Paresa v. HSBC Bank United States, N.A.

• Decision Date: 04 May 2018
• Docket Number: CIVIL NO. 17-00248 DKW-RLP
• Parties: HENRY VIRGIL PARESA, JR., Plaintiff, v. HSBC BANK USA, N.A., Defendant.
• Court: U.S. District Court — District of Hawaii

HENRY VIRGIL PARESA, JR., Plaintiff, v. HSBC BANK USA, N.A., Defendant.

CIVIL NO. 17-00248 DKW-RLP

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF HAWAI'I

May 4, 2018

ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON COUNT II

INTRODUCTION

Paresa seeks partial summary judgment on his Count II tortious wrongful foreclosure claim based upon HSBC's admitted failure to publish written notice of postponement of a nonjudicial foreclosure sale. Because the Hawaii Supreme Court has determined that such a failure constitutes wrongful foreclosure (see Hungate v. Law Office of David B. Rosen, 139 Hawai'i, 394, 407, 391 P.3d 1, 14 (2017)), the Court GRANTS the Motion only with respect to liability on Count II. The Motion is DENIED to the extent it seeks an advisory ruling regarding the scope or measure of damages for that claim.

BACKGROUND

I. Factual Background

A. Paresa's Mortgage and Default

Paresa purchased real property located at 2888 Ala Ilima Street #2602, Honolulu, Hawaii 96813 (the "Property") on March 28, 1988. The conveyance was recorded in the Office of the Assistant Registrar of the Land Court, State of Hawaii ("Land Court") on March 30, 1988, as Document No. 1539544, and noted on Certificate of Title No. 321,363.¹ According to Paresa, the Certificate of Title was for the entire condominium building and a new certificate issued for the entire property of the condominium building on November 21, 1988, as certificate No. 321,363.² See Paresa Mem. in Supp. at 2; Paresa Ex. 2 (Certificate of Title No. 321,363), Dkt. No. 23-3.

To finance the purchase of the Property, Paresa obtained a loan secured by a Mortgage in favor of Mortgage Electronic Registration Systems, Inc. ("MERS"), as nominee for lender New Century Mortgage Corporation, and executed an Adjustable Rate Note in the amount of $90,000 ("Note"). The Mortgage was recorded in Land Court on November 29, 2006, as Document No. 3520036, and noted on Certificate of Title No. 321,363. Paresa Ex. 3 (Recorded Mortgage); Dkt. No. 23-4.

Beginning in mid-2007, and continuing throughout 2008, the loan servicer sent numerous letters to Paresa notifying him that he was in default and advising him that the Mortgage would be accelerated if he did not cure the default. See Decl. of Shae Smith, Ex. B (6/25/2007 Letter), Dkt. No. 32-14; Ex. C (11/19/2007 Letter), Dkt. No. 32-15; Ex. D (3/17/2008 Letter), Dkt. No. 32-16; Ex. E (9/21/2008 Letter), Dkt. No. 32-17; Ex. F (10/19/2008 Letter), Dkt. No. 32-18; Ex. G (11/16/2008 Letter), Dkt. No. 32-19. Paresa, however, was not able to cure the default.

In 2009, HSBC was assigned the Mortgage. The Assignment of Mortgage from MERS to HSBC was recorded in Land Court on May 5, 2009 as Document No. 3854486, and noted on Certificate of Title No. 321,363. Paresa Ex. 4 (Assignment), Dkt. No. 23-5. According to Paresa, as the assignee of the Mortgage, HSBC also claimed to be a mortgagee or successor to a mortgagee entitled under former HRS, Chapter 667 Part I (2008), to exercise the power of sale in the Mortgage. Paragraph 22 of the Mortgage contains the power of sale provision at issue, which provides in part:

If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by Applicable Law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys' fees and costs of title evidence.

If Lender invokes the power of sale, Lender shall give Borrower notice of sale in the manner provided in Section 15. Lender shall publish a notice of sale and shall sell the Property at the time and place an under the terms specified in the notice of sale. Lender or its designee may purchase the Property at any sale.

Mortgage ¶ 22.

Paragraph 15 in turn mandates that all notices "must be in writing" and provides:

If any notice required by this Security Instrument is also required under Applicable Law, the Applicable Law Requirement willsatisfy the corresponding requirement under this Security Instrument.

Mortgage ¶ 15. "Applicable Law" is defined in the Mortgage as "all controlling applicable federal, state and local statutes, regulations, ordinances and administrative rules and orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions." Mortgage ¶ I.

Paresa contends that HSBC undertook to exercise that power of sale for its own benefit, but did not satisfy the conditions precedent to the valid exercise of the power or the statute regulating it, former HRS § 667-5.

B. Non-Judicial Foreclosure

On December 10, 2010, HSBC recorded a Notice of Mortgagee's Intention to Foreclose Under Power of Sale ("Notice") in the Hawaii Bureau of Conveyances, and served the Notice on Paresa four days later. HSBC Ex. 3 (Mortgagee's Affidavit; Ex. B. (Return of Service, dated 12/14/10); Ex. E (Notice, recorded on 12/10/10)), Dkt. No. 32-4.³ HSBC published notice of the foreclosure sale in the Honolulu Star-Advertiser on December 17, 24, and 31, 2010. Mortgagee's Affidavit, Ex. G. (Aff. of Publication, dated 1/3/11). Prior to the scheduled January 28, 2011 auction, Paresa attempted to negotiate a loan modification with the loanservicer, explaining that "[m]y monthly debt payments are excessive and I have overextended myself with my creditors." Smith Decl., Ex. J (1/11/2011 Hardship Aff.), Dkt. No. 32-22. Paresa submitted a Hardship Affidavit, dated January 11, 2011, explaining in part:

I am requesting review for a loan modification. I am having difficulty making my monthly payment because of financial difficulties.

****

While this property was my primary home many years ago, most recently I had it rented. As I became behind in payments to the condominium association, the condo association foreclosed on this property in August 2009. I have already faxed the documents relating to this recorded foreclosure to American Servicing Company . . . With the proceeds from the sale of my other property, I will be paying off the condo association and title will be conveyed back to me. American Servicing has been paying the real property taxes and leasehold fee on this property while the condo association foreclosed on the property.

****

Right now, with my current employment, I am seeking a second job to supplement my income to meet expenses. Income that I have received from my roommate has also helped me pay off some of my debts. I have drastically reduced my spending and expenses. My goal is to keep my property, avoid foreclosure, and pay off my debt. I would like to have the opportunity to have my loan modified so that my payments are more affordable and I can keep my property.

HSBC Ex. J (1/11/2011 Hardship Aff.).

On January 28, 2011, at the place and time originally scheduled for the sale, HSBC's attorney publicly announced the sale was postponed until February 11, 2011. HSBC Ex. 3 (Mortgagee's Aff.). HSBC notified Paresa of the postponement by sending him a letter of the continuance of the auction and of the new auction date. Mortgagee's Affidavit, Ex. H (Continuance Notice). HSBC did not publish any written notice of postponement.

HSBC asserts that the sale was postponed at Paresa's request. The evidence that HSBC relies on, however, is equivocal. The loan servicer's excerpted "Foreclosure Notes for the Loan," in the unadorned format provided to the Court—cataloging raw servicing notes and data entries from January 25, 2011 to February 1, 2011, from multiple sources, with no explanation of the entries—do not show who requested or granted the postponement of the sale.⁴ Smith Decl., Ex. M(Wells Fargo's Mortgage Services Foreclosure Notes for the Loan, dated 1/25/2011 to 2/1/2011), Dkt. No. 32-25. What is clear is that Paresa did not cure the default, and the foreclosure sale took place on February 11, 2011.

HSBC purchased the Property with a credit bit of $102,000 at the public auction held on February 11, 2011. HSBC Ex. 3 (Mortgagee's Aff.). The Property's appraised value was $120,000 as of April 22, 2011, as determined in anAppraisal and Report Identification on behalf of Premiere Asset Services. Smith Decl., Ex. K (4/22/2011 Appraisal). On November 2, 2011, HSBC conveyed the Property to itself by Mortgagee's Quitclaim Assignment of Condominium Conveyance Document Pursuant to Power of Sale ("Quitclaim Deed"), which was recorded in Land Court on November 23, 2011, as Document No. 4113759. Paresa Ex. 7 (Quitclaim Deed).

On December 23, 2011, HSBC sold the Property to third-party purchasers David Ufai Lao and Caitlyn Sokfan Lao for $118,000. The Limited Warranty Assignment of Condominium Conveyance Document ("Limited Warranty Deed") conveying the Property to the Laos was recorded in Land Court on January 5, 2012, as Document No. 8039093. Paresa Ex. 8 (Limited Warranty Deed).

II. Procedural Background

On February 10, 2017, Paresa filed a two-count Complaint in state court, which HSBC removed on May 26, 2017. Notice of Removal, Dkt. No. 1. The Complaint alleges that the foreclosure was wrongfully conducted in violation of Chapter 667 and the power of sale in the Mortgage, due to the following deficiencies:

a) Plaintiff was not served with a notice of acceleration that complied with Paragraph 22 of the Mortgage;

b) The notice of intention of foreclosure ("Notice" or "Notice of Sale") published in the newspaper by HSBC did notcontain a description of the Property as required by HRS Section 667-7(a)(l) (2008), . . . ;

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) HSBC never published any date on which the Property was actually sold, in violation of

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