Bank of N.Y. Mellon v. Larrua

• Citation: 150 Hawai'i 429,504 P.3d 1017
• Decision Date: 31 January 2022
• Docket Number: CAAP-17-0000904,C/w NO. CAAP-18-0000571
• Parties: 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
• Court: Hawaii Court of Appeals

150 Hawai'i 429

504 P.3d 1017

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-17-0000904

C/w NO. CAAP-18-0000571

Intermediate Court of Appeals of Hawai‘i.

JANUARY 31, 2022

On the briefs:

R. Laree McGuire, Honolulu, Jason K. Adaniya, (Porter McGuire Kiakona & Chow, LLP), for Defendant-Appellant ASSOCIATION OF APARTMENT OWNERS OF ELIMA LANI CONDOMINIUMS.

Charles R. Prather, Peter T. Stone, Honolulu, (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.

LEONARD, PRESIDING JUDGE, HIRAOKA AND MCCULLEN, JJ.

OPINION OF THE COURT BY LEONARD, J.

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 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 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

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 Hawai‘i 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 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);

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 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 "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...