PHH Mortgage Corporation v. Patterson ( 2023 )

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Electronically Filed
Supreme Court
SCWC-XX-XXXXXXX
05-APR-2023
07:57 AM
Dkt. 33 SO
SCWC-XX-XXXXXXX
IN THE SUPREME COURT OF THE STATE OF HAWAIʻI
PHH MORTGAGE CORPORATION
Respondent/Plaintiff-Appellee,
vs.
ASSOCIATION OF APARTMENT OWNERS OF ELIMA LANI CONDOMINIUMS,
Petitioner/Defendant-Appellant,
and
JOHN C. PATTERSON; FENNY J.M. PATTERSON; and
STATE OF HAWAIʻI DEPARTMENT OF TAXATION,
Respondents/Defendants-Appellees.
CERTIORARI FROM THE INTERMEDIATE COURT OF APPEALS
(CAAP-XX-XXXXXXX; CASE NO. 3CC14100121K)
SUMMARY DISPOSITION ORDER
(By: Recktenwald, C.J., Nakayama, McKenna, and Eddins, JJ.,
and Wilson, J., assigned by reason of vacancy 1)
I. INTRODUCTION
This case is brought by Association of Apartment
Owners of Elima Lani Condominiums (AOAO), the same condominium
1
See Order of Designation filed on March 29, 2023, in
SCMF-XX-XXXXXXX.
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association that brought suit in Nationstar Mortg., LLC v. AOAO,
No. SCWC-XX-XXXXXXX, 2023 WL 2519855 (Haw. Mar. 15, 2023). The
facts of this case are similar to Nationstar. AOAO foreclosed
on the previous owners of a condominium based on delinquent
assessments. 2 Then, the mortgage lender, PHH Mortgage
Corporation (PHH), foreclosed on AOAO. AOAO argues that it
remained entitled to exclusive possession and rents after the
entry of summary judgment and an interlocutory decree of
foreclosure, and prior to the confirmation of sale, and that the
circuit court therefore erred when it appointed a commissioner
to collect rents.
For the reasons given in Nationstar, we hold that AOAO
was not entitled to possession of the condominium or rents
during the period between summary judgment and confirmation of
sale. See id. at *5. In general, an association may be
entitled to some or all rental proceeds collected during this
period, as specified by Hawaiʻi Revised Statutes (HRS)
§ 514B-146(n) (Supp. 2015). 3 Id. at *10. However, in this case,
2 The Honorable Henry T. Nakamoto and the Honorable Robert D.S. Kim
presided. The Honorable Ronald Ibarra presided over the proceedings on PHH’s
first summary judgment motion, which was withdrawn and is not the subject of
this appeal.
3 HRS § 514B-146(n) was numbered as HRS § 514B-146(k) before the
statute was renumbered in 2018, and it is referred to as HRS § 514B-146(k) in
the briefing. See 2018 Haw. Sess. Laws Act 195, § 4 at 672. Because there
was no change to the substance of the statute, we refer to the current
numbering, HRS § 514B-146(n), throughout. See id.
(continued . . .)
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the Commissioner did not collect any rents. Because the ICA
correctly held the circuit court did not err in ordering the
Commissioner to take possession and collect rents, and there are
no rents to allocate under HRS § 514B-146(n), we affirm.
II. BACKGROUND
On March 27, 2014, PHH filed a verified complaint in
the Circuit Court of the Third Circuit against John C. Patterson
and Fenny J.M. Patterson (the Pattersons) for foreclosure of
their property. PHH alleged it was entitled to foreclose on the
(continued . . .)
HRS § 514B-146(n) provides:
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,
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.)
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property based on the Pattersons’ default on a note and mortgage
that PHH held. On May 29, 2014, AOAO filed its answer to the
complaint and claimed an interest in the property based on
having previously foreclosed on it. On July 14, 2017, PHH filed
a motion for summary judgment and requested that the court
appoint a commissioner to sell the property and, after costs,
award the amount owed to PHH.
On February 28, 2018, the circuit court orally granted
summary judgment in favor of PHH and explained: “[O]nce I
appoint a commissioner[,] that person has equitable and legal
title to the property, has the power to terminate the lease,
. . . collect rents, and actually becomes the equitable and
legal title owner of the property pending the sale.” (Emphasis
added.) The circuit court, in its April 4, 2018 written order
granting summary judgment in favor of PHH, then appointed a
commissioner. The circuit court ordered that the Commissioner
“shall henceforth hold all equitable and legal title to the
Mortgaged Property” and was authorized “to take possession of
the Mortgaged Property, to rent the Mortgaged Property pending
foreclosure, if appropriate, and to sell the Mortgaged
Property.” (Emphasis added.)
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The Commissioner reported that although the property
was occupied as of his initial inspection on April 9, 2018, on
subsequent inspections on May 10 and 15, 2018, the property was
vacant; the property managers informed the Commissioner that
AOAO had been renting the unit out but the tenant had since
vacated. The circuit court approved the Commissioner’s report
and granted PHH’s motion for confirmation of foreclosure sale on
December 4, 2018. Because the Commissioner reported that the
property was vacant during the period between when the circuit
court granted PHH’s motion for summary judgment and when it
granted PHH’s motion for confirmation of foreclosure sale, and
he did not report seeking a renter during that period, it is
clear that the Commissioner did not collect any rental proceeds.
On appeal, AOAO raised two points of error, arguing
the circuit court erred when it: (1) ordered that AOAO’s
possessory interest and right to collect rent from the subject
property was extinguished upon entry of the foreclosure decree
and summary judgment; and (2) vested the Commissioner with legal
and equitable title to the foreclosed property prior to the
confirmation of sale. The ICA held that the circuit court did
not abuse its discretion on either point.
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First, the ICA held that “a judgment entered on a
foreclosure decree is a final determination of a foreclosed
party’s ownership interests.” It concluded that the circuit
court therefore did not err in ordering the Commissioner to take
possession of the property, including the collection of rental
proceeds. Second, the ICA held that the circuit court had
merely ordered that the Commissioner temporarily hold legal and
equitable title to the property to carry out his function as
Commissioner, not that title was vested in him. The ICA further
concluded based on its precedents that “even if the Foreclosure
Decree could be construed as (erroneously) vesting title to the
Property in the Commissioner, any such error was harmless.” 4 See
Bank of N.Y. Mellon v. Larrua, 150 Hawaiʻi 429, 443-44, 504 P.3d
1017, 1031-32 (App. 2022); U.S. Bank Tr. v. Ass’n of Apartment
Owners of Waikoloa Hills Condo., 150 Hawaiʻi 573, 581-82, 506
P.3d 869, 877-78 (App. 2022) (as amended).
AOAO filed a timely application for certiorari arguing
that the ICA gravely erred by holding AOAO did not maintain a
possessory interest in the foreclosed unit. AOAO asserted
functionally identical arguments as those it made before us in
its briefing for Nationstar. It argued that per HRS § 514B-
4 The ICA did not reach the question of whether HRS § 514B-146(n)
entitled AOAO to collect rental proceeds after summary judgment but before
confirmation of sale.
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146(b) (Supp. 2015), it was entitled to maintain ownership of
the property until after the foreclosure sale is confirmed. 5
AOAO further argued that the legislative history and plain
language of HRS § 514B-146(n) support its argument that it is
entitled to possession and rent after summary judgment but prior
to confirmation of sale.
In response, PHH first argued that AOAO’s application
was rendered moot by the fact that the commissioner never
collected any rents. 6 PHH then argued that, in any event, AOAO
5 HRS § 514B-146(b) provides in relevant part:
Except as provided in subsection (j), 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:
(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 . . . .
6 We disagree with PHH’s argument that the case was rendered moot
by the fact that no rents were collected. “A case is moot if it has ‘lost
its character as a present, live controversy of the kind that must exist if
[courts] are to avoid advisory opinions on abstract propositions of law.’”
(continued . . .)
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was mistaken that it continued to have a possessory interest in
the property after foreclosure. Quoting MDG Supply, Inc. v.
Diversified Invs., Inc., PHH argued that “[a] judgment of
foreclosure of mortgage or other lien and sale of foreclosed
property is final . . . on the ground that such judgment finally
determines the merits of the controversy.” 51 Haw. 375, 380,
463 P.2d 525, 528 (1969). PHH also argued that nothing in HRS
§ 514B-146 alters the propriety of appointing a commissioner to
take possession of a property, which is a well-established
equitable remedy.
III. DISCUSSION
The legal question raised by AOAO in this case is
identical to the question we answered in Nationstar. Nationstar
held that AOAO was not entitled to maintain possession of a unit
and collect rents from the unit during the period after summary
judgment of foreclosure and before confirmation of sale.
Nationstar, 2023 WL 2519855 at *5. The same holding applies
here.
(continued . . .)
Kona Old Hawaiian Trails Grp. v. Lyman, 69 Haw. 81, 87, 734 P.2d 161, 165
(1987) (alteration in original) (quoting Hall v. Beals, 396 U.S. 45, 48
(1969)). AOAO claimed an entitlement to both possession and rents, and in
the alternative, it requested that the court award it common expense
assessments as a matter of equity. Thus, although no rents had been
collected, other aspects of the controversy were present and live at the time
of application.
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In Nationstar, we explained that AOAO does not
maintain a possessory interest in the property after summary
judgment of foreclosure - its right to possession is terminated
by the foreclosure judgment, and the circuit court has the
equitable power to appoint a commissioner to preserve the value
of the property in advance of sale. Id. at *6-7. This is
because a “‘judgment of foreclosure . . . 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.’” Id. at *6 (quoting MDG Supply, 51 Haw. at
380, 463 P.2d at 528).
AOAO’s arguments to the contrary are unavailing. “HRS
§ 514B-146(b) establishes when a mortgagee or other purchaser
must begin paying common expenses and assessments; it does not
address the propriety of appointing a commissioner to take
possession of the property and facilitate the foreclosure sale
after the prior owner’s interest has been deemed foreclosed.”
Id. at *6 (citing Larrua, 150 Hawaiʻi at 441-42, 504 P.3d at
1029-30). 7
7 Nationstar also held that while a prior owner’s possessory
interest and right to collect rent is extinguished upon a decree of
foreclosure, HRS § 514B-146(n) carves out an exception that “entitles
associations to continue receiving rent after a subsequent mortgage
foreclosure, even if a commissioner is appointed, subject to paying any rent
received in excess of the total amount of the reimbursements enumerated in
HRS § 514B-146(n)(1)-(4) over to the lienholders in order of priority.” Id.
at *5. Since there were no rents collected in this case, there is no need to
apply HRS § 514B-146(n) here.
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IV. CONCLUSION
For the foregoing reasons, the ICA’s May 2, 2022
Judgment on Appeal is affirmed.
DATED: Honolulu, Hawaii, April 5, 2023.
R. Laree McGuire, /s/ Mark E. Recktenwald
for petitioner
Association of Apartment /s/ Paula A. Nakayama
Owners of Elima Lani
Condominiums /s/ Sabrina S. McKenna
David B. Rosen, /s/ Todd W. Eddins
Justin S. Moyer, and
David E. McAllister, /s/ Michael D. Wilson
for respondent
PHH Mortgage Corporation
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