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Mount v. Apao

Supreme Court of Hawaii

November 1, 2016

GERALD K. MOUNT, JR. and JANE R. MOUNT, Respondents/Plaintiffs/Counterclaim Defendants/Appellees,
MARGARET APAO, Petitioner/Defendant/Appellant, and DIRK APAO as Co-Personal Representative of the ESTATE OF ROSE MARIE ALVARO, deceased, Petitioner/Defendant/Counterclaim Plaintiff/ Third-Party Plaintiff/Appellant, and SESHA LOVELACE, as Co-Personal Representative of the ESTATE OF ROSE MARIE ALVARO, deceased, Petitioner/Defendant/Cross-Claim 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, Respondent/Third-Party Defendant/Cross-Claim Plaintiff/Appellee.

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-13-0002977, CAAP-13-0002610, and CAAP-14-0000556; CIV. NO. 11-1-2005)

          Frederick J. Arensmeyer for petitioners.

          Paul Alston and J. Blaine Rogers for respondent U.S. Bank National Association, a National Association as Trustee for the Structured Asset Securities Corporation Mortgage Pass-Through Certificates 2005-SC1.

          Mary Martin, Michael C. Bird, and Summer H. Kaiawe for respondents Gerald K. Mount, Jr. and Jane R. Mount.



          McKENNA, J.

         I. Introduction

         This consolidated appeal arises from an ejectment action initiated after a nonjudicial foreclosure on real property pursuant to Hawai'i Revised Statutes ("HRS") § 667-5 (Supp. 2008), which was repealed in 2012.[1] The Circuit Court of the First Circuit ("circuit court") entered a Final Judgment in favor of Gerald Mount Jr. and Jane R. Mount ("the Mounts"), purchasers of the property through the nonjudicial foreclosure sale, and mortgagee U.S. Bank National Association, a National Association as Trustee for Structured Asset Securities Corp. Mortgage Pass-Through Certificates, Series 2005-SC1 ("U.S. Bank"). The Final Judgment was entered against Margaret Apao ("Margaret"), sister of decedent Rose Marie Alvaro ("Alvaro"), and Dirk Apao, Margaret's son, as personal representative of Alvaro's estate ("Dirk") (Margaret and Dirk are sometimes collectively referred to as "the Apaos").

         With respect to the issues we address on certiorari, the circuit court ruled that a nonjudicial foreclosure conducted pursuant to HRS § 667-5 is a "proceeding to enforce a mortgage" under HRS § 560:3-803(d)(1), exempt from the time limits for presentation of claims against a decedent's estate, set out by other subsections of HRS § 560:3-803. The circuit court also ruled that U.S. Bank did not violate HRS § 667-5(c)(1) by failing to provide Dirk's former co-personal representative Sesha Lovelace ("Lovelace") with information she had requested regarding the funds that would be required to reinstate the loan and thereby cure the default ("reinstatement figures"). The Intermediate Court of Appeals ("ICA") affirmed.

         The Apaos raise various issues on certiorari, including the following:

1. Is a nonjudicial mortgage foreclosure under HRS § 667-5 a "proceeding to enforce a mortgage" under HRS § 560:3-803(d)(1), and if not, did U.S. Bank fail to comply with HRS § 560:3-803(c)'s requirements for presentation of claims, thereby barring its claims?
2. Was the nonjudicial foreclosure conducted in violation of HRS § 667-5(c)(1), when U.S. Bank failed to provide Lovelace with loan reinstatement figures?

         With respect to the first issue, we hold that a nonjudicial mortgage foreclosure conducted pursuant to HRS § 667-5 is not a "proceeding to enforce a mortgage" under HRS § 560-3-803(d)(1). Therefore, a nonjudicial foreclosure conducted pursuant to HRS § 667-5 is not exempt from the time limits under HRS § 560:3-803 for presentation of claims against a decedent's estate.[2]

         With respect to the second issue, we hold that U.S. Bank's failure to provide reinstatement figures to Lovelace violated HRS § 667-5(c)(1)'s requirement that "[u]pon the request of any person entitled to notice, the attorney [or] the mortgagee . . . shall disclose to the requestor . . . information . . . [regarding] the amount to cure the default. . . ." We further hold that this failure rendered the nonjudicial foreclosure sale voidable at the Estate's election, unless the Mounts are innocent purchasers for value; if the Mounts are innocent purchasers for value, then the circuit court must determine an appropriate remedy, which generally would be an award of damages. Santiago v. Tanaka, 137 Hawai'i 137, 158, 366 P.3d 612, 633 (2016) (holding that where 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, except where the property has passed into the hands of an innocent purchaser for value, under which circumstances, an action at law for damages is generally the appropriate remedy).

         Our resolution of the second issue resolves the Apaos' remaining four issues on certiorari, which we therefore do not address.[3]

         Accordingly, we vacate the ICA's Judgment on Appeal and the circuit court's Final Judgment along with all the orders, writs, and/or judgments referenced in the Final Judgment, and we remand the case to the circuit court for further proceedings consistent with this opinion.

         II. Background

         A. The Estate and the Nonjudicial Foreclosure Proceeding

         In 1999, Alvaro obtained a loan for $500, 000, secured by a mortgage ("the Mortgage") and promissory note ("the Note") on the subject real property located on the slopes of Diamond Head at 2979 Makalei Place, Honolulu, Hawai'i 96815 ("the Property").[4]The Property was appraised in 2013 to have a fair market value of $3, 535, 000.

          Alvaro passed away on December 18, 2002. On January 23, 2003, a petition seeking informal probate of her will and for appointment of personal representatives was filed with the probate court in In the Matter of the Estate of Rose Marie Alvaro ("the Estate"), Probate Case No. 03-1-0018. Margaret and Dirk were appointed co-personal representatives of the Estate. A death certificate was filed in the informal probate proceeding.

         Margaret and Dirk apparently did not notify U.S. Bank or its mortgage servicer, American Home Mortgage Servicing, Inc. ("AHMS"), of Alvaro's death, but began making payments on the Note with the Estate's funds. The Note apparently went into arrears around November of 2004. A notice of Alvaro's death and regarding the informal appointment of Margaret and Dirk as co-personal representatives in an unsupervised administration was published in the Honolulu Star-Bulletin on three dates in May 2005. The notice did not notify creditors of any deadlines to present their claims.

         Margaret apparently began living at the Property and collecting the mail in 2006 or 2007. By an order entered on July 11, 2007, the informal probate was converted to a formal probate proceeding. Dirk and Margaret remained as co-personal representatives.

         Letters asserting default under the Note, addressed to Alvaro, were mailed to the Property in 2008 and 2009; Margaret disputed receiving them. By March 1, 2009, the Note was clearly in default. AHMS sent a letter addressed to Alvaro dated April 16, 2009 ("Default Notice"). The Default Notice provided the amount to cure the default, $11, 606.14, and stated that the loan would be accelerated if not cured within 30 days.

         Five months later, on August 5, 2009, Lovelace, as an Estate beneficiary, petitioned the probate court to remove Margaret and Dirk as co-personal representatives. She alleged a conflict of interest between the Apaos and the Estate because they had been living on the Property rent-free for years. Lovelace also asserted:

The current personal representatives would appear to have neglected their duties by failing to process this matter expeditiously. . . . Also, the Estate may owe additional penalties and taxes since the tax returns have not been filed on time. The estate may have claims against the current personal representatives for a surcharge. The current personal representatives are not in a position to handle fairly any such claims that the estate has against them.

         By the end of 2009, U.S. Bank was clearly aware of Alvaro's death. On December 14, 2009, the law firm of Routh Crabtree Olson ("Routh Crabtree"), as counsel for U.S. Bank, sent a "Notice Under Fair Debt Collection Practices Act" to the "Heirs and/or Devisees of Rose Marie Alvaro, " stating it had been retained to initiate foreclosure proceedings.

         On February 1, 2010, U.S. Bank recorded a Notice of Mortgagee's Intent to Foreclose Under Power of Sale ("Notice of Intent to Foreclose") in the Hawai'i Bureau of Conveyances, setting an auction date of April 1, 2010. According to Routh Crabtree, the Notice of Intent to Foreclose was forwarded to all parties who had recorded encumbrances, liens and/or other claims against the Property. These parties included the "Heirs and/or Devisees of Rose Marie Alvaro, " "Dirk Apao Personal Representative for Rose Marie Alvaro, " and "Sesha Lovelace, " apparently in her personal capacity as a beneficiary of the Estate.

         Later that month, pursuant to an order filed February 23, 2010, Lovelace's petition to remove the personal representatives was partially granted by the probate court, and Lovelace was substituted as a co-personal representative in place of Margaret to serve with Dirk. This change in co-personal representatives was handwritten on a document entitled "Second Amended Letters Testamentary, " on which Margaret's name was crossed out and Lovelace's name was written above, and which was signed and certified by the clerk of the probate court.[5]

         Although U.S. Bank was aware of Alvaro's death, it continued to send correspondence addressed to Alvaro to the Property, which Margaret apparently received. Then, despite the order two days earlier officially removing her as a co-personal representative, on February 25, 2010, Margaret, claiming to be Alvaro, called AMHS and obtained a verbal reinstatement quote of $72, 645.42, valid until March 3, 2010, which AHMS confirmed by a letter of the same date addressed to Alvaro and mailed to the Property. The following day, March 31, 2010, Margaret faxed this reinstatement amount and mortgage balance to Dirk.

         The day before, on March 30, 2010, Margaret had called AHMS again, asking for an updated reinstatement quote, first pretending to be Alvaro and then claiming to be a personal representative of the Estate. It appears that in order to establish her authorization to receive loan information, pursuant to AHMS's request, Margaret faxed the first page of the July 11, 2007 probate court's "Order Granting Petition to Transfer from Informal to Formal Proceeding and to Renew Letters Testamentary, " which had continued her and Dirk as co-personal representatives.

         U.S. Bank postponed the foreclosure sale scheduled for April 1, 2010. On April 19, 2010, AHMS mailed updated reinstatement figures to Margaret, reflecting a reinstatement amount totalling $80, 138.32, which she appears to have also forwarded to Dirk.

         Ten months later, on February 3, 2011, U.S. Bank officially served the original Notice of Intent to Foreclose on Lovelace as "as personal representative." It also served Dirk "as personal representative" on February 5, 2011. This notice still reflected the foreclosure sale date of April 1, 2010, which had already passed.

         In any event, pursuant to the Notice of Intent to Foreclose, which directed inquiries to AHMS, Lovelace began requesting reinstatement figures soon after she was served. Although Routh Crabtree had served Lovelace with the Notice of Intent to Foreclose as a personal representative, AHMS questioned Lovelace's authority to receive the reinstatement figures. Based on emails between Lovelace and her attorney, it appears that on February 9, 2011, her attorney faxed to AHMS the Second Amended Letters Testamentary of February 23, 2010. On February 18, 2011, Lovelace emailed her attorney, however, stating, "The company will not accept this document because it doesn't appear to be original with the names scratched out and hand written in. Is there another copy that is more professional and credible?" Lovelace also emailed her attorney that she was attempting to obtain the mortgage account number from Dirk because "[t]hey will not provide any information without [it]." Lovelace made the following request to her attorney:

Let me know once the documentation is faxed to American Home Mortgaging so I can follow-up with a phone call to determine the specifics on what is happening with [the Property]. I want to know exactly what we owe and how long they have been extending the issue before we make a final decision. I am concerned that the 6 month extention [sic] for the $250, 000 would set us up for failure if [the Property] is foreclosed on.

         On February 23, 2011, Lovelace sent a follow-up email to Routh Crabtree. The next day, Routh Crabtree billing assistant Julie Cihak ("Cihak") responded to Lovelace's email, stating, "I need the borrower to send in a signed auth [sic] for us to give you the figures, also I have requested the reinstatement figures 3 times and they have only supplied payoff figures I have requested again."

         AHMS mailed two payoff statements dated February 19 and 24, 2011 to the Property, reflecting payoff amounts of $567, 635.26 and $573, 146.86. Margaret forwarded at least one of them to Dirk.

         On March 2, 2011, Lovelace provided the Estate account number to Cihak. On March 3, 2011, Cihak responded that AHMS still had not provided the reinstatement figures to her, but that she would send them to Lovelace as soon as they did. In addition, Routh Crabtee foreclosure analyst Candice Yoo ("Yoo") emailed Lovelace to ask if she had received her quote and stated, "It looks like the sale is still set for 3-7-11. I believe our fees and costs department have been working on obtaining a reinstatement quote for you." Lovelace responded that she had not received the figures, and that "AHMSI is insisting that the auction is not scheduled because our property is not listed on their website. Can I trust that this is true? They are also saying that [Routh Crabtree] is a third party and does not have the most updated information."

         Yoo responded the following day, March 3, 2011, to explain that the "sale is still scheduled for 3-7-11, but I am having the sale postponed for two weeks for your reinstatement quote." On March 7, 2011, Yoo informed Lovelace that the sale had been postponed to March 21, 2011, and asked if she had received the quote, to which Lovelace replied that she had not.

         On or about March 7, 2011, AHMS apparently posted a reinstatement quote to LPS, a service that lenders and their attorneys use to facilitate communications between each other. According to this reinstatement quote, the reinstatement figure as of March 7, 2011 was $145, 486.69. According to AHMS, this reinstatement quote was intended to be released to Lovelace "if and when she provided the required authorization."

         Neither Lovelace, Margaret, or Dirk ever received reinstatement figures at any time after April 2010, despite assurances to Lovelace that the March 7, 2011 continued foreclosure sale was being postponed in order to provide her with those figures. Despite these assurances, U.S. Bank conducted a foreclosure auction on April 4, 2011. At the auction, the Mounts purchased the Property through their company, Fair Horizon LLC, [6] for approximately $1.21 million.

         On April 6, 2011, Lovelace emailed Cihak to state that she had not received the reinstatement information, but that the Property had been sold. On April 7, 2011, Routh Crabtree lead foreclosure analyst Monica Woodward told Lovelace that "Julie Cihak no longer works on Hawaii files[, ]" and invited her to call regarding questions. On April 10, 2011, Lovelace emailed her attorney regarding her conversation with Woodward, stating, "[Woodward] explained to me that the lender would not accept the document in question which is why I never received the reinstatement amount. She emphasized that even though [Routh Crabtree] forwarded them the same document they wouldn't accept it as reliable because of the handwritten notes."

         Thus, U.S. Bank failed to provide Lovelace reinstatement figures, alleging she had failed to provide sufficient evidence of her status as a personal representative, despite having served her on February 3, 2011 with the Notice of Intent to ...

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