CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-16-0000319; CIV. NO. 14-1-0584(2))
D. Collins (Bianca K. Isaki with him on the briefs) for
A. Nakashima for respondent.
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON,
2006, Daniel Kaleoaloha Kanahele (Daniel) and his brother,
Marcus C. Kanahele (Marcus), co-signed a mortgage on their
property in order to obtain a $625, 000 loan. While both
brothers executed the mortgage, Daniel was the promissory
note's (Note) sole signatory. Daniel defaulted on the
loan in 2008, and in 2014, Nationstar Mortgage, LLC
(Nationstar) initiated this foreclosure action.
seventeen months of proceedings involving Daniel,
Marcus's Estate, and Nationstar, the Circuit Court of the
Second Circuit granted Nationstar's motion for summary
judgment, and issued final judgment in favor of
Nationstar. On appeal, the Intermediate Court of
Appeals (ICA) vacated the judgment and remanded the case for
further proceedings. Although the ICA ruled in Daniel's
favor by vacating the judgment, Daniel asks this court to
review the following additional issues, which he contends
were either incorrectly resolved or left unresolved by the
(1) Whether summary judgment is precluded where contradictory
declarations by [the] representatives of [a] foreclosing
party undercut the trustworthiness of [its] offered business
(2) Whether a foreclosing plaintiff[, ] who is not a holder
in due course[, ] is subject to [a defendant's]
that the ICA erred with respect to both of those issues, and
that Daniel would be prejudiced on remand absent this
court's further review.
the ICA correctly held that Nationstar had not demonstrated
standing to enforce Daniel's Note under Bank of
America, N.A. v. Reyes-Toledo, 139 Hawai'i 361, 390
P.3d 1248 (2017), and vacated the circuit court's
judgment on this basis, we conclude that the ICA erred in
holding that Nationstar's business records were
trustworthy under the business records exception to hearsay.
See Hawai'i Rules of Evidence (HRE) Rule
803(b)(6) (2002). In light of Nationstar's failure to
adequately explain material discrepancies in its business
records and its presentation of contradictory declarations
regarding which of several versions of the Note was the
"wet-ink" original, the ICA should have vacated the
circuit court's order on this ground, as well.
conclude that Daniel's affirmative defenses should have
been addressed by the circuit court, given that Nationstar,
which neither pled nor proved its status as the Note's
"holder in due course," was simply the Note's
"holder." The ICA did not clarify this, despite the
circuit court's inaccurate conclusion that
"holders" were not subject to obligors'
affirmative defenses. See Hawai'i Revised
Statutes (HRS) § 490:3-305 (2008).
therefore affirm the ICA's Judgment on Appeal, but
correct its reasoning as set forth below, and remand the case
for further proceedings consistent with this opinion.
2002, Daniel and his younger brother, Marcus, inherited their
family home in Kīhei, Maui ("Kanahele home" or
"the property"). Daniel resided in the home, while
Marcus lived in Florida. Daniel agreed to provide Marcus with
financial assistance in 2006. Accordingly, the brothers
contacted Linda Austin (Austin), a mortgage broker with Maui
Mortgage Professionals, to assist them in obtaining a loan
and in using their home as collateral.
to Daniel, the primary purpose of the loan was to provide
financial assistance to Marcus in his business pursuits.
Austin allegedly knew that Daniel, who had worked most of his
life as an unskilled worker, was unemployed at the time he
and his brother sought the loan. Despite this, Austin
represented to Daniel and his brother that because Daniel was
the owner-occupant of the property, he would qualify for the
loan if he provided his credit score, "without having to
provide any documentation regarding assets or income[.]"
executed a Note to Lehman Brothers Bank, FSB (Lehman
Brothers) for $625, 000 on December 4, 2006, and was told
that the documents would be sent to Marcus in Florida. The
Note was secured by a mortgage, executed by the two brothers
as mortgagors, in favor of Mortgage Electronic Registration
Systems, Inc. (MERS) for Lehman Brothers. The mortgage, which
encumbered the Kanahele home, was recorded in the Bureau of
loan went into default in 2008. The mortgage was assigned
from MERS to Aurora Loan Services (Aurora) in 2009, and in
June of that year, Aurora mailed the brothers notices of
August 14, 2012, Daniel sent Nationstar, the loan's
servicer at the time, a Fair Debt Collection Practices Act
request. By letter dated August 27, 2012, Nationstar's
customer care specialist, Joyce Lawrence (Lawrence),
responded that Wells Fargo Bank owned the Note. She also sent
Daniel a copy of the Note, which had two
indorsements. The Note was first indorsed from Lehman
Brothers to Lehman Brothers Holding, and second, indorsed
from Lehman Brothers Holding to Aurora.
mortgage was subsequently assigned from Aurora to Nationstar
for unspecified "good and valuable consideration"
on September 20, 2012. On an unspecified date, the Note was
indorsed from Aurora to blank, by Nationstar as Aurora's
died in 2013, having never signed the Note. Daniel thus
explained the unique circumstances of the loan and mortgage
It was only when the litigation began in this case [that] I
learn[ed] that I was the only borrower - that my brother
[had] never signed the [N]ote. As the mortgage stated us as
"co-borrowers" on the signature lines of the
mortgage, I had no idea that my brother was not a
co-borrower. I was totally surprised and shocked to learn
Suffice it to say, it had always been our practice to be
co-borrowers when our family house was used as collateral,
and it was our stated intention with Ms. Austin and the bank
that we were going to be co-borrowers. I would never have
agreed to the loan had I known that I was the sole borrower
and that I would have been responsible for any
"deficiency judgment[, ]" the benefits of which
went to my brother and his business and did not involve me.
other words, Daniel "would never have agreed" to
obtain the loan had he known he would be the Note's sole
borrower, because the purpose of the loan was to benefit
Circuit Court Proceedings
filed a Complaint to Foreclose against Daniel, and
Marcus's Estate, on October 7, 2014, with the following
attachments: (1) a copy of the Note; (2) a verification
attesting that the Note was the original; and (3) an attorney
affirmation attesting the same.
the Note Nationstar had provided to Daniel in 2012, this Note
also had two indorsements. While the first indorsement was
identical to that of the Note that Daniel received in 2012 -
from Lehman Brothers to Lehman Brothers Holding - the second
was executed by Lehman Brothers Holding to in-blank, rather
than to Aurora.
verification, executed by Jesslyn Williams (Williams),
Nationstar's assistant secretary, stated that: (1)
Williams had personally reviewed the documents and records in
Nationstar's possession related to the case for accuracy;
(2) the records and files she had reviewed were kept by
Nationstar in its ordinary course of business and were made
at or near the time of such acts; and (3) Nationstar
possessed the original Note, indorsed-in-blank. Lloyd T.
Workman (Workman), Nationstar's counsel at that time,
also attested that the documents Nationstar had submitted to
the circuit court were accurate and that they "contained
no false statements of fact or law."
Nationstar's First Motion for Summary Judgment and
filed its first Motion for Summary Judgment on March 30,
2015, alleging that it had adequately established its ability
to foreclose on the Kanahele home. Nationstar attached the
same Note to its Motion as it attached to its Complaint, as
well as a declaration by Demetrice Person (Person), one of
Nationstar's document execution specialists.
like Williams had done in her verification, Person attested
that: (1) she had personally reviewed the documents and
records in Nationstar's possession related to
Daniel's case for accuracy; (2) the records and files she
had reviewed were kept by Nationstar in its ordinary course
of business and were made at or near the time of such acts;
and (3) Nationstar possessed the original Note, which had two
indorsements, one of which was indorsed-in-blank.
opposition memorandum, Daniel argued that summary judgment
would be inappropriate because: (1) genuine issues of
material fact existed as to who owned the Note, in
light of Nationstar's presentation of two different
versions of the Note; and (2) Nationstar, which had neither
pled nor proven its status as a "holder in due
course," had not yet addressed Daniel's affirmative
Nationstar's Renewed Motion for Summary Judgment and
withdrew its first Motion for Summary Judgment to
"address [the] issues raised by Daniel," and filed
its Renewed Motion for Summary Judgment on December 15, 2015.
Attached to Nationstar's new motion was a Note with
three indorsements, rather than two, as well as two
more declarations affirming that this Note
accurately reflected the original. Like the Note presented to
Daniel in 2012, the Note's first indorsement was from
Lehman Brothers to Lehman Brothers Holding and the second
indorsement was from Lehman Brothers Holding to Aurora. The
Note's third indorsement, however, had been indorsed
in-blank from Aurora, by Nationstar as Aurora's
support this version of the Note, Nationstar submitted a
declaration executed by Toni Vincent (Vincent), a document
execution specialist, which stated that: (1) Vincent had
personally reviewed the documents and records in
Nationstar's possession related to Daniel's case
including a "current copy of the original Note,"
which was indorsed-in-blank and attached to Nationstar's
new motion; (2) the records and files were incorporated and
kept by Nationstar in its ordinary course of business and
verified for their accuracy; and (3) the Note was in the
possession of and ha[d] been maintained by Nationstar since
before the commencement of th[e] case."
further declared that she had reviewed Person's
declaration submitted with Nationstar's first Motion for
Summary Judgment, had conferred with Person, and could
confirm that Person's declaration was inaccurate because
Person had not followed Nationstar's policies and
procedures, had not personally reviewed the "original
'wet-ink' Note," and had attached an outdated
copy of the Note to the first motion that "did not
contain all of the indorsements currently set forth on the
original Note." David Rosen, Nationstar's counsel
at the time, also attested via declaration that this
Note, with its three indorsements, was the "original
then filed his own Motion for Summary Judgment, raising
similar arguments to those raised before. Specifically,
Daniel contended that Nationstar had not "produced
admissible evidence establishing [the] elements of a remedy
of foreclosure[, ]" and further, that it had not
addressed Daniel's affirmative defenses.
March 14, 2016, the circuit court issued findings of fact and
conclusions of law, entered an order granting
Nationstar's Renewed Motion for Summary Judgment, and
entered final judgment in Nationstar's favor. The circuit
court concluded that Nationstar, as "holder" of
Daniel's Note, had adequately proven its ability to
foreclose on the mortgage.
appeal, Daniel argued that summary judgment was improper in
light of the untrustworthiness of Nationstar's business
records and Nationstar's failure to address Daniel's
affirmative defenses when it was "holder" of the
Note. Nationstar, on the other hand, despite conceding its
status as "holder," rather than "holder in due
course," denied that its business records were
untrustworthy, and further claimed that Daniel's
affirmative defenses lacked merit. As such, Nationstar
argued that summary judgment was proper.
ICA's memorandum opinion vacated the circuit court's
final judgment and remanded the case for further proceedings.
Despite rejecting Daniel's argument that the Note with
three indorsements lacked indicia of trustworthiness
for admissibility under HRE Rule 803(b)(6), the ICA concluded
that Nationstar had not ...