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Wells Fargo Bank, N.A. v. Behrendt

Supreme Court of Hawaii

March 15, 2018

WELLS FARGO BANK, N.A. AS TRUSTEE FOR OPTION ONE MORTGAGE LOAN TRUST 2006-2 ASSET-BACKEDCERTIFICATES, SERIES 2006-2, Petitioner/Plaintiff-Appellee,
v.
JONATHAN BEHRENDT, Respondent/Defendant-Appellant, and ASSOCIATION OF APARTMENT OWNERS OF WAIALAE GARDENS; SAND CANYON CORPORATION; JOHN DOES 1-10; JANE DOES 1-10; DOE PARTNERSHIPS 1- 10; DOE PARTNERSHIPS 1-10; DOE CORPORATIONS 1-10; DOE ENTITIES 1-10 and DOE GOVERNMENTAL UNITS 1-10, Respondents/Defendants-Appellees.

         APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT (CAAP-16-0000645; CIV. NO. 15-1-0407)

          J. Blaine Rogers and Lori King Stibb for petitioner.

          Gary Victory Dubin and Frederick J. Arensmeyer for respondent.

          RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

          OPINION

          POLLACK, J.

         This case involves the question of whether a purchaser of property that is subject to a mortgage to which the purchaser is not a party may challenge a foreclosing plaintiff's entitlement to enforce the note. Because the requirement--that a party seeking to foreclose must be entitled to enforce the note at the inception of the foreclosure action--is based on principles of standing and statutory construction rather than contractual rights, we hold that the purchaser may assert such a challenge. In this case, the evidence Wells Fargo presented regarding its entitlement to foreclose at the time the complaint was filed was not admissible on the grounds asserted, and therefore we vacate the order granting summary judgment and remand the case for further proceedings.

         I. BACKGROUND

         A. Factual History

         On January 30, 2006, Karen Zakarian executed a promissory note (Note) in favor of the Funding Group, Inc. (Funding Group) for $408, 000. Funding Group then endorsed the note to Option One Mortgage Corp. (Option One) via an allonge, [1]and Option One endorsed the Note in blank via another allonge.[2] The Note was secured by a mortgage executed by Zakarian in favor of Funding Group (Mortgage) on property located at 1430-4 Hunakai Street #106 in Honolulu (the "Property"), which is in a condominium project called Waialae Gardens. The Mortgage was subsequently assigned from Funding Group to Option One on July 5, 2006, and then from Option One to Wells Fargo on May 10, 2007.

         Following a bankruptcy proceeding, Zakarian entered into a security retention agreement on March 14, 2011, with American Home Mortgage Servicing, Inc. (AHMS), a loan servicer acting on Wells Fargo's behalf, which required that she continue to make payments and comply with the terms of the Note and the Mortgage in order to remain in the Property. Subsequently, as a result of a separate foreclosure action between the Association of Apartment Owners of Waialae Gardens (AOAO) and Zakarian, a court-appointed commissioner conveyed the Property via a commissioner's apartment deed to Jonathan Behrendt on November 23, 2011. An exhibit to the deed noted the Mortgage as an encumbrance. AHMS notified Zakarian in a written notice dated November 29, 2011, that she was in default under the terms of the Note and Mortgage.

         B. Circuit Court Proceedings

         Wells Fargo filed a complaint in the Circuit Court of the First Circuit (circuit court) on March 9, 2015, against Behrendt and the AOAO, inter alia, seeking foreclosure of the Mortgage and sale of the Property. The complaint asserted that Wells Fargo was the holder of the Note and entitled to enforce it, that the Note was secured by the Mortgage, and that Wells Fargo was the mortgagee of record. Additionally, the complaint alleged that Zakarian had defaulted in the performance of the terms set forth in the Note and Mortgage. Copies of, inter alia, the Note, two allonges--one made out to Option One and one endorsed in blank, the Mortgage, and assignments from Funding Group to Option One and from Option One to Wells Fargo were attached to the complaint as exhibits. The complaint also stated that the AOAO had previously foreclosed on the Property, that the Property was conveyed to Behrendt by virtue of a commissioner's deed, and that the interest of Behrendt in the Property was subject to the Mortgage. Wells Fargo asserted that it was entitled to foreclosure of the Mortgage and the sale of the Property.

         Following Behrendt's answer to the complaint, Wells Fargo moved for summary judgment and for a decree of foreclosure. Wells Fargo attached as an exhibit to the summary judgment motion, inter alia, a declaration of Vanessa Lewis (Lewis Declaration). Lewis averred that she was a contract management coordinator for Ocwen Loan Servicing, LLC (Ocwen), the new servicer for Wells Fargo for the Mortgage, and in that capacity had access to and was familiar with Wells Fargo's records pertaining to the case, including Ocwen's records related to servicing the loan. Lewis indicated that she had personal knowledge of the facts and matters stated, based on her review of the business records described in her declaration. Lewis stated that Ocwen's records related to the loan were made and are maintained in the regular course of Ocwen's business. According to those records, Lewis represented, Wells Fargo is in possession of the original Note between Zakarian and Funding Group, a copy of which was attached to the summary judgment motion along with copies of the allonges and Mortgage. Additionally, Lewis stated that written notice was sent to Zakarian regarding her default on payments and Zakarian did not timely cure the default.

         In opposition to the motion for summary judgment, Behrendt responded that, although Lewis claimed to be an Ocwen contract management coordinator and alleged that Ocwen was the servicing agent for Wells Fargo, Wells Fargo did not provide the court with any such authorization or agency agreement. Behrendt also asserted that neither Lewis nor Wells Fargo explained what her role or relationship to Wells Fargo was besides claiming that she had access to Ocwen's business records. Lewis did not claim to be the custodian of the records, Behrendt argued, or provide any foundation to establish her competency to authenticate those records beyond merely being familiar with them. Thus, Lewis did not establish that she could authenticate the documents, Behrendt concluded, and her statements were inadmissible hearsay. Behrendt therefore maintained that Wells Fargo did not meet its burden of production to succeed on the summary judgment motion because there was a genuine issue of material fact as to the authenticity of the Note and as to whether Wells Fargo was the holder of the Note.

         In its reply, Wells Fargo asserted that the testimony in the Lewis Declaration was admissible because it was subject to the hearsay exception for records of regularly conducted activity. (Citing Hawaii Rules of Evidence (HRE) Rule 803(b) (6) .)

         On August 30, 2016, the circuit court granted the summary judgment motion and issued a foreclosure decree in its "Findings of Fact, Conclusions of Law and Order Granting Plaintiff's Motion for Summary Judgment and Decree of Foreclosure Against All Defendants on Complaint Filed March 9, 2015" (Order Granting Summary Judgment). The court concluded that Wells Fargo was entitled to have the Mortgage foreclosed, to have the Property sold free and clear of Behrendt's claim, and to judgment in its favor as a matter of law on the complaint. The court filed the Judgment the same day. Behrendt timely appealed to the Intermediate Court of Appeals (ICA) from the Order Granting Summary Judgment and the Judgment.[3]

         II. STANDARDS OF REVIEW

         A trial court's findings of fact are reviewed under the clearly erroneous standard of review. Dan v. State, 76 Hawai'i 423, 428, 879 P.2d 528, 533 (1994). Conclusions of law, in contrast, are reviewed de novo under the right/wrong standard of review. Marvin v. Pflueger, 127 Hawai'i 490, 495, 280 P.3d 88, 93 (2012). Specifically, this court reviews "the circuit court's grant or denial of summary judgment de novo." Querubin v. Thronas, 107 Hawai'i 48, 56, 109 P.3d 689, 697 (2005) (citation omitted). Similarly, "[o]n appeal, the issue of standing is reviewed de novo under the right/wrong standard." Abaya v. Mantell, 112 Hawai'i 176, 180, 145 P.3d 719, 723 (2006) (citation omitted).

         III. DISCUSSION

         A. Behrendt May Challenge The Foreclosure

         Behrendt contends that Wells Fargo did not meet its prima facie burden of demonstrating that it was the holder of the Note at the time its complaint was filed and did not provide any admissible evidence that it possessed the Note at the time it filed its motion for summary judgment. Behrendt argues that the Lewis Declaration did not demonstrate personal knowledge of any such facts, but that it instead offered vague, unfounded testimony that amounted to inadmissible hearsay at best. Thus, Behrendt contends that genuine issues of material fact remain in dispute with respect to Wells Fargo's standing to sue and whether Wells Fargo was the holder of the Note secured by the Mortgage.

         Wells Fargo contends that because Behrendt was not a party to the Mortgage and because there is no reasonable interpretation of the Mortgage that confers contractual rights, obligations, and standing on Behrendt or upon any subsequent purchaser who does not assume the Mortgage, Behrendt could not "seek protection" under the Mortgage. In other words, Wells Fargo argues that Behrendt could not attack the foreclosure because he was a stranger to the Note and Mortgage transactions. Further, even if Behrendt did have standing to challenge the foreclosure, Wells Fargo asserts, the circuit court's Judgment should still be affirmed because the Lewis Declaration authenticates[4] the original ...


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