American Savings Bank, F.S.B. v. Chan.

*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
21-JAN-2020
11:13 AM
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
---oOo---
________________________________________________________________
AMERICAN SAVINGS BANK, F.S.B., a federal savings bank,
Respondent/Plaintiff-Appellee,
vs.
JOHNNY KINMAN CHAN; JEAN TOSHIKO CHAN; DIRECTOR OF TAXATION,
STATE OF HAWAIʻI; CAPITAL ONE BANK (USA) N.A.; HAWAIʻI HOUSING
FINANCE AND DEVELOPMENT CORPORATION, a Public Body and Corporate
Politic, Respondents/Defendants-Appellees,
and
VILALGES OF KAPOLEI ASSOCIATION (incorrectly identified in the
caption as ASSOCATION OF APARTMENT OWNERS OF THE VILALGES OF
KAPOLEI), Petitioner/Defendant-Appellant.
(SCWC-XX-XXXXXXX; CAAP-XX-XXXXXXX; CIVIL NO. 13-1-0944)
______________________________________________________________
VILLAGES OF KAPOLEI ASSOCIATION, a Hawaiʻi non-profit
corporation, Petitioner/Plaintiff-Appellant,
vs.
JOHNNY KINMAN CHAN, JEAN TOSHIKO CHAN; FIRST BANK NATIONAL
ASSOCIATION; DEPARTMENT OF TAXATION, STATE OF HAWAIʻI; CAPITAL
ONE BANK (USA) N.A.; HAWAIʻI HOUSING FINANCE AND DEVELOPMENT
CORPORATION, a Public Body and Body Corporate and Politic,
Respondents/Defendants-Cross-Claim Defendants-Appellees,
and
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
AMERICAN SAVINGS BANK, F.S.B., a federal savings bank,
Respondent/Defendant-Cross-Claimant-Appellee.
(SCWC-XX-XXXXXXX; CAAP-XX-XXXXXXX; CIVIL NO. 12-1-2466)
______________________________________________________________
SCWC-XX-XXXXXXX
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
JANUARY 21, 2020
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY McKENNA, J.
I. Introduction
This certiorari proceeding arises from two cases filed and
consolidated in the Circuit Court of the First Circuit (“circuit
court”) concerning a foreclosure dispute between the Villages of
Kapolei Association (“Association”), the Hawaiʻi Housing Finance
and Development Corporation (“HHFDC”), Johnny Kinman Chan and
Jean Toshiko Chan (“Chans”), and American Savings Bank, F.S.B.
(“ASB”). The dispute concerns the circuit court’s determination
of lien priority between the Association’s and HHFDC’s competing
liens and the valuation of HHFDC’s senior lien. The underlying
foreclosure of ASB’s first mortgage lien is not in dispute.
The Association’s application for writ of certiorari
(“Application”) raises three issues. First, the Association
contends the Intermediate Court of Appeals (“ICA”) erred by
affirming the circuit court’s alleged retroactive application of
Hawaiʻi Revised Statutes (“HRS”) § 201H-47 (Supp. 2009) to rule
2
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
that HHFDC’s lien was senior and superior to the Association’s
liens. We hold that the ICA did not err because (1) whether the
circuit court actually applied HRS § 201H-47 was unclear; (2)
HHFDC had lien priority over the Association’s liens pursuant to
HRS § 201E-221 (repealed 1997), the statute in effect when the
deed and Shared Appreciation or Equity (“SAE”) Agreement between
the Chans and HHFDC’s predecessor-in-interest, the Housing
Finance and Development Corporation (“HFDC”) were entered; and
(3) HHFDC had lien priority over the Association pursuant to the
“first in time, first in right” principle and the SAE Agreement,
which was incorporated into the deed.
Second, the Association asserts the ICA erred by ignoring
the plain language of Sections 1, 2, 3, and 7 of the SAE
Agreement relating to the applicability of the agreement’s
appraisal process and whether the SAE Agreement became null and
void upon ASB’s foreclosure. We hold the ICA did not err in
determining the appraisal process applied and that ASB’s
foreclosure did not nullify the SAE Agreement.
Third, the Association argues the ICA erred by holding that
HHFDC had rights under the SAE Agreement because there were
genuine issues of material fact regarding HHFDC’s standing to
enforce the agreement. We hold that, as a matter of law, HHFDC
had standing to enforce the SAE Agreement as successor to HFDC
3
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
pursuant to Act 350 of 1997 and Act 196 of 2005. 1997 Haw.
Sess. Laws Act 350; 2005 Haw. Sess. Laws Act 196.
We therefore affirm the ICA’s August 20, 2019 judgment on
appeal.
II. Background
A. Factual Background
1. History of HHFDC
Act 337 of 1987 established HFDC to promote affordable
housing. 1987 Haw. Sess. Laws Act 337, § 15 (§-5) at 1049
(codified at HRS ch. 201E (repealed 1997)). Act 350 of 1997
combined HFDC with the Hawaiʻi Housing Authority and Rental
Housing Trust Fund to create the Housing and Community
Development Corporation of Hawaiʻi (“HCDCH”). 1997 Haw. Sess.
Laws Act 350, § 2 (§-2) at 1013 (codified at HRS ch. 201G
(repealed 2006)). Act 350 stated that HCDCH would “succeed to
all of the rights and powers previously exercised” by HFDC, and
that “[a]ll deeds, leases, contracts . . . or other documents
executed or entered into by or on behalf of [HFDC] . . . shall
remain in full force and effect.” Act 350, § 20 at 1091.
Act 196 of 2005 split HCDCH into the Hawaiʻi Public Housing
Administration and HHFDC. 2005 Haw. Sess. Laws Act 196, § 19 at
620 (codified at HRS ch. 201H (Supp. 2005)). Act 196
transferred “[a]ll rights, powers, functions, and duties of
[HCDCH]” relating to state housing and financing programs to
4
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
HHFDC. § 22 at 631. Act 196 also stated that “[a]ll deeds,
leases, contracts . . . or other documents executed or entered
into by or on behalf of [HCDCH] or [HFDC] . . . which are made
applicable to [HHFDC] by this Act, shall remain in full force
and effect.” § 25 at 632.
2. The Chans purchase the Villages of Kapolei property
On June 6, 1991, the Chans purchased a house (“Property”)
in the Villages of Kapolei, a planned affordable housing
community created by HFDC. The Chans purchased the Property
through HFDC’s SAE Program, which allowed participants to
purchase a home at a discounted price in exchange for an
agreement (“SAE Agreement”) granting HFDC a share of the
appreciation of the home’s equity (“Net Appreciation”) if the
property were ever sold or transferred.1
1
Section 1.F of the SAE Agreement defined “Net Appreciation” as:
Fair Market Value of the Property
minus Grantee’s Original Purchase Price
minus The amount obtained by multiplying the following
fraction:
Fair Market Value of the Property divided by Actual Sale
Price by the sum of the following sales and closing
expenses which the Grantee actually pays in the case of a
bona fide arm’s length sale (but not including a
foreclosure sale) of the Property: (i) escrow fees, (ii)
title report fees (not including any title insurance
premiums), (iii) drafting of conveyance documents, (iv)
conveyance taxes, (v) notary fees, (vi) recording fees and
(vii) real estate commissions. (The foregoing fraction
shall not exceed a value of “1”.)
(continued. . .)
5
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
Section 2 of the SAE Agreement outlined when HFDC would be
entitled to its share of the Net Appreciation value and how
HFDC’s share would be calculated:
Except for a “Permitted Transfer”, as that term is defined
below, the Grantee promises and agrees that if and when all
or any part of or interest in the Property is sold or
transferred or if the Grantee shall be divested of title or
any interest in the Property, in any manner, voluntarily or
involuntarily, including a judicial or nonjudicial
foreclosure sale, HFDC will immediately be entitled to a
share of the Net Appreciation equal to:
HFDC’s Percentage Share2 x Net Appreciation
The SAE Agreement was incorporated into the Chans’ deed,
which was recorded in Land Court on June 12, 1991.
The Chans financed their purchase of the Property through a
$111,896 loan secured by a June 6, 1991 mortgage to ASB.
Section 7 of the SAE Agreement, titled “First Mortgage
Protection,” granted ASB’s mortgage priority over HFDC’s liens
in the event of foreclosure. Section 7 also provided that “any
person who acquires legal title to the Property as a result of
foreclosure” would acquire title free of HFDC’s liens, and that
(. . .continued)
Section 1.E of the SAE Agreement defined “Fair Market Value” as “the
fair market value of the Property as determined by an appraisal obtained and
performed in the manner described below in Section 3. if and when the Grantee
subsequently sells or transfers the Property.”
Because this case involved a foreclosure sale, the “amount obtained by
multiplying the following fraction” was zero. (Fair Market Value / Actual
Sale Price x 0 = 0) Therefore, the Net Appreciation equaled the Fair Market
Value of the Property minus the Grantee’s Original Purchase Price.
2
Section 1.C of the SAE Agreement provided that HFDC’s Percentage Share
was 62% and was calculated by subtracting the Chans’ original purchase price
of the Property ($111,400) from the Property’s original fair market value
($296,400), then dividing the total by the original fair market value
($296,400) and rounding to the nearest percent.
6
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
the SAE Agreement would be “null and void upon a conveyance of
the Property through a foreclosure sale . . . .”
Upon signing the deed, the Chans also agreed to the
Association’s Declaration of Covenants, Conditions, and
Restrictions (“Covenants”). On November 14, 2006, the
Association recorded a $26,687.30 judgment lien against the
Property in Land Court for the Chans’ failure to adhere to
landscaping requirements in violation of the Covenants. On
September 5, 2012, the Association filed a $5,763.66 lien
against the Property in Land Court because the Chans failed to
pay for maintenance assessments in violation of the Covenants.
On December 3, 2012, ASB sent the Chans a notice of default
demanding payment on the mortgage.
B. Circuit Court Proceedings
On October 1, 2012, the Association filed a complaint for
foreclosure. On March 28, 2013, ASB filed a complaint for
foreclosure alleging the Chans had defaulted on the loan and
mortgage, and that the mortgage was the “valid first lien upon
the property . . . .” ASB’s complaint named the Association as
a defendant, and HHFDC was later identified and made a party
defendant.3
3
The Association and ASB’s complaints named the Chans as defendants.
The circuit court entered default against the Chans for failure to respond to
both complains. The Director of Taxation for the State of Hawaiʻi and Capital
(continued. . .)
7
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
On September 20, 2013, ASB filed a motion for summary
judgment. The parties stipulated to consolidate the ASB and the
Association foreclosure actions. The circuit court granted
ASB’s motion and entered a Hawaiʻi Rules of Civil Procedure
(“HRCP”) Rule 54(b) judgment on May 12, 2014.4
On April 22, 2014, HHFDC filed a motion for summary
judgment (“HHFDC’s motion for summary judgment”), arguing that
its lien was senior and superior to all other liens except ASB’s
under the “first in time, first in right” principle. HHFDC
asserted it had assumed HFDC’s rights under the deed by statute.
HHFDC contended that HRS § 201H-47(e)5 entitled HHRDC to its Net
Appreciation share when a foreclosure action is filed, and that
the SAE lien was a covenant running with the land under
HRS § 201H-47(a)(6). HHFDC asserted its Net Appreciation share
was $244,032, and it attached a copy of a November 2013
(. . .continued)
One Bank (USA), N.A. were also named as defendants. However, these
defendants are not actively involved in the current appeal.
4
The Honorable Judge Bert I. Ayabe presided.
5
HRS § 201H-47(e) (Supp. 2009) (amended 2018) read, in relevant part:
The restrictions prescribed in this section . . . shall be
automatically extinguished and shall not attach in
subsequent transfers of title when a mortgage holder or
other party becomes the owner of the real property pursuant
to a mortgage foreclosure, foreclosure under power of sale,
or conveyance in lieu of foreclosure after a foreclosure
action is commenced; provided that the mortgage is the
initial purchase money mortgage . . . . The corporation
shall be a party to any foreclosure action, and shall be
entitled to its share of appreciation in the real property
as determined under this chapter in lien priority when the
payment is applicable . . . .
8
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
appraisal prepared by Appraiser Kathy Ann Oshiro (“Appraiser
Oshiro”) valuing the Property at $505,000.
The Association opposed HHFDC’s motion for summary
judgment, arguing that “HHFDC had based almost its entire
argument on HRS § 201H-47,” which was not retroactive, and that
any retroactive application of HRS § 201H-47 would
unconstitutionally impair the Association’s vested rights. The
Association contended that, under Section 7, HHFDC’s SAE
Agreement rights were extinguished when ASB foreclosed on its
mortgage.6 The Association also argued that, even if HHFDC had
6
Section 7 of the SAE Agreement provides:
FIRST MORTGAGE PROTECTION
The foregoing provisions shall not apply with respect to:
(a) The first purchase money mortgage (“First
Mortgage”), if any, which is being placed on the
Property.
(b) The first purchase money mortgagee (“First
Mortgagee”) named in the First Mortgage, including
the first purchase money mortgagee’s successors
and assigns.
(c) The rights of the First Mortgagee to foreclose
or take title pursuant to the remedies in the
First Mortgage, to accept a deed in lieu of
foreclosure in the event of default by the
Grantee, as mortgagor under the First Mortgage, or
to sell or lease the Property acquired by the
First Mortgagee.
(d) Any Person or persons acquiring the Property as
a result of foreclosure or by a deed in lieu of
foreclosure of the First Mortgage or any
successor, transferee, or assignee of such person
or persons.
. . . .
HFDC specifically subordinates any lien or contingent lien
rights that HFDC may have under this Exhibit C to the lien
of the First Mortgage. Any holder of the First Mortgage or
any person who acquires legal title to the Property as a
result of a foreclosure or a deed in lieu of foreclosure of
(continued. . .)
9
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
an interest in the SAE Agreement, the agreement limited HHFDC’s
interest to the proceeds the Chans would “realize” from the
transfer or sale of the Property7 — “[i]n other words, HHFDC
would recover from the proceeds remaining after payment of all
liens and encumbrances.” The Association maintained that HHFDC
did not comply with Section 3 of the SAE Agreement because
Appraiser Oshiro was not sufficiently qualified to appraise the
Property and HHFDC had not timely notified the Chans of the
appraisal. Finally, the Association contended that HHFDC lacked
standing to foreclose because neither Act 180 nor Act 196 stated
that HHFDC had assumed the Chan deed.
On September 23, 2014, the day before a hearing on HHFDC’s
motion for summary judgment, HHFDC filed an updated appraisal
(the “September Appraisal”) prepared by Appraiser Oshiro, this
time under the supervision of an appraiser who was sufficiently
(. . .continued)
the First Mortgage shall acquire legal title free of such
lien or contingent lien rights that HFDC may have under
this Exhibit C. This Exhibit C shall be null and void upon
a conveyance of the Property through a foreclosure sale or
a deed in lieu of foreclosure.
(Emphasis added.)
7
The SAE Agreement provides, in relevant part: “Under the Program, which
is described in this Exhibit C, the Grantee agrees to pay to HFDC a share of
the “Net Appreciation” which the Grantee realizes or is deemed to have
realized upon the sale or transfer of the Property . . . .”
The SAE Agreement did not define the meaning of “realizes or is deemed
to have realized.” Black’s Law Dictionary defines “realization” as:
“Conversion of noncash assets into cash assets.” Realization, Black’s Law
Dictionary (11th ed. 2019).
10
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
qualified under the SAE Agreement. The September Appraisal
claimed the current fair market value of the Property was
$480,000 and that HHFDC’s Net Appreciation share was $228,532.8
On December 9, 2014, ASB filed a motion for confirmation of
sale, asking the circuit court to determine the priority of the
parties’ claims and the amount of HHFDC’s claim. On January 15,
2015, a hearing was held on ASB’s motion for confirmation of
sale at which bidding was reopened, and the Association
purchased the Property for $370,000. The Association argued
that the Property’s fair market value should equal the $370,000
purchase price.
On March 4, 2015, the circuit court entered an order
granting HHFDC’s motion for summary judgment (“order granting
HHFDC’s motion for summary judgment”), ruling that HHFDC’s lien
was senior and superior to the Association’s. On the same day,
the court entered an order granting ASB’s motion for
confirmation of sale (“order confirming sale”) and judgment on
the order (“March 4, 2015 judgment”).9
8
HHFDC determined that the Net Appreciation of the Property was $368,600
by subtracting the Chans’ original purchase price ($111,400) from the
September Appraisal’s fair market value ($480,000). HHFDC then determined
its Net Appreciation share was $228,532 by multiplying its percentage share
(62%) by the Net Appreciation ($368,600).
9
The March 4, 2015 judgment appears to mistakenly refer to the order
granting ASB’s motion for summary judgment. However, the March 4, 2015
Judgment provides the hearing date for ASB’s motion for confirmation of sale.
Furthermore, the order granting ASB’s motion for summary judgment and
corresponding judgment were entered on May 12, 2014.
11
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
On March 9, 2015, the circuit court filed a minute order
concluding the fair market value of the Property was $480,000
and that HHFDC’s Net Appreciation value was $228,532.
On March 25, 2015, HHFDC submitted a proposed further order
regarding ASB’s motion for confirmation of sale (“further order
re: confirmation of sale”) stating that $480,000 was the fair
market value of the Property and that HHFDC’s Net Appreciation
value was $228,532. On April 2, 2015, the Association appealed
under CAAP-XX-XXXXXXX the order granting HHFDC’s motion for
summary judgment, order confirming sale, the March 4, 2015
judgment, and the proposed further order re: confirmation of
sale, which the court had not yet entered.
On April 16, 2015, the circuit court entered judgment on
the order granting HHFDC’s motion for summary judgment
(“judgment on order granting HHFDC’s motion for summary
judgment”). On April 17, 2015, the circuit court entered the
further order re: confirmation of sale. The Association filed a
motion for reconsideration of the further order re: confirmation
of sale on April 27, 2015 (“motion for reconsideration”).10
On May 7, 2015, the Association appealed under CAAP-15-
10
According to the Association, as of the filing of its opening brief on
September 8, 2015, the circuit court had “not disposed of the Motion for
Reconsideration and it is therefore deemed denied pursuant to Hawaiʻi Rules of
Appellate Procedure (“HRAP”) Rule 4(a)(3).”
12
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
0000395 the further order re: confirmation of sale and judgment
on order granting HHFDC’s motion for summary judgment.
On June 4, 2015, the ICA consolidated the Association’s
appeals under CAAP-XX-XXXXXXX.
C. ICA Proceedings
1. The Association’s Arguments
On appeal to the ICA, the Association repeated the
arguments in its opposition to HHFDC’s motion for summary
judgment.
Additionally, the Association argued that, if HHFDC had a
valid lien, HHFDC impermissibly used the Section 3 appraisal
process to determine the Property’s fair market value because
the appraisal process applied only if the Chans “sell or
transfer” the Property. The Association asserted that Section 2
of the SAE Agreement distinguished a “sale or transfer” from
foreclosures, and therefore a foreclosure could not trigger the
appraisal process.11 The Association argued the circuit court
11
Section 2 of the SAE Agreement outlined three situations in which “[a]
sale or transfer of the Property will be deemed to have taken place[:]”
(a) When the Grantee sells or transfers the Property or any
legal or beneficial right, title or ownership interest
in the Property, including by way of an agreement of
sale or a lease with an option to purchase the Property;
(b) When the Grantee no longer uses the Property as
Grantee’s principal residence but continues to retain
legal and/or equitable title to the Property; or
(c) When the Grantee rents the Property or any part of the
Property to someone else but continues to retain legal
and/or equitable title to the Property.
13
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
should have used the foreclosure sale price as the Property’s
fair market value.
The Association argued the circuit court erred in granting
HHFDC’s motion for summary judgment because genuine issues of
material fact existed regarding HHFDC’s calculation of the Net
Appreciation, the Property’s fair market value, and HHFDC’s
failure to comply with Section 3’s appraisal process. The
Association additionally argued the circuit court erred by
denying its motion for reconsideration because the Association
did not have the opportunity to review the September Appraisal
before the motion for summary judgment hearing.
2. HHFDC’s Arguments
HHFDC also repeated its arguments below. In addition,
HHFDC asserted that the circuit court did not need to rely on
HRS chapter 201H to determine the validity or priority of
HHFDC’s lien, which was established by the deed and SAE
Agreement.
HHFDC argued the appraisal process applied because the SAE
Agreement provided that HFDC would “immediately be entitled to a
share of the Net Appreciation” if the Property were ever “sold
or transferred . . . in any manner, voluntarily or
involuntarily, including a judicial or nonjudicial foreclosure
sale.” The agreement also provided that HFDC would select an
14
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
appraiser to determine the fair market value “[w]henever it
shall become necessary to determine the Net Appreciation
. . . .” Therefore, the appraisal process was triggered when
HHFDC became entitled to its Net Appreciation share upon
foreclosure because it was “necessary to determine the Net
Appreciation” to calculate HHFDC’s share. HHFDC also maintained
that the Property’s fair market value was $480,000 based on the
September Appraisal.
HHFDC asserted the foreclosure sale was a “sale” entitling
HHFDC to its Net Appreciation share because, under Section 2, if
the Chans were “divested of title . . . in any manner,
voluntarily or involuntarily, including a judicial or
nonjudicial foreclosure sale, HFDC [would] immediately be
entitled to a share of the Net Appreciation.” HHFDC also
contended that, reading the SAE Agreement as a whole, Section 7
only nullified the agreement as to the purchaser acquiring the
Property as a result of a foreclosure. Finally, HHFDC claimed
the circuit court properly granted summary judgment because the
issues of HHFDC’s Net Appreciation share, the Property’s fair
market value, and HHFDC’s compliance with the appraisal process
were not material as to the validity and priority of HHFDC’s
lien.
15
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
3. Memorandum Opinion
On July 26, 2019, the ICA issued its memorandum opinion.
American Savings Bank, F.S.B. v. Chan, Nos. CAAP-XX-XXXXXXX &
CAAP-XX-XXXXXXX (App. July 26, 2019) (mem.). In addressing the
Association’s argument that the circuit court retroactively
applied HRS chapter 201H in granting summary judgment, the ICA
noted the circuit court’s reliance on HRS chapter 201H was
unclear because the circuit court did not provide the basis for
its ruling. Chan, mem. op. at 8-9. The ICA determined that the
“first in time, first in right” principle and the dates HFDC and
the Association had filed and perfected their liens were “all
the Circuit Court needed to rely on in determining lien
priority.” Chan, mem. op. at 9-10. Therefore, the ICA
concluded the Association’s retroactivity argument was without
merit. Chan, mem. op. at 11.
The ICA then considered the Association’s argument that the
circuit court had disregarded the express language of Section 7
of the SAE Agreement. Id. Reading the SAE Agreement as a
whole, the ICA determined that the Association’s interpretation
that Section 7 extinguished HHFDC’s rights upon foreclosure of
the first mortgage was “against the clear purpose and effect of
Section 7” to protect the first mortgagee and the parties that
acquired the Property as a result of foreclosure. Chan, mem.
op. at 15.
16
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
Next, the ICA turned to the Association’s argument that the
circuit court erred by not using the Property’s $370,000 sale
price as its fair market value. Chan, mem. op. at 16. While
the ICA recognized that courts may generally consider the
foreclosure sale price in determining fair market value, the ICA
did “not agree that Sections 1.E, 2, and 3 together require that
the foreclosure sale price must be used in calculating Net
Appreciation.” Chan, mem. op. at 17. The ICA also concluded
that, reading Sections 1.E, 2, and 3 together, the appraisal
process applied to foreclosure sales. Id.
The ICA held, however, that HHFDC failed to comply with the
Section 3 appraisal process because Appraiser Oshiro was not
sufficiently qualified and HHFDC did not timely mail the
September Appraisal to the Chans. Chan, mem. op. at 17-18. The
ICA concluded the circuit court “erred to the extent that it
utilized the HHFDC’s appraised value of the Property without
confirming the validity of the appraisal process or otherwise
determining that the fair market value of the Property was
$480,000 independent of the HHFDC appraisal.” Chan, mem. op. at
18-19. The ICA vacated the circuit court’s determination of
HHFDC’s Net Appreciation value and remanded for further
proceedings. Chan, mem. op. at 19.
Because the ICA vacated the circuit court’s findings
related to the Property’s fair market value, the ICA did not
17
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
address the Association’s argument that the circuit court erred
by considering new evidence and by not granting the
Association’s Motion for Reconsideration. Id. The ICA did not
address whether HHFDC’s share was limited to the amount the
Chans “realized” from the foreclosure sale.
The ICA then addressed the Association’s argument that the
circuit court erred in finding that HHFDC was HFDC’s successor
to the SAE Agreement. Chan, mem. op. at 19-20. The ICA noted
that Act 350 transferred HFDC’s rights to HCDCH and provided
that all deeds entered into by HFDC would remain “in full force
and effect.” Chan, mem. op. at 21; 1997 Haw. Sess. Laws Act
350, §20 at 1091. Act 196 then split HCDCH into HHFDC and
another entity, and provided that HHFDC would “perform the
functions of housing financing and development.” Chan, mem. op.
at 21; 2005 Haw. Sess. Laws Act 196, § 19 at 620. The ICA held
that the circuit court did not err because HHFDC had assumed
HCDCH’s rights “including those arising out of the Deed and SAE
Agreement,” and Act 196 and Act 350 “suggest[ed] that HHFDC is
HFDC’s successor in interest.” Chan, mem. op. at 21.
Finally, the ICA addressed the Association’s argument that
the circuit court erred in granting summary judgment because
genuine issues of material fact existed regarding the appraisal
process and value of HHFDC’s lien. Chan, mem. op. at 21-22.
The ICA noted that the circuit court only determined HHFDC’s
18
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
lien priority on summary judgment. Chan, mem. op. at 22. The
ICA then reasoned that the facts relating to the appraisal
process and value of HHFDC’s lien were not material because they
did not establish or refute HHFDC’s lien validity or priority.
Id. Therefore, the circuit court did not err in granting
HHFDC’s motion for summary judgment. Id.
The ICA affirmed the order granting HHFDC’s motion for
summary judgment, order confirming sale, March 4, 2015 judgment,
and judgment on order granting HHFDC’s motion for summary
judgment. Chan, mem. op. at 22-23. However, the ICA vacated
the further order re: confirmation of sale “to the extent that
it relates to the value of HHFDC’s interest” and remanded for
further proceedings. Chan, mem. op. at 23.
The ICA entered its judgment on appeal on August 20, 2019.
D. Application for Certiorari
The Association’s Application presents three questions:
[1.] Did the ICA commit grave errors of law and fact by
failing to find that the Circuit Court erred in
retroactively applying [HRS] Chapter 201H, including
HRS §§ 201H-47(a)(6) and 201H-47(e), when if found that
HHFDC had a lien in foreclosure and that such lien was
senior and superior to liens of all other parties except
for a first mortgage lien?
[2.] Did the ICA commit grave errors of law and fact when
it ignored the plain language of [SAE Agreement],
including, without limitation, Sections 2, 3, 4, and 7?
. . . .
[3.] Did the ICA commit grave errors of law and fact when
it failed to hold HHFDC to the same burden of proof that
this Court has required of lenders in foreclosure actions
and granted summary judgment to HHFDC when there were
genuine issues of material fact regarding HHFDC’s standing
and authority to enforce the SAE Agreement?
19
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
First, the Association argues that HRS § 201H-47(e) was not
retroactive, that the law in effect when the deed was recorded
in 1991 was HRS § 201E-221(c), and that under HRS § 201E-221(c),
HFDC would only be entitled to the foreclosure proceeds
remaining after payment of all liens and encumbrances, including
the Association’s liens.
Second, the Association argues the ICA ignored the express
language of the SAE Agreement because: (1) Section 7 voided the
agreement upon the foreclosure of ASB’s mortgage; (2) the
Section 3 appraisal process did not apply because no “sale or
transfer” occurred as defined by Section 1.E; and (3) the
agreement limited HHFDC’s entitlement “to amounts the Chans
received by converting the Property into cash ‘upon the sale or
transfer of the Property.’”
Third, the Association argues HHFDC lacked standing to
enforce the SAE Agreement as HFDC’s successor. The Association
also argues that the powers, functions, and duties transferred
to HHFDC by Act 196 were under HRS chapter 201G, while the Chan
deed was made under HRS chapter 201E. It argues that,
therefore, there was a genuine issue of material fact as to
whether HHFDC was HFDC’s successor.
20
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
III. Standards of Review
A. Contract Interpretation
In Laeroc Waikiki Parkside, LLC v. K.S.K. (Oahu) Ltd.
Partnership, 115 Hawaiʻi 201, 166 P.3d 961 (2007), the Hawaiʻi
Supreme Court stated:
When reviewing the court’s interpretation of a contract,
the construction and legal effect to be given a contract is
a question of law freely reviewable by an appellate court.
. . . .
This court has determined that it is fundamental that terms
of contract should be interpreted according to their plain,
ordinary and accepted use in common speech, unless the
contract indicates a different meaning. Further, in
construing a contract, a court’s principal objective is to
ascertain and effectuate the intention of the parties as
manifested by the contract in its entirety. If there is
any doubt, the interpretation which most reasonably
reflects the intent of the parties must be chosen.
115 Hawaiʻi at 213, 166 P.3d at 973 (internal quotation marks,
citations, and brackets omitted).
B. Statutory Interpretation
The interpretation of a statute is a question of law
reviewable de novo.
When construing a statute, our foremost
obligation is to ascertain and give effect to
the intention of the legislature, which is to
be obtained primarily from the language
contained in the statute itself. And we must
read statutory language in the context of the
entire statute and construe it in a manner
consistent with its purpose.
Ka Paʻakai O Ka̒aina v. Land Use Comm’n, 94 Hawaiʻi 31, 41, 7 P.3d
1068, 1078 (2000) (internal quotation marks and citations
omitted) (quoting Amantiad v. Odum, 90 Hawaiʻi 152, 160, 977 P.2d
160, 168-69 (1999)).
21
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
IV. Discussion
A. The ICA did not err in finding HHFDC’s lien senior and
superior to the Association’s
The Association argues the ICA erred by failing to find the
circuit court erred in retroactively applying HRS chapter 201H
when it concluded HHFDC’s lien was senior and superior to the
Association’s, and that HRS § 201E-221(c), the law in effect
when the deed and SAE Agreement were entered, entitled HHFDC
only to the foreclosure proceeds remaining after payment of all
liens and encumbrances.
While the circuit court did not state the basis of its
summary judgment ruling, HHFDC’s lien was senior and superior to
the Association’s even under HRS § 201E-221. HRS § 201E-221(c)
provided, in relevant part: “The corporation shall be a party to
any foreclosure action, and shall be entitled to all proceeds
remaining in excess of all customary and actual costs and
expenses of transfer pursuant to default, including liens and
encumbrances of record . . . .” HHFDC’s SAE interest was a
“lien[] and encumbrance[] of record” required to be paid upon
foreclosure under HRS § 201E-221(c), and because HHFDC’s lien
was filed before the Association’s liens, HHFDC’s lien had
priority under the “first in time, first in right” principle.
See HRS § 501-82 (2006); HRS § 502-83 (2006) (establishing
Hawaiʻi as a race-notice jurisdiction). Furthermore, the SAE
22
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
Agreement, which was entered into pursuant to HRS chapter 201E,
provided that HFDC would become entitled to its Net Appreciation
share upon foreclosure and only subordinated HFDC’s interest to
the first mortgagee (ASB). Therefore, the ICA did not err in
affirming the circuit court’s determination of lien priority.
See Strouss v. Simmons, 66 Haw. 32, 40, 657 P.2d 1004, 1010
(1982) (“An appellate court may affirm a judgment of the lower
court on any ground in the record which supports affirmance.”).
B. The ICA did not ignore the plain language of the SAE
Agreement
1. The ICA did not ignore the plain language of Section 7
The Association argues the ICA ignored the plain language
of Section 7 of the SAE Agreement because the last sentence of
Section 7, “[t]his Exhibit C shall be null and void upon a
conveyance of the Property through a foreclosure sale or a deed
in lieu of foreclosure,” meant that the foreclosure of ASB’s
first mortgage voided the SAE Agreement.
However, as the ICA reasoned, Section 7’s “purpose and
effect” was to protect the first mortgagee and those who
acquired the Property through foreclosure. Chan, mem. op. at
15. Section 7 is titled “First Mortgage Protection,” and the
first part of the section specified that the “foregoing
provisions shall not apply with respect to” the first purchase
money mortgage, the first purchase money mortgagee, the rights
23
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
of the first mortgagee to foreclose, and “[a]ny person or
persons acquiring the Property as a result of foreclosure
. . . .” Thus, the ICA did not err in determining that Section
7 did not nullify the SAE Agreement upon ASB’s foreclosure.
2. The Section 3 appraisal process applied
The Association also maintains that the Section 3 appraisal
process did not apply because, under Section 1.E of the SAE
Agreement, an appraisal of the Property’s “fair market value” is
contingent upon a “sale or transfer,” and a foreclosure sale is
not a “sale or transfer” as defined by Section 2.
Section 2 of the SAE Agreement described three situations
in which “[a] sale or transfer of the Property will be deemed to
have taken place[:]”
(a) When the Grantee sells or transfers the Property or any
legal or beneficial right, title or ownership interest
in the Property, including by way of an agreement of
sale or a lease with an option to purchase the Property;
(b) When the Grantee no longer uses the Property as
Grantee’s principal residence but continues to retain
legal and/or equitable title to the Property; or
(c) When the Grantee rents the Property or any part of the
Property to someone else but continues to retain legal
and/or equitable title to the Property.
Section 2, however, did not limit a “sale or transfer” to these
scenarios. Neither did Section 1, which defines the agreement’s
terminology, define “sale or transfer.” Therefore, we interpret
the words “sale or transfer” “according to their plain, ordinary
and accepted use in common speech,” which would include a
24
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
foreclosure sale. Laeroc Waikiki Parkside, LLC, 115 Hawaiʻi at
213, 166 P.3d at 973.
Furthermore, Section 3 of the SAE Agreement provided, in
relevant part, “[w]henever it shall become necessary to
determine the Net Appreciation, HFDC will select an independent
appraiser . . . who shall prepare a written appraisal of the
Fair Market Value of the Property . . . .” Under Section 2,
HFDC would be entitled to its Net Appreciation share “when all
or any part of or interest in the Property is sold or
transferred . . . including a judicial or nonjudicial
foreclosure sale . . . .” Because a foreclosure sale would make
it “necessary to determine the Net Appreciation,” the ICA did
not err in holding that the Section 3 appraisal process applied.
3. HHFDC’s entitlement under the SAE Agreement is not
limited to the amount the Chans “realized”
The Association argues HHFDC’s recovery under the SAE
Agreement was “limited to the funds remaining after payment of
all liens and encumbrances.” Although the ICA did not address
this argument in its memorandum opinion, the Association’s
argument is without merit. The Association essentially argues
that the parties to the SAE Agreement intended to make HFDC’s
lien junior and subordinate to all other liens. This
interpretation of the agreement does not reasonably reflect the
intent of the parties. See Laeroc Waikiki Parkside, LLC, 115
25
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
Hawaiʻi at 213, 166 P.3d at 973. Section 7 of the SAE Agreement
specifically subordinated HFDC’s lien to the first mortgagee’s
lien. If, as the Association argues, HHFDC’s recovery were
“limited to the funds remaining after payment of all liens and
encumbrances,” Section 7 would not need to exist. Therefore,
considering the likely intent of the parties and the SAE
Agreement as a whole, the Association’s argument is without
merit.
C. The ICA did not err in finding HHFDC had standing to
enforce the SAE Agreement
The Association argues there were “genuine issues of
material fact as to whether [HHFDC] was the successor to HFDC
and whether it assumed the rights of HFDC under the SAE
Agreement.”
While the Association argues that HHFDC’s standing is a
genuine issue of material fact, it is actually a question of
law; HHFDC asserts that it assumed HFDC’s rights to the SAE
Agreement by statute. Therefore, we review the ICA’s
determination that HHFDC is HHFDC’s successor in interest to the
SAE Agreement pursuant to Act 196 and Act 350 de novo. Chan,
mem. op. at 21; see Ka Paʻakai O Kaʻaina, 94 Hawai̒i at 41, 7 P.3d
at 1078 (“The interpretation of a statute is a question of law
reviewable de novo.”).
26
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
HHFDC is HFDC’s successor according to the language of Act
350 and Act 196. Act 350 of 1997 created HFDCH, stating that
HFDCH “shall succeed to all of the rights and powers previously
executed” by HFDC, and that “[a]ll deeds, leases, contracts
. . . or other documents executed or entered into by or on
behalf of [HFDC] . . . shall remain in full force and effect.”
§ 20 at 1091. Act 350 also repealed HRS chapter 201E, which was
replaced with HRS chapter 201G. § 18 at 1090; HRS chapter 201G
(Supp. 1997). According to the “Table of Derivation” in the HRS
2005 Supplement, HRS § 201E-221, which governed the SAE Program,
was replaced by HRS § 201G-127.
Act 196 of 2005 split HFDCH into the Hawai̒i Public Housing
Administration and HHFDC. § 19 at 620. Act 196 transferred
HFDCH’s functions relating to financing and state housing
programs under HRS chapter 201G part II subpart F and HRS
chapter 201G part III except subparts D and M to HHFDC. § 21 at
630-31. In the HRS 2005 Supplement, HRS § 201G-127 was under
part II subpart F of HRS chapter 201G — one of the subparts
transferred to HHFDC. Act 196 also transferred all records and
contracts “made, used, acquired, or held by [HFDCH] relating to
the functions transferred to [HHFDC].” § 23 at 631. The act
provided that “[a]ll deeds, leases, contracts . . . or other
documents executed or entered into by or on behalf of [HFDCH] .
. . which are made applicable to [HHFDC] by this Act, shall
27
*** FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND THE PACIFIC REPORTER ***
remain in full force and effect.” § 25 at 632. Finally, the
act amended references to HCDCH to refer to HHFDC. § 26 at 632.
Reading Act 350 and Act 196 together, the legislature
intended for HHFDC to succeed HFDCH and HFDC’s SAE Program
interests. See Ka Paʻakai O Kaʻaina, 94 Hawai̒i at 41, 7 P.3d at
1078 (“When construing a statute, our foremost obligation is to
ascertain and give effect to the intention of the legislature,
which is to be obtained primarily from the language contained in
the statute itself.”). Because Act 196 transferred HFDCH’s
functions under HRS § 201G-127, which governed the SAE Program
in 2005, to HHFDC, the SAE Agreement was “made applicable” to
HHFDC by Act 196 and remained “in full force and effect.”
Therefore, HHFDC is HFDC’s successor to the SAE Agreement, and
the ICA did not err in affirming the circuit court’s grant of
HHFDC’s motion for summary judgment.
V. Conclusion
We therefore affirm the ICA’s August 20, 2019 judgment on
appeal.
M. Anne Anderson and /s/ Mark E. Recktenwald
Paul A. Ireland Koftinow
For Petitioner/Defendant- /s/ Paula A. Nakayama
Appellant
/s/ Sabrina S. McKenna
Craig Y. Iha,
Sandra A. Ching, and /s/ Richard W. Pollack
Matthew S. Dvonch
for Respondent/Defendant- /s/ Michael D. Wilson
Appellee
28