PHH Mortg. Corp. v. Ass'n of Apartment Owners of Elima Lani Condos.

1

PHH MORTGAGE CORPORATION Respondent/Plaintiff-Appellee, v. ASSOCIATION OF APARTMENT OWNERS OF ELIMA LANI CONDOMINIUMS, Petitioner/Defendant-Appellant, and JOHN C. PATTERSON; FENNY J.M. PATTERSON; and STATE OF HAWAIʻI DEPARTMENT OF TAXATION, Respondents/Defendants-Appellees.

No. SCWC-18-0000380

Supreme Court of Hawaii

April 5, 2023

NOT FOR PUBLICATION IN WEST'S HAWAI‘I REPORTS AND PACIFIC REPORTER

Certiorari from the Intermediate Court of Appeals (CAAP-18-0000380; Case No. 3CC14100121K)

R Laree McGuire, for petitioner Association of Apartment Owners of Elima Lani Condominiums

David B. Rosen, Justin S. Moyer, and David E. McAllister, for respondent PHH Mortgage Corporation

Recktenwald, C.J., Nakayama, McKenna, and Eddins, JJ., and Wilson, J., assigned by reason of vacancy ^[1]

SUMMARY DISPOSITION ORDER

I. INTRODUCTION

This case is brought by Association of Apartment Owners of Elima Lani Condominiums (AOAO), the same condominium association that brought suit in Nationstar Mortg., LLC v. AOAO, No. SCWC-18-0000475, 2023 WL 2519855 (Haw. Mar. 15, 2023). The facts of this case are similar to Nationstar. AOAO foreclosed on the previous owners of a condominium based on delinquent assessments.^[2] Then, the mortgage lender, PHH Mortgage Corporation (PHH), foreclosed on AOAO. AOAO argues that it remained entitled to exclusive possession and rents after the entry of summary judgment and an interlocutory decree of foreclosure, and prior to the confirmation of sale, and that the circuit court therefore erred when it appointed a commissioner to collect rents.

For the reasons given in Nationstar, we hold that AOAO was not entitled to possession of the condominium or rents during the period between summary judgment and confirmation of sale. See id. at *5. In general, an association may be entitled to some or all rental proceeds collected during this period, as specified by Hawai'i Revised Statutes (HRS) § 514B-146(n) (Supp. 2015).^[3] Id. at *10. However, in this case, the Commissioner did not collect any rents. Because the ICA correctly held the circuit court did not err in ordering the Commissioner to take possession and collect rents, and there are no rents to allocate under HRS § 514B-146(n), we affirm.

II. BACKGROUND

On March 27, 2014, PHH filed a verified complaint in the Circuit Court of the Third Circuit against John C. Patterson and Fenny J.M. Patterson (the Pattersons) for foreclosure of their property. PHH alleged it was entitled to foreclose on the property based on the Pattersons' default on a note and mortgage that PHH held. On May 29, 2014, AOAO filed its answer to the complaint and claimed an interest in the property based on having previously foreclosed on it. On July 14, 2017, PHH filed a motion for summary judgment and requested that the court appoint a commissioner to sell the property and, after costs, award the amount owed to PHH.

On February 28, 2018, the circuit court orally granted summary judgment in favor of PHH and explained: "[O]nce I appoint a commissioner[,] that person has equitable and legal title to the property, has the power to terminate the lease, . . . collect rents, and actually becomes the equitable and legal title owner of the property pending the sale." (Emphasis added.) The circuit court, in its April 4, 2018 written order granting summary judgment in favor of PHH, then appointed a commissioner. The circuit court ordered that the Commissioner "shall henceforth hold all equitable and legal title to the Mortgaged Property" and was authorized "to take possession of the Mortgaged Property, to rent the Mortgaged Property pending foreclosure, if appropriate, and to sell the Mortgaged Property." (Emphasis added.)

The Commissioner reported that although the property was occupied as of his initial inspection on April 9, 2018, on subsequent inspections on May 10 and 15, 2018, the property was vacant; the property managers informed the Commissioner that AOAO had been renting the unit out but the tenant had since vacated. The circuit court approved the Commissioner's report and granted PHH's motion for confirmation of foreclosure sale on December 4, 2018. Because the Commissioner reported that the property was vacant during the period between when the circuit court granted PHH's motion for summary judgment and when it granted PHH's motion for confirmation of foreclosure sale, and he did not report seeking a renter during that period, it is clear that the Commissioner did not collect any rental proceeds.

On appeal, AOAO raised two points of error, arguing the circuit court erred when it: (1) ordered that AOAO's possessory interest and right to collect rent from the subject property was extinguished upon entry of the foreclosure decree and summary judgment; and (2) vested the Commissioner with legal and equitable title to the foreclosed property prior to the confirmation of sale. The ICA held that the circuit court did not abuse its discretion on either point.

First, the ICA held that "a judgment entered on a foreclosure decree is a final determination of a foreclosed party's ownership interests." It concluded that the circuit court therefore did not err in ordering the Commissioner to take possession of the property, including the collection of rental proceeds. Second, the ICA held that the circuit court had merely ordered that the Commissioner temporarily hold legal and equitable title to the property to carry out his function as Commissioner, not that title was vested in him. The ICA further concluded based on its precedents that "even if the Foreclosure Decree could be construed as (erroneously) vesting title to the Property in the Commissioner, any such error was harmless."^[4] See Bank of N.Y. Mellon v. Larrua, 150 Hawai'i 429, 443-44, 504 P.3d 1017, 1031-32 (App. 2022); U.S. Bank Tr. v. Ass'n of Apartment Owners of Waikoloa Hills Condo., 150 Hawai'i 573, 581-82, 506 P.3d 869, 877-78 (App. 2022) (as amended).

AOAO filed a timely application for certiorari arguing that the ICA gravely erred by holding AOAO did not maintain a possessory interest in the foreclosed unit. AOAO asserted functionally identical arguments as those it made before us in its briefing for Nationstar. It argued that per HRS § 514B-146(b) (Supp. 2015), it was entitled to maintain ownership of the property until after the foreclosure sale is confirmed.^[5] AOAO further argued that the legislative history and plain language of HRS § 514B-146(n) support its argument that it is entitled to possession and rent after summary judgment but prior to confirmation of sale.

In response, PHH first argued that AOAO's application was rendered moot by the fact that the commissioner never collected any rents.^[6] PHH then argued that, in any event, AOAO was mistaken that it continued to have a possessory interest in the property after foreclosure. Quoting MDG Supply, Inc. v. Diversified Invs., Inc., PHH argued that "[a] judgment of foreclosure of mortgage or other lien and sale of foreclosed property is final . . . on the ground that such judgment finally determines the merits of the controversy." 51 Haw. 375, 380, 463 P.2d 525, 528 (1969). PHH also argued that nothing in HRS § 514B-146 alters the propriety of appointing a commissioner to take possession of a property, which is a well-established equitable remedy.

III. DISCUSSION

The legal question raised by AOAO in this case is identical to the question we answered in Nationstar. Nationstar held that AOAO was not entitled to maintain possession of a unit and collect rents from the unit during the period after summary judgment of foreclosure and before confirmation of sale. Nationstar, 2023 WL 2519855 at *5. The same holding applies here.

In Nationstar, we explained that AOAO does not maintain a possessory interest in the property after summary judgment of foreclosure - its right to possession is terminated by the foreclosure judgment, and the circuit court has the equitable power to appoint a commissioner to preserve the value of the property in advance of sale. Id. at *6-7. This is because a "'judgment of foreclosure . . . is final, although it contains a direction to commissioners to make a report of sale and to bring the proceeds into court for an order regarding their disposition.'" Id. at *6 (quoting MDG Supply, 51 Haw. at 380, 463 P.2d at 528).

AOAO's arguments to the contrary are unavailing. "HRS § 514B-146(b) establishes when a mortgagee or other purchaser must begin paying common expenses and assessments; it does not address the propriety of appointing a commissioner to take possession of the property and facilitate the foreclosure sale after the prior owner's interest has been deemed foreclosed." Id. at *6 (citing Larrua, 150 Hawai'i at 441-42, 504 P.3d at 1029-30).^[7]

IV. CONCLUSION

For the foregoing reasons, the ICA's May 2, 2022 Judgment on Appeal is affirmed.

---------

^[1] See Order of Designation filed on March 29, 2023, in SCMF-23-0000218.

^[2] The Honorable Henry T. Nakamoto and the Honorable Robert D.S. Kim presided. The Honorable Ronald Ibarra presided over the proceedings on PHH's first summary judgment motion, which was withdrawn and is not the subject of this appeal.

^[3] HRS § 514B-146(n) was numbered as HRS § 514B-146(k) before the statute was renumbered in 2018, and it is referred to as HRS § 514B-146(k) in the briefing. See 2018 Haw. Sess. Laws Act 195, § 4 at 672. Because there was no change to the substance of the statute, we refer to the current numbering, HRS § 514B-146(n), throughout. See id....