Wells Fargo Bank, N.A. v. Fong

• Decision Date: 28 May 2021
• Docket Number: SCWC-16-0000435
• Citation: 149 Hawai‘i 249,488 P.3d 1228
• Court: Hawaii Supreme Court
• Parties: WELLS FARGO BANK, N.A., dba Americas Servicing Company, Respondent/Plaintiff-Appellee, v. Marianne S. FONG, Individually and as Trustee of the Marianne S. Fong Revocable Trust Dated October 16, 2003, Petitioner/Defendant-Appellant, and Onomea Bay Ranch Owner's Association, Inc., Defendant.

149 Hawai‘i 249

488 P.3d 1228

WELLS FARGO BANK, N.A., dba Americas Servicing Company, Respondent/Plaintiff-Appellee,

v. Marianne S. FONG, Individually and as Trustee of the Marianne S. Fong Revocable Trust Dated October 16, 2003, Petitioner/Defendant-Appellant,andOnomea Bay Ranch Owner's Association, Inc., Defendant.

SCWC-16-0000435

Supreme Court of Hawai‘i.

MAY 28, 2021

Al Thompson for petitioner/defendant-appellant Marianne S. Fong

Edmund K. Saffery and Deirdre Marie-Iha, Honolulu, for respondent/plaintiff-appellee Wells Fargo Bank, NA dba Americas Servicing Company

RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.

OPINION OF THE COURT BY NAKAYAMA, J.

A bank seeking to foreclose on a mortgage and note bears the burden of establishing that the borrower defaulted under the terms of the agreements. In order to satisfy this burden and prevail on a motion for summary judgment, the bank must submit evidence which clearly demonstrates the borrower's default.

Wells Fargo Bank, N.A. (Wells Fargo or Lender) sought a judicial foreclosure of the residence of Marianne S. Fong (Fong or Borrower). In order to prove that Fong had defaulted, Wells Fargo submitted a ledger without explaining how to read the ledger. In the absence of any explanation, the ledger is ambiguous and presents genuine issues of material fact. Furthermore, although the ledger indicates that Wells Fargo billed Fong for lender-placed insurance, there is only ambiguous evidence regarding whether Wells Fargo properly charged Fong for the insurance. Thus, there is also a genuine issue of material fact concerning whether Fong actually owed the amounts that forced her into the alleged default. The Intermediate Court of Appeals (ICA) consequently erred in affirming the Circuit Court of the Third Circuit's (circuit court) order granting summary judgment.

This court therefore vacates the ICA's judgment of February 12, 2020 and remands this case for further proceedings consistent with this opinion.

I. Background

A. Factual Background

On March 12, 2007, Fong executed a promissory note (Note) for $570,000 to MortgageIt, Inc. secured by a mortgage (Mortgage) on her home in Pepe‘ekeo on the island of Hawai‘i. Wells Fargo ultimately obtained the Note from MortgageIt, Inc., and was also assigned the Mortgage.

1. The Note

The Note obligated Fong to make "monthly payments" for thirty years beginning in May 2007. Under the terms of the Note, Fong was required to pay $3,087.50 per month for the first ten years, followed by $4,249.77 per month for the latter twenty years.

The Note further provided that Fong would be in default if she "d[id] not pay the full amount of each monthly payment on the date it is due." In the event that Fong defaulted on her payments, the Note included an acceleration clause authorizing Wells Fargo to seek the full amount owed under the Note.

2. The Mortgage

In conjunction with the terms of the Note, the Mortgage obligated Fong to make "periodic payments" consisting of the monthly payments required by the Note, any additional charges required by the Note, and escrow items. As relevant here, "escrow items" included "premiums for any and all insurance required by [Wells Fargo] under Section 5."

Under Section 5 of the Mortgage, Fong was required to insure the property "against loss by fire, hazards included within the term ‘extended coverage,’ and any other hazards including, but not limited to, earthquakes and floods, for which Lender requires insurance."

If Fong failed to purchase and maintain the required insurance, the Mortgage authorized Wells Fargo to "obtain insurance coverage, at [Wells Fargo's] option and [Fong's] expense." "Any amounts disbursed by [Wells Fargo] ... shall become additional debt of [Fong] secured by this [Mortgage]. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from [Wells Fargo] to [Fong] requesting payment."

Lastly, Section 1 of the Mortgage also authorized Wells Fargo to "return any payment or partial payment if the payment or partial payments are insufficient to bring the Loan current." If Fong was up to date on her payments, the Mortgage provided that her payments "shall be applied in the following order of priority: (a) interest due under the Note; (b) principal due under the Note; (c) amounts due under Section 3 [for Escrow Items]." However, if Fong was delinquent, the Mortgage provided that a "payment may be applied to the delinquent payment and the late charge. If more than one Periodic Payment is outstanding, Lender may apply any payment received from Borrower to the repayment of the Periodic Payments if, and to the extent that, each payment can be paid in full."

3. Loan History

Between July 2007 and February 2009, Fong regularly made payments exceeding $3,087.50 to Wells Fargo for each month's payment.¹

At some time prior to September 10, 2007, Wells Fargo apparently determined that Fong did not obtain hail and windstorm (hurricane) insurance for the mortgaged property, as required under Section 5 of the Mortgage.² On October 18, 2007, Wells Fargo purchased lender-placed hurricane insurance at the price of $13,067.20 for the time period from July 31, 2007 to July 31, 2008. On August 1, 2008, Wells Fargo purchased a second year's worth of lender-placed hurricane insurance for $13,067.20 for the time period from July 31, 2008 to July 31, 2009. It is not clear from the record whether Wells Fargo notified Fong prior to either purchase that Wells Fargo would purchase and charge Fong for the cost of hurricane insurance if she failed to obtain a policy.

On July 26, 2009, Wells Fargo mailed Fong a letter asserting that she was in default (Default Letter). The Default Letter stated that Fong owed Wells Fargo $22,763.16 in past due payments, and that there was a total delinquency of $22,932.53. The Default Letter notified Fong that if she did not make her payments current by August 25, 2009, Wells Fargo would accelerate the Mortgage and potentially foreclose on the property.

It appears that Fong stopped making consistent payments after receiving the Default Letter.

B. Procedural Background

On March 23, 2010, Wells Fargo filed a complaint seeking foreclosure in circuit court.³

Over five years later,⁴ Wells Fargo filed the Motion at issue on October 27, 2015.

Wells Fargo contended that it was entitled to foreclosure because its evidence demonstrated (1) the existence of the Mortgage and Note; (2) the terms of the Mortgage and Note; (3) that Fong defaulted under the terms of the Mortgage and Note; and (4) that it provided Fong with the requisite notice of foreclosure. As evidence of Fong's purported default under the terms of the Mortgage and Note, Wells Fargo submitted a loan account history (Loan History).⁵

On November 23, 2015, Fong filed a pro se response (Response) to Wells Fargo's Motion. In a two-page memorandum, Fong asserted that she was not in default. Instead, Fong stated that she attempted to make payments, but Wells Fargo returned her payments. Fong also indicated that any alleged default was caused by Wells Fargo's imposition of lender-placed hurricane insurance without providing Fong notice. Fong attached several documents to her Response to support her claims. However, Fong did not include a declaration or affidavit attesting to her claims or certifying her documents.

On December 7, 2015, Wells Fargo asserted in its reply that it had established Fong's default through the Loan History. However, Wells Fargo did not explain how the Loan History showed Fong's default. Wells Fargo also argued that the Note "allow[ed Wells Fargo] the right to accelerate and require payment of the full amount of Principal which has not been paid and all the interest that is owed on that amount. Any payment of less than the full amount due does not have to be accepted and refunded [sic]."

On December 10, 2015, Fong submitted an "Addendum to Memorandum in Opposition to Motion for Summary Judgment filed on November 23, 2015" (Addendum). In the Addendum, Fong reiterated her claims from her Response. Fong also stated that she obtained her own hurricane insurance policy at an approximate rate of $557.00 per year, as opposed to Wells Fargo's $13,067.20 per year policy.

On December 17, 2015, the circuit court held a hearing on Wells Fargo's Motion. During the hearing, the circuit court stated it would grant Wells Fargo's Motion.

On May 2, 2016, the circuit court entered its "Findings of Fact, Conclusions of Law and Order Granting Plaintiff's Motion for Summary Judgment and Decree of Foreclosure Against all Defendants on Complaint filed March 23, 2010" (Order). The circuit court found that Wells Fargo established the four elements required by Bank of Honolulu v. Anderson, 3 Haw. App. 545, 551, 654 P.2d 1370, 1375 (1982), and was entitled to foreclosure. In particular, the circuit court found that, as an "undisputed fact[ ],"

Defendant MARIANNE S. FONG defaulted in the observance and performance of the terms, covenants and conditions set forth in the Note and Mortgage in that said Defendant failed and neglected to pay the principal sum thereof and the interest thereon at the times and in the manner therein provided, and failed and neglected to pay the additional Mortgage expenses, advances and charges incurred or made pursuant to the terms and conditions of the Mortgage.

However, beyond stating that it "reviewed the pleadings, declarations and the files and records herein," the circuit court did not address Fong's arguments that she was not in default because Wells Fargo rejected her payments and because Wells Fargo improperly charged her for lender-placed hurricane insurance. The circuit court entered its judgment the same day.

Before the ICA, Fong asserted that the circuit court erred in granting Wells Fargo's Motion because Fong presented genuine issues of material fact, namely whether (1) Fong actually was in default; (2) the lender-placed hurricane insurance...