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The Bank of New York Mellon v. R. Onaga, Inc.

Supreme Court of Hawaii

August 3, 2017

THE BANK OF NEW YORK MELLON FKA THE BANK OF NEW YORK, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY AS TRUSTEE FOR THE BENEFIT OF THE CERTIFICATE HOLDERS OF THE CWMBS TRUST, MORTGAGE PASS THROUGH CERTIFICATES, SERIES, Respondent/Plaintiff-Appellee,
v.
R. ONAGA, INC., a Hawai'i corporation, Respondent/Defendant-Appellant, and ROBERT NISPEROS MARQUEZ; MARLYN MIRANDA MARQUEZ; MORTGAGE ELECTRONIC REGISTRATIONS SYSTEMS, INC., solely as nominee for CASTLE & COOKE MORTGAGE, LLC, a Hawai'i corporation; DEPARTMENT OF TAXATION, STATE OF HAWAI'I; UNITED STATES OF AMERICA, DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE, Respondents/Defendants-Appellees, and LYLE ANTHONY FERRARA and LINDA SUSAN FERRARA, Petitioners/Intervenors. Civil No. 11-1-2095 R. ONAGA, INC., a Hawai'i corporation, Respondent/Defendant-Appellant,
v.
ROBERT NISPEROS MARQUEZ; MARLYN MIRANDA MARQUEZ; BANK OF NEW YORK MELLON, TRUSTEE; MORTGAGE ELECTRONIC REGISTRATIONS SYSTEMS, INC.; DEPARTMENT OF TAXATION, STATE OF HAWAI'I; INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY, U.S.A., Respondents/Defendants-Appellees., and LYLE ANTHONY FERRARA and LINDA SUSAN FERRARA, Petitioners/Intervenors. Civil No. 12-1-1758

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-14-0000426)

          Richard Naiwieha Wurdeman for petitioners.

          Lloyd Y. Asato for respondent R. Onaga, Inc.

          RECKTENWALD, C.J., NAKAYAMA, POLLACK, AND WILSON, JJ., AND CIRCUIT JUDGE KIM, IN PLACE OF McKENNA, J., RECUSED.

          OPINION

          RECKTENWALD, C.J.

         This case requires us to determine whether an appeal of an order confirming sale is moot when the appellant does not post a supersedeas bond to obtain a stay of the proceedings prior to the sale of the property to a bona fide purchaser. We answer this question in the affirmative. In doing so, we adopt the general rule stated by the Intermediate Court of Appeals (ICA) in City Bank v. Saje Ventures II that "the right of a good faith purchaser to receive property acquired at a judicial sale cannot be affected by the reversal of an order ratifying the sale where a supersedeas bond has not been filed." 7 Haw.App. 130, 133, 748 P.2d 812, 814 (1988) (internal brackets, quotation marks, and citation omitted).

         This case arises from the foreclosure sale of a house (the Property) once owned by Robert Nisperos Marquez and Marlyn Miranda Marquez (the Marquezes). R. Onaga, Inc. (Onaga) and The Bank of New York Mellon FKA the Bank of New York (BONY) each initiated foreclosure proceedings against the Marquezes. Both claimed to have a first priority lien and requested foreclosure and sale of the Property. The Circuit Court of the First Circuit (circuit court) granted summary judgment in favor of BONY, finding that BONY had a first priority lien.[1] Onaga then filed a motion to stay BONY's foreclosure proceeding, and the circuit court ordered Onaga to post a supersedeas bond in order to stay the proceedings. Onaga did not post a bond. Meanwhile, petitioners Lyle Anthony Ferrara and Linda Susan Ferrara (the Ferraras) were the highest bidder at the foreclosure sale, and the court issued judgment confirming the sale.

         Onaga initiated two separate appeals to the ICA: the first challenged the court's grant of summary judgment in favor of BONY; the second, this appeal, challenged the order confirming the foreclosure sale. The ICA filed a summary disposition order in the first appeal, vacating the circuit court's grant of summary judgment.

         The Ferraras intervened in this appeal and moved to dismiss. They argued that this appeal was moot because the sale of the Property cannot be undone, even if the ICA were to vacate the order confirming foreclosure. The ICA denied the Ferraras' motion, noting that Hawai'i Revised Statutes (HRS) § 501-118 (Supp. 1998) provides, "In case of foreclosure by action, a certified copy of the final judgment of the court confirming the sale may be filed or recorded . . . after the time for appealing therefrom has expired and the purchaser shall thereupon be entitled to the entry of a new certificate." (Emphasis added.) Thus, the ICA reasoned that Onaga's appeal was not moot because it was pending at the time the certificate of title was issued to the Ferraras. Accordingly, the ICA vacated the circuit court's judgment confirming the sale.

         The Ferraras' application presents the following question: "Whether the ICA gravely erred when it denied the Petitioners' motions to dismiss the appeal on mootness grounds."

         The application of HRS § 501-118 in judicial foreclosures is a question of first impression before this court. Under Hawai'i Rules of Civil Procedure (HRCP) Rule 62(d), an appellant may obtain a stay by posting a supersedeas bond, and Hawai'i case law establishes that a certificate of title has conclusive effect on the question of title to land. Because Onaga failed to post a supersedeas bond as required by the circuit court, its appeal of the foreclosure proceeding is moot in light of the Ferraras' certificate of title. In reaching that conclusion, we reject the ICA's interpretation of HRS § 501-118 as providing that a bona fide purchaser must wait until an appeal is resolved before it can obtain a certificate of title.

         We therefore reverse the ICA's July 20, 2016 judgment on appeal, and affirm the circuit court's February 21, 2014 judgment confirming the sale of the Property to the Ferraras.

         I. Background

         A. Circuit Court Proceedings

         BONY filed a complaint for mortgage foreclosure in circuit court on September 13, 2011, naming, among others, the Marquezes and Onaga as defendants. BONY attached (1) a promissory note in the amount of $720, 400 and (2) a mortgage on the Property recorded in Land Court on February 21, 2006; both documents were executed by the Marquezes. BONY asserted that it was assigned the mortgage and note pursuant to an assignment of mortgage recorded in Office of the Assistant Registrar of the Land Court (Land Court) on March 31, 2011. BONY stated that it was entitled to foreclose because the Marquezes had failed to make their scheduled payments.

         In May 2012, Onaga filed a "Motion to Dismiss and/or Motion for Summary Judgment" against BONY. Onaga alleged that the note attached to BONY's complaint showed that the last entity to hold the note was Countrywide Home Loans, Inc., and nothing indicated that Countrywide had transferred its interest in the note to BONY. Thus, Onaga argued that BONY had not demonstrated that it was the current note holder and therefore could not enforce the Marquezes' note through a mortgage foreclosure.

         BONY opposed Onaga's motion, arguing that "the Note was made payable to a bearer and [BONY] is in possession of the Note." BONY asserted that its possession of the note and the assignment of mortgage was sufficient to establish that it is entitled to foreclose on the mortgage, citing Ocwen Federal Bank, FSB v. Russell, 99 Hawai'i 173, 184, 53 P.3d 312, 323 (2002).

         Onaga subsequently filed a complaint for mortgage foreclosure in circuit court (Civil No. 12-1758-12). Onaga alleged that the Marquezes "purchased the assets" of Onaga, and executed and delivered a $75, 000 promissory note to Onaga on December 1, 2003. Onaga also stated, "On November 26, 2003, [the Marquezes and Onaga] executed a Real Estate Mortgage and Financing Statement which was secured on a condominium, then owned by [the Marquezes] as additional protection for payment of the asset purchase agreement and promissory note."

         According to the complaint, Onaga agreed to release the mortgage on the condominium so that the Marquezes could sell the condominium and use the sale proceeds to purchase the Property. In exchange, the Marquezes agreed to "substitute the mortgage from the condominium to the Property, " but later "reneged on their promise." The complaint explained that Onaga sued the Marquezes for specific performance, and the circuit court entered final judgment in favor of Onaga in December 2007. The complaint then stated that Onaga and the Marquezes executed a mortgage "to secure the asset purchase agreement and promissory note entered earlier in 2003." Onaga stated that both the final judgment and the mortgage were recorded in the Land Court in March 2008. Onaga alleged that the Marquezes failed to make the payments required under the asset purchase agreement and therefore Onaga was entitled to foreclose on the Property.

         The BONY and Onaga foreclosure actions were consolidated in November 2012.

         BONY filed a "Motion for Summary Judgment for Foreclosure Against All Defendants and for Interlocutory Decree of Foreclosure." BONY noted that it was required to prove the following facts to be entitled to summary judgement: (1) the existence of an agreement between the parties; (2) the terms of the agreement; (3) default under the agreement; and (4) notice. See Bank of Honolulu v. Anderson, 3 Haw.App. 545, 551, 654 P.2d 1371, 1375 (1982) BONY attached (1) a "Declaration of Indebtedness" by BONY's servicing agent for the loan, (2) the February 15, 2006 note and mortgage, (3) the March 31, 2011 assignment of mortgage, (4) documents related to the Marquezes' loan default, and (5) a declaration by BONY's counsel. BONY argued that these exhibits satisfied the Bank of Honolulu requirements.

         Onaga filed a cross motion for summary judgment and for decree of foreclosure. Onaga argued that it had a first priority lien on the Property and that BONY had no interest in the note. The circuit court denied Onaga's cross motion.

         On July 5, 2013, the circuit court filed its findings of fact (FOFs), conclusions of law (COLs), and order granting BONY's motion for summary judgment for foreclosure against all defendants and for an interlocutory decree of foreclosure. The court determined that BONY was the owner of the note and mortgage based on the March 31, 2011 assignment of mortgage. Thus, because the Marquezes defaulted on their loan, the court determined that BONY was entitled to foreclose on the Property. With respect to Onaga, the court found that it "may claim an interest in the Property, " but that "[i]ts interest in the Property, if any, is junior to [BONY's] lien." The court concluded that there was no genuine issue of material fact and granted summary judgment in favor of BONY and an interlocutory decree of foreclosure. The court filed its judgment on July 5, 2013.

         On July 24, 2013, Onaga filed its first notice of appeal (CAAP-13-2287), challenging the circuit court's order granting BONY's motion for summary judgment and denying Onaga's motion for summary judgment.

         On August 8, 2013, the court filed amended FOFs, COLs, and order appointing a commissioner. The court filed its amended judgment on September 6, 2013.[2]

         On October 29, 2013, Onaga filed a "Motion for an Order to Stay Proceedings Without Conditions or Bond." Onaga argued that its pending appeal "will decide which mortgagee, [BONY] or R. Onaga has standing and priority in this consolidated judicial mortgage foreclosure action." (Emphases in original.) Onaga requested a stay of the proceedings, since "proceeds out of the foreclosure sale enforcing the court's judgment are to be paid to mortgage lien creditors according to their priority."

         The commissioner conducted a public auction on November 5, 2013, where the Ferraras were the high bidders. BONY filed a "Motion for Order Confirming Foreclosure Sale, Approving Commissioner's Report, Allowance of Commissioner's Fees, Attorney's Fees, Costs, and Directing Conveyance."

         On January 17, 2014, the court granted BONY's motion, approving sale of the Property to the Ferraras.

         On February 10, 2014, Onaga filed its second notice of appeal (CAAP-14-426)--the instant appeal--challenging the circuit court's order confirming the foreclosure sale and the order denying Onaga's motion to void the amended judgment.

         On February 12, 2014, the court denied Onaga's October 29, 2013 motion to stay the proceedings pending appeal, but stated that "Defendant shall post a supersedeas bond in order to obtain a Stay on the proceedings."[3] Onaga did not post a supersedeas bond. The court filed its final judgment on February 21, 2014.

         B. ICA Proceedings

         In the instant appeal, Onaga argued that the circuit court erred in three ways:

A. The circuit court erred in concluding that it has subject matter jurisdiction in the [BONY's] judicial mortgage foreclosure action based on the Assignment of Mortgage registered in Land Court on March 31, 2011.
B. The circuit court erred in granting [BONY's] motion for confirming foreclosure sale pursuant to finding it has priority among all mortgagees therein.
C. The circuit court erred in denying R. Onaga's motion for stay of proceedings without conditions or bond pending appeal because the consolidated civil cases were between two mortgagees and no money judgments among them were involved.

         On September 12, 2014, Onaga moved in the ICA for the order confirming the foreclosure sale to be stayed during the pendency of this appeal. Specifically, it asked the ICA to "enjoin all parties involved in the appeals, including the buyers and assistant registrars of the Land Court, from engaging in any action dealing with the subject Property or doing anything with the subject Property that will alter in any way, the subject Property title registration pending the resolution of both appeals."

         On September 18, 2014, the ICA filed a summary disposition order in CAAP-13-2287. The ICA held that BONY's "Declaration of Indebtedness" attached to its motion for summary judgment did not comply with HRCP Rule 56(e) .[4] Thus, the ICA vacated the circuit court's order granting ...


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