Schick v. Nation Star Mortgage LLC ( 2022 )

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
28-JUN-2022
07:45 AM
Dkt. 80 MO
NO. CAAP-XX-XXXXXXX
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
LAURA SCHICK, Personal Representative of the
Estate of Robert A. Schick, Plaintiff-Appellant,
v.
NATIONSTAR MORTGAGE LLC; FEDERAL NATIONAL MORTGAGE
ASSOCIATION; NENITA JOSE WESTBERG; CENTRAL PACIFIC HOMELOANS,
INC.; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.,
Defendants-Appellees,
and
DOE DEFENDANTS 1-50, Defendants
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CIVIL NO. 17-1-0039)
MEMORANDUM OPINION
(By: Ginoza, Chief Judge, Leonard and McCullen, JJ.)
Plaintiff-Appellant Laura Schick (Schick), personal
representative of the Estate of Robert A. Schick (Decedent),
appeals from the Amended Final Judgment entered against her by
the Circuit Court of the Second Circuit (Circuit Court)1 on
December 24, 2018 (Amended Judgment), which entered judgment
1
The Honorable Rhonda I.L. Loo presided.
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
against Schick and in favor of Defendants-Appellees Nationstar
Mortgage, LLC (Nationstar), Federal National Mortgage Association
(Fannie Mae) (collectively, Nationstar Defendants), and Nenita
Jose Westberg (Westberg), Central Pacific Homeloans, Inc.
(Central Pacific) (collectively, Westberg Defendants).2 In
addition, Schick challenges the Circuit Court's December 12, 2017
Order Granting [Nationstar Defendants'] Motion for Judgment on
the Pleadings (Order Granting Nationstar Motion) and December 14,
2017 Order Granting [Westberg Defendants] Motion for Judgment on
the Pleadings or, Alternatively, Summary Judgment (Order Granting
Westberg Motion).
I. RELEVANT BACKGROUND
A. The Property
It appears to be undisputed that on March 14, 2008,
Decedent executed a promissory note (Note) secured by a mortgage
(Mortgage) on certain real property located on Kuukama Street in
Kahului, Hawai#i (Property). The Mortgage identified the
Decedent as the borrower, Herman-Morris Enterprises Inc. (HMEI)
as the lender, and MERS as the beneficiary, solely as nominee for
HMEI and its successors and assigns. The Mortgage's power of
sale clause granted MERS the right to, inter alia, "foreclose and
sell the Property; and to take any action required of [HMEI]
2
Mortgage Electronic Registration Systems ( MERS) was a defendant
until October 4, 2017, when the Circuit Court approved a stipulation for
dismissal without prejudice of Schick's Complaint as to MERS.
2
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
including, but not limited to, releasing and canceling this
Security Instrument."
On October 26, 2010, an Assignment of Mortgage was
recorded in the State of Hawai#i Bureau of Conveyances (Bureau).
The assignment reflected MERS's transfer of right, title, and
interest in the Property to Nationstar. It appears that Decedent
subsequently defaulted, and on Novermber 8, 2010, Nationstar
filed a Notice of Mortgagee's Intention to Foreclose Under Power
of Sale (Notice of Sale) with the Bureau. The Notice of Sale was
posted at the Property on November 11, 2010, and published in the
Honolulu Star-Advertiser on November 16, November 22, and
November 29, 2010. The Notice of Sale stated that the Property
would be sold at public auction on January 10, 2011.
On February 10, 2011, Nationstar recorded Mortgagee's
Affidavit of Foreclosure Under Power of Sale executed by
Nationstar attorney Peter Stone (Affidavit of Foreclosure). The
Affidavit of Foreclosure stated that the Property was sold at
auction on January 31, 2011, rather than January 10, 2011, to
Nationstar, or its nominee.
On March 29, 2011, Nationstar conveyed the property to
Fannie Mae. Nationstar recorded a quitclaim deed at the Bureau
on April 4, 2011. On September 7, 2011, Fannie Mae conveyed the
Property to Westberg and recorded a limited warranty deed with
the Bureau on September 9, 2011. On August 25, 2011, Westberg
apparently executed a promissory note in favor of MERS, as
3
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
nominee for Central Pacific, secured by a mortgage on the
Property (Westberg Mortgage), which was recorded on September 9,
2011.
B. Circuit Court Proceedings
On January 31, 2017, Schick filed a Complaint
(Complaint), asserting claims of (1) quiet title, ejectment, and
for declaratory relief and/or damages against all defendants; and
(2) wrongful foreclosure against the Nationstar Defendants.
In Count I, Schick alleged, inter alia, that the
Nationstar Defendants failed to comply with Part I of Hawaii
Revised Statutes (HRS) Chapter 667 (Supp. 2008), that the deed
from Nationstar to Fannie Mae was "void, or at the very least
voidable," and thus, "the deed from Fannie Mae to Westberg was
likewise void or at the very least voidable." Schick requested
that the Circuit Court award her title and possession of the
Property and quiet any claim of title by the defendants, or in
the alternative, that the Circuit Court "fashion a remedy in
money damages against Nationstar and Fannie Mae that would be
equivalent to having title and possession restored."
In Count II, Schick alleged, inter alia, that the
Nationstar Defendants' conduct constituted wrongful foreclosure,
and that as a result of the wrongful foreclosure, Decedent lost
possession of and title to the Property, including a loss of the
market value of the Property, as well as a loss of the use and/or
rental value of the Property. As remedy for the alleged wrongful
4
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
foreclosure, Schick requested that the Circuit Court award actual
and punitive damages.
The Complaint also asserted that the twenty-year
statute of limitations under HRS § 657-31 (2016)3 applies to the
action, or in the alternative, that the six-year statute of
limitations under HRS § 657-1(4)(2016)4 applied.
On August 23, 2017, the Nationstar Defendants filed an
Answer to Complaint, asserting, inter alia, various affirmative
defenses, including laches, and requested that the Circuit Court
enter judgment in their favor.
On September 27, 2017, the Westberg Defendants filed an
Answer to Complaint (Westberg Answer), as well as a Cross-Claim
against the Nationstar Defendants (Westberg Cross-Claim). The
Westberg Answer asserted several affirmative defenses, including
that the Complaint was barred by the statute of limitations,
undue delay, waiver, laches, estoppel, and unclean hands. The
3
HRS § 657-31 provides:
§ 657-31 Twenty years. No person shall commence an
action to recover possession of any lands, or make any entry
thereon, unless within twenty years after the right to bring
the action first accrued.
4
HRS § 657-1 provides, in pertinent part:
§ 657-1 Six years. The following actions shall be
commenced within six years next after the cause of action
accrued, and not after:
. . . .
(4) Personal actions of any nature whatsoever not
specifically covered by the laws of the State.
5
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Westberg Cross-Claim was later dismissed without prejudice, by
stipulation.
On September 28, 2017, the Nationstar Defendants filed
[Nationstar Defendants'] Motion for Judgment on the Pleadings
(Nationstar Motion for JOP), which was supported by a declaration
of counsel and exhibits. Movants argued that the Complaint was
untimely and that a two-, or at most six-, year statute of
limitations applies to bar Schick's claims. The Nationstar
Defendants also asserted that, should the Circuit Court find the
Complaint timely, the doctrine of laches applies as a bar to
Schick's claims because Schick had not been vigilant in
safeguarding her rights, and her unreasonable delay resulted in
significant prejudice to the Nationstar Defendants.
On October 11, 2017, the Westberg Defendants filed
[Westberg Defendants'] Motion for Judgment on the Pleadings or,
Alternatively, Summary Judgment (Westberg Motion), which was
support by a declaration of counsel and exhibits. The Westberg
Defendants argued that they were innocent purchasers for value,
and that even if the Property was wrongfully foreclosed, the
title was voidable, not void. They further argued that they did
not have constructive notice of any alleged defects in the
Property's title, and that Schick's argument was inconsistent
with Hawai#i Supreme Court precedent in Santiago v. Tanaka, 137
Hawai#i 137, 366 P.3d 612 (2016), and Mount v. Apao, 139 Hawai#i
167, 384 P.3d 1268 (2016).
6
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
On November 6, 2017, Schick filed oppositions to the
defendants' motions, which were supported by declarations of
counsel and exhibits. In response to the Westberg Motion, Schick
argued, inter alia, that the Westberg Defendants' reliance on
Santiago was misplaced because, in that case, the property sale
did not take place until the nonjudicial sale had been approved
by a circuit court judge, and because the new buyer had not been
made a party in Santiago. Schick also relied on Pelosi v. Wailea
Ranch Estates, 91 Hawai#i 478, 985 P.2d 1045 (1999), arguing that
the Westberg Defendants were not bona fide purchasers because
they had constructive notice of Nationstar's wrongful foreclosure
of the Property.
In response to the Nationstar Motion for JOP, Schick
argued that at least a six-year statute of limitations should
apply to the Complaint, and that her cause of action did not
accrue at least until the injury occurred – i.e., the recording
of the Affidavit of Foreclosure on February 10, 2011 -- and was
discoverable by Schick. Schick argued that Silva v. Lopez, 5
Haw. 262, 271 (1884), should be considered in analyzing whether
the deed was void or merely voidable. Schick also argued that
the equitable defense of laches should not be applied to this
case.
On November 8, 2017, the Nationstar Defendants filed a
reply memorandum, arguing that Schick's claims accrued on
November 8, 2010 - the date the Notice of Sale was received and
7
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
recorded. The Nationstar Defendants argued that Schick's claims
were barred by either the two-year or six-year statute of
limitations, and that the 20-year statute of limitations did not
apply because this was not an adverse possession case. The
Nationstar Defendants reiterated that even if the nonjudicial
foreclosure did not comply with statutory requirements, the deed
was merely voidable, rather than void, under Santiago. Lastly,
the Nationstar Defendants responded to Schick's claim that laches
was not a viable defense.
On November 8, 2017, the Westberg Defendants filed a
reply memorandum, arguing that they did not have constructive
notice of any alleged defects in the title to the Property, thus
they were innocent good faith purchasers, and even assuming the
nonjudicial foreclosure was wrongful, Schick's remedy was limited
to monetary damages from the Nationstar Defendants, rather than
possession.
On November 14, 2017, a hearing was held on the
Westberg Motion. The Circuit Court did not exclude the exhibits
submitted with the motion and appears to reference facts
supported by them. The court announced its ruling as follows:
The Court, having had an opportunity to review the
motion, the opposition, the reply, the Court's going to
grant defendant's motion for judgment on the pleadings.
In the wrongful foreclosure action, plaintiff seeks to
render all subsequent conveyances void or, two, seeks a
finding that the subsequent buyer had constructive notice of
the alleged defective foreclosure.
The Court finds that defendant has met their burden of
proof by establishing no material issues of fact that remain
8
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
to be resolved in either of these issues; thereby,
entitling them to judgment as a matter of law.
On the issue of voidability, plaintiffs are mistaken
on their reliance of the Silva v. Lopez case. Silva has, in
fact, been impliedly overturned. The Federal Court and the
Supreme Court of Hawaii [have] specifically addressed the
issue of voidability and found that improperly conducted
foreclosure sales are voidable, not void, and that previous
cases that state the contrary have been overturned,
including Silva.
Second, a plain reading of the disputed affidavit of
foreclosure leads the Court to conclude that the subsequent
buyers did not have constructive notice. The affidavit of
foreclosure plainly certifies that the foreclosure auction
was conducted in compliance with statutory requirements.
The Court finds that the subsequent buyers acted with common
reason and prudence in their reading of the affidavit of
foreclosure and other foreclosure recordings at the Bureau.
Therefore, the Court's going to grant defendant's
motion.
On November 16, 2017, the Circuit Court held a hearing
on the Nationstar Motion for JOP, The Circuit Court did not
exclude the exhibits submitted with the motion and appears to
reference facts supported by them. The court ruled as follows:
The Court, having had an opportunity to review the
motion, the opposition, the reply, the Court's going to
grant defendant's motion for judgment on the pleadings.
The Court finds that the wrongful foreclosure claim
accrued upon receipt and recording of the November 8th, 2010
notice of sale. Therefore, plaintiff's wrongful foreclosure
claim is barred by the two-year statute of limitations for
torts. But more importantly, plaintiff's wrongful
foreclosure claim is also barred by the six-year statute of
limitations as a tort contract claim under HRS Section
657-1(1).
The Court also finds that even if plaintiff's claims
were founded in equity, it would still be barred by the
doctrine of laches. Plaintiff's delay in bringing in her
claims is unreasonable. Seven years has passed since the
November 8, 2010 alleged defective notice of sale, and
plaintiff's delay has resulted in prejudice to the
defendant.
Robert Schick, the mortgagor in this case, has since
died and is now unavailable to testify. Therefore, the
doctrine of laches does apply.
Finally, the Court finds that even if the nonjudicial
foreclosure was defective, the foreclosure would be voidable
9
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
and not void. And the Hawaii Supreme Court and Federal
Courts have held that improperly completed foreclosures are
merely voidable, and cases stating they are void are
impliedly overturned.
Therefore, the Court is going to grant defendant's
motion.
The written orders, which summarily state that the
motions were granted, were entered thereafter. A judgment, and
subsequently the Amended Judgment, were entered thereafter. A
notice of appeal was timely filed.
II. POINTS OF ERROR
Schick raises one point of error on appeal, contending
that the Circuit Court erred in granting the Nationstar Motion
for JOP and the Westberg Motion. Within her point of error,
Schick contends that the Circuit Court reached four erroneous
conclusions of law (COLs), as stated at the hearings on the
motions, and argues that the Circuit Court erred in concluding
that: (1) an improperly conducted nonjudicial foreclosure sale
was merely voidable and not wholly void; (2) Westberg and Central
Pacific were bona fide purchasers (BFPs); (3) the statute of
limitations barred Schick's claim against Nationstar and Fannie
Mae; and (4) laches barred Schick's claim against Nationstar and
Fannie Mae.
III. APPLICABLE STANDARDS OF REVIEW
Hawai#i Rules of Civil Procedure (HRCP) Rule 12(c)
governs motions for judgment on the pleadings and states:
10
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
(c) Motion for judgment on the pleadings. After
the pleadings are closed but within such time as not
to delay the trial, any party may move for judgment on
the pleadings. If, on a motion for judgment on the
pleadings, matters outside the pleadings are presented
to and not excluded by the court, the motion shall be
treated as one for summary judgment and disposed of as
provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made
pertinent to such a motion by Rule 56.
Here, because the Circuit Court did not exclude the
matters outside the pleadings that were presented to the court,
we review the court's orders as rulings on summary judgment. See
Foytik v. Chandler, 88 Hawai#i 307, 313, 966 P.2d 619, 625
(1998).
We review the granting or denial of summary judgment de
novo. See, e.g., First Ins. Co. of Hawai#i, Ltd. v. A & B
Props., Inc., 126 Hawai#i 406, 413, 271 P.3d 1165, 1172 (2012)
(citing Nuuanu Valley Ass'n v. City & Cnty. of Honolulu, 119
Hawai#i 90, 96, 194 P.3d 531, 537 (2008)). As often stated:
[S]ummary 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 as a matter of law. A
fact is material if proof of that fact would have the effect
of establishing or refuting one of the essential elements of
a cause of action or defense asserted by the parties. The
evidence must be viewed in the light most favorable to the
non-moving party. In other words, we must view all of the
evidence and inferences drawn therefrom in the light most
favorable to the party opposing the motion.
Id. at 413–14, 271 P.3d at 1172–73 (citation omitted).
11
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
IV. DISCUSSION
A. Statute of Limitations
As a threshold issue, we first address the Circuit
Court's ruling that Schick's wrongful foreclosure claim against
the Nationstar Defendants "is barred by the two-year statute of
limitations for torts" and "is barred by the six-year statute of
limiations as a tort contract claim under HRS Section 657-1(1)."
As this court noted in Delapinia, the supreme court has yet to
address the issue of which statute of limitations period applies
to wrongful foreclosure claims. Delapinia v. Nationstar Mortg.
LLC, 146 Hawai#i 218, 224, 458 P.3d 929, 935 (App. 2020) rev'd on
other grounds, 150 Hawai#i 91, 497 P.3d 106 (2021) (Delapinia
II). In Delapinia, this court stated:
In determining whether the statute of limitations
under HRS § 657-1 or § 657-7 applies, the question is not
whether the action is ex contractu or ex delicto, but
whether or not the plaintiff is suing for damage or injury
to persons or property. Gomez v. Am. Airlines, Inc., 111
Hawai#i 67, 69, 137 P.3d 381, 383 (2006). The relevant
limitations period is determined by the nature of the claim
or right asserted, which is in turn determined from the
allegations contained in the pleadings. Au v. Au, 63 Haw.
210, 214, 626 P.2d 173, 177 (1981).
Id. at 224-25, 458 P.3d at 935-36.
There, we held that the plaintiff's wrongful
foreclosure claim was subject to the six-year statute of
limitations under HRS § 657-1(4). Id. In doing so, we reasoned
that the supreme court has indicated that the two-year statute of
limitations does not apply. See, e.g., Hungate v. Law Off. of
12
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
David B. Rosen, 139 Hawai#i 394, 400, 391 P.3d 1, 7 (2017)
(recognizing the validity of a wrongful foreclosure claim in a
complaint filed four years after the foreclosure sale at issue).
We further reasoned that the HRS § 657-1(4) six-year statute of
limitations applied because wrongful foreclosure caused the
Delapinia's "non-physical injury to their intangible interests,"
namely, title and right to possession of the property in dispute.
Delapinia, 146 Hawai#i at 225, 458 P.3d at 936.
Here, Schick similarly contends that Decedent was
deprived of possession, title, use, and occupancy of the
Property, which further deprived him of lost market value and
rental value of the Property. Accordingly, we conclude that the
HRS § 657-1(4) six-year statute of limitations applied to the
Schick's claim for wrongful foreclosure.
As this court discussed in Delapinia, under Hawaii's
discovery rule, the statute of limitations begins to run when the
plaintiff "discovers or should have discovered the negligent act,
the damage, and the causal connection between the former and the
latter." Delapinia, 146 Hawai#i at 226, 458 P.3d at 937 (quoting
Thomas v. Kidani, 126 Hawai#i 125, 132, 267 P.3d 1230, 1237
(2011)). In concluding that the earliest date of accrual was the
day that the title was transferred, we reasoned that "[s]ince the
actual damage being claimed was the loss of title, the damage
13
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
occurred when title was transferred to someone other than the
Delapinias." Id. at 226, 458 P.3d at 937.
Here, Nationstar deeded title to someone other than the
Decedent, namely, Fannie Mae, on March 29, 2011; that quitclaim
deed was recorded with the Bureau on April 4, 2011. The
Complaint was filed on January 31, 2017, clearly within the six-
year statute of limitations. See id. Therefore, the Circuit
Court erred in concluding that Schick's wrongful foreclosure
claim was time-barred and in granting summary judgment in favor
of the Nationstar Defendants on that basis.
B. Laches
Schick challenges the Circuit Court's ruling that "even
if plaintiff's claims were founded in equity, it would still be
barred by the doctrine of laches." As stated above, as to the
application of the doctrine of laches to bar Schick's claims
against the Nationstar Defendants, the Circuit Court stated in
full:
The Court also finds that even if plaintiff's claims
were founded in equity, it would still be barred by the
doctrine of laches. Plaintiff's delay in bringing in her
claims is unreasonable. Seven years has passed since the
November 8, 2010 alleged defective notice of sale, and
plaintiff's delay has resulted in prejudice to the
defendant.
Robert Schick, the mortgagor in this case, has since
died and is now unavailable to testify. Therefore, the
doctrine of laches does apply.
The doctrine of laches is a defense available in all
civil actions, which includes both legal and equitable claims.
14
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Ass'n of Apartment Owners of Royal Aloha v. Certified Mgmt.,
Inc., 139 Hawai#i 229, 235, 386 P.3d 866, 872 (2016). Laches
"reflects the equitable maxim that equity aids the vigilant, not
those who slumber on their rights." Ass'n of Apartment Owners of
Newtown Meadows ex rel. its Bd. of Dir. v. Venture 15, Inc., 115
Hawai#i 232, 284, 167 P.3d 225, 277 (2007) (quoting Adair v.
Hustace, 64 Haw. 314, 320, 640 P.2d 294, 300 (1982)). The
supreme court has held:
There are two components to laches, both of which must
exist before the doctrine will apply. First, there must
have been a delay by the plaintiff in bringing his claim []
and that delay must have been unreasonable under the
circumstances. Delay is reasonable if the claim was brought
without undue delay after plaintiff knew of the wrong or
knew of facts and circumstances sufficient to impute such
knowledge to him. Second, that delay must have resulted in
prejudice to defendant. Common but by no means exclusive
examples of such prejudice are loss of evidence with which
to contest plaintiff's claims, including the fading memories
or deaths of material witnesses, changes in the value of the
subject matter, changes in defendant's position, and
intervening rights of third parties.
Id. (citation omitted).
Here, the Circuit Court's ruling on the first component
to laches – a delay by plaintiff that is unreasonable under the
circumstances – was grounded solely in the Circuit Court's
erroneous finding that the wrongful foreclosure claim accrued
upon the filing of the Notice of Sale, and that seven years had
passed since the accrual of Schick's action. As there are no
other findings or undisputed facts supporting the Circuit Court's
conclusion that, under the circumstances, Schick's delay in
15
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
filing suit was unreasonable, we conclude that the Circuit Court
erred in applying laches to Schick's claims on this basis.
In addition, the only undisputed fact identified in
support of the Circuit Court's conclusion that the Nationstar
Defendants were prejudiced by Schick's delay was that the
Decedent was dead. However, the Nationstar Defendants did not
identify what testimony they were prevented from seeking from
Decedent with respect to Schick's claims in this case. Moreover,
there are no findings or evidence identified by the Nationstar
Defendants as to the date of Decedent's death, whether his death
may have contributed to Schick's delay in filing suit, and
whether that delay might have been reasonable under the
circumstances. Thus, it appears that the Circuit Court erred in
concluding, in effect, that there were no genuine issues of
material fact as to the second prong of the laches analysis.
C. An Improper Nonjudicial Foreclosure is Voidable
Having determined that the Circuit Court erred in
granting summary judgment on Schick's claims against the
Nationstar Defendants on the grounds that they are time-barred,
we turn to the question of whether the Circuit Court erred in
determining that an improperly-conducted non-judicial foreclosure
sale is merely voidable and not wholly void. Schick argues that
Silva is binding precedent, and that because the power of sale
16
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
was violated by improper publication of notice of sale, the sale
is void and not merely voidable.
In Delapinia II, the supreme court explained:
If void, the sale is "invalid" and "unenforceable," and a
subsequent purchaser "is entitled only to return of [their]
down [] payment plus accrued interest. If voidable, the
sale can be invalidated at the timely election of the
mortgagor, but "where the property has passed into the hands
of an innocent purchaser for value, rendering the voiding of
a foreclosure sale impracticable, an action at law for
damages is generally the appropriate remedy."
150 Hawai#i at 101, 497 P.3d at 116 (2021) (internal citations
omitted).
In Delapinia II, the supreme court held that "Silva is
inconsonant with the direction of our recent precedent, and we
clarify today that a wrongful foreclosure that violates the power
of sale is voidable, not void." Id. Accordingly, we conclude
that wrongful foreclosure in this case renders the sale voidable,
rather than void.
D. The BFP Issue
Schick contends that the Westberg Defendants' claimed
status as BFPs - that is, innocent purchasers for value – is an
affirmative defense that is not apparent from the face of the
Complaint, and therefore, the Circuit Court erred in granting the
Westberg Motion. This issue stems from the established principle
that a plaintiff is not entitled to possession or return of title
to a defectively foreclosed property if it was subsequently sold
to a BFP. Mount, 139 Hawai#i at 180, 384 P.3d at 1281 (citing
17
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Santiago, 137 Hawai#i at 158, 366 P.3d at 633). When a property
has passed to an innocent purchaser for value, thereby rendering
the voiding of a foreclosure sale impracticable, "an action at
law for damages is generally the appropriate remedy." Id.
"An innocent purchaser is 'one who, by an honest
contract or agreement, purchases property or acquires an interest
therein, without knowledge, or means of knowledge sufficient to
charge him in law with knowledge, of any infirmity in the title
of the seller.'" Ka'u Agribusiness Co., Inc. v. Heirs or Assigns
of Ahulau, 105 Hawai#i 182, 193, 95 P.3d 613, 624 (2004) (quoting
Pelosi, 91 Hawai#i at 489, 985 P.2d at 1056). The supreme court
has defined a BFP as a purchaser "who acquires an interest in a
property for valuable consideration, in good faith, and without
notice of any outstanding claims which are held against the
property by third parties." Kondaur Cap. Corp. v. Matsuyoshi,
136 Hawai#i 227, 240 n.27, 361 P.3d 454, 467 n.27 (2015)
(citation omitted). Conversely, "[a] non-bona fide purchaser is
one who does not pay adequate consideration, 'takes with
knowledge that his transferor acquired title by fraud, or buys
registered land with full notice of the fact that it is in
litigation between the transferor and a third party." Id.(brackets, citation, and ellipsis omitted)).
Purchasers who have constructive notice of another's
interest in a property "cannot accurately be referred to as
18
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
'innocent purchasers.'" Pelosi, 91 Hawai#i at 489, 985 P.2d at
1056. "Constructive notice arises as a legal inference, where
'circumstances are such that a reasonably prudent person should
make inquiries, [and therefore] the law charges a person with
notice of facts which inquiry would have disclosed.'" In re
Henshaw, 585 B.R. 605, 615 (D. Haw. 2018) (quoting SGM P'ship v.
Nelson, 5 Haw. App. 526, 529, 705 P.2d 49, 52 (1985)).
Schick alleged that the Westberg Defendants are not
BFPs because, based on the public record, there was plainly an
infirmity in the seller's title. In particular, Schick points to
the Complaint's allegations that:
48. Prior to accepting and recording the deed from
Fannie Mae, Westberg, Central Pacific and MERS had
constructive notice of the recorded Foreclosure Affidavit,
the terms of sale in the recorded Notice of Sale and,
further, had constructive if not actual notice that Fannie
Mae had acquired its putative title from Nationstar, which
had purported to purchase the Property at its own
foreclosure sale. They knew or reasonably should have known
that there was a break in the chain of title since the last
owner of record was Schick but Westberg's deed was from
Fannie Mae, meaning that they knew Westberg's title was only
valid if the foreclosure was valid.
. . . .
54. Because Nationstar and Fannie Mae failed to
strictly comply with HRS §§ 667-5 et seq. ([Supp.] 2008) and
the power of sale in the Mortgage as set forth above, the
non-judicial foreclosure sale and transfer of the Property
to Fannie Mae was void as a matter of law, or at least
voidable, and hence all subsequent transfers were likewise
void or at least voidable as to non-bona fide purchasers.
(Underlined emphasis added).
We reject Schick's contention that notice from the
chain of title that a foreclosure sale has occurred constitutes
19
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
actual notice of a break in title that constitutes notice of an
outstanding claim against a property and precludes subsequent
purchasers from being BFPs. We agree with the proposition cited
above that "[c]onstructive notice arises as a legal inference,
where circumstances are such that a reasonably prudent person
should make inquiries." In re Henshaw, 585 B.R. at 615 (internal
quotation marks omitted). There is nothing on the face of the
Affidavit of Foreclosure, the Notice of Sale, or the Mortgage
that would have provided the Westberg Defendants with
constructive notice that the foreclosure was defective. We also
reject Schick's contention that Decano v. Hutchinson Sugar Co.,
45 Haw. 505, 371 P.2d 217 (1962) should be interpreted as
concluding that notice that there has been a foreclosure is
sufficient to provide notice to a subsequent purchaser for value
that a foreclosure was defective. See Tilley v. Bank of N.Y.
Mellon, No. 17-00524 HG-RLP, 2018 WL 1415171, at *13 (D. Haw.
Mar. 21, 2018); Lynch v. Bank of N.Y. Mellon, No. 17-00195 LEK-
RLP, 2017 WL 3568667, at *4-5 (D. Haw. Aug. 15, 2017).
Thus, we conclude that the Circuit Court did not err in
refusing to make a legal inference that, based on the public
record, the Westberg Defendants could be found to have had
constructive notice of an alleged defect in title, i.e.,
constructive notice that Nationstar's foreclosure was improperly
conducted. We further conclude that the Circuit Court did not
20
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
err in granting summary judgment on Schick's claims against the
Westberg Defendants.
V. CONCLUSION
For the foregoing reasons, the Circuit Court's December
24, 2018 Amended Judgment is affirmed in part and vacated in
part. The Amended Judgment is affirmed to the extent that it
enters judgment in favor of the Westberg Defendants and against
Schick. The Amended Judgment is vacated to the extent that it
enters judgment in favor of the Nationstar Defendants and against
Schick. This case is remanded to the Circuit Court for further
proceedings consistent with this Memorandum Opinion.
DATED: Honolulu, Hawai#i, June 28, 2022.
On the briefs: /s/ Lisa M. Ginoza
Chief Judge
James J. Bickerton,
Stanley H. Roehrig (Of Counsel), /s/ Katherine G. Leonard
Bridget G. Morgan, Associate Judge
(Bickerton Dang, LLLP),
and /s/ Sonja M.P. McCullen
John F. Perkin, Associate Judge
(Perkin & Faria LLLC),
and
Van-Alan H. Shima,
(Affinity Law Group),
for Plaintiff-Appellant.
Charles A. Price,
(Koshiba Price & Gruebner),
for Defendants-Appellees
NENITA JOSE WESTBERG and
CENTRAL PACIFIC HOMELOANS, INC.
21
NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Andrew J. Lautenbach,
Kukui Claydon,
(Starn O'Toole Marcus & Fisher),
for Defendants-Appellees
NATIONSTAR MORTGAGE LLC and
FEDERAL NATIONAL MORTGAGE
ASSOCIATION.
22