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U.S. Bank National Association v. Castro

Supreme Court of Hawaii

November 8, 2013

U.S.BANK NATIONAL ASSOCIATION, AS TRUSTEE, ON BEHALF OF THE HOLDERS OF THE ASSET BACKED SECURITIES CORPORATION HOME EQUITY LOAN TRUST, SERIES NC 2005-HE8, ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES NC 2005-HE8, Petitioner/Plaintiff-Appellee,
v.
HERMINA CASTRO, STEVEN CASTRO, CHRISTOPHER CASTRO, and ESTEBAN CASTRO, Respondents/Defendants-Appellants. U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, ON BEHALF OF THE HOLDERS OF THE ASSET BACKED SECURITIES CORPORATION HOME EQUITY LOAN TRUST, SERIES NC 2005-HE8, ASSET BACKED PASS-THROUGH CERTIFICATES, SERIES NC 2005-HE8, Petitioner/Plaintiff-Appellee,
v.
HERMINA CASTRO, STEVEN CASTRO, CHRISTOPHER CASTRO, and ESTEBAN CASTRO, Respondents/Defendants- Appellants.

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-11-0001104; DC-CIVIL NO. 11-1-2370; CAAP-11-0001105; DC-CIVIL NO. 11-1-2365)

Charles R. Prather and Sofia Hirosane McGuire, for petitioner

Robin R. Horner, for respondents

RECKTENWALD, C.J., NAKAYAMA, ACOBA, MCKENNA, AND POLLACK, JJ.

OPINION

POLLACK, J.

This appeal arises out of an ejectment action instituted by Petitioner/Plaintiff-Appellee U.S. Bank National Association (U.S. Bank), as Trustee on behalf of the holders of the Asset Backed Securities Corporation Home Equity Loan Trust, Series NC 2005-HE8, Asset Backed Pass-Through Certificates, Series NC 2005-HE8, against Respondents/Defendants-Appellants Herminia Castro, [1] Steven Castro, Christopher Castro, and Esteban Castro (collectively, "Castros"). On December 13, 2011, the District Court of the Second Circuit (district court)[2] entered a judgment for possession and a writ of possession (Judgment) in favor of U.S. Bank, as well as a separate order 1) granting summary judgment in favor of U.S. Bank; 2) granting Steven and Christopher's motion to set aside entry of default; 3) denying Herminia's motion for leave to file an answer and counterclaim against U.S. Bank; and 4) denying Herminia's motion to dismiss for lack of subject matter jurisdiction (Order).

In its application for writ of certiorari, U.S. Bank seeks review of the April 16, 2013 Judgment on Appeal of the Intermediate Court of Appeals (ICA) filed pursuant to its March 14, 2013 Memorandum Opinion, vacating the district court's Judgment and Order, and remanding to the district court with instructions to dismiss the case for lack of jurisdiction.[3] For the reasons set forth herein, we hold that the district court properly exercised subject matter jurisdiction over the case because the Castros failed to demonstrate that the action was one in which title to the subject property would come into question.

I. BACKGROUND

A.

In 2002, Herminia and her husband purchased a property located in Kahului, Hawai'i (Property). Herminia and her husband owned the Property in fee simple as tenants by the entirety. After the death of her husband in 2005, Herminia decided to refinance the existing mortgage on the Property. She and her son, Sonny Castro, applied for a loan with New Century Mortgage Corporation (New Century). On August 9, 2005, Herminia and Sonny executed a promissory note (Note) for the amount that was borrowed.

On August 10, 2005, Herminia and Sonny also executed and delivered to New Century a mortgage (Mortgage) encumbering the Property. The Mortgage was recorded on August 13, 2005 with the State of Hawai'i Bureau of Conveyances (Bureau). Herminia and Sonny thereafter claimed a shared interest in the Property as joint tenants.

On August 18, 2005, the Mortgage was assigned to U.S. Bank. The Assignment of Mortgage was recorded with the Bureau on December 8, 200 6.

On March 3, 2009, due to Herminia and Sonny's failure to make the scheduled payments as set forth in the Mortgage and Note, a letter titled "Demand Letter - Notice of Default" was sent to Herminia and Sonny by Select Portfolio Servicing, Inc. (SPS), a loan servicing company employed by U.S. Bank. The letter provided that it constituted "formal notice of default" under the terms of the Note and Mortgage. The letter described the actions required to cure the default and to dispute delinquency.

Subsequently, a "Notice of Mortgagee's Non-Judicial Foreclosure Under Power of Sale, " stating U.S. Bank's intention to foreclose and sell the Property at a foreclosure auction on January 25, 2011, was sent to the Castros by U.S. Certified Mail. The notice was signed for and received by Herminia on November 24, 2010, [4] and by the Director of Taxation on November 29, 2010. In addition, the notice was posted on the Property on December 21, 2010, more than twenty-one days prior to the scheduled foreclosure sale. On December 1, 8, and 15, 2010, more than fourteen days prior to the foreclosure sale, notice of foreclosure was published in The Maui News.

The foreclosure sale was thereafter rescheduled to March 29, 2011. Notice of the rescheduled date and time was published in The Maui News, posted on the Property, and sent to the Director of Taxation, Herminia, and Sonny via U.S. Certified Mail. The notice was signed for and received by the Director and Herminia on February 25 and February 26, 2010, respectively.

On March 29, 2011, the foreclosure auction was held and the Property was purchased by U.S. Bank. On April 8, 2011, the Mortgagee's Affidavit of Foreclosure Under Power of Sale (Mortgagee's Affidavit of Foreclosure) was recorded with the Bureau.

On April 26, 2011, U.S. Bank sent a letter addressed to "Former Owner And/or Tenant, Known or Unknown [at the Property], " instructing the recipients to vacate the Property within ten calendar days. On July 29, 2011, U.S Bank recorded a Quitclaim Deed with the Bureau, identifying U.S. Bank as the grantee of the Property.

B.

Following Herminia and Sonny's failure to vacate the Property as instructed, U.S. Bank filed two Verified Complaints for Summary Possession and Ejectment (collectively, "Complaint") in the district court on August 24, 2011.[5] The Complaint alleged that U.S. Bank was the fee simple owner of the Property, and the Castros were "one or more of the . . . persons still occupying the Property without consent and permission of U.S. Bank."

On September 12, 2011, the district court conducted a Return Hearing wherein Herminia was present and entered a general denial to the Complaint. Default was entered as to Steven and Christopher, Herminia's sons, who did not appear at the hearing.

On October 27, 2011, U.S. Bank filed a Motion for Summary Judgment and Writ of Possession (Motion for Summary Judgment), requesting that the court enter a judgment for possession and writ of possession in favor of U.S. Bank and against the Castros, enter a final judgment under District Court Rules of Civil Procedure (DCRCP) Rule 54(b), and schedule a trial on damages to be proved after the Castros vacated the Property. Attached as exhibits to the motion were certified copies of the following documents recorded in the Bureau: (1) April 8, 2011 Mortgagee's Affidavit of Foreclosure; (2) July 29, 2011 Quitclaim Deed; (3) August 18, 2005 Mortgage; and (4) December 8, 2006 Assignment of Mortgage.

In support of its Motion for Summary Judgment, U.S. Bank argued that it had established its superior title to the Property, as evidenced by the attached Mortgagee's Affidavit of Foreclosure and Quitclaim Deed. U.S. Bank contended that it had been the record title holder of the Property since July 29, 2011 pursuant to the Quitclaim Deed, and the Castros had continued to occupy the premises rent free. U.S. Bank also argued that the Castros had failed to raise a legitimate issue of a title dispute under DCRCP Rule 12.1.

On November 7, 2011, the Castros filed four pleadings in response to U.S. Bank's Motion for Summary Judgment.

First, Herminia filed a Motion for Leave to File Answer and Counterclaim against U.S. Bank (Motion for Leave). Herminia sought to "assert counterclaims against Plaintiff seeking to set aside the foreclosure as being invalid and void, seeking damages for a wrongful foreclosure, and to quiet title." U.S. Bank opposed the motion, arguing that "[a]ny leave afforded the Defendant would be an act of futility inasmuch as Defendant admits its claim is an action to quiet title action and is therefore outside this court's jurisdiction."

Second, Steven and Christopher filed a Motion to Set Aside Entry of Default. They conceded that they did not appear at the September 12, 2011 Return Hearing, but argued that they were not aware that they were required to appear personally before the court, as they believed Herminia could enter a general denial on their behalf. They therefore sought to set aside the default. A declaration by Herminia in support of the motion was also submitted.

Third, Herminia filed a Motion to Dismiss Plaintiff s Complaint for Lack of Subject Matter Jurisdiction (Motion to Dismiss) pursuant to DCRCP Rules 7 and 12.1. Herminia argued that the Castros disputed the validity of U.S. Bank's title to the Property. Specifically, Herminia contended that "the underlying [loan] transaction is void based on fraud in the inducement or unfair and deceptive acts and practices in violation of Hawai'i Revised Statutes [(HRS)], Chapters 480 and 481" because Herminia should not have qualified for the Mortgage based on her income.

Additionally, Herminia argued that U.S. Bank was not the real party in interest because the original loan had been taken with New Century. Herminia contended that there was "likely a break in the chain of title to the note and mortgage, making this loan unsecured, and voiding any foreclosure on the Property." Accordingly, Herminia argued that "title is in dispute" and the district court lacked subject matter jurisdiction over the case.

Attached to the Motion to Dismiss was Herminia's declaration, which purported to set forth the source, nature, and extent of the title claimed.[6] Herminia expressed her belief that U.S. Bank may not own the Note and Mortgage and that U.S Bank may not be able to foreclose due to defects in the transfer of the loan documents. Herminia also stated that she had requested a loan modification from SPS and the company refused to consider her request for relief.

Fourth, Herminia filed a Memorandum in Opposition to U.S. Bank's Motion for Summary Judgment. Herminia requested additional time to respond to the motion and to conduct discovery related to the underlying loan transaction with New Century. She stated that she intended to conduct a title search and to obtain an expert report concerning the securitization, sale, and transfer of the Note and Mortgage in order to demonstrate that U.S. Bank was not the real party in interest.

At a hearing held on November 18, 2011, the district court granted U.S. Bank's Motion for Summary Judgment and granted Steven and Christopher's Motion to Set Aside Entry of Default.[7]The court denied Herminia's Motion for Leave and Motion to Dismiss.

On December 13, 2011, the district court entered a judgment for possession and a writ of possession in favor of U.S. Bank, concluding that U.S. Bank was entitled to possession of the Property. On the same day the district court entered an order 1) granting U.S. Bank's Motion for Summary Judgment; 2) granting Steven and Christopher's Motion to Set Aside Entry of Default; 3) denying Herminia's Motion for Leave; and 4) denying Herminia's Motion to Dismiss.

II. APPEAL

A.

On appeal to the ICA, the Castros argued in relevant part that the district court erred in denying Herminia's Motion to Dismiss because Herminia's declaration in support of the motion had demonstrated that the action was one in which title to real estate would come into question.[8]

In this regard, the Castros argued that they properly raised a defense to the district court's subject matter jurisdiction pursuant to DCRCP Rule 12.1, by submitting Herminia's declaration in support of the Motion to Dismiss, which set forth the source, nature, and extent of the title in a manner that fully apprised the court of the nature of the Castros' claim. Specifically, the Castros argued that Herminia's declaration established that she and her husband purchased the Property from prior owners in 2002, that they owned the property in fee simple as tenants by the entirety, that after her husband died in 2005 she obtained title by succession, and that when she refinanced the loan with her son, she was "misled" regarding her ability to make the loan payments. Additionally, the declaration established that Herminia was not aware that the loan was sold to U.S. Bank, and "based on information and belief U.S. Bank did not own the note and mortgage and would not be able to foreclose due to defects in the transfer of the loan documents."

U.S. Bank argued in response that the district court appropriately granted its Motion for Summary Judgment and denied Herminia's Motion to Dismiss because the declarations submitted by the Castros failed to state the source, nature and extent of the Castros' title claim with the requisite details and specificity.[9] Rather, U.S. Bank contended that the declarations "were merely an attempt to ...


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