U.S. Bank Tr. v. Ass'n of Apartment Owners of Waikoloa Hills Condo. Phase I

150 Hawai‘i 573

506 P.3d 869

U.S. BANK TRUST, N.A., AS TRUSTEE FOR LSF9 MASTER PARTICIPATION TRUST, Plaintiff-Appellee,

v. ASSOCIATION OF APARTMENT OWNERS OF WAIKOLOA HILLS CONDOMINIUM PHASE I, Defendant-AppellantandMarshall D. Chinen, Esq., as the Successor Personal Representative for the Estate of Gale Dawn DeFuentes, Deceased; John Does 1-20; Jane Does 1-20; Doe Corporations 1-20; Doe Entities 1-20; and Doe Governmental Units 1-20, Defendants-Appellees

NOS. CAAP-18-0000486 AND CAAP-18-0000963 (CONSOLIDATED)

Intermediate Court of Appeals of Hawai‘i.

FEBRUARY 25, 2022

AMENDED FEBRUARY 28, 2022

On the briefs:

R. Laree McGuire, (Porter McGuire Kiakona & Chow, LLP), for Defendant-Appellant.

Charles R. Prather, Peter T. Stone, Honolulu, (TMLF Hawaii LLLC), for Plaintiff-Appellee.

LEONARD, PRESIDING JUDGE, HIRAOKA AND WADSWORTH, JJ.

OPINION OF THE COURT BY LEONARD, J.

This appeal addresses various issues raised by an apartment owners association, after having nonjudicially foreclosed upon an assessment lien and thereby taking title to an apartment unit, concerning its rights and interests after a subsequent foreclosure decree and judgment has been entered against its ownership interest. Many of the issues raised herein are resolved in accordance with a recent opinion of this court in which we held, in relevant part:

[T]he circuit court herein did not abuse its discretion in appointing a foreclosure commissioner to take possession and control of the subject unit upon the entry of the foreclosure decree and judgment. Under Hawai‘i law, a judgment entered on a foreclosure decree is a final determination of a foreclosed party's ownership interests in the subject property – in other words, the property owner's ownership rights in the property are foreclosed, notwithstanding that further proceedings are necessary to enforce and otherwise effectuate the foreclosure decree and judgment.

Bank of New York Mellon v. Larrua, No. CAAP-17-0000904, ––– Hawai'i ––––, ––– P.3d ––––, 2022 WL 277671, *1 (App. Jan. 31, 2022).

Here, we address, inter alia , the further issue of whether a foreclosure commissioner is vested with legal and equitable title to the foreclosure property. We hold that a foreclosure commissioner is not granted vested rights or interests in the subject property. Rather, the commissioner merely acts as an agent or arm of court, acting on the court's behalf, and is vested only with the particular legal and/or equitable powers over the subject property that the court deems necessary to exercise the court's legal and/or equitable powers. Any powers vested in the commissioner by the court – such as the power to take possession and control, collect rents, preserve value, and offer the property for sale – remain subject to further orders of the court.

In this consolidated appeal, Defendant-Appellant Association of Apartment Owners of Waikoloa Hills Condominium Phase I (the AOAO ) appeals from: (1) the May 30, 2018 Judgment (Foreclosure Judgment ) entered by the Circuit Court of the Third Circuit (Circuit Court )¹ in favor of Plaintiff-Appellee U.S. Bank Trust, N.A. (U.S. Bank ); and (2) the November 20, 2018 Judgment (Confirmation Judgment ) entered by the Circuit Court in favor of U.S. Bank. The AOAO also challenges the Circuit Court's: (1) May 30, 2018 Findings of Fact [(FOFs )], Conclusions of Law [(COLs )] and Order Granting Plaintiff's Motion for Summary Judgment Against All Defendants and for Interlocutory Decree of Foreclosure (Foreclosure Decree ); and (2) November 20, 2018 Order Confirming Foreclosure Sale, Approving Commissioner's Report, Allowance of Commissioner's Fees, Attorney's Fees, Costs, Directing Conveyance and for Writ of Ejectment (Confirmation Order ).

I. BACKGROUND

On October 30, 2017, U.S. Bank filed a Complaint for Mortgage Foreclosure (Complaint ) and claimed that on or about August 25, 2003, Gale D. DeFuentes (the Former Owner )² executed a promissory note to Summit Lending of Hawaii LLC in the amount of $139,500.00 (Note ), secured by a mortgage (Mortgage ) on the subject property, which is located on Paniolo Avenue in Waikoloa, Hawai‘i (the Property ). The Complaint alleged that the Note was negotiated to U.S. Bank on December 14, 2016, and that the Mortgage was assigned to U.S. Bank and recorded on January 11, 2017. U.S. Bank further alleged that it was the current holder of the Note with standing to foreclose and that it was entitled to foreclose on the basis of the Former Owner's default on the Note.³

The Complaint alleged that the AOAO acquired an interest in the Property by virtue of a quitclaim deed (Quitclaim Deed ) recorded on June 22, 2012, but that the AOAO's interests "are junior to [U.S. Bank]'s lien." U.S. Bank sought, inter alia : (1) an order that any ownership and lien interest claimed by any named defendants be adjudicated subordinate to the lien of U.S. Bank's Mortgage; and (2) the appointment of a commissioner to, inter alia , take possession of the Property, collect rents, and sell the Property.

In its December 22, 2017 answer to the Complaint (Answer ), the AOAO admitted "it may claim an interest in the Property, but denie[d] that its interest is junior [to U.S. Bank's] lien." The Answer asserted an "Affirmative Statement of Claim," alleging that certain sums were assessed against the Property and constituted a lien in favor of the AOAO, and that the Former Owner had failed to pay a total of $3,251.14, as of March 5, 2015. The AOAO sought, inter alia , dismissal of the Complaint as to the AOAO and the distribution of any proceeds from the sale of the Property in accordance with Hawaii Revised Statutes (HRS ) § 514B-146(g) and (h) (Supp. 2017).⁴

On March 13, 2018, U.S. Bank filed Plaintiff's Motion for Summary Judgment Against All Defendants and for Interlocutory Decree of Foreclosure (Motion for Summary Judgment ). U.S. Bank requested, inter alia , that the Circuit Court enter an order:

3. To determine that [U.S. Bank's] Mortgage is a valid first lien upon the Property, except for delinquent real property taxes, if any;

....

6. To determine, if appropriate and necessary, the validity and amount of the claims and liens, if any, of all parties herein and the priorities of such claims and liens;

7. To appoint a Commissioner to take possession of the Property and direct that he or she:

a. Possess, preserve, operate and manage the Property and all businesses and enterprises conducted thereon, including, but not limited to, collecting rental payments and revenues, taking control of all accounts and receivables, and paying and discharging from such funds received all of the ordinary costs and expenses related to the operation and management of the Property; and

b. Sell the Property by public sale in lawful money of the United States in the manner provided by law and the orders of this Court, and upon the confirmation of said sale by this Court, that the Commissioner be authorized and directed to make and deliver to the purchaser or purchasers, such instrument of conveyance as may be appropriate to transfer ownership of the Property, with the issuance of a Writ of Ejectment in favor of said purchaser or purchasers;

8. To authorize and direct the Commissioner, after the payment of all necessary expenses of such sale, to make application of all the proceeds thereof so far as the same may be necessary to the payment of the amounts found due and owing to [U.S. Bank] under the Note and Mortgage, including advances, title search fees, costs, expenses, and attorneys' fees, as determined by the Court;

9. To authorize [U.S. Bank] or its designee to be a purchaser at any foreclosure sale made as aforesaid, and to credit bid up to the total amount due to [U.S. Bank] without the requirement of any down payment at said sale;

....

11. To issue a Writ of Ejectment in favor of the purchaser at the foreclosure sale requested, commanding sheriffs to remove any tenants or occupants and any person holding by, through, or under any tenant or occupant, from the Property[.]

On April 10, 2018, the AOAO filed a limited memorandum in opposition to the Motion for Summary Judgment. The AOAO did not oppose U.S. Bank's request to foreclose on the Mortgage, as a first priority lien on the Property. Rather, the AOAO opposed any relief whereby a foreclosure commissioner would take possession of or collect rental proceeds from the Property. The AOAO asserted that it became the owner of the Property on June 22, 2012, upon completion of its nonjudicial foreclosure on the Property, and that HRS § 667-102(b)(4) (2016)⁵ conferred the AOAO with immediate and exclusive possession of the unit, "effectuat[ing] a bar against any person claiming a right or interest in title."

The AOAO also cited HRS § 514B-146(k) (Supp. 2017)⁶ as "clearly contemplat[ing]" the AOAO's continued possession and rental of the Property after the entry of the Foreclosure Judgment because it directs the AOAO to apply excess rental income received during that period in a particular manner. Specifically, the AOAO asserted that the plain language of HRS § 514B-146(k) would be violated if the court allowed U.S. Bank to take advantage of the AOAO's efforts and expenses, by appointing a commissioner to take possession of accounts and receivables that the AOAO has spent funds to generate, and hold or use them for U.S. Bank's benefit.

Finally, the AOAO argued that unless and until U.S. Bank acquired title to the Property, U.S. Bank was not entitled to an order granting it possession and rental proceeds from the Property owned by the AOAO. The AOAO urged the Circuit Court to "fashion an appropriate order allowing a commissioner to proceed without interfering with [the AOAO]'s interests."

In reply, U.S. Bank acknowledged that the AOAO had acquired title to the property by virtue of its nonjudicial foreclosure, but asserted that, in the event the Circuit Court granted the Motion for Summary Judgment, the AOAO's interest in the Property would be extinguished. The bank...