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Paul Dennis Kalama v. Jp Morgan Chase Bank

November 22, 2011

PAUL DENNIS KALAMA,
PLAINTIFF,
v.
JP MORGAN CHASE BANK, INDIVIDUALLY AND AS JP MORGAN CHASE BANK, TRUSTEE FKA THE CHASE INDIVIDUALLY AND AS TRUSTEE FKA THE ) MANHATTAN BANK AS TRUSTEE'S CHASE MANHATTAN BANK AS TRUSTEE; CAL- WESTERN AND DOES 1-30,
JP MORGAN CHASE BANK, INDIVIDUALLY AND AS TRUSTEE FKA THE CHASE MANHATTAN BANK AS TRUSTEE'S
DEFENDANTS.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

JUDGMENT; AND RECONVEYANCE CORPORATION; ) (2) GRANTING IN PART AND ) DENYING IN PART CAL-WESTERN RECONVEYANCE ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT MOTION FOR SUMMARY CORPORATION'S MOTION FOR SUMMARY JUDGMENT ORDER (1) GRANTING IN PART AND DENYING IN PART DEFENDANT MOTION FOR SUMMARY JUDGMENT; AND (2) GRANTING IN PART AND DENYING IN PART CAL-WESTERN RECONVEYANCE CORPORATION'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

On April 5, 2010, Plaintiff Paul Dennis Kalama ("Plaintiff") filed this action in the First Circuit Court of the State of Hawaii asserting that Defendants JP Morgan Chase Bank, individually and as Trustee fka The Chase Manhattan Bank as Trustee ("JPM") and Cal-Western Reconveyance Corporation ("Cal-Western"), (collectively "Defendants"), misled and/or failed to disclose to Plaintiff material facts during a mortgage foreclosure auction at which Plaintiff was the successful bidder. Specifically, Plaintiff believed that the real property he successfully purchased at a foreclosure auction, located at 98-426 Kilinoe Street #307, Aiea, Hawaii 96701 (the "subject property"), was encumbered by one mortgage, when in fact is was encumbered by two mortgages. The action was subsequently removed to this court.

Currently before the court are JPM's and Cal-Western's Motions for Summary Judgment, in which they argue that Plaintiff's own lack of due diligence prevented him from learning of the additional mortgage and that they had no duty to disclose all encumbrances on the subject property. Based on the following, the court GRANTS in part and DENIES in part JPM's and Cal-Western's Motions for Summary Judgment.

II. BACKGROUND

A. Factual Background

Prior to the mortgage foreclosure auction at issue in this case, the subject property was owned by Mark Miho and Lynn Hatakenaka (the "Prior Owners"). Doc. No. 43-4, JPM Ex. 3. On or about March 21, 1994, the Prior Owners entered into a $188,490 mortgage loan (the "First Mortgage") on the subject property with North American Mortgage Company. Id. On or about June 25, 2000, the Prior Owners entered into a second mortgage loan (the "Second Mortgage") on the subject property for $35,000 with International Savings and Loan Association, Limited. Doc. No. 43-2, JPM Ex. 1. Both of these mortgages were recorded in the Bureau of Conveyances, see Doc. Nos. 43-2, 43-4, JPM Exs. 1, 3, and the Land Court Transfer Certificate of Title for the subject property indicates these encumbrances. Doc. No. 43-3, JPM Ex. 2. The First Mortgage was subsequently assigned to Wells Fargo Bank, N.A., and the Second Mortgage was subsequently assigned to JPM. See Doc. Nos. 49-1, 49-2, Cal-Western Request for Judicial Notice ("RJN") Exs. B, C.*fn1

After the Prior Owners failed to make payments on the Second Mortgage, JPN caused to be recorded in the Bureau of Conveyances a Notice of Mortgagee's Intention to Foreclose Under Power of Sale on the subject property on September 18, 2006. Doc. No. 43-5, JPM Ex. 4; see also Doc. No. 48-6, Lorrie Womack Decl. ¶ 2. The Notice provided that the Mortgagee will hold a sale of the subject property through public auction, and that the terms of the sale include, among other things:

(2) Property is sold strictly 'AS IS' and 'WHERE IS' condition; (3) Property is sold without covenant or warranty, either express or implied, as to title, possession or encumbrances; . . . (6) The availability of title or other insurance shall not be a condition of the sale, and the Purchaser shall be responsible for obtaining a certificate of title and title insurance, if so desired . . . . (10) By submitting the Bid, Purchaser acknowledges reading the terms and conditions set forth in this notice and agrees to be bound thereby and sign a written acceptance of all terms herein . . . .

Doc. No. 43-6, JPM Ex. 4 at 2. JPM subsequently published an advertisement for the auction in the Honolulu Star-Bulletin on September 15, 22, and 29, 2006 that reiterated the terms of the sale contained in the Notice. See Doc. No. 48-6, Womack Decl. Ex. B.

On April 13, 2007, Cal-Western conducted the foreclosure auction on JPM's behalf. Doc. No. 43, JPM Concise Statement of Fact ("CSF") ¶ 8;*fn2 Doc. No. 46, Cal-Western CSF ¶ 10.*fn3 Before the auction, Plaintiff had gone to the courthouse to view other foreclosure auctions, and had carried multiple certified checks approximately ten times over the preceding weeks. Doc. No. 43, JPM CSF ¶ 9. Plaintiff had no prior experience in foreclosure sales, and other than doing brief internet research, he had no formal training and never consulted an attorney or real estate agent. Id. ¶ 12.

Plaintiff attended the April 13, 2007 auction with no prior knowledge of the subject property, or even knowledge that the subject property would be auctioned that day. Id. ¶ 13. Although Plaintiff had a general understanding of the market values of homes in the area and the subject property in particular, see Doc. No. 48-2, Rosen Decl. Ex. B at 34, Plaintiff did not see any documents relating to the subject property prior to bidding. Doc. No. 43, JPM CSF ¶¶ 11, 14. Plaintiff had, however, previously reviewed other notices of intent to foreclose and admitted that they all contained similar "as-is" language. See Doc. No. 43-5, JPM Ex. 5 at 31-32.

Plaintiff asserts that during the auction, he heard the auctioneer, Walter Beh, Esq. ("Beh"), state "there was a mortgage on the property and that the bank [in singular] was owed $53,000 or $54,000." Doc. No. 57-1, Pl.'s Decl. ¶ 14 (alterations in original); see also Doc. No. 43, JPM CSF ¶ 10. Plaintiff further asserts that he "relied upon the professional competence, knowledge, good faith, and representations of the auctioneer and its agents in reasonably believing that the subject property was being sold free and clear of any senior liens on the subject property, as obviously did seven other competitive bidders at the auction . . . ." Doc. No. 57-1, Pl.'s Decl. ¶ 19. Plaintiff won the auction with a bid of $231,000, id. ¶ 16, and gave Beh two certified checks totaling $40,000, with three weeks to pay the balance. Id. ¶ 17.

The day after the auction, Cal-Western sent Plaintiff a letter confirming that the subject property was sold to Plaintiff and providing copies of the unrecorded Mortgagee's Affidavit of Sale and a Grant Deed and Tax Conveyance Form for Plaintiff to record to vest title in his name. See Doc. No. 48-6, Womack Decl. Ex. C. The Grant Deed specifically states that the subject property is subject to a "Mortgage dated March 21, 1994, flied [sic] as Document No. 2132131, in favor of North American Mortgage Company, a Delaware Corporation, which was assigned to G.E. Capital Mortgage Services, Inc., a New Jersey Corporation, by instrument flied [sic] as Document No. 2229464." Doc. No. 48-6,Womack Decl. Ex. D; see also id. Womack Decl. Ex. E (Mortgagee's Affidavit containing same language regarding First Mortgage as in the Grant Deed).

Plaintiff subsequently spoke with Cal-Western employee Lorrie Womack regarding how the final payment should be made. Doc. No. 57-1, Pl.'s Decl.¶ 21. During this conversation, Plaintiff asked Womack if there were any liens on the subject property and if "the title would be clear," to which Womack replied that there were no other liens and that the title would be clear.*fn4 Id. Womack assured Plaintiff that the subject property would be his once he paid the balance of the purchase price and recorded the deed. Id. ¶ 22. Other than speaking with Womack, the only act Plaintiff took after the auction to investigate the subject property was to drive by it. Doc. No. 43, JPM CSF ¶ 19. Plaintiff did not (1) have a title search done, speak to a title or escrow company, or attempt to obtain title insurance, id. ¶ 20; (2) review the publicly recorded documents in Land Court, id. ¶ 21; or (3) determine if real property taxes or association dues were overdue. Id. ¶ 22.

After Plaintiff paid the full amount of his bid, he had his cousin record the Grant Deed in Land Court. Id. ¶ 23. After Plaintiff paid the full amount due and recorded the deed, Plaintiff alleges that he spent $20,000 on renovations. Id. ¶ 25.

Plaintiff was subsequently served with a notice of foreclosure from the First Mortgage lienholder, Wells Fargo. Id. ¶ 26; see also Doc. No. 48-2, Rosen Decl. Ex. B at 108 (describing that Plaintiff first became aware of the First Mortgage in May 2007 when a third party knocked on his door and told him of the foreclosure action). On October 2, 2007, Wells Fargo filed a Complaint for Foreclosure on the First Mortgage in the First Circuit Court of the State of Hawaii. See Doc. No. 46, Cal-Western CSF ¶ 53. On November 3, 2009, the First Circuit Court entered an order confirming the Commissioner's sale of the subject property to a third party with a winning bid of $247,000. Id. ¶ 55. As a result, Plaintiff lost possession of the subject property. Doc. No. 43, JPM CSF ¶ 26.

B. Procedural Background

On April 5, 2010, Plaintiff filed this action in the First Circuit Court of the State of Hawaii, asserting claims titled (1) Breach of Contract (Count I); (2) Negligent/Reckless Misrepresentation and Nondisclosure (Count II); (3) Fraud and Deceit ...


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