U.S. Bank Trust, N.A. v. Association of Apartment Owners of Waikoloa Hills Condominium Phase 1. Consolidated With Case No. CAAP-18-0000963 ( 2022 )

FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
28-FEB-2022
08:08 AM
Dkt. 71 AMOP
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
---o0o---
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-Appellant
and
MARSHALL 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-XX-XXXXXXX AND CAAP-XX-XXXXXXX
(CONSOLIDATED)
APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT
(CIVIL NO. 17-1-332K )
FEBRUARY 28, 2022
LEONARD, PRESIDING JUDGE, HIRAOKA AND WADSWORTH, JJ.
AMENDED 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
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
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-XX-XXXXXXX, 2022 WL
277671, *1 (Haw. 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
2
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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
1
The Honorable Robert D.S. Kim presided.
2
Because the Former Owner passed away in 2010, the Complaint
instead named as defendant Marshall D. Chinen, Esq., in his capacity as the
Successor Personal Representative for the Estate of the Former Owner.
3
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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
3
Neither defendant challenged U.S. Bank's standing to enforce the
Note. See U.S. Bank Tr., N.A. v. Verhagen, 149 Hawai #i 315, 489 P.3d 419(2021); see also Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai #i 361, 390 P.3d
1248 (2017).
4
HRS § 514B-146(g) and (h) (Supp. 2017), now codified as HRS
§ 514B-146(j) and (k) (2018), provide, in pertinent part:
(continued...)
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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;
(...continued)
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(g) Subject to this subsection, and subsections (h)
and (i), the board may specially assess the amount of the
unpaid regular monthly common assessments for common
expenses against a mortgagee or other purchaser who, in a
judicial or nonjudicial power of sale foreclosure, purchases
a delinquent unit[.]
. . . .
(h) The amount of the special assessment assessed
under subsection (g) shall not exceed the total amount of
unpaid regular monthly common assessments that were assessed
during the six months immediately preceding the completion
of the judicial or nonjudicial power of sale foreclosure.
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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,
5
HRS § 667-102(b)(4) states:
§ 667-102 Recordation of affidavit, conveyance
document; effect. (a) The affidavit required under section
667-101 and the conveyance document shall be recorded no
earlier than ten days after the public sale is held but
not later than forty-five days after the public sale is held.
. . . .
(b) When both the [section 667-101] affidavit and
the conveyance document are recorded:
. . . .
(4) The purchaser shall be entitled to immediate and
exclusive possession of the unit.
6
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"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
6
HRS § 514B-146(k) (Supp. 2017), now codified at HRS § 514B-146(n)
(2018), states:
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(k) After any judicial or nonjudicial foreclosure
proceeding in which the association acquires title to the
unit, any excess rental income received by the association
from the unit shall be paid to existing lien holders based
on the priority of lien, and not on a pro rata basis, and
shall be applied to the benefit of the unit owner. For
purposes of this subsection, excess rental income shall be
any net income received by the association after a court has
issued a final judgment determining the priority of a senior
mortgagee and after paying, crediting, or reimbursing the
association or a third party for:
(1) The lien for delinquent assessments pursuant to
subsections (a) and (b);
(2) Any maintenance fee delinquency against the
unit;
(3) Attorney's fees and other collection costs
related to the association's foreclosure of the
unit; or
(4) Any costs incurred by the association for the
rental, repair, maintenance, or rehabilitation
of the unit while the association is in
possession of the unit including monthly
association maintenance fees, management fees,
real estate commissions, cleaning and repair
expenses for the unit, and general excise taxes
paid on rental income;
provided that the lien for delinquent assessments under
paragraph (1) shall be paid, credited, or reimbursed first.
7
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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 maintained that, as
a result, the Commissioner, not the AOAO, would have the right to
collect any rental proceeds from the Property. Citing HRS § 667-
102(b)(3) (2016),7 U.S. Bank also argued that once the AOAO's
nonjudicial foreclosure sale was completed, its lien was
foreclosed and ceased to exist as the AOAO was now the owner of
the Property. U.S. Bank noted that upon acquiring title to the
Property, the duty to pay the AOAO dues and assessments on the
Property became the duty of the AOAO, but that following the
7
HRS § 667-102(b)(3) states:
§ 667-102 Recordation of affidavit, conveyance
document; effect.
. . . .
(b) When both the [section 667-101] affidavit and
the conveyance document are recorded:
. . . .
(3) The lien of the association and all liens junior
in priority to the lien of an association shall
be automatically extinguished from the unit[.]
8
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Commissioner's appointment, "it is logical that the Commissioner
will be required to pay any expenses associated with the
Property." Finally, U.S. Bank argued that HRS § 514B-146(k)
does not alter the legal effect of the [Order] appointing
the Commissioner, which is that, once the Commissioner is
appointed, the Commissioner has legal title to the property
and the right and responsibility to collect rents, and the
duty to pay (from the rental proceeds collected) his own
fees and costs, the association dues and other maintenance
expenses that accrue during said period to the extent that
sufficient rents are collected, and the balance per
instructions from the Court – in that order.
At the April 20, 2018 hearing on the Motion for Summary
Judgment, the Circuit Court stated that
on the issue of the taking possession, . . . the
Court's position is that the granting of the summary
judgment motion and appointing of the commissioner
allows the Court to authorize the commissioner to take
possession of the property and do whatever tasks are
required to collect rents or take possession of the
property.
That doesn't address the issue of where the funds go,
if there are any. . . . [i]f rents are being collected, and
the commissioner feels that he or she can work with the
tenants, then [he or she] can collect the rents. And he or
she can take whatever action is appropriate under the
equitable title vested in the commissioner pursuant to any
summary judgment order issued by the Third Circuit Court.
On May 30, 2018, the Circuit Court entered the
Foreclosure Judgment as well as the Foreclosure Decree, which
concluded in part:
[COL] 2. [U.S. Bank's] Mortgage is a valid mortgage
lien on the Property with priority over any other Defendant
junior liens and encumbrances thereon, except for the lien
of any delinquent real property taxes.
. . . .
[COL] 7. [U.S. Bank] is entitled to the entry of
summary judgment against all Defendants and an interlocutory
decree of foreclosure against said Defendant in the
foreclosure action, on the grounds that no genuine issue of
material fact exists, and [U.S. Bank] is entitled to summary
judgment and an interlocutory decree of foreclosure as a
matter of law.
Pursuant to its FOFs and COLs, the Circuit Court
ordered, in pertinent part:
[FOF] 11. . . . Defendant AOAO's request to continue
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to have possession of the Property is hereby DENIED.
Commissioner, as appointed herein, is vested with legal and
equitable title to the Property and it is within the
discretion of the Commissioner if he/she will maintain any
leases on the Property, if any remain.
. . . .
4. Rebecca Colvin, Esquire [(the Commissioner)], is
hereby appointed Commissioner of this Court in this action,
. . . and as Commissioner, is vested with legal and
equitable interest in the Property and is authorized and
directed to take possession and control of the Property,
including but not limited to collecting rental payments and
to sell the Property at a public auction[.] . . . A
reasonable Commissioner's fees and costs shall be submitted
to and awarded accordingly by the court, and shall be deemed
to be secured by the Mortgage.
. . . .
6. Upon confirmation of the sale, the Commissioner is
authorized and directed, after the payment of all necessary
expenses of such sale, to make application of all the
proceeds thereof and all funds which they hold in their
capacity as Commissioner so far as the same may be necessary
to the payment of amounts found due and owing to Plaintiff
from the Borrowers under the Loan Documents, including
advances, title search fees, costs, expenses, and attorney's
fees, as determined by the this court.
. . . .
10. Any and all interest of all named Defendants that
is junior to Plaintiff's interest is hereby terminated upon
conveyance of the deed to the confirmed purchaser.
. . . .
12. This Court retains jurisdiction to ascertain the
total amount that is due and owing to [U.S. Bank],
consisting of the principal amount due under the Loan
Documents, together with interest, advances, late charges,
expenses, costs, and attorneys' fees thereon to the date of
conveyance of the Property by the Commissioner.
13. This Court further retains jurisdiction to
determine among other matters which may later come before
this Court, the amount of fees and costs of the Commissioner
and Plaintiff's attorneys and over any party to whom any
surplus shall be awarded.
14. This Court retains jurisdiction to determine
whether Defendant AOAO is entitled to a special assessment
pursuant to [HRS] Section 514B-146(g) and (h), [8] and the
amount of the same.
8
These provisions are now codified at HRS § 514B-146(j) and (k)
(2018), respectively.
10
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On June 12, 2018, the AOAO timely filed a notice of
appeal from the Foreclosure Judgment, initiating CAAP-XX-XXXXXXX.
On August 14, 2018, the Commissioner filed her report,
stating, inter alia, that she had collected rent in the amount of
$725.80 and that U.S. Bank had bid highest on the Property at the
foreclosure auction. The Commissioner submitted an explanation
of fees and costs and requested:
1. That the Court approve and accept your
Commissioner's report;
2. That a hearing be held to confirm the sale of the
subject property to [U.S. Bank], for the sales price of
$210,000.00;
3. That the Court allow your Commissioner
reimbursement of expenses incurred in the sum of $867.49 and
Commissioner's fees in the sum of [$]3,372.18;
4. That the Court allow rental proceeds collected in
the amount of $725.80 (less G.E.T. to be paid to the State
of Hawaii) to be paid to Commissioner to offset the total
amount due Commissioner for fees and costs due from proceeds
of the sale.
5. That upon your Commissioner conveying the subject
property to the party to whom the sale thereof is confirmed,
distributing funds to those persons and parties in the
amounts and in the order of priority directed by this Court,
and your Commissioner filing her Distribution Statement,
attaching receipts of these amounts from these persons or
parties, who are entitled to receive such amounts, your
Commissioner stand discharged from any further
responsibilities and liabilities thereof.
The AOAO objected to the Commissioner's Report only to
the extent that the Commissioner requested payment from the
rental proceeds the Commissioner collected, on the grounds that
the AOAO should be allowed to retain the rent collected during
its ownership of the Property.
On August 30, 2018, U.S. Bank filed Plaintiff's Motion
for 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
11
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Motion). U.S. Bank requested, inter alia, that the Circuit Court
order that rents from the Property collected by the Commissioner,
if any, be paid to U.S. Bank and credited against the amounts due
to U.S. Bank under the Note and Mortgage.
In a limited memorandum in opposition, the AOAO again
argued that any rents from the Property collected by the
Commissioner should be paid to the AOAO. The AOAO asserted that,
pursuant to HRS § 514B-146(k):
[T]he only circumstance in which [U.S. Bank] may be entitled
to rental income from a unit owned by the [AOAO] is where
(1) the [AOAO] obtained title to the unit by foreclosure,
(2) a senior lienholder subsequently obtained summary
judgment determining the priority of a senior mortgagee, and
(3) excess rental income is "received by the association"
after deducting distributions pursuant to HRS § 514B-
146(k)(1)-(4).
According to the AOAO, because U.S. Bank did not show
the existence of "excess rental income," it was not entitled to
receive any rental income. Alternatively, the AOAO argued that -
in the event the Circuit Court found that the Commissioner held
legal and equitable title and that U.S. Bank was entitled to the
rents collected - the Circuit Court should direct the
Commissioner to pay the AOAO the monthly maintenance and reserve
fees assessed against the Property from the date of the
Foreclosure Decree until the completion of the foreclosure sale.
Following an October 30, 2018 hearing, the Circuit
Court entered the Confirmation Order on November 20, 2018,
ordering, inter alia:
6. The Commissioner is awarded the total sum of
$4,239.67 for fees and costs. The Commissioner collected
rent in the amount of $725.80 which shall be applied to her
fees and costs.
. . . .
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12. Pursuant to HRS § 514B-146(j) and (k), [9] the
purchaser shall be held responsible for unpaid regular
monthly common assessments in an amount not to exceed the
total amount of unpaid regular monthly common assessments
that were assessed during the six months immediately
preceding the completion of the foreclosure, provided the
[AOAO] submits an accounting of any monthly common
assessments paid and any rents received during the six
months preceding the conclusion of the foreclosure.
The Confirmation Judgment was entered on November 20,
2018. On December 20, 2018, the AOAO timely filed a notice of
appeal, initiating CAAP-XX-XXXXXXX. On April 24, 2019, this
court consolidated the two appeals under CAAP-XX-XXXXXXX.
II. POINTS OF ERROR
In its appeal from the Foreclosure Judgment, the AOAO
raised two points of error, contending that the Circuit Court
erred when it: (1) purportedly vested the Commissioner with
equitable and legal title to the Property; and (2) concluded that
the AOAO's right to possess and collect rent from the Property
was extinguished upon entry of the Foreclosure Decree (and
Foreclosure Judgment), and ordered the Commissioner to take
possession and control of the Property, including the collection
of rent. In its subsequent appeal challenging the Confirmation
Judgment, the AOAO raised two points of error, contending that:
(1) based on its prior erroneous conclusion that the Commissioner
was vested with title as of the Foreclosure Decree and
Foreclosure Judgment, as of the entry of same, the Circuit Court
erred in ordering that the $725.80 of rent collected by the
Commissioner should be applied to her fees; and (2) the Circuit
9
HRS § 514B-146 was amended, effective July 1, 2018, i.e., between
the entry of the May 30, 2018 Foreclosure Decree and the November 20, 2018
Confirmation Order. 2018 Haw. Sess. Laws Act 195, § 6 at 672. Thus, while the
Foreclosure Decree refers to HRS § 514B-146(g) and (h) (Supp. 2017), the
Confirmation Order refers to the same subsections recodified as HRS § 514B-
146(j) and (k) (2018), respectively.
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Court erred when it ordered that the AOAO was awarded only six
months of assessments.
III. APPLICABLE STANDARDS OF REVIEW
This court "review[s] an award of summary judgment de
novo under the same standard applied by the circuit court." HSBC
Bank USA, Nat'l Ass'n v. Moore, 144 Hawai#i 49, 53, 434 P.3d
1244, 1248 (App. 2018) (quoting Salera v. Caldwell, 137 Hawai#i
409, 415, 375 P.3d 188, 194 (2016)). "Summary judgment is
appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law." Id. (quoting Caldwell, 137 Hawai#i at 415,
375 P.3d at 194). "The court views all the evidence and
inferences in the light most favorable to the party opposing the
motion." Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i at 367
n.9, 390 P.3d at 1254 n.9 (citation omitted). "The moving party
bears the burden of demonstrating that there is no genuine issue
as to any material fact with respect to the essential elements of
the claim[.]" Id. (citation omitted).
The interpretation of a statute is a question of law
which the appellate court reviews de novo. Sakal v. Ass'n of
Apartment Owners of Hawaiian Monarch, 148 Hawai#i 1, 5, 466 P.3d
399, 403 (2020); Mount v. Apao, 139 Hawai#i 167, 174-75, 384 P.3d
1268, 1275-76 (2016). "Where the language of the statute is
plain and unambiguous, our only duty is to give effect to its
plain and obvious meaning." Apao, 139 Hawai#i at 175, 384 P.3d
14FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
at 1276 (citing Sierra Club v. Dep't of Transp., 120 Hawai#i 181,
197, 202 P.3d 1226, 1242 (2009)).
"Foreclosure is an equitable action" and "[c]ourts of
equity have the power to mold their decrees to conserve the
equities of the parties under the circumstances of the case."
Peak Capital Grp., LLC v. Perez, 141 Hawai#i 160, 172, 407 P.3d
116, 128 (2017) (citing Hawai#i Nat'l Bank v. Cook, 100 Hawai#i 2,
7, 58 P.3d 60, 65 (2002) (Hawai#i Nat'l Bank II); Honolulu, Ltd.
v. Blackwell, 7 Haw. App. 210, 219, 750 P.2d 942, 948 (1988)).
"Whether and to what extent relief should be granted rests within
the sound discretion of the court and will not be disturbed
absent an abuse of such discretion." Id. (citing Jenkins v.
Wise, 58 Haw. 592, 597, 574 P.2d 1337, 1341 (1978)).
"The lower court's authority to confirm a judicial sale
is a matter of equitable discretion." Hoge v. Kane II, 4 Haw.
App. 533, 540, 670 P.2d 36, 40 (1983) (citing Wodehouse v.
Hawaiian Tr. Co., Ltd., 32 Haw. 835, 852 (1933)). "Hence, [t]he
exercise of discretion by the lower court judge will not be
disturbed on appeal except for abuse." Indus. Mortg. Co., L.P.
v. Smith, 94 Hawai#i 502, 510, 17 P.3d 851, 859 (App. 2001)
(quoting Brent v. Staveris Dev. Corp., 7 Haw. App. 40, 45, 741
P.2d 722, 726 (1987)) (internal quotation marks omitted).
IV. DISCUSSION
A. Appointment of a Foreclosure Commissioner
The AOAO argues, inter alia, that the Circuit Court
erred when it purportedly vested the Commissioner with equitable
and legal title to the Property, and divested the AOAO of
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equitable and legal title to the Property, at the time of the
entry of the Foreclosure Judgment and the Foreclosure Decree.
The AOAO maintains that it rightfully retained both legal and
equitable title after the entry of the Foreclosure Decree,
including the right to collect and retain rents.
The Intermediate Court of Appeals (ICA) recently
addressed these issues, in part, in Larrua, 2022 WL 277671, at
*1, wherein the ICA 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.
For the reasons stated in Larrua, and based on the
authorities cited therein, as well as the record in this case, we
conclude that: (1) although the AOAO became the owner of the
Property on June 22, 2012, upon completion of the nonjudicial
foreclosure of its assessment lien on the Property, and HRS
§ 667-102(b)(4) (2016)10 conferred the AOAO with immediate and
10
HRS § 667-102(b)(4) states:
§ 667-102 Recordation of affidavit, conveyance
document; effect. (a) The affidavit required under section
667-101 and the conveyance document shall be recorded no
earlier than ten days after the public sale is held but not
later than forty-five days after the public sale is held.
. . . .
(b) When both the [section 667-101] affidavit and
the conveyance document are recorded:
. . . .
(continued...)
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exclusive possession of the unit, nothing in HRS § 667-102
precluded the appointment of a commissioner to possess and
control the Property upon a pre-existing mortgagee's subsequent
judicial foreclosure of the subject property; (2) the AOAO took
title of the Property subject to the Mortgage; (3) upon the
Circuit Court's granting of the Motion for Summary Judgment, the
AOAO's ownership interest in the Property was foreclosed,
notwithstanding that further proceedings were necessary to
enforce and otherwise effectuate the Foreclosure Decree and
Foreclosure Judgment; (4) the Circuit Court's appointment of the
Commissioner, authorizing and directing her to take possession
and control of the Property, to collect rents, and to sell the
Property at a public auction, was consistent with the Circuit
Court's equitable powers and standard practices; (5) the
appointment of the Commissioner to take possession and control of
the Property, after the entry of the Foreclosure Decree and
Foreclosure Judgment, was not contrary to HRS § 514B-146(b)
(Supp. 2017);11 and (6) HRS §514B-146(k) (Supp. 2017) addresses
how an AOAO must utilize any rental income it receives after its
own foreclosure on the unit, when its interest is subsequently
foreclosed upon by a mortgagee, but it does not necessarily
entitle an AOAO to receive such rental income from a unit
following the subsequent entry of a foreclosure decree and
10
(...continued)
(4) The purchaser shall be entitled to immediate and
exclusive possession of the unit.
11
HRS § 514B-146(b) was amended in 2018 with respect to its
reference to former subsection (g), which had been recodified as subsection
(j). 2018 Haw. Sess. Laws Act 195, § 4 at 669-70. Otherwise, the text of HRS
§ 514B-146(b) relevant to this appeal was unaltered by the 2018 amendments.
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judgment in favor of a mortgagee, and it did not affect the
Circuit Court's equitable powers to appoint the Commissioner to
take possession and control of the Property upon the entry of the
Foreclosure Decree and Foreclosure Judgment in this case. See
Larrua, 2022 WL 277671, at *15. Accordingly, we conclude that
the Circuit Court did not err or abuse its equitable powers in
directing the Commissioner to take possession and control of the
Property upon the entry of the Foreclosure Decree and Foreclosure
Judgment, including the collection of rent.
That said, unlike the foreclosure decree in Larrua,
here the Foreclosure Decree specifically ordered, in part, that
the Commissioner "is vested with legal and equitable interest in
the Property." The Circuit Court's statement that the
Commissioner was vested with legal and equitable property
interests is problematic. Black's Law Dictionary defines
"vested" as "[h]aving become a completed, consummated right for
present or future enjoyment; not contingent; unconditional;
absolute." Vested, Black's Law Dictionary (11th ed. 2019).12
12
Black's Law Dictionary further notes:
"[U]nfortunately, the word 'vested' is used in two senses.
Firstly, an interest may be vested in possession, when there
is a right to present enjoyment, e.g. when I own and occupy
Blackacre. But an interest may be vested, even where it
does not carry a right to immediate possession, if it does
confer a fixed right of taking possession in the future."
George Whitecross Paton, A Textbook of Jurisprudence 305
(G.W. Paton & David P. Derham eds., 4th ed. 1972)
"A future interest is vested if it meets two requirements:
first that there be no condition precedent to the interest's
becoming a present estate other than the natural expiration
of those estates that are prior to it in possession; and
second, that it be theoretically possible to identify who
would get the right to possession if the interest should
become a present estate at any time." Thomas F. Bergin &
(continued...)
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Albeit in another context, the ICA has held that "[r]ights are
vested when the right to enjoyment, present or prospective, has
become the property of some particular person or persons as a
present interest." Maunalua Bay Beach Ohana 28 v. State, 122
Hawai#i 34, 53, 222 P.3d 441, 460 (App. 2009), cert. denied, 2010
WL 2329366 (June 9, 2010) (citing Damon v. Tsutsui, 31 Haw. 678,
693 (1930) (internal citations omitted)).
As discussed in Larrua, a foreclosure commissioner is a
neutral party acting for the court upon the court's entry of a
foreclosure decree, which appoints the commissioner and
enumerates the commissioner's duties and powers. Larrua, 2022 WL
277671, at *10. A foreclosure commissioner is not granted
absolute or unconditional rights in a property in his or her
charge, and therefore, we hold that a foreclosure commissioner is
not granted vested rights or interests in the subject property.
See generally 55 Am. Jur. 2d Mortgages § 802, Westlaw (database
updated February 2022) ("A temporary receiver appointed in a real
estate foreclosure action does not take title[.]"). Rather, the
commissioner merely acts as an agent or arm of the 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. Larrua, 2022 WL 277671, at *10. Any powers
vested in the commissioner by the court – such as the power to
(...continued)
Paul G. Haskell, Preface to Estates in Land and Future
Interests 66-67 (2d ed. 1984).
Vested, Black's Law Dictionary (11th ed. 2019).
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take possession and control, collect rents, preserve value, and
offer the property for sale – remain subject to the further
orders of the court.
Accordingly, we conclude that the Circuit Court erred
in stating that the Commissioner was vested with legal and
equitable interest in the Property, as opposed to being vested
with certain powers and charged with certain duties with respect
to the Property. However, as we have previously concluded, the
Circuit Court did not err or abuse its discretion in ordering the
Commissioner to take possession and control of the Property,
including the collection of rents. The AOAO does not assert or
explain how it was otherwise harmed by the Circuit Court's
misstatement of the Commissioner's duties and powers with respect
to the Property as being legal and equitable interests in the
Property. The AOAO does not argue, for example, that the
Commissioner acted inconsistently with the duties and powers that
were properly vested in her in these foreclosure proceedings.
Thus, we further conclude that the Circuit Court's error was
harmless.
B. Payments Ordered in the Confirmation Order
In its appeal from the Confirmation Judgment, the AOAO
reiterates its arguments addressed above and further argues that,
as a result of the Circuit Court's errors in the Foreclosure
Decree, the court erred when it failed to order that the $725.80
of rent collected by the Commissioner should be paid to the AOAO.
As stated above, we reject the AOAO's argument that it was
entitled to exclusive possession and control of the Property and
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its rents, even after the entry of the Foreclosure Decree and
Foreclosure Judgment, and that the Circuit Court erred in the
Foreclosure Decree when it ordered the Commissioner to take
possession and control of the Property, including the collection
of rent.
The AOAO further argues that the Circuit Court abused
its discretion in assessing the equities involved when it ordered
that the $725.80 of rent collected by the Commissioner be applied
to the Commissioner's fees and costs, rather than applying the
monies to the AOAO's assessments, in effect reducing the amount
payable to the Commissioner from U.S. Bank in the settlement of
funds after the execution of the sale of the Property. In the
alternative, the AOAO contends that, if the Commissioner was
properly deemed the owner of the Property from the May 30, 2018
entry of the Foreclosure Decree and Foreclosure Judgment to the
closing of the sale of the Property, then the Circuit Court acted
inequitably and abused its discretion in failing to require the
Commissioner to pay common maintenance fees for that period from
May 30, 2018, to the completion of the foreclosure sale.
As a preliminary matter, we note that in the
Confirmation Order entered on November 20, 2018, the Circuit
Court ordered, inter alia:
12. Pursuant to HRS § 514B-146(j) and (k), the
purchaser shall be held responsible for unpaid regular
monthly common assessments in an amount not to exceed the
total amount of unpaid regular monthly common assessments
that were assessed during the six months immediately
preceding the completion of the foreclosure, provided the
[AOAO] submits an accounting of any monthly common
assessments paid and any rents received during the six
months preceding the conclusion of the foreclosure.
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Thus, the purchaser of the Property was ordered to pay
the AOAO for unpaid monthly assessments during the six-month
period prior to conveyance of the Property, which was completed
on December 4, 2018.13
With regard to the equities of the case before the
Circuit Court, the AOAO made a generalized argument that
associations rarely even break even in trying to collect
delinquent assessments and fees, but maintained that its right to
the rent was pursuant to HRS § 514B-146(k) and that no law or
equitable principle could justify the post-foreclosure-judgment
rents benefitting the lender, as that would be contrary to the
statute. We have rejected the AOAO's argument that HRS § 514B-
146(k) required that post-foreclosure-judgment rents must be paid
to the association, except for "excess rents." See Larrua, 2022
WL 277671, at *14-15.
On appeal, the AOAO argues that, with respect to the
rents collected by the Commissioner, the Confirmation Order was
an inequitable abuse of discretion because non-defaulting unit
owners would be forced to bear a greater burden stemming from the
Former Owner's default, whereas the lender could credit bid up to
the amount owed to it by the Former Owner and thereby make itself
whole. Even assuming, arguendo, that this argument was not
waived by the failure to raise it in the Circuit Court,14 it is
untethered to any reference to factual findings or evidence in
13
As requested by U.S. Bank, pursuant to Rule 201 of the Hawai #i
Rules of Evidence, we take judicial notice of the Commissioner's Apartment
Deed record in the Bureau of Conveyances of the State of Hawai #i on December
4, 2018, which conveyed ownership of the Property to U.S. Bank.
14
See Hawai#i Rules of Appellate Procedure Rule 28(b)(4).
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the record supporting its assertions. Nor does the AOAO cite
authorities supporting its argument that the Circuit Court's
balancing of equities here, even if supported by the record,
would amount to an abuse of discretion.
Paragraph 12 of the November 20, 2018 Confirmation
Order required the AOAO to submit an accounting of any monthly
common assessments paid and any rents received during the six
months preceding the sale of the Property. Prior to that, at an
October 30, 2018 hearing, the Circuit Court orally directed the
AOAO to produce such an accounting from the entry of the
Foreclosure Decree and the AOAO stated that it would do so.
However, it does not appear from the record that any accounting
was ever submitted. In her report, the Commissioner reported
that the Property was occupied, the Commissioner collected
$725.80 in rent, but the tenant was vacating the Property as of
July 15, 2018. There is nothing in the record showing whether or
not the AOAO received any rent and/or monthly assessments from
tenant at any time after the entry of the Foreclosure Decree and
Foreclosure Judgment.
Under the circumstances of this case, we cannot
conclude that the Circuit Court abused its discretion in
assessing the equities involved when it ordered that the $725.80
of rent collected by the Commissioner be applied to the
Commissioner's fees and costs. Nor can we conclude that the
Circuit Court abused its discretion by failing to order the
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Commissioner to pay the AOAO monthly assessments after the entry
of the Foreclosure Decree and Foreclosure Judgment.
CONCLUSION
For the reasons stated in this Opinion, the Circuit
Court's May 30, 2018 Foreclosure Judgment and November 20, 2018
Confirmation Judgment are affirmed.
On the briefs:
/s/ Katherine G. Leonard
R. Laree McGuire, Presiding Judge
(Porter McGuire Kiakona &
Chow, LLP), /s/ Keith K. Hiraoka
for Defendant-Appellant. Associate Judge
Charles R. Prather, /s/ Clyde J. Wadsworth
Peter T. Stone, Associate Judge
(TMLF Hawaii LLLC),
for Plaintiff-Appellee.
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