384 P.3d 1268
Haw.2016Background
- Rose Marie Alvaro took a mortgage in 1999; she died in 2002 and an informal probate commenced. Her sister Margaret and son Dirk served as co-personal representatives; Sesha Lovelace later replaced Margaret as co-personal representative.
- The mortgage went into default by 2009. U.S. Bank (through servicer AHMS and counsel Routh Crabtree) initiated a nonjudicial foreclosure under HRS § 667-5 and recorded a Notice of Intent to Foreclose; a sale ultimately occurred on April 4, 2011.
- Lovelace, served as a personal representative in Feb 2011, repeatedly requested reinstatement (cure) figures; U.S. Bank/AHMS refused to provide them unless she produced additional proof of authority, despite counsel recognizing her status and postponing the sale to obtain figures.
- The Mounts bought the property at the April 2011 auction and later recorded a deed; they filed an ejectment/quiet-title action against the Apaos (the Estate representatives). The circuit court and ICA found the foreclosure valid and ruled the nonjudicial foreclosure was exempt from probate-claims time limits.
- The Hawai‘i Supreme Court granted certiorari to decide (1) whether a § 667-5 nonjudicial foreclosure is a “proceeding to enforce a mortgage” exempting the lender from the probate claim-presentation deadlines, and (2) whether U.S. Bank violated § 667-5(c)(1) by failing to provide reinstatement figures to Lovelace.
Issues
| Issue | Plaintiff's Argument (Apaos/Estate) | Defendant's Argument (U.S. Bank/Mounts) | Held |
|---|---|---|---|
| Whether a nonjudicial foreclosure under HRS § 667-5 is a “proceeding to enforce a mortgage” exempting it from HRS § 560:3-803 claim-presentation deadlines | Nonjudicial foreclosure is not a court proceeding and therefore not an exempt “proceeding”; lender must comply with probate claims rules | A “proceeding” in the probate code is broad; nonjudicial foreclosure falls within “proceeding to enforce a mortgage” and is exempt | Held: No. A § 667-5 nonjudicial foreclosure is not a court action or suit in equity and is not a “proceeding to enforce a mortgage” under § 560:3-803(d)(1); probate claim deadlines apply |
| Whether U.S. Bank violated HRS § 667-5(c)(1) by failing to provide reinstatement (amount to cure) figures to Lovelace after her requests in 2011 | Bank failed to provide required reinstatement figures (March 2011 figure ~$145,486.69) to Lovelace despite her status and counsel’s requests; sale therefore violative of § 667-5(c)(1) | Bank/servicer claim they had previously provided figures (to Margaret in 2010) and that Lovelace failed to establish authority; GLBA privacy rules limited disclosure to authorized customer | Held: Yes. U.S. Bank violated § 667-5(c)(1) by not providing reinstatement figures to Lovelace after she was served as personal representative; the servicer’s demands for additional proof were insufficient |
| Whether Dirk (as current personal representative) has standing to assert the § 667-5(c)(1) violation after Lovelace’s requests | Lovelace made requests as a co-personal representative; any rights inured to the Estate and its current PR (Dirk) can litigate them | Bank argued Lovelace’s requests related to adversarial probate matters and were not on behalf of the Estate | Held: Dirk has standing. Requests were made in her capacity as co-personal representative and any resulting rights belong to the Estate |
| Remedy for the § 667-5(c)(1) violation — is the sale void or are damages appropriate if buyers are innocent purchasers for value? | If foreclosure wrongful, sale voidable at mortgagor’s election; if property passed to an innocent purchaser for value, damages (action at law) is the usual remedy | Mounts argued they may be innocent purchasers for value and equitable relief should account for third-party rights | Held: The wrongful foreclosure renders the sale voidable; if the Mounts are innocent purchasers for value, restitution of title may be impracticable and damages are the appropriate remedy. The circuit court must determine the Mounts’ status and apply Santiago on remand |
Key Cases Cited
- Lee v. HSBC Bank USA, 121 Hawai‘i 287, 218 P.3d 775 (Haw. 2009) (describing § 667-5 as authorizing nonjudicial foreclosure under a power of sale)
- Santiago v. Tanaka, 137 Hawai‘i 137, 366 P.3d 612 (Haw. 2016) (where a nonjudicial foreclosure is wrongful, the sale is invalid and voidable; if property passed to an innocent purchaser for value, damages are generally the remedy)
- In re Kekauoha‑Alisa, 674 F.3d 1083 (9th Cir. 2012) (mortgagee violations of § 667-5 void foreclosure sales)
- Silva v. Lopez, 5 Haw. 262 (Haw. 1884) (early Hawai‘i authority voiding foreclosure sale for statutory noncompliance)