HAR §16-119.8-5. Fide1ity bond exemption

(a) An association that is unable to obtain a fidelity bond pursuant to section 514B-103(a) (1), HRS, may apply to the commission for approval of a fidelity bond exemption in accordance with that section and this section. 119.8-4 3 6 2 6 §16-119.8-5 (b) All the units in the association or project shall be: ( 1) Owned by a single individual or a single entity that is registered to do business in this State and in good standing with the State; (2) Restricted by the declaration or bylaws to non-residential use; or (3) Twenty or fewer units. An association or project described in this subsection shall further satisfy all the following: (A) Certify to the commission that it has letters from three separate insurance carriers that issue such bonds, each dated no more than a hundred and eighty days before the exemption application date, confirming that the association is unable to obtain a fidelity bond; (B) Pass a resolution by its board certifying its inability to obtain a fidelity bond, intention to request an exemption from such requirement, and requiring that two persons sign all checks that exceed $2,500 drawn on association accounts; (C) Is managed by a managing agent or a real estate broker who, except for a project described in paragraph (1), holds an active real estate license and is in good standing under the laws of the State; (D) Prohibit any one individual or entity from having sole control over association funds and records without the supervision of at least one other association owner, director, or officer, except for a project described in paragraph (1); (E) Keep separate operating and reserve accounts and books with two signatures required for any withdrawals from the reserve account; and 119.8-5 §16-119.8-5 (F) Certify to the commission that the board promptly, diligently, and regularly reviews all association fund account statements. (c) An association or project containing six or more, but fewer than fourteen units which has either reserves of $10,000 or less and an annual budget of $15,000 or less or an annual budget of $25,000 or less shall meet at least two of the following conditions: ( 1) The requirements of subparagraph (b) ( 2) ( C) ; ( 2) The requirements of subparagraph (b) ( 2) ( E) ; (3) Has an operating account that requires two signatures for checks more than $500; (4) Conducts an annual audit of association funds and accounts; (5) Uses automatic bill payment with a financial institution for utility charges and regularly recurring expenses of the association; (6) Conducts board review of the account statement from the project's managing agent or financial institution; or (7) Is restricted by its declaration or bylaws to non-residential use for all units in the project. (d) An association or project containing more than thirteen, but twenty or fewer units which has reserves of $20,000 or less and an annual budget of $30,000 or less or has an annual budget of $50,000 or less shall meet at least three of the following conditions: ( 1) The requirements of subparagraph (b) ( 2) ( C) ; ( 2) The requirements of subparagraph (b) ( 2) ( E) ; (3) Has an operating account that requires two signatures for checks more than $1,000; (4) Conducts an annual audit of association funds and accounts; (5) Uses automatic bill payment with a financial institution for utility charges and regularly recurring expenses of the association; 119.8-6 §16-119.8-6 (6) Conducts board review of the account statement from the project's managing agent or financial institution; or (7) Is restricted by its declaration or bylaws to non-residential use for all units in the project. (e) Any application for an exemption from the requirement to obtain a fidelity bond shall be submitted to the commission on a form prescribed by the commission, together with a nonrefundable application fee in an amount set forth in section 16- 53-16.8. Any association that is granted an exemption shall immediately report to the commission in writing any changes that affect the project's eligibility for such exemption under this section. (f) At registration or reregistration, the commission may approve a request for a fidelity bond exemption upon payment of a nonrefundable fee and the association's certification that it has complied with the commission's requirements for the specific exemption requested. [Eff MAR 2 6 2026 ] (Auth: HRS §514B-61) (Imp: HRS §§514B-101, 514B-103, 514B-143)