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Wells Fargo Bank, N.A. v. Omiya

Supreme Court of Hawaii

June 15, 2018

WELLS FARGO BANK, N.A. AS TRUSTEE FOR OPTION ONE MORTGAGE LOAN TRUST 2007-4 ASSET-BACKED CERTIFICATES, SERIES 2007-4, Petitioner/Plaintiff-Appellant,
v.
DANIEL TSUKASA OMIYA, Respondent/Defendant-Cross-Claimant-Appellee, and ASSOCIATION OF APARTMENT OWNERS OF ILIKAI APARTMENT BUILDING, Defendant/Cross-Claim Defendant-Appellee.

          CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-13-0000133; CIVIL NO. 10-1-2345)

          Gary Y. Okuda for petitioner

          Charles A. Price for respondent

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

          OPINION

          POLLACK, J.

         Under Hawai'i law, in the case of non-judicial foreclosure of real property registered with the Land Court, the mortgagor or other person in interest may directly impeach the foreclosure proceedings affecting the property prior to the entry of a new certificate of title. However, after a new certificate of title has been entered, no judgment recovered on the mortgage note for any balance due shall operate to open the foreclosure or affect the title to the registered property (with some exceptions for fraud).

         This case concerns whether a certificate of title is entered when a deed is accepted by the Office of the Assistant Registrar of the Land Court and stamped with a new certificate of title number. Because we conclude that assignment of a new certificate of title number is not the statutory equivalent of an entry of a certificate of title, we hold that the evidence did not establish that a certificate of title had been entered. Accordingly, the plaintiff in this case was not barred from maintaining an action against the purchaser-defendant for recovery of the foreclosed property. Additionally, because the evidence presents an issue of material fact as to whether the foreclosure sale was conducted through reasonable means to secure an adequate purchase price, we vacate the grant of summary judgment and remand the case for further proceedings.

         I. BACKGROUND

         Wells Fargo, N.A. (Wells Fargo) foreclosed via a non-judicial foreclosure sale on its mortgage lien against apartment unit 1731 (Property), located in the Ilikai Apartment Building in Honolulu, Hawai'i. Wells Fargo paid $318, 750.00 for the Property, and a mortgagee quitclaim deed was recorded in the Office of the Assistant Registrar of the Land Court in favor of Wells Fargo on March 30, 2009.

         Thereafter, another non-judicial foreclosure sale was held on August 18, 2010 by the Association of Apartment Owners of Ilikai Apartment Building (AOAO) at which Daniel Tsukasa Omiya purchased the Property for $15, 000.[1] According to the filings, the AOAO foreclosed on the Property to recover maintenance fees the AOAO claimed it was owed.[2] The AOAO executed a quitclaim deed to Omiya which was accepted in the Office of the Assistant Registrar on September 15, 2010 and bears a stamp that reads in relevant part as follows:

         STATE OF HAWAII

         OFFICE OF ASSISTANT REGISTRAR RECORDED SEP 15, 2010 08:01 AM Doc No(s) 3999421 on Cert(s) 940, 974

         Issuance of Cert(s) 996, 234

         A. Circuit Court Proceedings

         1. Wells Fargo's Complaint

         On November 3, 2010, Wells Fargo filed a complaint against Omiya and the AOAO in the Circuit Court of the First Circuit (circuit court), alleging that the sale of the Property to Omiya was not conducted in accordance with applicable Hawai'i law because, inter alia, Omiya did not pay reasonable value for the Property.[3] The complaint also stated that Omiya

claims to the be owner of the Property by virtue of that certain Quitclaim Deed filed on September 15, 2010 ... in the Office of the Assistant Registrar of the Land Court, State of Hawaii which resulted in the issuance of Transfer Certificate of Title No. 996, 234 registering title in the name of Defendant Omiya.

         In addition to other relief, Wells Fargo asked that the Assistant Registrar of the Land Court be directed to take such action as necessary to restore legal title to Wells Fargo, including but not limited to, cancellation of Transfer Certificate of Title (TCT)[4] No. 996, 234. Omiya answered and filed a cross-claim against the AOAO.

         2. Omiya's Summary Judgment Motion

         On December 21, 2011, Omiya filed a motion for summary judgment asserting that the quitclaim deed to Omiya was recorded and the Land Court had issued TCT No. 996, 234. Thus, according to Omiya, Wells Fargo's arguments to invalidate the AOAO's foreclosure sale were untimely because they were not raised before the issuance of the new certificate of title, which was final and binding. (Citing Aames Funding Corp. v. Mores, 107 Hawai'i 95, 103, 110 P.3d 1042, 1050 (2005).) As a result, Omiya argued, no relief could be obtained against him or the Property because he was statutorily protected as a subsequent purchaser for value.[5] (Citing Hawaii Revised Statutes (HRS) § 501-82 (Supp. 2016).)[6]

         In its opposition to the summary judgment motion, Wells Fargo asserted that there was a genuine issue of material fact as to whether a new certificate of title had issued. Wells Fargo pointed to the declaration of its counsel Anya Perez (Perez Declaration), which stated that she went to the Office of the Assistant Registrar of the Land Court and, after searching its computer records, was able to see that the new certificate of title was only partially prepared. The certificate of title was not complete and not certified, Perez averred, because the legal description was missing. Perez further declared that a staff person at the office initially told her that a new TCT No. 996, 234 had been issued, "because it is certified by [the quitclaim deed]." The staff member went on to explain, Perez averred, that the certificate of title had not been checked and signed by an assistant registrar, which was required for the certificate of title to be certified.

         Wells Fargo also asserted that there was a genuine issue of material fact as to whether the sale price was adequate. Wells Fargo again pointed to the Perez Declaration, which stated that, based on a 2012 tax assessment found in an online search of the City and County of Honolulu's Real Property Assessment and tax billing information website, the assessed value of the Property as of October 1, 2011 was $308, 300.00. A copy of the search results was attached to the Perez Declaration.[7]

         Omiya countered that the tax assessed value of the Property found on the internet was inadmissible hearsay and an unqualified expert opinion. As to whether a new certificate of title was issued, Omiya maintained that the complaint admitted that the filing of the quitclaim deed in the Office of the Assistant Registrar resulted in the issuance of TCT No. 996, 234, registering title in Omiya's name. Additionally, Omiya asserted that the lack of a physical hard copy of a certificate of title was merely the result of clerical or bureaucratic delay and that "treating an issued certificate of title as ineffective" would result in arbitrary and inconsistent Land Court protections, which was contrary to the intent of the Land Court statute.[8]

         Omiya submitted a supplemental declaration by Sandra Furukawa, a title insurance provider who formerly served as Registrar of the Bureau of Conveyances and Assistant Registrar of the Land Court (Furukawa Declaration). Furukawa stated that the Office of the Assistant Registrar of the Land Court at that time was nearly four years behind in physically producing and certifying new certificates of title for properties registered in the Land Court system.

         Wells Fargo filed a supplemental memorandum, asserting that the rule that the certificate of title is conclusive is predicated on the ability of an interested person to inspect the actual, physical document at will. Wells Fargo argued that Omiya had not presented a certificate of title as defined by the Rules of the Land Court (RLC) Rule 52 (1989), which provides that a "[c]ertificate means a certificate of title showing the owner's name, a description of the land and a summary of encumbrances affecting the land, if any." Because a certificate of title had not been issued, Wells Fargo contended, it was not prevented from challenging the non-judicial foreclosure.

         Following a further hearing on the summary judgment motion, the circuit court framed the dispositive issue as whether "the issuance of the TCT number is sufficient" to provide Omiya with statutory protection. The court concluded that "there's no genuine issue of material fact regarding" whether Omiya was protected and thus granted the summary judgment motion in favor of Omiya.

         The court issued an order granting summary judgment and an amended partial final judgment. Wells Fargo filed a timely notice of appeal to the Intermediate Court of Appeals (ICA) .

         B. ICA Proceedings

         On appeal, Wells Fargo contended that the circuit court erred in (1) concluding that because a certificate number had been issued, this court's precedent prevented Wells Fargo from challenging the AOAO's foreclosure of the Property and (2) granting the summary judgment motion because the sale price of the Property shocked the conscience.[9]

         In a memorandum opinion, the ICA held that the circuit court did not err in granting summary judgment because there was no genuine issue of material fact as to Omiya's ownership of the Property.[10] The ICA cited RLC Rule 59(d) (1989), which provides that in recording a deed, "the purchaser presents the deed which contains the proper number of the certificate of the land affected and also contains or has endorsed upon it a full memorandum of all encumbrances affecting the land, if any." The ICA noted that Omiya followed this procedure by presenting the quitclaim deed to the Land Court. Pursuant to HRS § 501-107 (Supp. 2016), the ICA stated, the instrument is stamped with the date, hour, and minute of reception, and, with that, the instrument is regarded as registered from the date and time noted.

         The ICA then pointed to HRS § 501-118 (2006), which precludes a mortgagor or other person in interest from impeaching foreclosure proceedings after the entry of a new certificate of title. The ICA concluded that Omiya was required only to show a TCT number stamped on the quitclaim deed record at the Land Court and not a physical certificate of title.

         The ICA acknowledged that Wells Fargo's argument that issuance of a TCT number does not have the same effect as issuance of a physical TCT was not unreasonable. However, the ICA determined that, "under the circumstances of the Land Court's current operations" and in view of Wells Fargo's judicial admission that issuance of the TCT number had the effect of registering title in Omiya's name, any challenge to Omiya's title should have been initiated before the TCT number was issued to Omiya. The ICA accordingly held that Wells Fargo's purchase price argument was untimely because title became conclusive and unimpeachable when the TCT number was issued.

         Judge Ginoza dissented, arguing that there was conflicting evidence as to whether the transfer had been certified by the Land Court process, including (1) the quitclaim deed with a notation of the "Issuance of Cert(s) 996, 234"; (2) the Perez Declaration attesting that Perez retrieved the certificate of title on a computer screen and that it was only partially prepared and not complete or certified because the legal description was missing; and (3) the Furukawa Declaration averring that the Office of the Assistant Registrar of the Land Court was nearly four years behind in physically producing and certifying new certificates of title. As to any judicial admission, the dissent reasoned that the statement in the complaint was not dispositive as the pertinent question under HRS § 501-118 is whether there has been entry of a new certificate of title. Thus, the dissent contended that there was a genuine issue of material fact that precluded summary judgment on this issue.

         The dissent further concluded that there was a genuine issue of material fact as to whether the price was grossly inadequate. The dissent explained that mortgagees must "exercise their right to non-judicial foreclosure under a power of sale in a manner that is fair, reasonably diligent, and in good faith, and to demonstrate that an adequate price was procured for the property." (Quoting Kondaur Capital Corp. v. Matsuyoshi, 136 Hawai'i 227, 240, 361 P.3d 454, 467 (2015).) In this case, the dissent contended, the quitclaim deed submitted by Omiya included an attachment indicating that in 2010 the assessed net value of the Property was $281, 100. Based on this evidence, the dissent concluded there was a genuine issue of material fact as to the adequacy of the purchase price.[11]

         II. STANDARD OF REVIEW

         This court reviews a court's grant or denial of summary judgment de novo. Querubin v. Thronas, 107 Hawai'i 48, 56, 109 P.3d 689, 697 (2005).

         III. DISCUSSION

         Wells Fargo presents two questions in its application for a writ of certiorari. The first question concerns whether the ICA gravely erred in affirming summary judgment when a new certificate of title had not been entered prior to Wells Fargo initiating this case. The second question involves whether the ICA gravely erred in affirming summary judgment as to the adequacy of the price paid by Omiya for the Property at the foreclosure sale. To address these questions, we first consider the framework of the Land Court system.

         A. Certificate of Title

         1. The Land Court System

         Hawai'i has two systems for recording title to real property, the Bureau of Conveyances and the Land Court. GGS (HI), Inc. v. N.Y. Diamond, Inc. (In re 2003 Ala Wai Blvd.), 85 Hawai'i 398, 405, 944 P.2d 1341, 1348 (App. 1997), overruled on other grounds, Knauer v. Foote, 101 Hawai'i 81, 63 P.3d 389 (2003). The legislature created the Land Court with the passage of the Torrens Land Act (Act) in 1903, which is today codified in HRS Chapter 501 as amended. 1903 Haw. Sess. Laws Act 56, § 2 at 279. The purpose of the system created by the Act "is to conclusively establish title to land through the issuance of a certificate of title." Aames Funding Corp. v. Mores, 107 Hawai'i 95, 101, 110 P.3d 1042, 1048 (2005). The holder of a certificate of title holds it "free from all encumbrances except those noted on the certificate in the order of priority of recordation" and other statutorily enumerated encumbrances. HRS § 501-82(a) (Supp. 2016). Thus, "a land court certificate of title is 'conclusive and unimpeachable' with regard to 'all matters contained therein, '" which is "[t]he fundamental difference between a certificate of title issued by the land court and a recordation of title at the bureau of conveyances." In re 2003 Ala Wai Blvd., 85 Hawai'i at 405, 944 P.2d at 1348.

         Initial registration of property in Land Court "is not a simple matter" and "has often been compared to an action to quiet title." 11 Thompson on Real Property, § 92.10(c) (David A. Thomas ed., 3d ed. 2015); 3 Patton and Palomar on Land Titles, § 682 (3d ed. 2003) . A party first files an application with the registrar. HRS § 501-22 (2006); see HRS § 501-21 (2006) (specifying who may file an application); HRS § 501-23 (2006) (listing requirements of contents of application). After an application is filed, the court enters an order referring the application to an examiner of title who searches records, investigates facts, and files a report, "concluding with a certificate of the examiner's opinion upon the title." HRS § 501-32 (2006). If the opinion of the examiner is adverse to the applicant, the applicant may elect to proceed further or withdraw the application. Id. If, in the examiner's opinion, the applicant has good title or if the applicant elects to proceed notwithstanding an adverse opinion, the registrar publishes notice of the application by order of the court in a newspaper of general circulation; the notice must include the names of all persons known to have an adverse interest in the property and the adjoining owners and occupants, so far as known. HRS § 501-41 (2006). The notice is also mailed to any person named in the notice and is posted in a conspicuous place on the property. HRS § 501-42 (2006). Those claiming an interest in the property may appear and file an answer. HRS § 501-45 (2006). If no person answers within the time allowed, the court may order a default to be recorded, enter a decree confirming the title of the applicant, and order registration of the title. HRS § 501-46 (2006).

         If an answer is filed, the case is set for hearing on motion of a party, HRS § 501-51 (2006), at which time a judge of the Land Court decides whether the applicant has proper title for registration. HRS § 501-71 (Supp. 2016). If the court finds proper title, the court issues a decree of confirmation and registration subject to any encumbrances or interests found. HRS § 501-71(a)-(b). Decrees of registration of absolute title bind the property and quiet title to it, and they are thus conclusive upon and against all persons.[12] HRS § 501-71(d); see also HRS ยง 501-73 (2006) ("The court may remove clouds on titles and may find and decree in whom the title or any interest, legal or ...


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