Wells Fargo Bank v. Fong.

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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
28-MAY-2021
11:43 AM
Dkt. 18 OP
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---o0o---
WELLS FARGO BANK, N.A., dba AMERICAS SERVICING COMPANY,
Respondent/Plaintiff-Appellee,
vs.
MARIANNE S. FONG, Individually and as Trustee of the
Marianne S. Fong Revocable Trust Dated October 16, 2003,
Petitioner/Defendant-Appellant,
and
ONOMEA BAY RANCH OWNER’S ASSOCIATION, INC.,
Defendant.
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; CIV. NO. 10-1-0097)
MAY 28, 2021
RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.
OPINION OF THE COURT BY NAKAYAMA, J.
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A bank seeking to foreclose on a mortgage and note bears
the burden of establishing that the borrower defaulted under the
terms of the agreements. In order to satisfy this burden and
prevail on a motion for summary judgment, the bank must submit
evidence which clearly demonstrates the borrower’s default.
Wells Fargo Bank, N.A. (Wells Fargo or Lender) sought
a judicial foreclosure of the residence of Marianne S. Fong
(Fong or Borrower). In order to prove that Fong had defaulted,
Wells Fargo submitted a ledger without explaining how to read
the ledger. In the absence of any explanation, the ledger is
ambiguous and presents genuine issues of material fact.
Furthermore, although the ledger indicates that Wells Fargo
billed Fong for lender-placed insurance, there is only ambiguous
evidence regarding whether Wells Fargo properly charged Fong for
the insurance. Thus, there is also a genuine issue of material
fact concerning whether Fong actually owed the amounts that
forced her into the alleged default. The Intermediate Court of
Appeals (ICA) consequently erred in affirming the Circuit Court
of the Third Circuit’s (circuit court) order granting summary
judgment.
This court therefore vacates the ICA’s judgment of
February 12, 2020 and remands this case for further proceedings
consistent with this opinion.
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I. Background
A. Factual Background
On March 12, 2007, Fong executed a promissory note
(Note) for $570,000 to MortgageIT, Inc. secured by a mortgage
(Mortgage) on her home in Pepeʻekeo on the island of Hawaiʻi.
Wells Fargo ultimately obtained the Note from MortgageIt, Inc.,
and was also assigned the Mortgage.
1. The Note
The Note obligated Fong to make “monthly payments” for
thirty years beginning in May 2007. Under the terms of the
Note, Fong was required to pay $3,087.50 per month for the first
ten years, followed by $4,249.77 per month for the latter twenty
years.
The Note further provided that Fong would be in
default if she “d[id] not pay the full amount of each monthly
payment on the date it is due.” In the event that Fong
defaulted on her payments, the Note included an acceleration
clause authorizing Wells Fargo to seek the full amount owed
under the Note.
2. The Mortgage
In conjunction with the terms of the Note, the
Mortgage obligated Fong to make “periodic payments” consisting
of the monthly payments required by the Note, any additional
charges required by the Note, and escrow items. As relevant
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here, “escrow items” included “premiums for any and all
insurance required by [Wells Fargo] under Section 5.”
Under Section 5 of the Mortgage, Fong was required to
insure the property “against loss by fire, hazards included
within the term ‘extended coverage,’ and any other hazards
including, but not limited to, earthquakes and floods, for which
Lender requires insurance.” If Fong failed to purchase and
maintain the required insurance, the Mortgage authorized Wells
Fargo to “obtain insurance coverage, at [Wells Fargo’s] option
and [Fong’s] expense.” “Any amounts disbursed by [Wells Fargo]
. . . shall become additional debt of [Fong] secured by this
[Mortgage]. These amounts shall bear interest at the Note rate
from the date of disbursement and shall be payable, with such
interest, upon notice from [Wells Fargo] to [Fong] requesting
payment.”
Lastly, Section 1 of the Mortgage also authorized
Wells Fargo to “return any payment or partial payment if the
payment or partial payments are insufficient to bring the Loan
current.” If Fong was up to date on her payments, the Mortgage
provided that her payments “shall be applied in the following
order of priority: (a) interest due under the Note;
(b) principal due under the Note; (c) amounts due under Section
3 [for Escrow Items].” However, if Fong was delinquent, the
Mortgage provided that a “payment may be applied to the
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delinquent payment and the late charge. If more than one
Periodic Payment is outstanding, Lender may apply any payment
received from Borrower to the repayment of the Periodic Payments
if, and to the extent that, each payment can be paid in full.”
3. Loan History
Between July 2007 and February 2009, Fong regularly
made payments exceeding $3,087.50 to Wells Fargo for each
month’s payment.1
At some time prior to September 10, 2007, Wells Fargo
apparently determined that Fong did not obtain hail and
windstorm (hurricane) insurance for the mortgaged property, as
required under Section 5 of the Mortgage.2 On October 18, 2007,
Wells Fargo purchased lender-placed hurricane insurance at the
price of $13,067.20 for the time period from July 31, 2007 to
July 31, 2008. On August 1, 2008, Wells Fargo purchased a
second year’s worth of lender-placed hurricane insurance for
1 It appears that Fong may have missed payments in January, October, and
December 2008. Nevertheless, in months where there is no “Amount Received,”
it seems that additional payments were made in the immediately following
months that could have cured any resulting default.
2 The record is devoid of any document explicitly indicating that the
Mortgage required windstorm and hail insurance. However, this court notes
that an extended coverage endorsement generally covers damage from
“windstorm, hail, explosion (except of steam boilers), riot, civil commotion,
aircraft, vehicles, and smoke.” See Extended Coverage (EC) Endorsement,
International Risk Management Institute, Inc.,
https://www.irmi.com/term/insurance-definitions/extended-coverage-endorsement
(last visited Apr. 27, 2021). Here, Section 5 of the Mortgage required Fong
to insure the property against “hazards included within the term ‘extended
coverage[.]’”
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$13,067.20 for the time period from July 31, 2008 to July 31,
2009. It is not clear from the record whether Wells Fargo
notified Fong prior to either purchase that Wells Fargo would
purchase and charge Fong for the cost of hurricane insurance if
she failed to obtain a policy.
On July 26, 2009, Wells Fargo mailed Fong a letter
asserting that she was in default (Default Letter). The Default
Letter stated that Fong owed Wells Fargo $22,763.16 in past due
payments, and that there was a total delinquency of $22,932.53.
The Default Letter notified Fong that if she did not make her
payments current by August 25, 2009, Wells Fargo would
accelerate the Mortgage and potentially foreclose on the
property.
It appears that Fong stopped making consistent
payments after receiving the Default Letter.
B. Procedural Background
On March 23, 2010, Wells Fargo filed a complaint
seeking foreclosure in circuit court.3
Over five years later,4 Wells Fargo filed the Motion at
issue on October 27, 2015. Wells Fargo contended that it was
3 The Honorable Greg K. Nakamura presided.
4 At Fong’s request, the circuit court placed the case into the
Foreclosure Mediation Pilot Project. Although mediation was initially
(continued . . .)
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entitled to foreclosure because its evidence demonstrated
(1) the existence of the Mortgage and Note; (2) the terms of the
Mortgage and Note; (3) that Fong defaulted under the terms of
the Mortgage and Note; and (4) that it provided Fong with the
requisite notice of foreclosure. As evidence of Fong’s
purported default under the terms of the Mortgage and Note,
Wells Fargo submitted a loan account history (Loan History).5
On November 23, 2015, Fong filed a pro se response
(Response) to Wells Fargo’s Motion. In a two-page memorandum,
Fong asserted that she was not in default. Instead, Fong stated
that she attempted to make payments, but Wells Fargo returned
her payments. Fong also indicated that any alleged default was
caused by Wells Fargo’s imposition of lender-placed hurricane
insurance without providing Fong notice. Fong attached several
(. . . continued)
scheduled for November 12, 2010, Wells Fargo requested multiple continuations
until May 2014. The parties were not able to reach an agreement, and the
circuit court discharged the case from the Foreclosure Mediation Pilot
Project on February 13, 2015.
Wells Fargo then filed a motion for summary judgment on May 26, 2015,
which was struck due to Wells Fargo’s failure to file a certificate of
service with its Hawaiʻi Revised Statutes (HRS) § 667-17 Attorney Affirmation.
5 Wells Fargo’s attachments to its Motion consisted of a declaration of
indebtedness signed by April J. Linn, a declaration by Robert M. Ehrhorn,
Jr., an HRS § 667-17 Affirmation, the Note, the Mortgage, the mortgage
assignment from MortgageIt, Inc. to Wells Fargo, the Default Letter, the Loan
History, a judgment worksheet, a litigation guarantee and endorsement, a
quitclaim deed conveying the property from Fong to a personal trust, a
collection letter, and a document showing Fong was not an active service
member.
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documents to her Response to support her claims. However, Fong
did not include a declaration or affidavit attesting to her
claims or certifying her documents.
On December 7, 2015, Wells Fargo asserted in its reply
that it had established Fong’s default through the Loan History.
However, Wells Fargo did not explain how the Loan History showed
Fong’s default. Wells Fargo also argued that the Note “allow[ed
Wells Fargo] the right to accelerate and require payment of the
full amount of Principal which has not been paid and all the
interest that is owed on that amount. Any payment of less than
the full amount due does not have to be accepted and refunded
[sic].”
On December 10, 2015, Fong submitted an “Addendum to
Memorandum in Opposition to Motion for Summary Judgment filed on
November 23, 2015” (Addendum). In the Addendum, Fong reiterated
her claims from her Response. Fong also stated that she
obtained her own hurricane insurance policy at an approximate
rate of $557.00 per year, as opposed to Wells Fargo’s $13,067.20
per year policy.
On December 17, 2015, the circuit court held a hearing
on Wells Fargo’s Motion. During the hearing, the circuit court
stated it would grant Wells Fargo’s Motion.
On May 2, 2016, the circuit court entered its
“Findings of Fact, Conclusions of Law and Order Granting
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Plaintiff’s Motion for Summary Judgment and Decree of
Foreclosure Against all Defendants on Complaint filed March 23,
2010” (Order). The circuit court found that Wells Fargo
established the four elements required by Bank of Honolulu v.
Anderson, 3 Haw. App. 545, 551, 654 P.2d 1370, 1375 (1982), and
was entitled to foreclosure. In particular, the circuit court
found that, as an “undisputed fact[],”
Defendant MARIANNE S. FONG defaulted in the observance and
performance of the terms, covenants and conditions set
forth in the Note and Mortgage in that said Defendant
failed and neglected to pay the principal sum thereof and
the interest thereon at the times and in the manner therein
provided, and failed and neglected to pay the additional
Mortgage expenses, advances and charges incurred or made
pursuant to the terms and conditions of the Mortgage.
However, beyond stating that it “reviewed the pleadings,
declarations and the files and records herein,” the circuit
court did not address Fong’s arguments that she was not in
default because Wells Fargo rejected her payments and because
Wells Fargo improperly charged her for lender-placed hurricane
insurance. The circuit court entered its judgment the same day.
Before the ICA, Fong asserted that the circuit court
erred in granting Wells Fargo’s Motion because Fong presented
genuine issues of material fact, namely whether (1) Fong
actually was in default; (2) the lender-placed hurricane
insurance violated Section 5 of the Mortgage, including whether
(a) Wells Fargo should have provided notice before purchasing
the insurance, (b) Wells Fargo provided such notice, and
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(c) Wells Fargo could back date the coverage; (3) Wells Fargo
properly increased Fong’s mortgage payments; (4) Wells Fargo
misapplied Fong’s payments under Section 2 of the Mortgage; and
(5) the doctrine of unclean hands should have prevented Wells
Fargo from foreclosing on the Mortgage.
In a summary disposition order, the ICA determined
that Wells Fargo satisfied its burden of production such that
Fong bore the burden of demonstrating the existence of a genuine
issue of material fact. The ICA acknowledged Fong’s arguments
that “she did not default under the Mortgage and Note and that
the reason for her alleged default was the increase in cost from
the lender-placed hurricane insurance, which she claims she was
unaware of at the time.” However, the ICA rejected Fong’s
assertions because “the record is devoid of any accompanying
declaration or affidavit to support Fong’s allegations or her
submitted exhibits.” The ICA consequently affirmed the circuit
court’s judgment.
II. Standard of Review
A. Motion for Summary Judgment
A trial court’s decision on a motion for summary
judgment is reviewed de novo. Thomas v. Kidani, 126 Hawaiʻi 125,
127-28, 267 P.3d 1230, 1232-33 (2011) (citing Fujimoto v. Au, 95
Hawaiʻi 116, 136, 19 P.3d 699, 719 (2001)).
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[S]ummary 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 the moving
party is entitled to judgment as a matter of law.
Fujimoto, 95 Hawaiʻi at 136, 19 P.3d at 719.
The burden is on the party moving for summary judgment
(moving party) to show the absence of any genuine issue as
to all material facts, which, under applicable principles
of substantive law, entitles the moving party to judgment
as a matter of law.
French v. Hawaii Pizza Hut, Inc., 105 Hawaiʻi 462, 470, 99 P.3d
1046, 1054 (2004) (quoting GECC Fin. Corp. v. Jaffarian, 79
Hawaiʻi 516, 521, 904 P.2d 530, 535 (App. 1995)).
This court reviews the evidence in the light most
favorable to the party opposing the motion for summary judgment.
Thomas, 126 Hawaiʻi at 128, 267 P.3d at 1233. When a movant’s
evidence is subject to conflicting interpretations, or
reasonable people might differ as to its significance, summary
judgment is improper. Nationstar Mortgage LLC v. Kanahele, 144
Hawaiʻi 394, 401-02, 443 P.3d 86, 93-94 (2019) (quoting Makila
Land Co., LLC v. Kapu, 114 Hawaiʻi 56, 67, 156 P.3d 482, 493
(App. 2006)).
III. Discussion
A. The ICA erred in affirming the circuit court’s order
granting summary judgment because the Loan History is
subject to interpretation and therefore a genuine issue of
material fact exists.
A party seeking to foreclose on a mortgage and note
must prove (1) the existence of the agreements, (2) the terms of
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the agreements, (3) a default under the terms of the agreements,
and (4) delivery of the notice of default. Bank of America,
N.A. v. Reyes-Toledo, 139 Hawaiʻi 361, 367, 390 P.3d 1248, 1254
(2017) (citing Anderson, 3 Haw. App. at 551, 654 P.2d at 1375).
The parties dispute whether Wells Fargo established
that Fong had defaulted under the terms of the agreements.
Pursuant to the terms of the Note, Fong would be in default
“[i]f [Fong] do[es] not pay the full amount of each monthly
payment on the date it is due[.]” The Mortgage does not include
any relevant modifications to the Note’s definition of default.6
Wells Fargo insists that Fong defaulted because she “failed to
make the payments required under the Note and Mortgage, and
failed to pay the additional Mortgage expenses, advances, and
charges that were incurred under the terms of the Mortgage.” To
support this argument, Wells Fargo pointed out that the Loan
History shows that the loan was due for the February 1, 2009
payment. By contrast, Fong argued that she did not default
because she made all payments required by the Note.
Under the circumstances, the Loan History actually
presents conflicting evidence regarding Fong’s payment status,
6 The Mortgage adds that default may occur if either (1) Fong, or Fong’s
agent(s), “gave materially false, misleading, or inaccurate information or
statements to Lender . . . in connection with the Loan,” or (2) any civil or
criminal action that could result in forfeiture of the property is begun.
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rendering summary judgment inappropriate. First, the Loan
History appears to indicate that Fong made her monthly payments
through February 2009, the alleged default date. During the
time frame relevant to these proceedings, the Note obligated
Fong to make monthly payments of $3,087.50. The Loan History
seems to show that Fong made payments exceeding $3,087.50 for
every month between July 2007 and February 2009.7 Thus, it is
not clear that Fong defaulted by failing to make the $3,087.50
payments required by the Note between July 2007 and February
2009.
Second, the Loan History is largely silent on the
amount the Mortgage obligated Fong to pay, and thus it is
unclear whether Fong actually failed to make Mortgage payments
between the execution of the Mortgage and February 2009. The
Mortgage required Fong to make periodic payments consisting of,
inter alia, the monthly payments due under the Note as well as
payments for escrow items. In comparison to the Mortgage’s
silence on the specific amounts required to satisfy each
periodic payment, the Loan History only seems to identify the
periodic payments due for January 1, 2008; November 1, 2008; and
7 To the extent the Loan History shows that there is no “Amount Received”
for January, October, and December 2008, the Loan History also seems to
indicate that Fong may have cured those defaults by submitting additional
payments in the immediately following months.
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February 1, 2009. Despite this ambiguity, the Loan History
appears to indicate that Fong made payments to satisfy the
periodic payments due between July 2007 and February 2009,
including the ones identified by the Loan History.
To the extent Wells Fargo argues that it was entitled
to reject or redirect Fong’s payments, this argument assumes
what Wells Fargo must prove – that Fong had actually defaulted.
Wells Fargo claimed on appeal that it can reject or redirect any
payment merely because it was less than the amount purportedly
due. However, the terms of the Mortgage only permit Wells Fargo
to reject or redirect payments that are “insufficient to bring
the Loan current.” Thus, in order to exercise this authority,
Wells Fargo must first establish that Fong was not current on
her payments. But as previously discussed, the Loan History
does not unambiguously show that Fong failed to make the
payments required by the Note or Mortgage such that she was not
current on her payments by February 1, 2009.
In light of the foregoing, the Loan History is subject
to interpretation and does not necessarily demonstrate that Fong
defaulted under the terms of the Note and Mortgage. Thus, there
is a genuine issue of material fact regarding whether Fong
defaulted. Wells Fargo consequently was not entitled to summary
judgment. Fujimoto, 95 Hawaiʻi at 136, 19 P.3d at 719; see also
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Reyes-Toledo, 139 Hawaiʻi at 367, 390 P.3d at 1254; Kanahele, 144
Hawaiʻi at 401-02, 443 P.3d at 93-94.
As the party seeking summary judgment, Wells Fargo
bore the burden of proof to establish all necessary elements.
French, 105 Hawaiʻi at 470, 99 P.3d at 1054. Consequently, Wells
Fargo should have provided sufficient information for the courts
to parse its ambiguous ledger. Going forward, Wells Fargo must
at least submit evidence identifying how much Fong was required
to pay under the terms of the Mortgage and that Fong failed to
make the requisite payments. Wells Fargo may use this evidence
to demonstrate that Fong was not current on her loan such that
the Mortgage authorized Wells Fargo to reject or redirect Fong’s
payments. To the extent this information is contained within
the Loan History, Wells Fargo may alternatively submit an
affidavit or declaration explaining how to interpret the data
contained therein.
B. The ICA erred in affirming the circuit court’s order
granting summary judgment because additional evidence is
needed to support the Loan History’s purported amounts due,
creating a genuine issue of material fact.
Fong additionally argues that she did not default, but
rather that Wells Fargo improperly forced her into default by
improperly charging her for lender-placed hurricane insurance.
Wells Fargo simply responds that the Mortgage “expressly allowed
for lender-place [sic] insurance” and that “Fong did not dispute
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that she did not have hurricane coverage as required under the
Mortgage.” Wells Fargo’s post hoc argument is unavailing.
When adjudicating a motion for summary judgment, trial
courts must “carefully scrutinize the materials submitted by the
moving party[.]” See Miller v. Manuel, 9 Haw. App. 56, 66, 828
P.2d 286, 292 (App. 1991).
Wells Fargo’s Motion filings raised significant
questions regarding the validity of the purported amounts due.
The Loan History indicates that on October 18, 2007, Wells Fargo
issued a check in the amount of $13,067.20 to “WNCWD.” The Loan
History also shows that Wells Fargo issued a second check for
the same amount to “WNCWD” on August 1, 2008. However, none of
Wells Fargo’s Motion filings explained what these two checks
were for. Instead, it was Fong who pointed out that the two
payments were for lender-placed hurricane insurance. In
identifying the payments, Fong asserted that Wells Fargo
purchased and billed Fong for the lender-placed insurance
without notice. Wells Fargo did not reply to Fong’s lack of
notice assertion during the Motion proceedings.
Again, as the party seeking summary judgment, Wells
Fargo bore the burden of proving that Fong had defaulted under
the terms of the Note and Mortgage. French, 105 Hawaiʻi at 470,
99 P.3d at 1054. Wells Fargo was therefore responsible for
showing that Fong defaulted by failing to make all payments
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required by the Note and Mortgage. French, 105 Hawaiʻi at 470,
99 P.3d at 1054; Reyes-Toledo, 139 Hawaiʻi at 367, 390 P.3d at
1254; By submitting only the Loan History, Wells Fargo skipped
the step of proving that it was entitled to all the payments it
claimed were due – and which led to Fong’s alleged default when
Wells Fargo redirected her payments. In the absence of any
explanation, Wells Fargo’s implication that it was entitled to
charge Fong for the cost of these two checks is suspect.
Even if Wells Fargo had explained during the Motion
proceedings that the payments were for lender-placed insurance,8
none of Wells Fargo’s submissions demonstrated that Wells Fargo
properly charged Fong for the lender-placed insurance. On
appeal, Wells Fargo countered that “[t]he Mortgage expressly
allows for lender-placed insurance” and that “[t]he lender-
placed insurance did not violate the Mortgage.” Wells Fargo is
correct that under the terms of the Mortgage, “[i]f [Fong]
fail[ed] to maintain any of the [required insurance coverages],
[Wells Fargo] may obtain insurance coverage, at [Wells Fargo’s]
option and [Fong’s] expense.” However, Wells Fargo disregards
the Mortgage’s limitation that the insurance cost “shall be
8 Although Wells Fargo acknowledged Fong’s claim regarding the lender-
placed insurance before the circuit court, Wells Fargo did not explain that
these payments were for lender-placed hurricane insurance until it filed its
answering brief to the ICA.
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payable . . . upon notice from [Wells Fargo] to [Fong]
requesting payment.” (Emphasis added). Thus, unless Wells
Fargo had provided notice requesting payment to Fong, the cost
was not yet payable. However, Wells Fargo’s filings were devoid
of any evidence that it notified Fong before demanding payment.
To the extent Wells Fargo relies on Fong’s submissions
as evidence that Wells Fargo provided Fong notice before billing
her for the lender-placed insurance, Fong’s filings were
ambiguous. In its ICA answering brief, Wells Fargo argued that
Fong’s evidence showed that she was given notice that Wells
Fargo would purchase lender-placed insurance. However, Wells
Fargo did not address whether such notice included notice that
Wells Fargo would bill Fong for the lender-placed insurance.
Nevertheless, the March 2009 letter on which Wells Fargo relied
indicates both that Wells Fargo provided notice and that Fong
did not receive notice before Wells Fargo billed Fong. Fong’s
filing therefore did not support Wells Fargo’s claim.
As a part of identifying how much the Mortgage
obligated Fong to pay, Wells Fargo bore the burden of
establishing that it was entitled to the identified amount.
French, 105 Hawaiʻi at 470, 99 P.3d at 1054; see also Reyes-
Toledo, 139 Hawaiʻi at 367, 390 P.3d at 1254. Here, the only
evidence in the record regarding whether Wells Fargo was
entitled to charge Fong for the lender-placed insurance was
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inconclusive. A genuine issue of material fact regarding
whether Wells Fargo could charge Fong for the lender-placed
insurance therefore remains. In turn, there is also a genuine
issue of material fact regarding whether Fong defaulted when
Wells Fargo apparently redirected her payments to cover the cost
of lender-placed insurance.
IV. CONCLUSION
For the foregoing reasons, the ICA erred in affirming
the circuit court’s May 2, 2016 Order when genuine issues of
material fact remained.
Therefore, we vacate the ICA’s February 12, 2020
judgment on appeal, which affirmed the circuit court’s May 2,
2016 “Judgment on Findings of Fact, Conclusions of Law and Order
Granting Plaintiff’s Motion for Summary Judgment and Decree of
Foreclosure Against All Defendants on Complaint Filed March 23,
2010,” and remand the case for further proceedings consistent
with this opinion.
Al Thompson for /s/ Mark E. Recktenwald
petitioner/defendant-appellant
Marianne S. Fong /s/ Paula A. Nakayama
/s/ Sabrina S. McKenna
Edmund K. Saffery
and Deirdre Marie-Iha /s/ Michael D. Wilson
for respondent/plaintiff-
appellee Wells Fargo Bank, NA /s/ Todd W. Eddins
dba Americas Servicing Company
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