FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
31-JAN-2022
08:14 AM
Dkt. 74 OP
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
---o0o---
BANK OF NEW YORK MELLON, FKA THE BANK OF NEW YORK,
AS TRUSTEE FOR THE CERTIFICATE HOLDERS OF THE CWABS, INC.,
ASSET-BACKED CERTIFICATES, SERIES 2006-15, Plaintiff-Appellee
v.
MARK L. LARRUA, AKA MARK K. LARRUA, KARLENE L. LARRUA,
Defendants-Appellees, ASSOCIATION OF APARTMENT OWNERS OF
ELIMA LANI CONDOMINIUMS, Defendant-Appellant, JOHN DOES 1-20;
JANE DOES 1-20; DOE CORPORATIONS 1-20, DOE ENTITIES 1-20;
AND DOE GOVERNMENTAL UNITS 1-20, Defendants
NO. CAAP-XX-XXXXXXX
(Consolidated with NO. CAAP-XX-XXXXXXX)
APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT
(CASE NO. 3CC16-1-00308K)
JANUARY 31, 2022
LEONARD, PRESIDING JUDGE, HIRAOKA AND MCCULLEN, JJ.
OPINION OF THE COURT BY LEONARD, J.
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
This appeal stems from the contention that an apartment
owners association, after having nonjudicially foreclosed upon an
assessment lien and thereby taking title to an apartment unit,
has the right to maintain possession and retain rental proceeds
from the unit even after a subsequent foreclosure decree and
judgment has been entered against its ownership interest. For
the reasons set forth below, we hold that the circuit court
herein did not abuse its discretion in appointing a foreclosure
commissioner to take possession and control of the subject unit
upon the entry of the foreclosure decree and judgment. Under
Hawai#i law, a judgment entered on a foreclosure decree is a
final determination of a foreclosed party's ownership interests
in the subject property – in other words, the property owner's
ownership rights in the property are foreclosed, notwithstanding
that further proceedings are necessary to enforce and otherwise
effectuate the foreclosure decree and judgment. As discussed
below, an association may nevertheless have the right to a
special assessment against the purchaser of the foreclosed
property, including when the foreclosing mortgagee is the
purchaser.
In this consolidated appeal, Defendant-Appellant
Association of Apartment Owners of Elima Lani Condominiums (the
AOAO) appeals from: (1) the November 29, 2017 Judgment
(Foreclosure Judgment) entered by the Circuit Court of the Third
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Circuit (Circuit Court)1 in favor of Plaintiff-Appellee The Bank
of New York Mellon fka the Bank of New York as Trustee for the
Certificateholders of the CWABS Inc., Asset-Backed Certificates,
Series 2006-15 (Bank of New York); and (2) the July 5, 2018
Judgment (Confirmation Judgment) entered by the Circuit Court in
favor of Bank of New York. The AOAO also challenges the Circuit
Court's: (1) November 29, 2017 Findings of Fact, Conclusions of
Law and Order Granting [Bank of New York's] Motion for Default
Judgment Against Defaulted Defendants and Summary Judgment
Against [the AOAO] and for Interlocutory Decree of Foreclosure
(Foreclosure Decree); and (2) July 5, 2018 Order Confirming
Foreclosure Sale, Approving Commissioner's Report, Allowance of
Commissioner's Fees, Attorneys' Fees, Costs, Directing Conveyance
and for Writ of Ejectment (Confirmation Order).
I. BACKGROUND
On September 27, 2016, Bank of New York filed a
Complaint for Mortgage Foreclosure (Complaint), alleging that on
or about July 14, 2006, Defendants Mark L. Larrua aka Mark K.
Larrua and Karlene L. Larrua (the Former Owners) executed a
promissory note to Countrywide Home Loans, Inc., in the amount of
$238,400 (Note), secured by a mortgage (Mortgage) on the subject
Property (Property). The Complaint alleged that the Note was
negotiated to Bank of New York, the Mortgage was assigned to Bank
1
The Honorable Melvin H. Fujino presided.
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of New York, and the assignment was recorded on June 26, 2012.
Bank of New York further alleged that it is the current holder of
the Note with standing to foreclose and that it was entitled to
foreclose on the basis of the Former Owners' default on the
Note.2
The Complaint alleged that the AOAO acquired an
interest in the Property by virtue of a quitclaim deed recorded
on June 29, 2015, but that the AOAO's interest, if any, is
subordinate, subject, and/or junior to Bank of New York's
mortgage lien. Bank of New York sought, inter alia: (1) that
upon the foreclosure sale, any ownership or lien interest claimed
by any named defendant be adjudicated subordinate to the lien of
Bank of New York's mortgage; and (2) the appointment of a
commissioner to take possession of the Property, collect rents,
and deal with and sell the Property.
In its November 15, 2016 answer to the Complaint
(Answer), the AOAO admitted that it acquired an interest in the
Property, but denied that its interest was subordinate, subject,
and/or junior to Bank of New York's mortgage lien. The AOAO
asserted an "Affirmative Statement of Claim," alleging that
certain sums had been assessed against the Property and
constituted a lien in favor of the AOAO and that the Former
2
Neither defendant has challenged Bank of New York's standing to
enforce the Note. See U.S. Bank Trust, N.A., as Trustee for LSF9 Master
Participation Trust v. Verhagen, 149 Hawai #i 315, 489 P.3d 419 (2021); Bank of
Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361, 390 P.3d 1248 (2017).
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Owners had failed to pay an amount in excess of $24,0003 in
outstanding assessments as of June 29, 2015. The AOAO sought,
inter alia, dismissal of the Complaint as to the AOAO and for any
proceeds from the sale of the Property be distributed in
accordance with Hawaii Revised Statutes (HRS) § 514B-146(g) and
(h) (Supp. 2017).4
On September 7, 2017, Bank of New York filed a Motion
for Summary and/or Default Judgment Against All Defendants and
for Interlocutory Decree of Foreclosure (Motion for Summary
Judgment), asserting that it had "established all the material
facts to entitle it to summary judgment and a decree of
3
Specifically, the Answer asserts that the Former Owners failed to
pay a total of "$24,477.36.26," so the exact amount of the alleged outstanding
assessments is unclear.
4
HRS § 514B-146(g) and (h) (Supp. 2017), now codified as HRS
§ 514B-146(j) and (k) (2018), provide, in pertinent part:
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(g) Subject to this subsection, and subsections (h)
and (i), the board may specially assess the amount of the
unpaid regular monthly common assessments for common
expenses against a mortgagee or other purchaser who, in a
judicial or nonjudicial power of sale foreclosure, purchases
a delinquent unit[.]
. . . .
(h) The amount of the special assessment assessed
under subsection (g) shall not exceed the total amount of
unpaid regular monthly common assessments that were assessed
during the six months immediately preceding the completion
of the judicial or nonjudicial power of sale foreclosure.
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foreclosure."5 Bank of New York requested the Circuit Court
enter an order:
4. To determine that the Mortgage is a valid first
lien upon the Property, except for delinquent real property
taxes, if any;
5. To ascertain the total amount due to [Bank of New
York] from [the Former Owners] under the Note and Mortgage,
including principal, prepayment fees, late charges,
insurance advances, title reports and other costs, expenses,
and attorneys' fees, and that this Court make and enter
judgment as follows:
. . . .
b. That [Bank of New York]'s Mortgage is a valid
first mortgage lien on the Property with
priority over any other liens and encumbrances
thereon, except for the lien of any delinquent
real property taxes;
. . . .
7. To determine, if appropriate and necessary, the
validity and amount of the claims and liens, if any, of all
parties herein and the priorities of such claims and liens;
8. To appoint a Commissioner to take possession of
the Property and direct that he or she:
a. Possess, preserve, operate and manage the
Property and all businesses and enterprises
conducted thereon, including, but not limited
to, collecting rental payments and revenues,
taking control of all accounts and receivables,
and paying and discharging from such funds
received all of the ordinary costs and expenses
related to the operation and management of the
Property; and
b. Sell the Property by public sale in lawful money
of the United States in the manner provided by
law and the orders of this Court, and upon the
confirmation of said sale by this Court, that
the Commissioner be authorized and directed to
make and deliver to the purchaser or purchasers,
or the nominee of said purchaser(s), such
instrument of conveyance as may be appropriate
to transfer ownership of the Property, with the
issuance of a Writ of Ejectment in favor of said
purchaser or purchasers, or the nominee of said
purchaser(s);
5
Bank of New York previously requested, and was granted, an entry
of default against the Former Owners, based on their failure to respond to the
Complaint.
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9. To authorize and direct the Commissioner, after
the payment of all necessary expenses of such sale, to make
application of all the proceeds thereof so far as the same
may be necessary to the payment of the amounts found due and
owing to Plaintiff under the Note and Mortgage, including
advances, title search fees, costs, expenses, and attorneys'
fees, as determined by the Court;
10. To authorize [Bank of New York] or its designee
to be a purchaser at any foreclosure sale made as aforesaid,
and to credit bid up to the total amount due to [Bank of New
York] without the requirement of any down payment at said
sale[.]6
(Format altered).
On September 26, 2017, the AOAO filed a limited
memorandum in opposition to the Motion for Summary Judgment. The
AOAO did not oppose Bank of New York's request to foreclose on
the Mortgage, as a first priority lien against the Property.
Rather, the AOAO opposed any relief whereby a foreclosure
commissioner would take possession of or collect rental proceeds
from the Property, and the AOAO requested that the Circuit Court
reserve its ruling on the AOAO's right to collect a special
assessment until the hearing on a motion to confirm sale. The
AOAO asserted that it became the rightful owner on June 29, 2015,
upon completion of a nonjudicial foreclosure of its assessment
lien on the Property, and that HRS § 667-102(b)(4) (2016)7
6
Bank of New York did not seek a deficiency judgment against the
Former Owners.
7
HRS § 667-102(b)(4) states:
§ 667-102 Recordation of affidavit, conveyance
document; effect. (a) The affidavit required under section
667-101 and the conveyance document shall be recorded no
earlier than ten days after the public sale is held but not
later than forty-five days after the public sale is held.
. . . .
(continued...)
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conferred the AOAO with immediate and exclusive possession of the
unit, thereby "effectuat[ing] a bar against any person claiming a
right or interest in title." The AOAO argued that it should be
allowed to continue to maintain possession of the Property,
manage and preserve the Property, and, if appropriate, continue
to rent the Property until a sale of Property was confirmed,
rather than when the Foreclosure Decree was entered.
The AOAO also cited HRS § 514B-146(k) (Supp. 2017)8 as
7
(...continued)
(b) When both the [section 667-101] affidavit and
the conveyance document are recorded:
. . . .
(4) The purchaser shall be entitled to immediate and
exclusive possession of the unit.
8
HRS § 514B-146(k) (Supp. 2017), now codified at HRS § 514B-146(n)
(2018), states:
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(k) After any judicial or nonjudicial foreclosure
proceeding in which the association acquires title to the
unit, any excess rental income received by the association
from the unit shall be paid to existing lien holders based
on the priority of lien, and not on a pro rata basis, and
shall be applied to the benefit of the unit owner. For
purposes of this subsection, excess rental income shall be
any net income received by the association after a court has
issued a final judgment determining the priority of a senior
mortgagee and after paying, crediting, or reimbursing the
association or a third party for:
(1) The lien for delinquent assessments pursuant to
subsections (a) and (b);
(2) Any maintenance fee delinquency against the
unit;
(3) Attorney's fees and other collection costs
related to the association's foreclosure of the
unit; or
(4) Any costs incurred by the association for the
rental, repair, maintenance, or rehabilitation
of the unit while the association is in
possession of the unit including monthly
association maintenance fees, management fees,
(continued...)
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"clearly contemplat[ing]" the AOAO's continued possession and
rental of the Property until completion of the Bank of New York's
foreclosure action. Specifically, the AOAO asserted that the
plain and unambiguous language of the statute requires an AOAO to
pay to lienholders any excess rental income it receives after the
issuance of a final judgment determining the priority of a senior
mortgagee. The AOAO also stated that it continues to incur
monthly expenses related to the operation and maintenance of the
Property and argued that "[i]t would be inequitable and in
violation of the plain language of HRS § 514B-146(k) to allow the
lender to take advantage of [the AOAO]'s efforts and expenses, by
appointing a commissioner to take possession of accounts and
receivables that [the AOAO] has spent funds to generate, and hold
or use them for [Bank of New York]'s benefit."
Finally, the AOAO argued that unless and until Bank of
New York acquires title to the Property, Bank of New York is not
entitled to an order granting it the benefits of ownership
through the efforts of a commissioner. The AOAO urged the
Circuit Court to enter an appropriate order, allowing a
commissioner to proceed without interfering with the AOAO's
interests.
8
(...continued)
real estate commissions, cleaning and repair
expenses for the unit, and general excise taxes
paid on rental income;
provided that the lien for delinquent assessments under
paragraph (1) shall be paid, credited, or reimbursed first.
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In reply, Bank of New York took no position in regard
to the AOAO's continued possession, management, and rental of the
property, but requested that any argument as to the distribution
of the rental proceeds collected by the AOAO and as to the AOAO's
special assessment lien be reserved until the hearing to confirm
the sale of the foreclosed property. Bank of New York also
requested the AOAO be ordered to file an accounting prior to such
hearing, setting forth all rent collected in regard to the
Property from June 29, 2015, the date that the AOAO took title to
the Property, to the date of the confirmation of the sale of the
Property.
At the October 5, 2017 hearing on the Motion for
Summary Judgment, the parties reiterated their positions with
respect to the commissioner's proposed duties. Bank of New York
also requested a "full accounting" so it could analyze whether
the AOAO is entitled to any of the amounts it collected. The
AOAO countered that, pursuant to HRS § 514B-146(k), "the
accounting should only start as of the entry of a judgment
determining the priority of a senior mortgagee" and not from the
date the AOAO became the owner in 2015.
The Circuit Court indicated it would grant Bank of New
York's Motion for Summary Judgment and stated:
[T]he Court's inclined regarding the, uh, information
would be from the time the rents were collected would be
appropriate for the, uh, plaintiff to have information in
that, not just when the Court orders it.
Uh, furthermore after . . . the Court having granted
the motion for interlocutory decree would also, um, position
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would be that the rent collected will be turned over to the
commissioner.
On November 29, 2017, the Circuit Court entered the
Foreclosure Decree and Foreclosure Judgment and concluded in
part:
[COL] 2. [Bank of New York]'s Mortgage is a valid
mortgage lien on the Property.
. . . .
[COL] 7. [Bank of New York] is entitled to the entry
of default judgment against [the Former Owners] and summary
judgment against Defendant AOAO and an interlocutory decree
of foreclosure against all Defendants in the foreclosure
action.
In the Foreclosure Decree, the Circuit Court ordered,
inter alia:
[FOF] 16. Defendant AOAO may continue collecting
rental proceeds from the Property until the Commissioner is
appointed herein. Upon appointment of Commissioner,
Commissioner shall collect the rental proceeds, the
distribution of proceeds (if any) shall be determined at the
confirmation hearing.
. . . .
1. . . . Summary judgment and an interlocutory decree
of foreclosure in favor of [Bank of New York] against
Defendant AOAO is hereby entered.
. . . .
5. David E. Smith, Esq. [(the Commissioner)], is
hereby appointed Commissioner of this Court in this action,
. . . and as Commissioner, is authorized and directed to
take possession and control of the Property, including but
not limited to collecting rental payments and to sell the
Property at a public auction[.]. . . A reasonable
Commissioner's fees and costs shall be submitted to and
awarded accordingly by the court, and shall be deemed to be
secured by the Mortgage.
. . . .
7. Upon confirmation of the sale, the Commissioner is
authorized and directed, after the payment of all necessary
expenses of such sale, to make application of all the
proceeds thereof and all funds which they hold in their
capacity as Commissioner so far as the same may be necessary
to the payment of amounts found due and owing to [Bank of
New York] from the [Former Owners] under the Loan Documents,
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including advances, title search fees, costs, expenses, and
attorney's fees, as determined by this court.
8. [Bank of New York], or its designee, is authorized
to be a purchaser at any sale, without the requirement of
any down payment at said sale. . . .
. . . .
11. Any and all interest of all named Defendants that
is junior to Plaintiff's interest is hereby terminated upon
conveyance of the deed to the confirmed purchaser.
. . . .
14. This Court retains jurisdiction to ascertain the
total amount that is due and owing to [Bank of New York],
consisting of the principal amount due under the Loan
Documents, together with interest, advances, late charges,
expenses, costs, and attorney's fees thereon to the date of
conveyance of the Property by the Commissioner.
. . . .
16. This Court further retains jurisdiction to
determine among other matters which may later come before
this Court, damages awarded to [Bank of New York], the
amount of fees and costs of the Commissioner and [Bank of
New York]'s attorneys and over any party to whom any surplus
shall be awarded.
On December 20, 2017, the AOAO timely filed a notice of
appeal from the Foreclosure Decree and Foreclosure Judgment,
initiating CAAP-XX-XXXXXXX.
On December 22, 2017, the AOAO filed a Motion for a
Stay Pending Appeal and To Set Supersedeas Bond (Motion for
Stay). Following a January 26, 2018 hearing, the Circuit Court
entered a March 6, 2018 Order Granting in Part and Denying in
Part the [Motion for Stay]. The Circuit Court ordered as
follows, in part:
2. The Motion is granted to the extent that the
enforcement of the portions of the [Foreclosure Decree] and
the corresponding [Foreclosure Judgment] that authorize the
Commissioner to take possession and control of and collect
rental payments from [the Property] is hereby stayed pending
[the AOAO]'s appeal of the same. The remainder of the
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[Foreclosure Decree] and [Foreclosure Judgment] are not
subject to the stay provided for herein.
3. [The AOAO] shall be entitled to retain possession
and control of the Property and shall be entitled to collect
rental payments from the Property until such time as the
Property is conveyed to a purchaser in this foreclosure
action. During this time, the Commissioner is not
authorized to take possession of the Property, and is not
authorized to collect monthly rental payments from the
Property. That notwithstanding the stay the Commissioner is
entitled to proceed with scheduling and conducting the two
open houses, publishing a foreclosure notice, conducting the
foreclosure auction and conveying the Property to the
successful bidder, all as had been previously ordered by
this Court.
4. The Motion is DENIED with respect to [the AOAO]'s
request to post alternative security, in lieu of a
supersedeas bond, in the form of monthly rental payments
into a Court-supervised rent trust account during the period
following the issuance of the Order to the conveyance of the
Property to a purchaser in this foreclosure action.
Instead, the supersedeas bond amount shall be $45,000.00,
which is equivalent to 36 months of $1,250.00 monthly rental
payments.
The AOAO filed a Motion for Reconsideration of the
Circuit Court's order, which Bank of New York opposed and the
Circuit Court denied. The AOAO did not post a supersedeas bond.
On March 28, 2018, the Commissioner filed his report,
stating, inter alia, that Bank of New York had bid highest at the
foreclosure auction. The Commissioner submitted an explanation
of fees and costs totaling $6,584.81 and requested:
A. That the Court approve your Commissioner's Report.
B. That a hearing be held to confirm the sale of the
subject property to [Bank of New York], for the sales price
of $188,112.75.
C. That the Court allow your Commissioner
reimbursement of expenses incurred and award Commissioner's
fees in an amount to be determined by the Court upon the
confirmation hearing and finally approved by the
Commissioner's Final Accounting.
D. That upon your Commissioner conveying the subject
property to the party to whom the sale thereof is confirmed,
distributing the funds, if any, to those persons and parties
in the amounts and in the order of priority directed by this
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Court, and your Commissioner filing his distribution
statement, attaching receipts, if any, of these amounts from
these persons or parties who are entitled to receive such
amounts, your Commissioner stand discharged from any further
responsibility and liability.
The AOAO did not object to the Commissioner's Report.
On April 16, 2018, Bank of New York filed its Motion
for Order Confirming Foreclosure Sale, Approving Commissioner's
Report, Allowance of Commissioner's Fees, Attorneys' Fees, Costs,
Directing Conveyance and for Writ of Ejectment (Confirmation
Motion). Bank of New York requested that the Circuit Court
order, inter alia:
7. That this Court direct the Commissioner or escrow
agent to disburse the fees, expenses and costs approved by
this Court upon the conveyance of the Property herein
authorized and the total purchase price of $188,112.75 shall
be disbursed as follows:
a. First, to the Commissioner, the net sum of
$6,584.81;
b. Second, to [Bank of New York], the total amounts
owed as of the date of closing, including all
attorneys' fees and costs awarded, in accordance
with bank wiring and other written instructions
provided by TMLF Hawaii, LLLC to the
Commissioner or escrow, as appropriate; and
c. In the event there are any remaining funds after
[Bank of New York] has been paid, said funds
shall be deposited with the Clerk of Court.
. . . .
9. That all named Defendants junior to [Bank of New
York]'s interest shall be terminated from right, title, and
interest in the Property.
10. That rent on the Property collected by the
Commissioner, if any, shall be paid to [Bank of New York]
and forwarded in care of [Bank of New York]'s attorneys,
which sum shall be credited against the amounts due [Bank of
New York] under its Note and Mortgage.
Opposing in part the Confirmation Motion, the AOAO
asserted its "statutory right to collect a special assessment on
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the [Property]" and requested the Circuit Court "give priority to
the [AOAO]'s statutory lien on the Property, permitting the
[AOAO] to collect the six-month special assessment" pursuant to
HRS § 514B-146(g) and (h) (Supp. 2017).9 The AOAO also opposed
the request for any rent collected by the Commissioner be paid to
Bank of New York, again citing HRS § 514B-146(k) (Supp. 2017) and
HRS § 667-102(b)(4). Finally, the AOAO opposed Bank of New
York's request for attorneys' fees as unreasonably high and not
reflecting time actually spent on the matter.
At a May 16, 2018 hearing on the Confirmation Motion,
Bank of New York did not object to the Association's six-month
special assessment. The Commissioner noted that the Property was
currently occupied by tenants but that, to date, the Commissioner
had not collected any rent because it had been paid to the AOAO.
The Circuit Court orally ruled that the rent collected by the
AOAO from the time the Plaintiff took possession "shall be turned
over to the Plaintiff, however the Court will find that the six
months special assessment fee will apply in this case, but not in
excess of that special assessment. The rest of the rent should
be turned over to the Plaintiff."
On July 5, 2018, the Circuit Court entered the
Confirmation Order. The Circuit Court ordered, inter alia:
9
The AOAO acknowledged that HRS § 667-102(b)(3) extinguished "the
lien it foreclosed on in its nonjudicial foreclosure" but argued that the
Property remained a "delinquent unit" for purposes of the special assessment
statute.
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2. That the Commissioner's Report filed herein is
hereby ratified, approved and confirmed.
3. That the sale of the Property to [Bank of New
York] at the sale price of $188,112.75 is ratified, approved
and confirmed.
4. That upon receipt of the full purchase price,
Commissioner is hereby ordered and directed to make a
conveyance of the title to the Property to [Bank of New
York].
. . . .
9. That upon the conveyance of the Property herein
authorized, the total purchase price of $188,112.75 shall be
disbursed as follows:
a. First, to the Commissioner, the net sum of
$6,584.81.
b. Second, to [Bank of New York], the total
amounts owed as of the date of closing, including all
attorneys' costs awarded herein, in accordance with
bank wiring and other written instructions provided by
TMLF Hawaii LLLC to the Commissioner or escrow, as
appropriate; and
10. That rent on the Property collected by the
Commissioner, if any, shall be paid to [Bank of New York]
and forwarded in care of [Bank of New York]'s attorneys.
. . . .
12. That all named Defendants that are junior to
Plaintiff's interest shall be terminated from any right,
title, and interest in the Property.
. . . .
17. Defendant [AOAO]'s request for six months special
assessment pursuant to [HRS] § 514B-146(g) and (h) is
granted.
The Circuit Court also entered the Confirmation
Judgment on July 5, 2018. On July 18, 2018, the AOAO timely
filed a notice of appeal from the Confirmation Order and
Judgment, initiating CAAP-XX-XXXXXXX.
On April 24, 2019, this court consolidated the two
appeals under CAAP-XX-XXXXXXX.
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II. POINTS OF ERROR
The AOAO raises three points of error. In CAAP-17-
0000904, challenging the Foreclosure Decree, the AOAO contends
that the Circuit Court erred in: (1) ordering the Commissioner
to take possession and control of the Property owned by the AOAO,
including collecting rental payments; and (2) ordering the
Commissioner to pay Bank of New York all of the rental income
collected from the Property. In CAAP-XX-XXXXXXX, challenging the
Confirmation Order, the AOAO contends the Circuit Court erred in
ordering the Commissioner to pay Bank of New York "all of the
rental income collected from the Property." Although not
identified as a point of error, in the appeal from the
Confirmation Order, the AOAO also argues the Circuit Court erred
when it purportedly vested the Commissioner with title to the
Property.
III. APPLICABLE STANDARDS OF REVIEW
This court "review[s] an award of summary judgment de
novo under the same standard applied by the circuit court." HSBC
Bank USA, Nat'l Ass'n v. Moore, 144 Hawai#i 49, 53, 434 P.3d
1244, 1248 (App. 2018) (quoting Salera v. Caldwell, 137 Hawai#i
409, 415, 375 P.3d 188, 194 (2016)). "Summary judgment is
appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
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as a matter of law." Id. (quoting Caldwell, 137 Hawai#i at 415,
375 P.3d at 194). "The court views all the evidence and
inferences in the light most favorable to the party opposing the
motion." Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361, 367
n.9, 390 P.3d 1248, 1254 n.9 (2017) (citation omitted). "The
moving party bears the burden of demonstrating that there is no
genuine issue as to any material fact with respect to the
essential elements of the claim[.]" Id. (citation omitted).
The interpretation of a statute is a question of law
which the appellate court reviews de novo. Sakal v. Ass'n of
Apartment Owners of Hawaiian Monarch, 148 Hawai#i 1, 5, 466 P.3d
399, 403 (2020); Mount v. Apao, 139 Hawai#i 167, 174-75, 384 P.3d
1268, 1275-76 (2016). "Where the language of the statute is
plain and unambiguous, our only duty is to give effect to its
plain and obvious meaning." Apao, 139 Hawai#i at 175, 384 P.3d
at 1276 (citing Sierra Club v. Dep't of Transp., 120 Hawai#i 181,
197, 202 P.3d 1226, 1242 (2009)).
"Foreclosure is an equitable action" and "[c]ourts of
equity have the power to mold their decrees to conserve the
equities of the parties under the circumstances of the case."
Peak Capital Grp., LLC v. Perez, 141 Hawai#i 160, 172, 407 P.3d
116, 128 (2017) (citing Hawai#i Nat'l Bank v. Cook, 100 Hawai#i 2,
7, 58 P.3d 60, 65 (2002) (Hawai#i Nat'l Bank II); Honolulu, Ltd.
v. Blackwell, 7 Haw. App. 210, 219, 750 P.2d 942, 948 (1988)).
"Whether and to what extent relief should be granted rests within
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the sound discretion of the court and will not be disturbed
absent an abuse of such discretion." Id. (citing Jenkins v.
Wise, 58 Haw. 592, 598, 574 P.2d 1337, 1342 (1978)).
"The lower court's authority to confirm a judicial sale
is a matter of equitable discretion." Hoge v. Kane II, 4 Haw.
App. 533, 540, 670 P.2d 36, 40 (1983) (citing Wodehouse v.
Hawaiian Trust Co., Ltd., 32 Haw. 835, 852 (1933)). "Hence,
[t]he exercise of discretion by the lower court judge will not be
disturbed on appeal except for abuse." Indus. Mortg. Co., L.P.
v. Smith, 94 Hawai#i 502, 510, 17 P.3d 851, 859 (App. 2001)
(quoting Brent v. Staveris Dev. Corp., 7 Haw. App. 40, 45, 741
P.2d 722, 726 (1987)) (internal quotation marks omitted).
IV. DISCUSSION
A. The Commissioner's Possession of the Property
The AOAO contends that the Circuit Court erred in
ordering the Commissioner to take possession and control of the
Property "despite the [AOAO]'s statutory right to exclusive
possession of the Property." The AOAO argues that the
Commissioner's possession of the Property runs afoul of HRS
§ 667-102(b)(4) (2016) and the AOAO's entitlement to exclusive
possession of the Property upon completion of its nonjudicial
foreclosure in 2015.
HRS § 667-102 provides, in pertinent part:
§ 667-102 Recordation of affidavit, conveyance
document; effect. (a) The affidavit required under section
667-101 and the conveyance document shall be recorded no
earlier than ten days after the public sale is held but not
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later than forty-five days after the public sale is
held. . . .
(b) When both the affidavit and the conveyance
document are recorded:
(1) The sale of the unit is considered completed;
(2) All persons claiming by, through, or under the
unit owner and all other persons having liens on
the unit junior to the lien of the association
shall be forever barred of and from any and all
right, title, interest, and claims at law or in
equity in and to the unit and every part of the
unit, except as otherwise provided by law;
(3) The lien of the association and all liens junior
in priority to the lien of an association shall
be automatically extinguished from the unit; and
(4) The purchaser shall be entitled to immediate and
exclusive possession of the unit.
(Emphasis added).
In conjunction with its nonjudicial foreclosure of its
lien, HRS § 667-102(b)(4) provided the AOAO with immediate and
exclusive possession of the unit upon the recordation of both the
affidavit and the conveyance document.
Nonetheless, nothing in HRS § 667-102 precludes the
appointment of a Commissioner to possess and control the Property
upon a pre-existing mortgagee's subsequent judicial foreclosure
of the Property. "Real property is transferable even though the
title is subject to a mortgage or deed of trust, but the transfer
will not eliminate the existence of that encumbrance." 55 Am.
Jur. 2d Mortgages § 954, Westlaw (database updated November
2021); see also OneWest Bank, F.S.B. v. Ass’n of Owners of
Kumulani at Uplands at Mauna Kea, 146 Hawai#i 105, 108, 456 P.3d
178, 181 (2020) (noting lower court "appointed a commissioner to
take possession of the property and to sell it"). Moreover,
[i]f the real property is sold subject to an existing
mortgage, the buyer acquires the property burdened with that
mortgage, and if the buyer does not also assume mortgage, it
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takes the land subject to encumbrances without a personal
obligation to pay the debt. However, the buyer may lose the
property if the mortgage debt is not paid, because the
seller, the mortgagor, is not required to use funds paid to
it for the payment of the mortgage, and the property becomes
a source of repayment for the debt.
55 Am. Jur. 2d Mortgages § 957, Westlaw (database updated
November 2021).
Here, the AOAO's Quitclaim Deed stated that the AOAO
took title of the Property "subject . . . to all encumbrances of
record" – specifically the Bank of New York Mortgage – a fact
that the AOAO did not and does not challenge. In accordance with
the terms of the Mortgage, based upon the Former Owners' default,
Bank of New York initiated foreclosure proceedings and, based
upon the evidence presented in conjunction with the Motion for
Summary Judgment, the Circuit Court granted the motion and
entered the Foreclosure Decree and Foreclosure Judgment.
It is important to note that under Hawai#i law, it is
well-established that a judgment entered on a foreclosure decree
is a final determination of the parties' rights in the subject
property – in other words, the property owners' rights in the
property are foreclosed, notwithstanding that further proceedings
are necessary to enforce and otherwise effectuate the foreclosure
decree and judgment. The Hawai#i Supreme Court has articulated
this tenet as follows:
A judgment of foreclosure of mortgage or other lien and sale
of foreclosed property is final, although it contains a
direction to commissioners to make a report of sale and to
bring the proceeds into court for an order regarding their
disposition. This is on the ground that such judgment
finally determines the merits of the controversy, and
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subsequent proceedings are simply incidents to its
enforcement.
MDG Supply, Inc. v. Diversified Invs., Inc., 51 Haw. 375, 380,
463 P.2d 525, 528 (1969) (citations omitted).
Accordingly, in this case, the Foreclosure Decree and
Foreclosure Judgment foreclosed the AOAO's ownership interest in
the Property, even though legal title would not pass until the
sale of foreclosed property was complete. In addition, since
"[f]oreclosure is an equitable action," the Circuit Court "has
the plenary power to fashion a decree to conform to the equitable
requirements of the situation." Peak Capital Grp., LLC, 141
Hawai#i at 172, 407 P.3d at 128 (citing Jenkins, 58 Haw. at 598,
574 P.2d at 1342); see also OneWest Bank, 146 Hawai#i at 112, 456
P.3d at 185 ("In a judicial foreclosure action, the circuit court
has broad discretion to order execution on its own judgments.").
This court has summarized that:
As a practical matter, the court must exercise its
equitable powers, pending final resolution of a foreclosure,
through its appointed commissioner.
It is well settled that a commissioner is a neutral
party appointed by the court and acts as an arm of the
court. We have stated that "the commissioner is an agent
acting in the court's behalf[.]" Hoge v. Kane, 4 Haw. App.
533, 539, 670 P.2d 36, 40 (1983).
As a neutral party, the commissioner does not act at
the behest of the mortgagee, the mortgagor or any other
interested party. See 4 Powell on Real Property
§ 37.26[3][b] at 174 ("The receiver is an officer of the
court. He must account to the court and act at the
direction of the court."); Federal Home Loan Mortg. Corp. v.
Spark Tarrytown, Inc., 829 F. Supp. 82, n.6 (S.D.N.Y. 1993)
("A receiver is not the agent of the mortgagee, or the party
who sought his appointment, but is solely an arm of the
court.").
. . . .
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Furthermore, the commissioner takes possession of the
mortgaged property and preserves the property for the
benefit of the person or entity subsequently entitled to it.
See 1 Real Estate Finance Law, § 4.33 at 235 (stating that a
receiver takes "possession of the mortgaged property to
repair or preserve the property and to collect rents"), Anes
v. Crown Partnership, 932 P.2d 1067, 1069, 113 Nev. 195, 199
(1997) ("Customarily, a receiver is a neutral party
appointed by the court to take possession of property and
preserve its value for the benefit of the person or entity
subsequently determined to be entitled to the property.").
Hawai#i Nat'l Bank v. Cook, 99 Hawai#i 334, 346-47, 55 P.3d 827,
839-40 (App. 2000) (Hawai#i Nat'l Bank I) (emphasis added), rev'd
on other grounds by Hawaii Nat'l Bank II, 100 Hawai#i 2, 58 P.3d
60.10 In sum, "[b]ecause it is not practical for the court to do
the physical work in connection with taking the possession [of]
and preserving the property, the court appoints its officer or
receiver to act." Hawaii Ventures, LLC v. Otaka, Inc., 114
Hawai#i 438, 458, 164 P.3d 696, 716 (2007) (quoting 2 Ralph Ewing
Clark, A Treatise on the Law and Practice of Receivers § 384, at
645 (3d ed. 1959)) (internal quotation marks omitted).
Here, the Circuit Court appointed the Commissioner,
authorizing and directing him to, inter alia, take possession and
control of the Property and ensure the sale of the Property at a
10
In Hawaii Nat'l Bank I, the Intermediate Court of Appeals ( ICA)
addressed whether a landlord of a commercial property ( Bishop Estate) was
entitled to subtenant rents collected by a Commissioner during a foreclosure
proceeding, despite a valid assignment of rents clause in favor of the
foreclosing mortgagee. 99 Hawai#i at 342, 55 P.3d at 835. The ICA held that
the Commissioner's "duty to preserve the mortgaged property . . . encompassed
the obligation to pay the ground rent to Bishop Estate in order to preserve
the ground leases." Id. at 348, 55 P.3d at 841. On certiorari, the supreme
court vacated the ICA's holding, relying on the "imminent expiration of the
lease terms." Hawai#i Nat'l Bank II, 100 Hawai#i at 12, 58 P.3d at 70. The
supreme court concluded that insofar as the leases were not commercially
marketable, the equitable "duty to preserve the property did not apply." Id.
The supreme court did not abrogate or otherwise address the ICA's discussion
of the role of a foreclosure commissioner.
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public auction, subject to confirmation by the Circuit Court.
This is consistent with the Circuit Court's equitable powers and
standard practice to utilize a foreclosure commissioner to
facilitate a foreclosure sale and ensure preservation of the
Property for the subsequent purchaser, after the entry of the
foreclosure decree and judgment. See Hawaii Nat'l Bank I, 99
Hawai#i at 346-47, 55 P.3d at 840-41; Peak Capital Group, LLC,
141 Hawai#i at 166, 407 P.3d at 122 (appointing commissioner to
sell property at public auction); Hawai#i Rules of Civil
Procedure (HRCP) Rule 66 ("The practice in the administration of
estates by receivers or by other similar officers appointed by
the court shall be in accordance with the practice heretofore
followed.") (emphasis added). The Commissioner's possession and
control of the Property is concomitant with the fulfillment of
his equitable duty to preserve the Property and to execute the
court's orders. Denying possession and control to an entity
whose rights in the property have been foreclosed, with no duty –
and, perhaps, no incentive – to facilitate a timely foreclosure
sale (in this case, the AOAO) is not inequitable.
The AOAO nevertheless argues that "a mortgagee does not
acquire title – and therefore . . . should not be entitled to the
benefits of property – until a foreclosure sale is completed as
defined by HRS § 514B-146(b)." The AOAO cites the "lien theory"
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of mortgages,11 asserting that it was "the holder of both legal
and equitable title to the Property when the court issued the
[Foreclosure Decree] directing the Commissioner to take
possession of the Property" and that, since Bank of New York was
not the owner of the Property, it was "not entitled to an order
granting it the benefits of ownership of the [AOAO]'s efforts
through a commissioner" and "had no legal basis to assert a right
to possession" of the Property. As set forth above, however, the
Commissioner is a neutral party acting for the court, not the
mortgagee, upon the court's entry of the foreclosure decree and
judgment.
We nevertheless have considered the statute relied on
by the AOAO. In pertinent part, HRS § 514B-146(b) (Supp. 2017)
provided:
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(b) Except as provided in subsection (g), when the
mortgagee of a mortgage of record or other purchaser of a
unit obtains title to the unit as a result of foreclosure of
the mortgage, the acquirer of title and the acquirer's
successors and assigns shall not be liable for the share of
the common expenses or assessments by the association
chargeable to the unit that became due prior to the
acquisition of title to the unit by the acquirer. The
unpaid share of common expenses or assessments shall be
deemed to be common expenses collectible from all of the
unit owners, including the acquirer and the acquirer's
successors and assigns. The mortgagee of record or other
purchaser of the unit shall be deemed to acquire title and
shall be required to pay the unit's share of common expenses
and assessments beginning:
11
See HRS § 506-1(a) (2018) ("Every transfer of an interest in real
property or fixtures made as security for the performance of another act or
subject to defeasance upon the payment of an obligation, . . . is to be deemed
a mortgage and shall create a lien only as security for the obligation and
shall not be deemed to pass title.").
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(1) Thirty-six days after the order confirming the
sale to the purchaser has been filed with the
court;
(2) Sixty days after the hearing at which the court
grants the motion to confirm the sale to the
purchaser;
(3) Thirty days after the public sale in a
nonjudicial power of sale foreclosure conducted
pursuant to chapter 667; or
(4) Upon the recording of the instrument of
conveyance;
whichever occurs first[.]12
(Emphasis added).
We conclude that HRS § 514B-146(b) plainly and simply
establishes precisely when a mortgagee, or other purchaser who
takes title to a unit after a mortgage foreclosure, must begin
paying the common expenses and assessments for the unit. See
First Hawaiian Bank v. Ass'n of Apartment Owners of Sun Rise,
Inc., CAAP-XX-XXXXXXX, 2019 WL 3764659, *3-4 (Haw. App. Aug. 9,
2019) (SDO) (analyzing when the purchasing mortgagee in that case
was deemed to have acquired title under HRS § 514B-146(b)
following entry of the order confirming sale). HRS § 514B-146(b)
does not address the propriety of appointing a commissioner to
take possession of the property and facilitate the foreclosure
sale process, after the determination in the foreclosure decree
that the rights of the owner(s) and any junior lienors are
foreclosed. As such, nothing in the Circuit Court's order is
contrary to HRS § 514B-146(b).
12
HRS § 514B-146(b) was amended in 2018 with respect to its
reference to former subsection (g), which had been recodified as subsection
(j). 2018 Haw. Sess. Laws Act 195, § 4 at 669-70. Otherwise, the text of HRS
§ 514B-146(b) relevant to this appeal was unaltered by the 2018 amendments.
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The AOAO also asserts that because HRS § 514B-146(k)
(Supp. 2017) "contemplates" the AOAO receiving rental income from
the Property following the entry of a foreclosure decree, the
AOAO "should have been allowed to continue to maintain possession
of the Property" from the date of the Foreclosure Decree until
completion of the foreclosure sale, as such completion is defined
in HRS § 514B-146.13
HRS § 514B-146(k) (Supp. 2017) provided:14
§ 514B-146 Association fiscal matters; lien for
assessments.
. . . .
(k) After any judicial or nonjudicial foreclosure
proceeding in which the association acquires title to the
unit, any excess rental income received by the association
from the unit shall be paid to existing lien holders based
on the priority of lien, and not on a pro rata basis, and
shall be applied to the benefit of the unit owner. For
purposes of this subsection, excess rental income shall be
any net income received by the association after a court has
issued a final judgment determining the priority of a senior
mortgagee and after paying, crediting, or reimbursing the
association or a third party for:
13
With respect to a judicial foreclosure, unless the context
requires otherwise, for the purposes of subsections (j) and (k) of HRS § 514B-
46, completion means "when a purchaser is deemed to acquire title pursuant to
subsection (b)." HRS § 514B-146 (i)(2) (Supp. 2017).
14
In 2018, HRS § 514B-146(k) was recodified as 514B-146(n). 2018
Haw. Sess. Laws Act 195, § 4 at 672. For purposes of clarity and consistency,
this discussion refers to subsection (k). In amending HRS § 514B-146 in 2018,
the legislature intended to "clarif[y] the procedures for disputing common
expense assessments and disputing penalties or fines, late fees, legal fees,
lien filing fees, or other charges." Conf. Comm. Rep. No. 41-18, 2018 House
Journal at 1456, 2018 Senate Journal at 734. These changes are primarily
found in HRS § 514B-146(d) and (g) (2018), which address applicable procedures
and obligations between a unit owner and an association when a dispute arises
over certain fees or common expense assessments. See 2018 Haw. Sess. Laws Act
195, § 4 at 670-71.
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(1) The lien for delinquent assessments pursuant to
subsections (a) and (b); 15
(2) Any maintenance fee delinquency against the
unit;
(3) Attorney's fees and other collection costs
related to the association's foreclosure of the
unit; or
(4) Any costs incurred by the association for the
rental, repair, maintenance, or rehabilitation
of the unit while the association is in
possession of the unit including monthly
association maintenance fees, management fees,
real estate commissions, cleaning and repair
expenses for the unit, and general excise taxes
paid on rental income;
provided that the lien for delinquent assessments under
paragraph (1) shall be paid, credited, or reimbursed first.
(Emphasis added).
This court has discussed HRS § 514B-146(k) (Supp. 2017)
with respect to whether the "lien" referred to in HRS § 514B-
146(k)(1) remains on a unit following the completion of an AOAO's
nonjudicial foreclosure. See Am. Savs. Bank, F.S.B. v. Ass'n of
Apartment Owners of the Hanohano Hale, CAAP-XX-XXXXXXX, 2019 WL
968641, *4 (Haw. App. Feb. 28, 2019) (mem. op.) (Hanohano Hale);
Hawai#i Central Fed. Credit Union v. Larson, CAAP-XX-XXXXXXX,
2019 WL 1397391, *2 (Haw. App. March 28, 2019) (SDO) (relying on
15
HRS § 514B-146(a) (Supp. 2017) provided, in relevant part:
§ 514B-146 Association fiscal matters; lien for
assessments. (a) All sums assessed by the association but
unpaid for the share of the common expenses chargeable to
any unit shall constitute a lien on the unit with priority
over all other liens, except:
(1) Liens for real property taxes and assessments
lawfully imposed by governmental authority
against the unit; and
(2) Except as provided in subsection (g), all sums
unpaid on any mortgage of record that was
recorded prior to the recordation of a notice of
a lien by the association, and costs and
expenses including attorneys' fees provided in
such mortgages[.]
Subsection (g) referred to the special assessment now set forth in
subjection (j). 2018 Haw. Sess. Laws Act 195, § 4 at 671.
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Hanohano Hale). In Hanohano Hale, we summarized the facts
pertaining to the AOAO therein's nonjudicial foreclosure of its
assessment lien and concluded as follows:
[T]he AOAO had an automatic statutory lien on the
Property that arose pursuant to HRS § 514B-146(a) for unpaid
assessments. The AOAO properly filed the lien in the Land
Court on April 3, 2014. Pursuant to HRS § 514B-146(a), the
AOAO then elected to pursue nonjudicial foreclosure
proceedings following the procedures set forth in HRS §§
667-91 through 667-104 (2016). HRS § 667-102(b)(3) (2016)
provides that, after the affidavit and conveyance document
for a nonjudicial foreclosure are recorded, "[t]he lien of
the association . . . shall be automatically extinguished
from the unit[.]" Based on the plain language of HRS § 667-
102(b)(3), the AOAO's election to pursue nonjudicial
foreclosure proceedings therefore extinguished its statutory
lien for the delinquent assessments. See First Ins. Co. of
Hawaii v. A&B Props., 126 Hawai#i 406, 414, 271 P.3d 1165,
1173 (2012) ("[T]he fundamental starting point for
statutory-interpretation is the language of the statute
itself." (Citation omitted)).
However, citing to HRS § 667-103 (2016), the AOAO
argues that the Property was still delinquent because the
AOAO did not recover the full amount of the delinquency at
the nonjudicial foreclosure sale. We do not agree with the
AOAO's interpretation of HRS § 667-103. Rather, we conclude
that HRS § 667-103 relates to the debt personal to the unit
owners, unattached to the Property, if the debt is not fully
satisfied. This, however, does not affect our conclusion
that the AOAO's lien on the Property for unpaid assessments
had been extinguished, pursuant to HRS § 667-102(b)(3). In
other words, the prior owner's debt to the AOAO could remain
but the Property itself was no longer subject to a lien in
favor of the AOAO.
. . . .
[R]eading HRS § 514B-146(k)(1) in pari materia with
HRS § 667-102(b)(3)—which expressly extinguished the lien of
the AOAO—we construe HRS § 514B-146(k)(1) as referring to
the amount owed for the delinquent assessments that
triggered the lien in the first place. In other words, HRS
§ 514B-146(k) addresses how an association should deal with
"excess rental income" after a foreclosure proceeding in
which the association acquires title to a unit, and the
statute provides for determining excess rental income as net
income received by the association after, inter alia,
paying, crediting, or reimbursing the association for
amounts owed for delinquent assessments. Although
subsection (k)(1) refers to "[t]he lien[,]" we do not read
that language as intending that a lien continues to exist
given the contrary and more specific language in HRS § 667-
102(b)(3) providing that "[w]hen both the affidavit and the
conveyance documents are recorded: . . . [t]he lien of the
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association . . . shall be automatically extinguished from
the unit[.]"
Id. at *3-*4 (footnotes omitted) (emphasis added).
In short, as this court concluded in Hanohano Hale,
once an AOAO has completed its nonjudicial foreclosure, its
assessment lien on the unit is extinguished and "the amount owed
for the delinquent assessments that triggered the lien in the
first place" are merely a personal debt owed by the former unit
owner. Id. at *4. HRS § 514B-146(k) therefore addresses only
how an AOAO must utilize any rental income it receives after its
own foreclosure on the unit, when its interest is subsequently
foreclosed upon by a mortgagee, instructing it to pay amounts for
delinquent assessments that might remain outstanding against the
unit owner, maintenance fee delinquencies, fees and costs related
to the AOAO's foreclosure, and any costs incurred by the
association while in possession of the unit. The statute does
not, however, necessarily entitle an AOAO to receive such rental
income from a unit following the subsequent entry of a
foreclosure decree and judgment in favor of a mortgagee.
The legislative history of HRS § 514B-146(k) (Supp.
2017) supports this interpretation. Cf. State v. Entrekin, 98
Hawai#i 221, 227, 47 P.3d 336, 342 (2002) ("Although we ground
our holding in the statute's plain language, we nonetheless note
that its legislative history confirms our view.") (citing
Crichfield v. Grand Wailea Co., 93 Hawai#i 477, 488-89, 6 P.3d
349, 360-61 (2000); State v. Ramela, 77 Hawai#i 394, 396 n.3, 885
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P.2d 1135, 1137 n.3 (1994)). The stated purpose of the statute
is to "[s]pecify how rental income received by a condominium
association after a foreclosure proceeding shall be paid to
existing lien holders." Conf. Comm. Rep. No. 57, in 2013 House
Journal at 1539, 2013 Senate Journal at 799 (emphasis added).
As the Committee on Conference recognized:
[T]he costs of default in a condominium are
substantially born by condominium associations and non-
defaulting unit owners and mortgagors in the affected
communities. The lending industry also has an interest in
preserving the value of the condominium projects that make
up part of the lending industry's collateral.
. . . [B]ecause there are legitimate but competing issues
relating to common assessments, the needs of the lending
industry and condominium associations and non-defaulting
unit owners must be appropriately balanced when attempting
to create a priority lien for common assessments. 16 This
measure achieves this balance by providing condominium
associations and non-defaulting unit owners with relief
while also addressing interests of the lending industry.
Id.
Consistent with these determinations, the legislature
enacted the excess rental income provision to direct an
association to apply any rental income to those expenses incurred
due to the unit owner's default only to the extent necessary to
"provid[e] condominium associations and non-defaulting unit
owners with relief." Id. However, anything in excess of the
amounts necessary to accomplish that would be paid to existing
16
Prior versions of the bill sought to create an unlimited priority
lien for unpaid common assessments over the lien of any mortgage as a way of
assisting condominium associations with the collection of unpaid assessments.
H. Stand. Comm. Rep. No. 914, in 2013 House Journal, at 1225.
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lienholders, thereby "addressing [the] interests of the lending
industry." Id. Accordingly, the goal in enacting HRS § 514B-
146(k) was not to ensure the AOAO's receipt of rental income
after a foreclosure judgment but to specify the proper allocation
of any such income between the AOAO and a mortgagee. In other
words, while the statutory language may contemplate the AOAO
receiving rental income from a unit after the entry of a
foreclosure decree and judgment, it does not go so far as
entitling the AOAO to such income.
Importantly, the excess rental income provision was
enacted together with the provision entitling the association to
a six-month special assessment specifically against a
senior-mortgagee purchaser, which it previously was not entitled
to. 2013 Haw. Sess. Laws Act 196, § 1 at 629 (eliminating
language exempting a senior mortgagee from the subsection
allowing for a special assessment against a subsequent
purchaser); Conf. Comm. Rep. No. 57, 2013 House Journal at 1539,
2013 Senate Journal at 799; see also HRS § 514B-146(g) and(h)
(Supp. 2017) (providing for special assessment). This supports a
conclusion that the special assessment, rather than the excess
rental income provision, was enacted to particularly benefit the
association.
Accordingly, we conclude that HRS § 514B-146(k) does
not affect the Circuit Court's equitable powers to appoint a
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commissioner to take possession and control of the Property upon
the entry of a foreclosure decree and judgment.17 We conclude
that the Circuit Court did not err or abuse its equitable powers
in directing the Commissioner to take possession of the Property
upon the entry of the Foreclosure Decree and Foreclosure
Judgment.
B. Payment of Rental Income to Bank of New York
The AOAO contends that the Circuit Court erred in the
Foreclosure Decree, when it ordered the Commissioner to pay Bank
of New York "all" of the rental income collected from the
Property. To the extent that the AOAO's argument is based on its
interpretation of HRS § 514B-146(k), we have rejected that
argument above.
Moreover, the Foreclosure Decree did not order payment
to Bank of New York of "all of the rental income collected from
the Property." Instead, the decree states, in pertinent part:
[FOF] 16. Defendant AOAO may continue collecting
rental proceeds from the Property until the Commissioner is
appointed herein. Upon appointment of Commissioner,
Commissioner shall collect the rental proceeds, the
distribution of proceeds (if any) shall be determined at the
confirmation hearing.
. . . .
17
We note that the AOAO failed to discuss or even acknowledge that
the Circuit Court granted in part the AOAO's Motion to Stay the Foreclosure
Decree, to the extent that it authorized the Commissioner to take possession
of the Property and to collect rents, with the posting of a supersedeas bond.
We further note that, even though the AOAO apparently declined to post a bond,
at the hearing on the Confirmation Order, the Commissioner represented that he
had not collected any rents.
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[Order] 7. Upon confirmation of the sale, the
Commissioner is authorized and directed, after the payment
of all necessary expenses of such sale, to make application
of all the proceeds thereof and all funds which they hold in
their capacity as Commissioner so far as the same may be
necessary to the payment of amounts found due and owing to
[Bank of New York] from the [Former Owners] under the Loan
Documents, including advances, title search fees, costs,
expenses, and attorney's fees, as determined by this court.
The Circuit Court's order includes certain conditional
occurrences (e.g., the Circuit Court's confirmation of the sale,
its determination of amounts due and owing to Bank of New York,
the collection of any rental income by the Commissioner) before
the Commissioner's payment of proceeds to Bank of New York might
potentially include rental income collected from the Property.
Accordingly, the AOAO's contention that the Circuit Court erred
in the Foreclosure Decree when it directed all rental income to
Bank of New York is without merit.
C. Appeal from the Confirmation Order and Judgment
In its appeal from the Confirmation Judgment and
Confirmation Order, the AOAO contends that the Circuit Court
erred when it "purported to pass equitable and legal title to the
Commissioner, effective November 29, 2017 [the date of entry of
the Foreclosure Decree]," contrary to legal authority. The AOAO
again cites the lien theory of mortgages, arguing that a
borrower's default does not entitle a mortgagee to possession,
rents, or profits. The AOAO asserts that it rightfully retained
both equitable and legal title upon the entry of the Foreclosure
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Decree, since the foreclosure sale had not yet been completed
pursuant to HRS § 514B-146(b) and that, accordingly, the
mortgagee did not acquire title to or the benefits of the
Property until that time.
However, the AOAO does not explain how, by way of the
Confirmation Order, the Circuit Court vested the Commissioner
with title to the Property.18 To the extent that the scope of
the Commissioner's powers and directives are properly before this
court, we have addressed it above, in conjunction with the AOAO's
appeal from the Foreclosure Judgment and Foreclosure Decree.
Finally, the AOAO contends that the Circuit Court erred
in ordering that "the rent on the Property collected by the
Commissioner, if any, shall be paid to [Bank of New York] and
forwarded in care of [Bank of New York]'s attorneys." The AOAO
again cites HRS § 667-102(b) to argue that, as the owner of the
Property, the AOAO was entitled to exclusive possession of the
Property and to receive all rents obtained or collected from it,
18
The AOAO also does not state where in the record the alleged error
occurred and where in the record the alleged error was objected to or the
manner in which the alleged error was brought to the attention of the Circuit
Court. See Hawai#i Rules of Appellate Procedure Rule 28(b)(4) ("Points not
presented in accordance with this section will be disregarded[.]") The
Foreclosure Decree does not purport to vest legal title in the Commissioner,
although it authorizes and directs the Commissioner to make a delivery to the
highest bidder "an appropriate instrument of conveyance of title to the
Property upon confirmation of the sale" by the Circuit Court. In the
Confirmation Order, inter alia, the Commissioner was authorized and directed
to make a conveyance of title to the purchaser upon receipt of the full
purchase price. The Confirmation Order concluded, inter alia, that upon the
delivery to the purchaser of the conveyance, the interest of all named
defendants in the property was terminated.
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even after the entry of the Foreclosure Decree and Judgment.
The AOAO further cites HRS § 514B-146(k) (Supp. 2017), arguing
that the Circuit Court should have allowed the AOAO to retain
rental proceeds from the Property until completion of the
foreclosure sale under HRS § 514B-146(b).
As discussed above, HRS § 667-102(b) does not bar a
Circuit Court's appointment of a commissioner upon the entry of a
foreclosure decree and judgment.
Also as addressed above, HRS § 514B-146(k) (Supp.
2017) does not necessarily entitle the AOAO to receive rental
income from a unit after the entry of a foreclosure decree and
judgment in favor of the pre-existing mortgagee, but merely
addresses the allocation of any such income.
Moreover, the Confirmation Order does not pertain to
any income "received by the association" or otherwise affect the
distribution or allocation of any such income. Instead, it only
concerns distribution of "the rent on the Property collected by
the Commissioner, if any." The Confirmation Order does not
purport to entitle the Commissioner to the collection of rental
income or Bank of New York to the receipt of all income received
from the Property, in particular, the rents collected by the
AOAO.
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Accordingly, we conclude that the AOAO's appeal from
the Confirmation Order is without merit.
V. CONCLUSION
For these reasons, the Circuit Court's November 29,
2017 Foreclosure Judgment and July 5, 2018 Confirmation Judgment
are affirmed.
On the briefs: /s/ Katherine G. Leonard
Presiding Judge
R. Laree McGuire,
Jason K. Adaniya, /s/ Keith K. Hiraoka
(Porter McGuire Kiakona Associate Judge
& Chow, LLP),
for Defendant-Appellant /s/ Sonja M.P. McCullen
ASSOCIATION OF APARTMENT OWNERS Associate Judge
OF ELIMA LANI CONDOMINIUMS.
Charles R. Prather,
Peter T. Stone,
(TMLF HAWAII LLLC),
for Plaintiff-Appellee
THE BANK OF NEW YORK MELLON FKA
THE BANK OF NEW YORK AS TRUSTEE FOR
THE CERTIFICATEHOLDERS OF THE CWABS
INC., ASSET-BACKED CERTIFICATES,
SERIES 2006-15.
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