Mount, Jr. v. Apao

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
12-MAR-2021
07:46 AM
Dkt. 141 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
GERALD K. MOUNT, JR. and JANE R. MOUNT,
Plaintiffs/Counterclaim-Defendants/Appellees,
v.
MARGARET APAO, Defendant-Appellant
and
DIRK APAO, as Co-Personal Representative of the
Estate of ROSE MARIE ALVARO, Deceased,
Defendant/Counterclaim-Plaintiff/Third-Party Plaintiff/Appellant,
and
SESHA LOVELACE, as Co-Personal Representative of the
Estate of ROSE MARIE ALVARO, Deceased,
Defendant/Cross-Claim Defendant/Appellee,
and
WALTER SCOTT BURGESS, Defendant-Appellee,
and
U.S. BANK NATIONAL ASSOCIATION, a National Association
as Trustee for the Structured Asset Securities Corporation
Mortgage Pass-Through Certificates, 2005-SC1,
Third-Party Defendant/Cross-Claim Plaintiff/Appellee,
and
JOHN DOES 1-10; JANE DOES 1-10; DOE PARTNERSHIPS 1-10;
DOE CORPORATIONS 1-10; DOE ENTITIES 1-10; ALL PERSONS
RESIDING WITH ANY PERSONS CLAIMING BY AND THROUGH OR
UNDER THEM, Defendants.
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CIVIL NO. 11-1-2005)
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MEMORANDUM OPINION
(By: Ginoza, Chief Judge, Chang, Circuit Court, J. (in place of
Wadsworth, J., recused) and Kim, Circuit Court, J. (in place of
Leonard, Hiraoka, and Nakasone, JJ., recused))
Defendant-Appellant Margaret Apao and
Defendant/Counterclaim Plaintiff/Third-Party Plaintiff-Appellant
Dirk Apao, as co-personal representative of the Estate of Rose
Marie Alvaro (collectively the Apaos) appeal from an "HRCP Rule
54(b) Judgment" filed on May 5, 2017, by the Circuit Court of the
First Circuit (Circuit Court).1 The Apaos also challenge an
"Order Granting Plaintiffs/Counterclaim Defendants Gerald K.
Mount, Jr. and Jane R. Mount's Renewed Motion for (1) Summary
Judgment as to Their Complaint Filed on September 7, 2011, and
(2) for Partial Summary Judgment as to Defendant Dirk Apao, as
Personal Representative of the Estate of Rose Marie Alvaro,
Deceased's Counterclaim and Third Party Complaint for Wrongful
Foreclosure, Quiet Title, and Damages Filed on October 11, 2011;
Order Denying Defendant/Counterclaim Plaintiff/Third Party
Plaintiff Dirk Apao's Renewed Motion for Partial Summary Judgment
on the Counterclaim and Third Party Complaint for Wrongful
Foreclosure, Quiet Title, and Damages, Filed October 11, 2011"
(Order Granting Renewed Motion for Summary Judgment) filed by the
Circuit Court on March 14, 2017.2
On appeal, the Apaos contend that the Circuit Court
erred by ruling that Plaintiffs/Counterclaim Defendants-Appellees
Gerald K. Mount, Jr., and Jane R. Mount (the Mounts) were
innocent or bona fide purchasers of 2979 Makalei Place in
Honolulu (the Property), such that they were entitled to summary
judgment and possession of the Property.
We conclude that the Circuit Court properly granted
summary judgment for the Mounts and therefore we affirm.
1
The Honorable Keith K. Hiraoka entered the Judgment.
2
The Honorable Karen T. Nakasone presided.
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I. Background
This is the second appeal in this ejectment action,
which the Mounts initiated seeking, inter alia, judgment and writ
of possession regarding the Property following a nonjudicial
foreclosure. The Mounts claim title based on their company, Fair
Horizon LLC (Fair Horizon), being the prevailing bidder at a
public auction pursuant to a nonjudicial foreclosure on the
Property, and a Limited Warranty Deed recorded on July 22, 2011,
that transferred the Property to them.
In the first appeal in this case, the Hawai#i Supreme
Court held, inter alia, that the nonjudicial foreclosure, by U.S.
Bank National Association, a National Association as Trustee for
the Structured Asset Securities Corporation Mortgage Pass-Through
Certificates, Series 2005-SC1 (U.S. Bank), was conducted in
violation of HRS § 667-5 (Supp. 2008). Mount v. Apao, 139
Hawai#i 167, 179-80, 384 P.3d 1268, 1280-81 (2016) (Mount I). In
determining the proper remedy, however, the supreme court ruled
that further proceedings were necessary to determine if the
Mounts were innocent purchasers for value, such that voiding the
foreclosure sale was impracticable. Id. at 180, 384 P.3d at
1281. The supreme court explained:
In this case, however, the Mounts completed the sale, took
possession of the Property, and have now had the Property
for some time, similar to the facts in Santiago. In
[Santiago v. Tanaka, 137 Hawai#i 137, 366 P.3d 612 (2016)],
we held that "[w]here it is determined that the nonjudicial
foreclosure of a property is wrongful, the sale of the
property is invalid and voidable at the election of the
mortgagor, who shall then regain title to and possession of
the property." 137 Hawai#i at 158, 366 P.3d at 633. We
also held that where the property has passed into the hands
of an innocent purchaser for value, rendering the voiding of
a foreclosure sale impracticable, an action at law for
damages is generally the appropriate remedy. Id.
As noted earlier, based on its other rulings in favor of the
Mounts, the circuit court deemed moot their motion for
partial summary judgment alleging bona fide purchaser
status, and the Mounts withdrew that motion. Therefore, the
circuit court never addressed whether the Mounts qualify as
"innocent purchasers for value" under the Santiago rule.
Upon remand, the circuit court is to apply Santiago to
determine an appropriate remedy for the wrongful
foreclosure.
139 Hawai#i at 180, 384 P.3d at 1281.
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On remand, both the Apaos and the Mounts filed renewed
motions for summary judgment on the question of whether the
Mounts were innocent (or bona fide) purchasers of the Property.
Based on the record, including the evidence submitted on remand
by the parties, the following are the undisputed facts relevant
to this appeal.
In 1999, Rose Marie Alvaro (Alvaro) obtained a loan
from Fremont Investment & Loan secured by a mortgage on the
Property. Mount I, 139 Hawai#i at 169, 384 P.3d at 1270. Alvaro
passed away in 2002, and her estate went to Probate Court. Id.
The Apaos are the sister and nephew of Alvaro, respectively. Id.
at 168, 384 P.3d at 1269. Subsequently, the note went into
arrears, and U.S. Bank commenced foreclosure proceedings. Id. at
170, 384 P.3d at 1271.
The Mounts, through Fair Horizons, purchased the
Property as the high bidder at the nonjudicial foreclosure
auction. The Mounts' affidavits, submitted in support of their
renewed motion for summary judgment, establish that the
nonjudicial foreclosure auction was held on April 4, 2011; both
of the Mounts attended the auction to bid through Fair Horizon;
approximately three to five other parties participated in the
bidding; there were approximately fifteen to twenty bids between
the participating parties; and Fair Horizon ultimately won the
auction with a bid of $1.21 million.
On April 18, 2011, the Mounts received the preliminary
title report for the Property, which reflected the probate
proceeding for the Estate of Alvaro. Subsequently, on June 9,
2011, an attorney assisting the Mounts with the purchase of the
Property advised them that he had reviewed the documents filed in
the probate proceeding and the probate proceeding did not involve
any challenge or any alleged problems with the foreclosure by
U.S. Bank.
On July 22, 2011, a Limited Warranty Deed transferring
the Property from U.S. Bank to the Mounts was recorded. Later
that same day, when the Mounts' representative visited the
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Property, he discovered that the property was occupied and the
residents were unwilling to discuss an agreement for them to
vacate the Property. The evidence in the case shows that
Margaret Apao was residing on the property.
On July 25, 2011, the Mounts initiated an ejectment
action in District Court in an effort to obtain possession of the
Property. On August 4, 2011, at the return date in the District
Court ejectment action, the Mounts learned for the first time
that the Estate of Alvaro would be challenging U.S. Bank's
foreclosure on the Property. The District Court action was
subsequently dismissed given the Apaos' challenge to the
nonjudicial foreclosure and title to the property, and the Mounts
refiled their ejectment action in the Circuit Court.
After the initial litigation in Circuit Court, the
first appeal, and on remand after Mount I, the Mounts' Motion for
Summary Judgment was supported by their affidavits on the
question of whether they were bona fide purchasers. In his
affidavit, Gerald Mount attests that "[f]rom the time when I
first learned about the Property to the time when the Warranty
Deed was recorded, I was not aware of any challenges to, or any
actual or alleged problems with, U.S. Bank's foreclosure." In
her affidavit, Jane Mount similarly attests that from the time
she learned about the Property to the time the Limited Warranty
Deed was recorded, she "was not aware of any challenges to, or
any actual or alleged problems with U.S. Bank's foreclosure."
The Apaos provide no contrary evidence indicating that the Mounts
had knowledge of any challenges to, or any alleged problems with,
the foreclosure.
On March 14, 2017, during the remand, the Circuit Court
issued the Order Granting Renewed Motion For Summary Judgment, in
which, inter alia, the Circuit Court determined the $1.2 million
paid by the Mounts was "valuable consideration," that the Mounts
"did not know, and had no reason to know, about any problems in
the foreclosure process," and that the Mounts could not have had
knowledge of the Estate's claims against U.S. Bank related to the
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"foreclosure because the Estate did not assert any claims until
after the Mounts acquired title to the Property." The Circuit
Court thus held that the Mounts were innocent or bona fide
purchasers because they purchased the Property for valuable
consideration and they had no actual or constructive knowledge of
any defect in the foreclosure process. On May 5, 2017, the
Circuit Court entered the HRCP Rule 54(b) Judgment.
The Apaos timely appealed.
II. Standard of Review
On appeal, the grant or denial of summary judgment is
reviewed de novo. See State ex rel. Anzai v. City and
County of Honolulu, 99 Hawai#i 508, [515], 57 P.3d 433,
[440] (2002); Bitney v. Honolulu Police Dep't, 96 Hawai #i
243, 250, 30 P.3d 257, 264 (2001).
[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 that the moving party is entitled to
judgment as a matter of law. A fact is material if
proof of that fact would have the effect of
establishing or refuting one of the essential elements
of a cause of action or defense asserted by the
parties. The evidence must be viewed in the light
most favorable to the non-moving party. In other
words, we must view all of the evidence and inferences
drawn therefrom in the light most favorable to the
party opposing the motion.
Kahale v. City and County of Honolulu, 104 Hawai #i 341, 344,
90 P.3d 233, 236 (2004) (citation omitted).
Nuuanu Valley Ass'n v. City & Cnty. of Honolulu, 119 Hawai#i 90,
96, 194 P.3d 531, 537 (2008); see also First Ins. Co. of Hawaii
v. A&B Props., 126 Hawai#i 406, 413-14, 271 P.3d 1165, 1172-73
(2012).
III. Discussion
The Hawai#i Supreme Court has stated that "[a]n
innocent purchaser is one who, by an honest contract or
agreement, purchases property or acquires an interest therein,
without knowledge, or means of knowledge sufficient to charge him
in law with knowledge, of any infirmity in the title of the
seller." Ka#u Agribusiness Co., Inc. v. Heirs or Assigns of
Ahulau, 105 Hawai#i 182, 193, 95 P.3d 613, 624 (2004) (citations
and internal quotation marks omitted). Further, "[a] non-bona
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fide purchaser is one who does not pay adequate consideration,
takes with knowledge that his transferor acquired title by
fraud[,] or ... buys registered land with full notice of the fact
that it is in litigation between the transferor and a third
party." Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai#i 227,
240 n.27, 361 P.3d 454, 467 n.27 (2015) (citations and internal
quotation marks omitted)).
There is no dispute that the Mounts paid an adequate
consideration for the Property. The affidavits submitted by the
Mounts in support of their renewed motion for summary judgment
establish that the nonjudicial foreclosure auction for the
Property was held on April 4, 2011, both of the Mounts attended
to bid via their company Fair Horizon, multiple other parties bid
on the Property, there were about fifteen to twenty bids between
the participating parties, and Fair Horizon prevailed with a bid
of $1.21 million. The Apaos did not submit any evidence to
contradict the Mounts' evidence about the auction, the prevailing
bid price, or to challenge in any manner that the amount paid by
the Mounts was inadequate. Thus, the Mounts established that the
amount they paid was based on a winning bid at a competitive
auction for the Property, and that the amount was adequate
consideration.
Further, the Apaos provide no evidence and do not
dispute that, prior to the Mounts acquiring title to the
Property, the Mounts had no actual knowledge of any problem with,
or challenge to, the foreclosure by U.S. Bank.
Rather, the Apaos base their appeal on two arguments:
(1) that the Mounts had constructive knowledge of the Apaos'
claims based on the Estate of Alvaro's possession of the
property; and (2) that the Mounts, as sophisticated property
investors, had a heightened duty of inquiry.
A. The Estate's Possession of the Property Was Not Constructive
Notice of its Claim Against the Foreclosure
The Apaos cite Achi v. Kauwa, 5 Haw. 298 (Haw. Kingdom
1885) for the proposition that a purchaser of land takes his
title subject to the claims of parties in possession, and the
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possession is constructive notice to the purchaser of all the
rights of the possessor. Achi, however, is distinguishable.
There, the plaintiff's interest in the subject property was
through a grant under a recorded deed. The defendants claimed
rights under an unrecorded deed and showed that some defendants
lived on and were supported by the land, cultivated and fenced
part of the land, and had two houses on the land that had stood
for a long time. Id. at 298. The plaintiff claimed the
unrecorded deed was void under a statute that provided such
unrecorded deed "shall be void against any subsequent purchaser
in good faith and for a valuable consideration not having actual
notice of such conveyance, whose conveyance shall be first duly
recorded." Id. The Achi court rejected the plaintiff's
argument, holding that:
In equity and at common law without reference to special
statutes; and, it seems to us, upon reason; good faith
requires a purchaser of land to take his title subject to
the claims of parties in possession when he buys[.] Under
our statute, if the party in open possession is unable to
show actual notice of his unregistered deed to a subsequent
purchaser, his possession is constructive notice to such
purchaser of all his rights, and he cannot be disturbed
therein.
Id. at 299. Whereas Achi involved the defendants' claims under
an unrecorded deed, in the instant case there are no competing
deeds related to the subject property. Rather, the Mounts
obtained title through the nonjudicial foreclosure due to the
default on the mortgage by the Estate.
The other cases cited by the Apaos also do not support
their position because those other cases involve circumstances
quite different than this case. See Yee Hop v. Young Sak Cho, 25
Haw. 494, 505, 506 (Haw. Terr. 1920) (recognizing general rule
that "where a party purchases or leases real estate in the
possession of another not his vendor or lessor he is chargeable
with knowledge of all the rights of the party in possession" and
holding that where petitioners were in open possession of fish
and vegetable stalls under oral agreements, the respondents who
recently leased the premises had a "duty to make reasonable
inquiry as to the rights of the persons in possession and if they
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failed to do so they cannot be deemed to be purchasers in good
faith for value") (emphasis added); In re Probasco, 839 F.2d
1352, 1354 (9th Cir. 1988) (under California law "a bona fide
purchaser who records prevails over a prior transferee who failed
to record") (emphasis added); Natural Resources, Inc. v.
Wineberg, 349 F.2d 685, 688-90 (9th Cir. 1965) (where deed
conveying property to plaintiff was executed first, but recorded
after a deed conveying the same property to the defendants, the
plaintiff's open possession of the property gave notice to the
defendants of plaintiff's interest in the property); Manig v.
Bachman, 273 P.2d 596, 599-601 (Cal. Dist. Ct. App. 1954)
(holding that defendant, who obtained title through plaintiff's
son while plaintiff's son held record title, was under a duty to
inquire about the plaintiff's rights to the subject property
under an unrecorded deed where the plaintiff's tenants were in
actual possession of the property long before and at the time
defendant acquired title).
Here, there was no unrecorded transfer or unrecorded
lease of the property, like in the cases cited by the Apaos.
Rather, the Estate of Alvaro held title to the Property until the
Property was sold at the nonjudicial foreclosure auction, the
Mounts obtained their title from that nonjudicial foreclosure
auction, and the Estate was not required to vacate the property
until it was divested of title as a result of that nonjudicial
foreclosure. Thus, the cases cited by the Apaos are inapposite.
A purchaser does not have a duty to inquire regarding
any unknown claims or interests by a person in possession of real
property where the occupant's possession is consistent with the
recorded title on the property. In Schumacher v. Truman, 134
Cal. 430, 66 P. 591 (1901), the California Supreme Court
expressed:
The rule that one who purchases land, which is not at the
time in the possession of his vendor, takes the same in
subordination to the rights of another who is in its actual
possession, is subject to the qualification that such actual
possession must not only be open and notorious, but also
that it be exclusive, and inconsistent with the record
title. Such possession is not, of itself, notice, but
merely evidence tending to prove notice sufficient to put
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the purchaser on inquiry; and inquiry does not become a duty
when the apparent possession is consistent with the title
appearing of record. What makes inquiry a duty is such a
visible state of things as is inconsistent with a perfect
right in him who proposes to sell. The rule is universal,
that if the possession be consistent with the recorded
title, it is no notice of an unrecorded title. If the
actual possession is consistent with the record title, it
will be presumed to be under that title and referable
thereto.
Id. at 432, 66 P. at 592 (citations and internal quotation marks
omitted) (emphases added); see also In re Weisman, 5 F.3d 417,
421 (9th Cir. 1993) ("There is no duty to inquire upon a
subsequent purchaser regarding any unknown claims or interests by
a person in possession of real property where the occupant's
possession is consistent with the record title") (footnote
omitted); In re Whiting, 311 B.R. 539, 545 (2004) ("A prudent
purchaser is required to make an inquiry as to another's interest
in property only when the possession of the property is
inconsistent with the record title") (italics in original); First
Nat. Bank v. Brown, 240 N.W. 381, 384 (Wis. 1932) ("Possession to
operate as notice, should be inconsistent with the title upon
which the purchaser relies. If the possession is consistent with
the record title, the purchaser is not bound to make any inquiry
concerning the title as indicated by the possession.") (citing 5
Thompson, Real Property, p.338, § 4251);3 11 David A. Thomas,
Thompson on Real Property 192-93, § 92.09(c)(3)(A) (2015)
("Generally, no inquiry need be made of those in possession along
with the record owner.") (footnote omitted).
Here, the parties agree that the Estate remained in
possession of the property at the time the Mounts purchased it.
There is no evidence of any effort to have the Estate vacate the
Property until the ejectment action was filed by the Mounts in
District Court. The Estate's possession of the property until
the Limited Warranty Deed was recorded on July 22, 2011,
transferring the property to the Mounts, was consistent with the
3
See also, 8 Thompson on Real Property 517, § 4337 (George W.
Thompson, ed. 1963 Repl.).
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Estate's rights and did not provide constructive notice to the
Mounts that the Estate would challenge U.S. Bank's foreclosure.
B. Hawai#i Has Not Recognized a Heightened Inquiry Duty for
Sophisticated Property Purchasers and No Amount of Inquiry
Could Have Uncovered a Claim that the Apaos Had Not Asserted
The Apaos cite a Washington case for the proposition
that, because the Mounts have purchased at least eight properties
at foreclosure auctions, they are sophisticated property
investors with a heightened duty of inquiry. See Albice v.
Premier Mortg. Servs. of Wash., Inc., 276 P.3d 1277 (Wash. 2012).
The Apaos claim that, had the Mounts not failed at their duty of
inquiry, they would have uncovered that "the Estate continued to
possess the [P]roperty, that the property was subject to ongoing
probate proceedings in Circuit Court, and that the Estate
disputed the wrongful nonjudicial foreclosure."
Notably, the Apaos cite no Hawai#i case law imposing
such a heightened duty on so-called sophisticated property
investors, and we find none. Albice is not binding and is also
distinguishable. In Albice, the court held that, because real
estate investment was the purchaser's livelihood, on the facts of
that case, the purchaser should have inquired further, which
would have uncovered a forbearance agreement between the owner
and the lender. Id. at 1285. Here, the Limited Warranty Deed
transferring title to the Mounts was recorded on July 22, 2011,
and only after the Mounts initiated the subsequent District Court
ejectment action did the Mounts learn that the Estate of Alvaro
would challenge the U.S. Bank foreclosure. The Estate legally
possessed the property until the foreclosure sale closed, and the
Mounts took the affirmative action to obtain and review the
preliminary title report, through which they learned about the
probate proceedings. The Mounts then had an attorney review the
documents filed in the probate proceedings, none of which
indicated any challenge to, or problem with, the foreclosure.
Thus, the Mounts uncovered the relevant information regarding the
Property that was available at the time.
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The record further reflects that prior to the Mounts
taking title, the Estate and the Apaos did not take any action
such as filing a restraining order, a lis pendens, or any other
action, that could have provided notice to the Mounts or others
that the Estate or the Apaos would challenge U.S. Bank's
foreclosure on the Property.
IV. Conclusion
For the reasons set forth above, the HRCP Rule 54(b)
Judgment entered on May 5, 2017, by the Circuit Court of the
First Circuit, is affirmed.
DATED: Honolulu, Hawai#i, March 12, 2021.
On the briefs: /s/ Lisa M. Ginoza
Chief Judge
Gary V. Dubin,
Frederick J. Arensmeyer, /s/ Gary W.B. Chang
for Margaret Apao and Circuit Court Judge
Dirk Apao.
/s/ Robert D.S. Kim
Michael C. Bird, Circuit Court Judge
Summer H. Kaiawe,
for Gerald K. Mount, Jr.
and Jane R. Mount.
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