Delapinia v. Nationstar Mortg. LLC

• Decision Date: 25 October 2021
• Docket Number: SCWC-17-0000387
• Parties: Ray A. DELAPINIA and Robyn M. Delapinia, Petitioners/Plaintiffs-Appellants, v. NATIONSTAR MORTGAGE LLC ; Federal National Mortgage Association ; Terry Louise Cole; Mortgage Electronic Registration Systems, Inc.; American Savings Bank, F.S.B., Respondents/Defendants-Appellees.
• Court: Hawaii Supreme Court

150 Hawai‘i 91

497 P.3d 106

Ray A. DELAPINIA and Robyn M. Delapinia, Petitioners/Plaintiffs-Appellants,

v.NATIONSTAR MORTGAGE LLC ; Federal National Mortgage Association ; Terry Louise Cole; Mortgage Electronic Registration Systems, Inc.; American Savings Bank, F.S.B., Respondents/Defendants-Appellees.

SCWC-17-0000387

Supreme Court of Hawai‘i.

OCTOBER 25, 2021

James J. Bickerton, Honolulu, (Bridget G. Morgan-Bickerton, Stanley H. Roehrig, John F. Perkin and Van-Alan H. Shima with him on the briefs) for petitioners

Jade Lynne Ching (David A. Nakashima, Honolulu, and Kanoelani S. Kane with her on the brief) for respondents Nationstar Mortgage LLC and Federal National Mortgage Association

Michael C. Bird, Honolulu, (Jonathan W.Y. Lai, Thomas J. Berger and Summer H. Kaiawe with him on the brief) for respondents Terry Louise Cole and American Savings Bank, F.S.B.

Patricia J. McHenry and Janjeera S. Hail, Honolulu, for respondent Mortgage Electronic Registration Systems, Inc.

RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, JJ., AND CIRCUIT JUDGE WONG, IN PLACE OF POLLACK, J., RECUSED

OPINION OF THE COURT BY RECKTENWALD, C.J.

I. INTRODUCTION

In 2010, the plaintiffs’ Kihei property was foreclosed by nonjudicial foreclosure under Hawai‘i Revised Statutes (HRS) Part I (since repealed). Several years later, the plaintiffs sued for wrongful foreclosure and quiet title against various defendants: their mortgagees, the subsequent purchaser of the property, and the subsequent purchaser's mortgagees. The defendants moved for, and the circuit court granted, dismissal of all claims. The Intermediate Court of Appeals (ICA), in a published opinion, vacated in part but affirmed as to one defendant: the subsequent purchaser's mortgagee. Delapinia v. Nationstar Mortgage LLC, 146 Hawai‘i 218, 458 P.3d 929 (Haw. Ct. App. 2020).

We accepted the plaintiffs’ application for writ of certiorari to consider two aspects of the ICA's decision: First, the ICA adopted the "tender rule," a requirement under which a plaintiff seeking to quiet title must plead that it can tender the amount of indebtedness. We decline to opine whether the tender rule applies in Hawai‘i wrongful foreclosure cases generally. But we hold that it is inapplicable on these facts, where the defendant asserting the rule against a quiet title claim is the subsequent purchaser's mortgagee, to whom the plaintiff is not in debt. As the defendant who sought to assert the tender rule was not the plaintiffs’ mortgagee, the plaintiffs do not need to plead tender in order to establish superior title as to that defendant.

Second, this case requires us to consider whether foreclosures that violate the power of sale are voidable or void. Silva v. Lopez, 5 Haw. 262 (1884), suggests that such wrongful foreclosures are void. However, we have considered this question in other wrongful foreclosure contexts more recently, and those cases favor protecting the reliance interests of a bona fide purchaser. Accordingly, we hold that wrongful foreclosures in violation of the power of sale are voidable, and to the extent Silva is to the contrary, it is overruled.

II. BACKGROUND

A. Circuit Court Proceedings

1. The Complaint

This case arises from several motions brought before the Circuit Court of the Second Circuit¹ (circuit court) in the Delapinias’ wrongful foreclosure suit: Nationstar Mortgage LLC (Nationstar) and Federal National Mortgage Association's (Fannie Mae) (collectively, "Nationstar defendants") motion for judgment on the pleadings; defendant Terry Louise Cole's motion to dismiss, in which defendant American Savings Bank F.S.B (ASB) joined (collectively, "Cole defendants"); and defendant Mortgage Electronic Registration Systems, Inc.’s (MERS) motion to dismiss. The circuit court granted all of the above motions (although only the motions to dismiss are at issue on certiorari), and accordingly, all facts alleged in the plaintiffs’ First Amended Complaint (FAC) will be taken as true. Goran Pleho, LLC v. Lacy, 144 Hawai‘i 224, 236, 439 P.3d 176, 188 (2019).

The Delapinias alleged the following in the FAC. The Delapinias owned property in Kihei, which was secured by mortgage executed in 2007. "In 2010, Nationstar claimed to be the assignee of the Mortgage ... [and] claimed to be a mortgagee or successor to a mortgagee entitled under HRS Chapter 667 Part I (2008) to exercise the power of sale in the Mortgage." In fact, "Nationstar was acting at the direction and behest of Fannie Mae" and "did not satisfy the conditions precedent to the valid exercise of that power."

Nationstar, "purporting to act under the power of sale in the Mortgage, executed a deed conveying the Property to Fannie Mae," but "[t]hat deed was void because Nationstar and Fannie Mae, as the foreclosing mortgagee, did not comply with the power of sale in the mortgage or the statute then governing their exercise of the power of sale, HRS Chapter 667 Part I." The Delapinias identified the following violations of the power of sale clause and of the statutes:

a) Plaintiffs were not served with a notice of acceleration that complied with Paragraph 22 of the Mortgage;

b) The notice of intention of foreclosure published by Nationstar and Fannie Mae did not contain a description of the Property as required by HRS Section 667-7(a)(1), but merely published the address and Tax Map Key Number of the Property, which did not constitute the "description" contemplated by the statute;

c) The Notice did not offer buyers of the Property a warranty that the putative mortgagee had the right to sell or that the sale was conducted lawfully in compliance with the applicable statute and the power of sale;

d) No Defendant first advertised the notice of sale more than 28 days before the proposed auction date as required by HRS Section 667-7 (2008);

e) No Defendant used a Hawai‘i attorney to perform all of the acts required by the power of sale, including but not limited [to] having an attorney sign and give the notice of sale to Plaintiffs and having an attorney who conducted the sale executive the Affidavit of Foreclosure;

f) No Defendant ever published any date on which the Property was actually sold, in violation of Paragraph 22 of the Mortgage which stated that the mortgagee "shall sell" at the time specified in the published notice;

g) No Defendant ever held an auction on a published date, in violation of Paragraph 22 of the Mortgage which stated that the mortgagee "shall sell" at the time specified in the published notice;

h) No Defendant ever issued a written notice to the public of any postponed auction date, despite the requirement of Paragraph 15 of the Mortgage that "all notices" in connection with the Mortgage be "in writing" and state law requiring a "public announcement" of any postponement;

i) The date when the Property was purportedly sold to Nationstar or Fannie Mae (depending on whether one believes the Affidavit of Foreclosure or the quitclaim deed from Nationstar) was never published in a newspaper or otherwise in writing to the public; and

j) No Defendant ever recorded a lawful Affidavit of Foreclosure signed by the attorney conducting the putative sale.

(Emphases in original).

Fannie Mae purchased the property, and subsequently sold it to Cole by limited warranty deed.² But the Delapinias contended that both conveyances are "void and not merely voidable" under Silva v. Lopez, 5 Haw. 262, 271 (1884), and Lee v. HSBC Bank USA, 121 Hawai‘i 287, 218 P.3d 775 (2009), because of the statutory and contractual violations that rendered the foreclosure wrongful. The plaintiffs therefore sought "the ‘classic remedy’ for a challenged nonjudicial foreclosure," return of title and possession, citing Santiago v. Tanaka, 137 Hawai‘i 137, 154 n.33, 366 P.3d 612, 629 n.33 (2016).

The Delapinias brought two claims against the defendants based on these allegations. In Count I (quiet title), the Delapinias asked the court to quiet title in the property in favor of the plaintiffs – except for the 2007 Mortgage, "which should remain on the Property when it is returned to Plaintiffs" – ejectment of the third-party purchaser, possession, and damages from the lost rental value. In Count II (wrongful foreclosure), the Delapinias further alleged that the Nationstar defendants failed to act "in accordance with their duties as mortgagee"– since "no lawful published auction ever occurred," those duties continued. The plaintiffs asked for compensatory and punitive damages on the wrongful foreclosure count.

2. Motions to Dismiss and for Judgment on the Pleadings

The Cole defendants moved to dismiss³ the FAC under Hawai‘i Rules of Civil Procedure (HRCP) Rule 8(a)⁴ and Rule 12(b)(6)⁵ on the basis that they were protected by their status as bona fide purchasers.⁶ The Cole defendants pointed to this court's decisions in Santiago and Mount v. Apao, 139 Hawai‘i 167, 384 P.3d 1268 (2016),⁷ which they claim establish that "an unlawful nonjudicial foreclosure is at most ‘voidable,’ unless the property has been sold to innocent purchasers for value, in which case the appropriate remedy is an award of damages." As pleaded, it was "apparent from the face of the pleading" that the foreclosure was at most voidable, not void. Under Santiago and Mount, the appropriate remedy when the property has been conveyed to "innocent purchasers for value" is damages. It was also "apparent from the face of the FAC" that Cole was a bona fide purchaser.

The Delapinias argued in response that this court has described "the classic remedy for such a cause of action [as] return of title and possession." (Emphasis omitted). Moreover, the Delapinias contend Mount did not address the remedy when the sale violated the power of sale clause, rather than the statute.

On the other hand, Silva "is on point and is ultimately controlling here." Per the plaintiffs, that case stands for the principle that "if the power of sale was violated by improper publication of notice of the sale, the sale is ‘void and not merely voidable,’ " qu...