U.S. Bank National Association v. Thede ( 2020 )

NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
06-APR-2020
03:07 PM
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
U.S. BANK NATIONAL ASSOCIATION, A NATIONAL BANKING
ASSOCIATION AS TRUSTEE FOR SARM 05-19XS,
Plaintiff-Appellee,
v.
DYLAN THEDE, Defendant-Appellant,
and
ASSOCIATION OF APARTMENT OWNERS OF VILLAS ON THE PRINCE;
PRINCEVILLE II COMMUNITY ASSOCIATION, Defendants-Appellees,
and
JOHN DOES 1-50; JANE DOES 1-50; DOE PARTNERSHIPS 1-50;
DOE CORPORATIONS 1-50; DOE ENTITIES 1-50; and DOE
GOVERNMENTAL UNITS 1-50, Defendants
APPEAL FROM THE CIRCUIT COURT OF THE FIFTH CIRCUIT
(CIVIL NO. 12-1-0114)
SUMMARY DISPOSITION ORDER
(By: Fujise, Presiding Judge, and Chan and Wadsworth, JJ.)
This appeal arises out of a foreclosure decree entered
by the Circuit Court of the Fifth Circuit (Circuit Court) against
Defendant-Appellant Dylan Thede (Thede). On November 30, 2017,
the Circuit Court entered its Findings of Fact, Conclusions of
Law and Order Granting Plaintiff's Motion for Summary Judgment
Against All Parties and for Interlocutory Decree of Foreclosure
(Foreclosure Decree), and the related Judgment (Foreclosure
Judgment), both in favor of Plaintiff-Appellee U.S. Bank National
Association, a National Bank Association as Trustee for SARM 05-
19XS (U.S. Bank), and against Thede, Defendant-Appellee
Association of Apartment Owners of Villas on the Prince, and
NOT FOR PUBLICATION IN WEST'S HAWAII REPORTS OR THE PACIFIC REPORTER
Defendant-Appellee Princeville II Community Association.1/
Thede appeals from the Foreclosure Decree and the
Foreclosure Judgment.2/ He contends that the Circuit Court erred
in granting U.S. Bank's motion for summary judgment and
interlocutory decree of foreclosure (MSJ) by relying on "the
hearsay testimony of U.S. Bank's declaring witnesses" to
establish U.S. Bank's standing to foreclose on Thede's mortgaged
property. He also summarily argues that the Circuit court erred
in disregarding an expert report disputing the authenticity of
the original note at issue in the foreclosure.
After reviewing the record on appeal and the relevant
legal authorities, and giving due consideration to the issues
raised and the arguments advanced by the parties, we resolve
Thede's contentions as follows and vacate and remand.
I. RELEVANT BACKGROUND
On April 13, 2012, U.S. Bank filed a Complaint for
Foreclosure (Complaint) in the Circuit Court. U.S. Bank alleged,
among other things, that: (1) on June 1, 2005, Thede obtained a
$612,000 loan (Loan) from Countrywide Home Loans, Inc.
(Countrywide), by executing a promissory note (Note), secured by
a mortgage (Mortgage) recorded with respect to real property
located at 4141 Queen Emmas Dr., #1538, Princeville, Hawai#i
96722 (Property); (2) the Mortgage was assigned to U.S. Bank by
an Assignment of Mortgage recorded on October 13, 2009; (3) Thede
defaulted under the payment terms of the Note and Mortgage; (4)
following written notice to Thede and his failure to cure the
default, U.S. Bank exercised its option to accelerate the loan
and to declare the entire principal due under the Note and
secured by the Mortgage, plus interest, advances, and other
charges, immediately due and payable; and (5) U.S. Bank was
entitled to foreclose the Mortgage and to sell the Property.
1/
The Honorable Randal G.B. Valenciano presided .
2/
The Association of Apartment Owners of Villas on the Prince and
Princeville II Community Association did not appeal from the Foreclosure
Judgment and, as presumably nominal appellees, did not file answering briefs.
See Hawai#i Rules of Appellate Procedure Rule 28(c).
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On December 11, 2015, U.S. Bank filed its MSJ, which
included an attached "Verified Declaration of Indebtedness."
Ryan Cable (Cable) signed the declaration (Cable Declaration) and
asserted that he had knowledge of, and was competent to testify
to, "the matters stated [t]herein by virtue of [his] employment
for Nationstar Mortgage LLC, the loan servicing agent for
Plaintiff [U.S. Bank]." Cable declared, among other things, that
"[o]n or about June 1, 2005, [Thede] . . . duly made, executed
and delivered to Countrywide . . ., an Adjustable Rate Note
('Note') in the amount of $612,000.00[,]" which was attached as
Exhibit "A" to the Cable Declaration. Cable also stated that
"[U.S. Bank] is in possession of the Note."
Thede filed a memorandum in opposition on October 27,
2016, and a supplemental memorandum in opposition on April 12,
2017. In his supplemental memorandum, Thede argued that U.S.
Bank had failed to establish its standing to foreclose under the
supreme court's then-recently issued decision in Bank of America,
N.A. v. Reyes-Toledo, 139 Hawai#i 361, 390 P.3d 1248 (2017). In
particular, Thede argued that U.S. Bank had not demonstrated it
was the holder of the Note at the time the Complaint was filed.
On June 19, 2017, U.S. Bank filed the "Affidavit of
Bank of America, N.A. Re: Possession of Note as Prior Servicer."
Nichole Renee Williams (Williams) signed the affidavit (Williams
Affidavit) which stated, in relevant part:
1. I am authorized to sign this Declaration on
behalf of Bank of America, N.A. ("BANA"), which was the
prior servicer for the subject loan (the "Loan") for
Plaintiff U.S. BANK NATIONAL ASSOCIATION, A NATIONAL BANKING
ASSOCIATION AS TRUSTEE FOR SARM 05-19XS.
2. As prior servicer, BANA maintained records for
the Loan. As part of my job responsibilities for BANA, I am
familiar with the type of records that were maintained by
BANA in connection with the Loan. As such, I am authorized
to make this Declaration.
3. The information in this Declaration is taken
from BANA's business records. I have personal knowledge of
BANA's procedures for creating these records. They are: (a)
made at or near the time of the occurrence of the matters
recorded by persons with personal knowledge of the
information in the business record, or from information
transmitted by persons with personal knowledge; (b) kept in
the course of BANA's regularly conducted business
activities; and (c) created by BANA as a regular practice.
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4. My knowledge is based on my review of BANA's
business records and files related to the mortgage loan
which is the subject of this foreclosure.
5. On April 13, 2012, the Complaint for Foreclosure
was filed herein. A true and correct copy of the Complaint
is attached as Exhibit "1".
6. At the time the Complaint was filed, BANA was
the servicer for the Loan.
7. On April 13, 2012, BANA was in possession of the
original Adjustable Rate Note dated June 1, 2005 in the
principal amount of $612,000.00 executed by DYLAN THEDE in
favor of Countrywide Home Loans, Inc. endorsed in blank
("Note"). A true and correct copy of the Note is attached
as Exhibit "2".
8. On or about March 31, 2014, servicing of the
Loan transferred to Nationstar Mortgage LLC.
On August 1, 2017, U.S. Bank filed a supplemental
declaration in support of its MSJ. Rebecca C. Wallace (Wallace)
signed the declaration (Wallace Declaration), which stated, in
relevant part:
1. I am authorized to sign this Declaration on
behalf of Plaintiff U.S. BANK NATIONAL ASSOCIATION, A
NATIONAL BANKING ASSOCIATION AS TRUSTEE FOR SARM 05-19XS
("Plaintiff") as an authorized signer of Nationstar Mortgage
LLC ("Nationstar"),which is Plaintiff's servicing agent for
the subject loan ("the loan").
2. Nationstar maintains records for the loan in its
capacity as Plaintiff's servicer. As part of my job
responsibilities for Nationstar, I am familiar with the type
of records maintained by Nationstar in connection with the
Loan. As such, I am authorized to make this Declaration.
3. Nationstar is the current loan servicer for
Plaintiff and acts as the exclusive representative and agent
of Plaintiff in the servicing and administering of mortgage
loans referred to Nationstar, including the Loan being
foreclosed in this action.
4. The information in this Declaration is taken
from Nationstar's business records. I have personal
knowledge of Nationstar's procedures for creating these
records. They are: (a) made at or near the time of the
occurrence of the matters recorded by persons with personal
knowledge of the information in the business record, or from
information transmitted by persons with personal knowledge;
(b) kept in the course of Nationstar's regularly conducted
business activities; and (c) created by Nationstar as a
regular practice.
5. On April 13, 2012, Plaintiff filed its Complaint
for Foreclosure ("Complaint").
6. At the time the Complaint for Foreclosure was
filed, Bank of America, N.A. ("BANA") was the servicer for
the Loan.
7. Based on the affidavit executed by Nichole Renee
Williams on May 31, 2017 as an authorized representative of
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BANA ("Affidavit"), BANA was in possession of the original
Adjustable Rate Note dated June 1, 2009 in the principal
amount of $612,000.00 executed by Defendant DYLAN THEDE in
favor of Countrywide Home Loans, Inc., endorsed in blank
("Original Note"), when the Complaint was filed. . . .
8. On 4/01/2014 , servicing of the Loan was
transferred from BANA to Nationstar.
9. When the servicing rights of the Loan were
transferred to Nationstar, BANA transferred its servicing
records pertaining to the Loan to Nationstar. Among the
records and documents was the Original Note.
10. The records of prior servicers are regularly
used and relied upon by Nationstar in all dealings with all
the borrowers, in reporting all profit and loss on the
mortgage loans to the Plaintiff, in the preparation, filing
and payment of income taxes dependent upon such information,
and in evaluating Nationstar's own job performance.
11. Before the records of prior servicers were
incorporated into Nationstar's own business records, it
conducted an independent check into the records of prior
servicers and found them in keeping with industrywide loan
servicing standards and only integrated them into
Nationstar's own business records after finding these
records were made as part of a regularly conducted activity,
met industry standards, and determined to be trustworthy.
12. Nationstar maintains all the day to day loan
documents, records and accounting of payments on the Loan
being foreclosed in this action including all documents and
business records acquired by Plaintiff when it purchased the
subject mortgage loan.
13. Under the terms of Nationstar's servicing
arrangement, Plaintiff does not participate in, keep and
maintain any of the day to day loan documents, inputting of
accounting data, saving of business records and all
communications with borrowers.
14. All declarations, affidavits, and exhibits filed
in support of Plaintiff's Motion for Summary Judgment
Against All Parties and for Interlocutory Decree of
Foreclosure filed on December 11, 2015 are incorporated by
reference.
On August 7, 2017, Thede filed a further supplemental
memorandum in response to the Wallace Declaration. Thede argued,
among other things, that Wallace and Williams: (1) were not
qualified to authenticate U.S. Bank's business records; (2)
failed to demonstrate personal knowledge that U.S. Bank was in
possession of the Note when the Complaint was filed; and (3)
offered inadmissible hearsay.
On August 17, 2017, U.S. Bank filed an amended
supplemental declaration signed by Wallace in support of its MSJ
(Amended Wallace Declaration). The Amended Wallace Declaration
appears to have corrected Paragraphs 8 and 9 of the Wallace
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Declaration, as follows:
8. On April 1, 2014, servicing of the Loan was
transferred from Specialized Loan Servicing LLC ("SLS") to
Nationstar[.]
9. When the servicing rights of the Loan were
transferred to Nationstar, SLS transferred its servicing
records pertaining to the Loan to Nationstar. Among the
records and documents transferred to Nationstar by SLS was
the Original Note. Loan servicing records from BANA were
also included in the records and documents transferred from
SLS to Nationstar.
On September 14, 2017, U.S. Bank filed a further
supplemental reply memorandum in support of its MSJ.
Following a September 19, 2017 hearing on U.S. Bank's
MSJ, the Circuit Court granted the MSJ and entered the
Foreclosure Decree and the Foreclosure Judgment on November 30,
2017. Thede filed a timely notice of appeal.
II. DISCUSSION
In Reyes-Toledo, the Hawai#i Supreme Court held that to
establish the right to foreclose, the foreclosing plaintiff must
establish standing, or entitlement to enforce the subject
promissory note, at the time the action was commenced. 139
Hawai#i at 367-70, 390 P.3d at 1254-57. The "foreclosing
plaintiff's burden to prove entitlement to enforce the note
overlaps with the requirements of standing in foreclosure actions
as '[s]tanding is concerned with whether the parties have the
right to bring suit.'" Id. at 367, 390 P.3d at 1254 (quoting
Mottl v. Miyahira, 95 Hawai#i 381, 388, 23 P.3d 716, 723 (2001)).
The supreme court further noted that "a foreclosing plaintiff
does not have standing to foreclose on mortgaged property unless
the plaintiff was entitled to enforce the note that has been
defaulted on." Id. at 368, 390 P.3d at 1255 (citing Hanalei, BRC
Inc. v. Porter, 7 Haw. App. 304, 310, 760 P.2d 676, 680 (1988)).
Here, it appears that the Circuit Court granted U.S.
Bank's MSJ based in part on the copy of the "Adjustable Rate
Note" that was attached to the Williams Affidavit (Attached
Note). At the September 19, 2017 hearing, the court stated:
I'm looking at the affidavit of Bank of America,
the one filed on June 19th, 2017, where they're
alleging that they had the documents –- the note at
the time the complaint for foreclosure was filed, so I
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believe that would bring this matter in compliance
with the Reyes-Toledo situation.
And when I look at the declaration, it talks
about Ms. Williams having personal knowledge and
working with these documents.
So I'm –- I'm not willing to expand that every
time there's a statement in a declaration referring to
a document, you have to attach the document. I'm not
willing to expand it – that requirement.
And so based on the Court's review of the
documents submitted, the pleadings, the Court will be
granting the motion for summary judgment.
Thede contends that the Circuit Court erred in granting
U.S. Bank's MSJ by relying on "the hearsay testimony of U.S.
Bank's declaring witnesses" to establish U.S. Bank's standing to
foreclose. Thede also argues that U.S. Bank offered "no
admissible evidence" that it possessed the Note when the
Complaint was filed.
"Under Hawai#i Rules of Civil Procedure Rule 56(e)
(2000) and Rules of the Circuit Courts of the State of Hawai#i
Rule 7(g) (1997), 'a declaration [or affidavit] in support of a
summary judgment motion must be based on personal knowledge,
contain facts that would be admissible in evidence, and show that
the declarant [or affiant] is competent to testify as to the
matters contained within the declaration.'" Wells Fargo Bank,
N.A. v. Behrendt, 142 Hawai#i 37, 44, 414 P.3d 89, 96 (2018)
(quoting U.S. Bank N.A. v. Mattos, 140 Hawai#i 26, 30, 398 P.3d
615, 619 (2017)). "Inadmissible evidence 'cannot serve as a
basis for awarding or denying summary judgment.'" Id. (quoting
Haw. Cmty. Fed. Credit Union v. Keka, 94 Hawai#i 213, 221, 11
P.3d 1, 9 (2000)).
U.S. Bank contends that the Attached Note was
admissible under the hearsay exception for records of regularly
conducted activity pursuant to Hawai#i Rules of Evidence (HRE)
Rule 803(b)(6).3/ U.S. Bank further argues that Williams and
3/
HRE Rule 803(b)(6) (Supp. 2011) provides that the following are
not excluded by the rule against hearsay:
A memorandum, report, record, or data compilation, in
any form, of acts, events, conditions, opinions, or
diagnoses, made in the course of a regularly conducted
activity, at or near the time of the acts, events,
conditions, opinions, or diagnoses, as shown by the
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Wallace were each a "qualified witness" with respect to the
Attached Note, and each satisfied the standards set out in Mattos
for admitting that document into evidence and establishing U.S.
Bank's standing to foreclose.
In Mattos and Behrendt, the supreme court reviewed the
sufficiency of declarations similar in certain key respects to
those at issue here, each of which attested to a promissory note
and other documents relating to a foreclosure under the HRE Rule
803(b)(6) business records exception. See Mattos, 140 Hawai#i at
31, 398 P.3d at 620; Behrendt, 142 Hawai#i at 44-45, 414 P.3d at
96-97. The court's decisions in Mattos and Behrendt are
therefore dispositive as to whether HRE Rule 803(b)(6) may serve
as a basis to admit the Attached Note into evidence.
With respect to the Williams Affidavit, Williams did
not aver that she was the custodian of records for BANA,
Countrywide,4/ or any other holder of the Note (e.g., U.S.
Bank5/). Thus, the Attached Note is admissible under HRE Rule
803(b)(6) only if the Williams Affidavit demonstrates that
Williams is a "qualified witness" with respect to that document.
See Mattos, 140 Hawai#i at 32, 398 P.3d at 621; Behrendt, 142
Hawai#i at 45, 414 P.3d at 97.
The supreme court has held that a witness may be
qualified to provide the testimony required by HRE Rule 803(b)(6)
testimony of the custodian or other qualified witness,
or by certification that complies with rule 902(11) or
a statute permitting certification, unless the sources
of information or other circumstances indicate lack of
trustworthiness.
(Emphasis added.)
4/
The Cable Declaration stated that "[o]n or about June 1, 2005,
[Thede] . . . duly made, executed and delivered to Countrywide" the Note.
(Emphasis added.) In addition, the Note identifies Countrywide as the
"Lender" and, in turn, defines the "Note Holder" as the "Lender or anyone who
takes this Note by transfer and who is entitled to receive payments under this
Note." It therefore appears that Countrywide was the original holder of the
Note.
5/
The Cable Declaration states: "By Assignment of Mortgage recorded
on October 13, 2009 . . . the mortgagee's interest in the Mortgage was
assigned to [U.S. Bank]." Because the debt does not automatically follow the
security (Reyes-Toledo, 139 Hawai#i at 371 n.17, 390 P.3d at 1258 n.17), it is
not clear when U.S. Bank became the holder of the Note. The Williams
Affidavit states that BANA was in possession of the Note on April 13, 2012,
but does not indicate when BANA's possession commenced.
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even if the witness is not employed by the business that created
the document or lacks direct, personal knowledge of how the
document was created. See Mattos, 140 Hawai#i at 32, 398 P.3d at
621; Behrendt, 142 Hawai#i at 45, 414 P.3d at 97. While there is
"no requirement that the records have been prepared by the entity
that has custody of them," the testifying witness "must have
enough familiarity with the record-keeping system of the business
that created the record to explain how the record was generated
in the ordinary course of business." Behrendt, 142 Hawai#i at
45, 414 P.3d at 97 (quoting and citing Mattos, 140 Hawai#i at 32,
398 P.3d at 621).
The court in Behrendt further explained:
Records received from another business and incorporated into
the receiving business' records may in some circumstances be
regarded as 'created' by the receiving business.
Incorporated records are admissible under HRE Rule 803(b)(6)
when a custodian or qualified witness testifies that the
documents were incorporated and kept in the normal course of
business, that the incorporating business typically relies
upon the accuracy of the contents of the documents, and the
circumstances otherwise indicate the trustworthiness of the
document.
Id. at 45, 414 P.3d at 97 (citation omitted) (citing Mattos, 140
Hawai#i at 32, 398 P.3d at 621.
Here, as in Mattos and Behrendt, the Williams Affidavit
does not establish that the Attached Note was received by BANA
and then incorporated into BANA's records. In addition, like the
declaration in Behrendt, the Williams Affidavit does not
establish that Williams was familiar with the record-keeping
system of Countrywide or any other prior holder of the Note. See
142 Hawai#i at 46, 414 P.3d at 98 (declaration of loan servicer
employee "ma[de] no assertions as to [the declarant's]
familiarity with the record-keeping systems of Funding Group or
Option One, which first created the Note and allonges"). Thus,
the Williams Declaration does not satisfy the foundational
requirements to make Williams a qualified witness with respect to
the Attached Note, and she could not authenticate it as a record
of a regularly conducted activity under HRE Rule 803(b)(6).
The Wallace Declaration, even as amended, was similarly
deficient in providing the foundation necessary to admit the
Attached Note under HRE Rule 803(b)(6). Wallace did not state
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that she was the custodian of records for Nationstar or any prior
holder of the Note, so she had to demonstrate that she was a
"qualified witness" with respect to the Attached Note. Yet she
did not claim to be familiar with the record-keeping system of
Countrywide or any other holder of the Note before BANA. Indeed,
the Wallace Declaration does not specifically assert that Wallace
was even familiar with BANA's record-keeping system. The Wallace
Declaration also relies on the Williams Affidavit, which, for the
reasons previously stated, is insufficient to admit the Attached
Note under the business records exception.
Absent the declaration of a "qualified witness" with
respect to the Attached Note, U.S. Bank failed to establish its
standing to foreclose. Because the Attached Note was not
admissible as asserted, U.S. Bank did not meet its burden of
establishing facts necessary for a grant of summary judgment.
See Behrendt, 142 Hawai#i at 46, 414 P.3d at 98. Given our
conclusion, we do not reach Thede's second issue on appeal.
We therefore vacate the (1) Findings of Fact,
Conclusions of Law and Order Granting Plaintiff's Motion for
Summary Judgment Against All Parties and for Interlocutory Decree
of Foreclosure, and (2) Judgment, both entered on November 30,
2017, by the Circuit Court of the Fifth Circuit. The case is
remanded to the Circuit Court for further proceedings consistent
with this Summary Disposition Order.
DATED: Honolulu, Hawai#i, April 6, 2020.
On the briefs:
/s/ Alexa D.M. Fujise
Gary Victor Dubin and Presiding Judge
Frederick J. Arensmeyer
for Defendant-Appellant.
/s/ Derrick H.M. Chan
Andrew J. Lautenbach and Associate Judge
Sianha M. Gualano
(Starn O'Toole Marcus & Fisher)
for Plaintiff-Appellee. /s/ Clyde J. Wadsworth
Associate Judge
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