms.

In 1989, the State of Hawaii enacted laws requiring disclosure of lease terms in connection with the sale of residential leasehold property. These laws apply to all leasehold homes, condominiums, cooperatives and planned unit developments. Sellers are required to provide you (1) a complete and accurate copy of the lease and all amendments, (2) a plain language summary of the important lease terms and (3) a plain language glossary of lease terms. You should also ask the Seller to provide you any pertinent information regarding mandatory conversion, fee offering, etc. that he is aware of. Most sellers employ qualified professionals to prepare the leasehold disclosures. In the event that you receive one that is prepared by the Seller or the broker of another company, we recommend that you seek the advice of an attorney. The decision to approve a leasehold disclosure not prepared by someone or some firm qualified to interpret/practice law will be your decision and contrary to our recommendation.

Fee Purchase. If the fee purchase is available and you wish to purchase the fee together with the leasehold interest, please let your agent know and clearly explain your requirements. Provisions in the DROA and financing will depend on your needs. Please keep in mind that we can only assist in facilitating your purchase; we cannot monitor the actions of the courts, lessors, and owners’ associations. In October 1998, the U.S. Supreme Court decided not to hear a challenge of the City’s mandatory lease-to-fee

conversion law. The basics of the law, which is patterned after the 1984 single-family law, is that 25 lessees or a majority of the owner-occupants in a condominium or townhouse project can seek to have the landowner sell them the leased-fee interest in their units.

I. LEASEHOLD PROPERTY & LEASEHOLD OR MIXED LEASE-FEE BUILDINGS/PROJECT  BSASIC LEASE TERMS

Leasehold Property (CLICK HERE TO READ MORE). Very basically, a leasehold estate is created by a lease between a Lessor and Lessee (the Lessor holds the fee-simple title to the land and rents it to the Lessee). The Lease contains all of the terms, provisions, covenants and agreements between the parties including, but not limited to, the lease rents, the Renegotiation Date, the Expiration Date and the Reversionary or Surrender Clause (as applicable). The Seller is the holder of the Lessee’s interest in the lease (or is the purchaser of an Agreement of Sale concerning such interest). The Buyer is purchasing the remaining term of the lease, which will be transferred to the Buyer by way of an Assignment of Lease. This transfer will occur at the time of closing, at which time the Lessor’s consent to the transfer may be required. The term “Lease” includes such terms as “Apartment Lease,” “Master Lease,” “Ground Lease,” “Sub-lease,” “Condominium Conveyance Document,” etc.

Re-negotiation Date. The Lease contains the “Re-negotiation Date.” This means that the Lease rent after the Re-negotiation Date is not fixed or already agreed upon. Depending on the terms of the Lease, the lease rent may increase substantially when renegotiated.

Expiration Date. The Lease has an “Expiration Date.” This means that the Buyer’s right to possess the property will end on the Expiration Date unless the Lease is extended, the Buyer purchases the Lessor’s fee simple interest, or other arrangements are made (if these options are available or possible).

Reversionary or Surrender Clause. Most leases contain a “Reversionary Clause” or “Surrender Clause” which describes what will happen on the Expiration Date, including the disposition of any improvements on the Property. The Buyer should be very careful to ensure that he/she understands these clauses.

If you are purchasing a fee unit (CPR) in a leasehold or mixed lease-fee building or project, be aware that a 1999 legislation (Act 241) specifies that owners who choose not to purchase the leased-fee will still be liable for special assessments and/or maintenance fee increases resulting from any bulk purchase by the AOAO. The Act does not directly address whether an owner who previously purchased the leased-fee directly from the Lessor or who acquired the unit after it had undergone fee conversion would also be liable for such costs; however, there has been at least one court decision in Honolulu to this effect.  Keep in mind that many actions approved by the AOAO do not benefit every unit in the complex though all units  generally share in the costs; this is the nature of condos and CPRs as compared to single-family dwellings.

FIRPTA (Foreign Investors Real Property Tax Act). ITIN Guidance for Foreign Property Buyers/Sellers  The Foreign Investors Real Property Tax Act is a Federal statute which requires a BUYER of a United States real property interest to withhold the lesser of 10% of the amount realized by the Seller from the sale or the Seller’s maximum Federal income tax liability if the Seller is a non-resident alien individual or a foreign corporation or partnership (foreign seller). A report of the

transaction along with the withheld amount must then be sent to the Internal Revenue Service (IRS) within twenty (20) days from the date of the transaction.

A Seller will sometimes ask escrow NOT to forward the withheld amount immediately but to hold it for a period of time after closing. Because the law places the burden of the tax on the BUYER, it is in the Buyer’s best interest that the amount be forwarded to the IRS prior to closing and soon enough to avoid penalties and interest.

Otherwise, there is risk that the IRS could demand payment from the Buyer, sometimes years later. These payments can include penalties and interest.

A purchaser may be exempted from withholding the amounts otherwise required by FIRPTA if:

1. The Seller provides the purchaser with a certificate (generally, in the form of an affidavit) that the Seller is not a “foreign seller” as defined by FIRPTA. Purchasers will not be excused from withholding if the Seller provides the purchaser with a certificate that the purchaser knows is false;

2. The property does not fall within the definition of a “United States real property interest” (USRPI) as defined by FIRPTA. Generally, a USRPI is any interest in real property located in the United States or the Virgin Islands or any interest in a U. S. corporation in which the fair market value of the corporation’s real property holdings in the United State equals or exceeds fifty percent (50%) of the corporation’s total assets;

3. The purchaser is acquiring the real property for use as his or her principal residence and the purchase price is equal to $300,000 or less;

4. The USRPI is a class of stock that is publicly traded on a U. S. securities exchange and the seller held no more than five percent (5%) of the corporation’s total shares of stock during the five year period prior to the transaction; or

5. The Seller provides the purchaser with a Withholding Certificate issued by the IRS which authorizes either elimination or a reduction of the required withholding.

FIRPTA has special rules for certain types of foreign sellers: partnership, trust or estate or where transaction is the result of a foreclosure.

HARPTA (Hawaii Real Property Tax Act). 

Under Hawaii Law, if a Seller is a non-resident of the State of Hawaii or entity (corporation, partnership, trust or estate), the Buyer must withhold a specified percentage of the “amount realized” by Seller on the sale of the Property and forward the amount with the appropriate form to the State Department of Taxation. Such withholding may not be required if Seller obtains and provides Buyer with an authorized exemption or waiver from withholding.

Certain features of HARPTA are:

1. The amount of withholding is five (5) percent of the amount realized by the Seller.

2. The Seller is permitted to apply for a withholding certificate from the State Department of Taxation which could lessen or eliminate the amount of tax to be withheld of the Seller will not realize any gain from the sale or there will be insufficient proceeds to pay Hawaii taxes after payment of transaction costs.

3. Foreign corporations and foreign partnerships, which have registered with the State Department of Commerce and Consumer Affairs to transact business in the State of Hawaii, are deemed to be “residents.”

4. The transaction is exempt from HARPTA and no taxes need to be withheld. If the property was used by the Seller as his/her principal residence and the amount realized by the Seller does not exceed $300,000.

5. The definition of “transferee” includes the State, the counties and their respective subdivision, agencies, authorities and boards.

6. The State Department of Taxation may enter into written agreements with persons who engage in more than one real property transaction per calendar year and for whom it is not practicable to meet the requirements. The State has the discretion to use another withholding method or to waive the withholding requirement altogether.

J. TRANSACTIONS INVOLVING FOREIGN PERSONS AND/OR NON-RESIDENTS

Questions have been raised concerning the definition of “resident person” under HARPTA. The statute states that a “resident” means “every individual domiciled in the State of Hawaii and every other individual whether domiciled in the State or not, who resides in the State.” To “reside” in the State means to be in the State for other than a temporary or transitory purpose. An individual who is in the State more than 200 days altogether, in any taxable year, shall be presumed to be a resident of the State. However, this presumption may be overcome if it can be proved that the individual maintains a permanent place of residence outside of the State and is in the State only for a temporary or transitory purpose. Persons do not gain or lose residency because of a presence or absence in compliance with orders of the United States military, while engaged in aviation or navigation, or while a student at any institution of learning. Other laws and ordinances re foreigners include: City and County of Honolulu Ordinance No. 90-68. This ordinance was enacted on July 26, 1990 and requires foreign person or entities that own real property to disclose certain information about themselves and their property. It also requires a foreign owner to file a registration form with the City and County of Honolulu any time he/she buys, sells, exchanges, gives or receives real property as a gift in Honolulu. Foreign persons acquiring or transferring real property are required to file the appropriate forms with the Director of Finance within 30 calendar days from the date of acquisition or transfer. Foreign persons owning or holding real property in the City and County of Honolulu as of January 1 of each year are required to file the appropriate form with the Director of Finance on or prior to April 30 of the same calendar year. There are other reporting requirements if the foreign person is a corporation, partnership or trust.

Disclosure of Purchase of Agricultural Lands by Foreign Buyer. Under the Agricultural Foreign Investment Disclosure Act of 1978, foreign persons (including foreign corporations, partnerships, companies, trusts, or other legal entities in which a significant interest or substantial control is directly or indirectly held by any foreign individual, foreign government or any combination thereof) who purchases, acquires, disposes or transfers any interest in agricultural real estate in the United States must file a report containing the required information with the United States Agricultural Stabilization and Conservation Service (ASCS) within 90 days after the date of acquisition or transfer of such interest in the agricultural land.

Any person or entity acquiring or holding an interest in agricultural land who is not a foreign person at the time of acquisition or holding but later becomes a foreign person, must file a report containing the required information with the ASCS within 90 days after the date of becoming a foreign person. Any foreign person who holds or acquires any interest in land that is not agricultural at that time, but subsequently becomes agricultural land, must file a report containing the required information with the ASCS within 90 days after such land becomes agricultural.

Disclosure of Foreign Investment in United States Business Enterprise. Under the International Investment and Trade In Services Survey Act, foreign persons or entities (including non-resident aliens), whether exempt under the Act or not, owning or acquiring ten percent (10%) or more voting interest in a United States business enterprise, must file the appropriate reporting form to the Department of Commerce, Bureau of Economic Analysis, Directory of Investment, Washington, D. C. If real estate is to be held by the foreign buyer for any profit-making purpose, it is deemed to be a business enterprise.

K. MEDIATION AND ARBITRATION

The Hawaii Association of Realtors DROA (see Exhibit) offers mediation as a standard and arbitration as an option for parties to settle any and all disputes including those against brokers, using mediation and arbitration instead of litigation.

MEDIATION. This is a process by which parties submit their dispute to a third party neutral (the Mediator) who works with them to reach a settlement of their dispute. A mediator conducts informal joint and separate meetings with the parties to understand the issues, facts and positions of the parties. There are no formal hearings and no decisions will be forced on anyone. Since mediation is voluntary, the parties must agree in writing that their dispute will be conducted under the applicable mediation rules. If the parties reach an agreement, their agreement is set forth in writing and is binding on each of them. If the mediation fails to reach a settlement of any or all of the issues, the parties may submit to binding arbitration.

ARBITRATION. This process involves the resolution of disputes by one or more impartial persons. Generally, arbitrators hear testimony and receive evidence in a formal hearing. Based on the evidence, they render a final and binding decision, known as an award. This award can be confirmed by the court, and it has the same force and effect as a court judgment. Hawaii has adopted a new arbitration law on July 1, 2002. Prudential Locations recommends that all buyers and sellers decline arbitration. However, because the choice is yours, you should consider consulting with legal counsel before making this choice.

All Prudential Locations offices have copies of the American Arbitration Association's Rules for both mediation and arbitration for you to read.

L. OTHER LAWS AND ISSUES

FAIR HOUSING. Fair housing is a civil right protected under federal and state laws. If you are purchasing an investment property to rent out, you cannot discriminate against prospective tenants on the basis of sex, religion, color, national origin, handicap, or familial status. The latter two protected classes were added by the Fair Housing Amendments Act of 1988. In brief, “familial status” refers to the presence or expectancy of children and “handicap” includes, among other things, HIV infection, former drug addiction and emotional addiction. If you have questions or want more information, please ask your agent for a Fair Housing brochure that is available upon request.

MEGAN’S LAW. In 1997, Hawaii enacted a law requiring sex offenders to register with the attorney general’s office. The law required public access to relevant information regarding sex offenders including residence and employment. However, on November 21, 2001, the Hawaii Supreme Court issued a decision holding that the public notification provisions of Hawaii’s Megan’s Law were unconstitutional, void and unenforceable. Therefore, the Attorney General’s office and the county police departments will no longer publicly release registration information regarding sex offenders. As a result, neither sellers nor real estate agents are required to obtain information on sex offenders.

EARNEST MONEY DEPOSITS. The standard practice in the State of Hawaii is that the parties to the sales contract may select any licensed escrow company to accept earnest money deposits. Thereafter, this independent escrow company will accept, retain and disburse any funds (including any loans that the Buyer obtains) that are associated with the real estate transaction. By law, real estate brokers may not make any determination with regard to the entitlement of anyone to any portion of any monies deposited with the escrow company in the event a dispute arises between the parties. Furthermore, the escrow company may not release any funds that are in dispute to anyone without the mutual written consent of both Buyer and Seller. Checks should NOT be made payable to a sales associate. Deposit checks should be made payable to PRUDENTIAL LOCATIONS or the escrow company. Payment for expenses outside escrow, e.g. to a professional inspector, should be paid directly to the vendor.

TENANCY. The DROA addresses Tenancy of the property you will purchase. PRUDENTIAL LOCATIONS recommends you consult appropriate professionals if you have any questions on tenancy or vesting.

OWNER-OCCUPANT DECLARATION. Act 50 of the Hawaii Revised Statutes requires new or newly converted condominiums be offered to bona-fide owner-occupants first. If you do offer to use one of these units, you must sign an affidavit that you will be an owner occupant. An owner who executes an owner-occupant affidavit is prohibited from offering to sell, assign or rent his/her unit until at least 365 consecutive days have elapsed since the recordation date of the purchase of the unit. As a result, an owner occupant may not list his/her unit for sale or rent until the 365-day period has expired.

OWNER-BUILDER PERMITS. The State’s Contractors Licensing law (HRS Chapter 444) specifies that a licensed contractor does not need to be hired if the total contract price for labor, material and all other items of the improvements to be constructed is less than $1,000 or if the owner of the property obtains an “owner-builder” exemption from the Building Department. An “owner-builder” exemption must be applied for at the time the building permit is issued only for improvements constructed for the owner’s own use or use by the owner’s grandparents, parents, siblings or children. These 2 exemptions do not apply to electrical or plumbing work, which must be performed only by licensed persons. Under the law, a sale or lease or offer to sell or lease the property within one (1) year from the date of completion of the improvements covered by the permit presumes that the improvements were built for the purposes of resale rather than the owner’s use, which is a violation of the law.  Violators are subject to legal action by the State’s Regulated Industries Complaint Office, and the Building  Department may also revoke any building permit issued. Therefore, if you ever reach a point where you feel you  may sell your property within one (1) year, you should hire a licensed contractor to perform all repairs and  improvements whose total cost was more than $1,000.

DELINQUENT MAINTENANCE FEES COLLECTIBLE DIRECTLY FROM TENANTS. A 1999 legislation  (Act 236) gives the AOAO of condos/CPRs the right to collect delinquent maintenance fees directly from the tenant,  provided the AOAO first attempts to collect these amounts from the owner. The Act prohibits the owner from  taking retaliatory action against the tenant for making direct payments to the AOAO; it also gives the AOAO the right to pursue nonjudicial foreclosures on delinquent units.

M. SCHEDULE OF FEES OF PRUDENTIAL LOCATIONS' AFFILIATES - 06/01

(All Fees are Subject to Change)

ALSTON, HUNT, FLOYD & ING: Typical Fees for Real Estate Documentation

Warranty Deed.................................................................$135
Assignment of Lease & Consent.................................$150
Mortgage...........................................................................$150
Assignment of Condo, Conveyance Document........$135
Promissory Note.............................................................$100
Lessor's Consent...........................................................$100
Note & Mortgage Package............................................$200
Agreement of Sale..........................................................$200
Assignment of Agreement of Sale..............................$135
Release of Mortgage.....................................................$100
Assignment of Lease....................................................$135
Partial Release of Mortgage........................................$100
Land Court Petition........................................................$100
Encroachment Agreement (Single) ...........................$200

A fee of $25 will be charged for rush document orders. In special circumstances, higher fees may be charged for complex documents.

Well Fargo Home Mortgage, LLC is a licensed mortgage broker doing business in the State of Hawaii. Standard origination fee is one percent (1%) of the loan amount, as is customary in the industry. All other fees (closing costs, etc.) of obtaining the mortgage loan is a direct dollar for dollar pass through from the ultimate lender.

REAL ESTATE/TITLE SOLUTIONS, LLC: Title Services

Real Estate/Title Solutions, LLC provides title services in the State of Hawaii. Title Insurance fees range from

$236 to $2,982 for coverage ranging from $50,000 to $1,000,000.

FOR MORE INFORMATION on LEAD IN YOUR HOME:

For a copy of Protect Your Family from Lead in Your Home (in English or Spanish) , the sample disclosure

forms, or the rule, call the National Lead Information Clearinghouse (NLIC) at (800) 424–LEAD, or TDD

(800) 526–5456 for the hearing impaired. You may also send your request by fax to (202) 659–1192 or by Internet E-mail to ehc@cais.com. Visit the NLIC on the Internet at http://www.nsc.org/nsc/ehc/ehc.html.  Bulk copies of the pamphlet are available from the Government Printing Office (GPO) at (202) 512–1800.  Refer to the complete title or GPO stock number 055–000–00507–9. The price is $26.00 for a pack of 50 copies. Alternatively, persons may reproduce the pamphlet, for use or distribution, if the text and graphics are reproduced in full. Camera-ready copies of the pamphlet are available from the National Lead Information Clearinghouse. For specific questions about lead-based paint and lead-based paint hazards, call the National Lead Information Clearinghouse at (800) 424–LEAD, or TDD (800) 526–5456 for the hearing impaired. The EPA pamphlet and rule are available electronically and may be accessed through the Internet. 

Electronic Access:

Gopher: gopher.epa.gov:70/11/Offices/PestPreventToxic/Toxic/lead_pm

WWW: http://www.epa.gov/opptintr/lead/index.html

http://www.hud.gov

Dial up: (919) 558–0335

FTP: ftp.epa.gov (To login, type “anonymous.” Your password is your Internet E-mail address.)