Hawaiiusa Fed. Credit Union v. Monalim
Decision Date | 30 April 2020 |
Docket Number | SCWC-16-0000807 |
Citation | 464 P.3d 821 |
Parties | HAWAIIUSA FEDERAL CREDIT UNION, Respondent/Plaintiff-Appellee, v. Jonnaven Jo MONALIM; Misty Marie Monalim, Petitioners/Defendants-Appellants, and Association of Apartment Owners of Beach Villas at Ko Olina, by its Board of Directors; Ko Olina Community Association, Inc., a Hawai‘i nonprofit corporation; Respondents/Defendants-Appellees. |
Court | Hawaii Supreme Court |
Gary Victor Dubin (Frederick J. Arensmeyer with him on the briefs, application, and reply), Honolulu, for petitioners
Thomas J. Berger (Jonathan W.Y. Lai and Tracey L. Ohta with him on the briefs and response), Honolulu, for respondent
The law has long permitted a borrower, or mortgagor, to pledge real property to a lender, or mortgagee, as security for a loan. In the event of a default, the mortgagee may sell the property to generate funds that will go toward paying what is owed. In some instances, however, the proceeds of the sale are insufficient to pay what is due under the mortgage, and the mortgagee is entitled to a deficiency judgment holding the mortgagor liable for the remaining balance.
Such a deficiency occurred in this case. The mortgagors defaulted on the loans, the property was sold, and the foreclosure sale price was less than the amount due on the mortgage. Thereafter, the mortgagee waited over four years, without explanation, before attempting to collect a deficiency judgment. The mortgagors contend that this delay was unreasonable and prejudiced them because they had begun to rebuild their lives in the years since the sale, and the mortgagee should therefore be barred from now seeking a deficiency judgment by the doctrine of laches. They also argue that, because the circumstances of a foreclosure auction are likely to result in the sale of the property for less than its fair market value, the process by which Hawai‘i courts calculate a deficiency judgment is unfair. They ask that we instead adopt the approach favored by a majority of other jurisdictions and the Restatement (Third) of Property, in which the greater of the fair market value as of the date of the foreclosure sale or the sale price of the property is deducted from the money owed when calculating the deficiency.
On review, we hold that the mortgagors’ challenge to the deficiency judgment is not barred by res judicata and that the circuit court erred by failing to rule on their laches defense. We also hold that, because the traditional approach can result in unjust enrichment and the majority rule protects all parties to the mortgage, the equities weigh in favor of adopting the method of calculating a deficiency judgment employed by a majority of other jurisdictions. However, our adoption of the majority rule is prospective in effect and applies only to foreclosure cases in which a deficiency judgment is entered after the date of this opinion.
In 2008, Jonnaven Jo Monalim and Misty Marie Monalim (the Monalims) received two loans from HawaiiUSA Federal Credit Union (HawaiiUSA) to purchase a property located in Kapolei, Hawai‘i (the Property). The Property was a three bedroom, three bathroom unit of the Beach Villas at Ko Olina Condominium built in 2008. The first loan (Note 1) was for $911,200.00; the second loan (Note 2) was for $113,900.00. Each loan was secured by a mortgage on the Property to HawaiiUSA.
On June 24, 2010, HawaiiUSA filed a complaint in the Circuit Court of the First Circuit (circuit court) against the Monalims,1 alleging that the Monalims had defaulted on the notes and seeking to foreclose on the mortgages. Thereafter, HawaiiUSA filed a motion for summary judgment, which the circuit court granted on August 29, 2011 (Foreclosure Order). The circuit court found that the Monalims owed $1,024,428.04 on Note 1 and $121,547.20 on Note 2 and that HawaiiUSA was entitled to foreclose upon the mortgages securing the notes. On the same day, the circuit court entered its judgment on the Foreclosure Order (Foreclosure Judgment).
In the Foreclosure Order, the circuit court appointed a commissioner to take possession of the Property and oversee its sale, subject to confirmation by the court. HawaiiUSA was allowed under the Foreclosure Order to request a deficiency judgment in the event that the proceeds recovered from the Property's auction were insufficient to cover the Monalims’ outstanding debt on the notes:
At the hearing for confirmation of sale, if it appears that the proceeds of the sale of the Mortgaged Property are insufficient to pay all amounts due and owing to [HawaiiUSA], [HawaiiUSA] may request a deficiency judgment in its favor and against the [Monalims] for the amount of the deficiency which shall be determined at the time of confirmation and have immediate execution thereafter.
The Monalims filed an appeal of the Foreclosure Order and Foreclosure Judgment to the Intermediate Court of Appeals (ICA) on September 28, 2011. The appeal was dismissed on September 20, 2012, for failure to submit an opening brief.
The Property was auctioned at public sale on October 24, 2011. Prior to the sale, the Property received a 2011 tax assessment from the City and County of Honolulu in which it was valued at $703,600.00. According to the commissioner's report, only three people attended the auction and sixteen bids were received. The last bid was for $760,000.00. In the report, the commissioner stated that $760,000.00 was a fair and reasonable bid price based on comparable sales and recommended that the court confirm the sale. HawaiiUSA filed a motion to confirm the sale and for deficiency judgment. After a hearing, the circuit court entered an order granting the motion on December 22, 2011.
The record indicates that the circuit court--based on the Monalims’ objection--ordered a further hearing on the matter of the deficiency judgment. The judgment confirming the sale was also entered on December 22, 2011.
Over four years later, on January 12, 2016, HawaiiUSA filed a motion for deficiency judgment. In its motion, HawaiiUSA requested $355,687.07 on Note 1 and $131,755.87 on Note 2, which it alleged remained outstanding as of December 30, 2011, the closing date of the sale.3 The amount outstanding on Note 1 was calculated by subtracting the net proceeds of the sale ($735,045.92) from the amount owed on Note 1 ($1,090,732.99). Because the net proceeds were insufficient to pay the full amount owed on Note 1, no sale proceeds were applied to the outstanding balance on Note 2.
The Monalims filed a memorandum opposing HawaiiUSA's motion for deficiency judgment, contending that the motion was untimely because HawaiiUSA waited "for more than an unprecedented four [ ] years" to bring the motion and that HawaiiUSA was therefore barred by the doctrine of laches. According to the Monalims, HawaiiUSA was required by the Foreclosure Order to request the amount of any deficiency immediately following the sale of confirmation, "which it [ ] deliberately chose [ ] not to do." The Monalims averred that they could have filed for Chapter 7 Bankruptcy and suffered no deficiency judgment had HawaiiUSA filed its motion in 2011. Instead, the Monalims contended, "in reliance upon there being no deficiency judgment they [had] set out to rebuild their lives." They each started a business, began saving for their daughter's college tuition, and were only a few months from clearing the foreclosure from their credit reports, the Monalims stated in an appended declaration. HawaiiUSA's unexplained delay in filing its motion for deficiency judgment would "overwhelming[ly] prejudice" them, they argued.
The Monalims also challenged the method used for calculating the deficiency judgment and contended that an evidentiary hearing should be held to determine the fair market value of the Property at the time of the sale. According to the Monalims, Hawai‘i courts currently calculate the amount of a deficiency judgment by "mathematically" subtracting the net proceeds of the sale from the mortgage debt without considering any evidence of a higher property valuation or any subsequent sales for higher prices. Hawai‘i courts will set aside the earlier auction price only if it is said to "shock the conscience of the Court," the Monalims related. The Monalims contended that this "completely ignores reality and equity" because lenders have the ability to routinely "credit bid" for the property at the foreclosure auction, thereby scaring away competition.4 This enables a mortgagee to recover the property at less than fair market value and secure a windfall, the Monalims asserted. The result, the Monalims argued, is that borrowers are penalized beyond what the foreclosing mortgagee actually lost.
The Monalims contended that this procedure for calculating deficiency judgments violates both procedural and substantive due process because mortgagees are constitutionally entitled to no more than payment in full. The Monalims maintained that Hawai‘i's method represents the minority view among states and that the circuit court should instead conduct a separate evidentiary hearing to determine the fair market value of the Property, which would be deducted from the mortgage debt in lieu of the sale price if it is the greater of the two. (Citing Sostaric v. Marshall, 234 W.Va. 449, 766 S.E.2d 396 (2014).)
In its reply, HawaiiUSA argued that its motion...
To continue reading
Request your trial-
In re Malabe
... ... approved housing counselors and approved budget and credit counselors. However, the intermediate court of appeals in ... 304, 313, 80 S.Ct. 326, 4 L.Ed.2d 334 (1960). Monalim , 147 Haw. at 50, 464 P.3d at 838. Similar to HRS 667-1.5 ... and is thus governed by the rules of equity." HawaiiUSA Fed. Credit Union v. Monalim , 147 Hawai'i 33, 41, 464 P.3d ... ...
-
New Eng. Phx. Co. v. Grand Isle Veterinary Hosp.
... ... § 8.4 cmt. a (1997); see also HawaiiUSA Fed. Credit ... Union v. Monalim , 464 P.3d 821, 832-35 ... ...
-
The Bank of N.Y. Mellon v. DeShaw
... ... transcript." (brackets omitted) (quoting Union Bldg ... Materials Corp. v. The Kakaako Corp. , 5 ... See HawaiiUSA Fed. Credit Union v. Monalim , 147 ... Hawai'i 33, 49 ... ...
-
State v. Nago
... ... the judicial department to say what the law is." HawaiiUSA Fed. Credit Union v. Monalim , 147 Hawaii 33, 49, 464 P.3d ... ...