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NO. CAAP-18-0000699

IN THE INTERMEDIATE COURT OF APPEALS

OF THE STATE OF HAWAI#I

U.S. BANK NATIONAL ASSOCIATION AS TRUSTEE FOR CSMC

MORTGAGE LOAN TRUST 2006-7, Plaintiff-Appellee,

v.

WATOSHINA LYNN COMPTON, Defendant-Appellant,

and

GABI A. BENGIS; RON SERLE; DEPARTMENT

OF TAXATION - STATE OF HAWAI#I,

Defendants-Appellees,

and

JOHN DOES 1-20; JANE DOES 1-20; DOE CORPORATIONS 1-20;

DOE ENTITIES 1-20; AND DOE GOVERNMENTAL UNITS 1-20

Defendants

APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT

(CIVIL NO. 17-1-0025(3)

MEMORANDUM OPINION

(By: Ginoza, Chief Judge, Chan and Hiraoka, JJ.)

I. Introduction

This appeal arises out of a civil action initiated by

Plaintiff-Appellee U.S. Bank National Association as Trustee for

CSMC Mortgage Loan Trust 2006-7 (U.S. Bank) to foreclose on real

property owned by Defendant-Appellant Watoshina Lynn Compton

(Compton) and located in Kihei, on the island of Maui (Property). 

Compton appeals from the Judgment entered on August 10, 2018,

pursuant to the "Findings of Fact, Conclusions of Law and Order

Granting Plaintiff's Motion for Summary Judgment against All

Electronically Filed

Intermediate Court of Appeals

CAAP-18-0000699

18-SEP-2020

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Defendants and for Interlocutory Decree of Foreclosure," also

entered on August 10, 2018, by the Circuit Court of the Second

Circuit (Circuit Court).1

On appeal, Compton asserts that the Circuit Court erred

in granting U.S. Bank's motion for summary judgment and for

interlocutory decree of foreclosure (Motion for Summary Judgment)

because (1) U.S. Bank failed to meet its burden of establishing

it was the holder of the subject promissory note (Note) at the

time it filed the complaint and thus lacked standing, and (2)

U.S. Bank failed to establish that Compton had been provided

adequate notice of the alleged default. 

For the reasons discussed below, we vacate and remand.

II. Discussion

U.S. Bank filed the Complaint For Mortgage Foreclosure

(Complaint) in this action on January 24, 2017. The Complaint

asserts that in return for a loan received, Compton signed a Note

on May 18, 2006, made and delivered to lender Countrywide Home

Loans, Inc. (Countrywide). The Complaint further asserted that

the Note was endorsed in blank, and that U.S. Bank had possession

of the Note through its counsel.

Compton contends that U.S. Bank failed to establish

that it was entitled to enforce the Note at the time that U.S.

Bank filed the Complaint. In particular, Compton asserts that

the evidence which U.S. Bank sought to admit through (1) the

"Declaration of Indebtedness and on Prior Business Records" by

Carol Davis (Davis), a "Document Execution Specialist" employed

by Nationstar Mortgage LLC d/b/a Mr. Cooper (Nationstar), as

servicing agent for U.S. Bank, attached to the Motion for Summary

Judgment, and (2) the "Declaration of Custodian of Note" by Gina

Santellan (Santellan), a "custodian of original loan records"

employed by The Mortgage Law Firm, PLC (TMLF CA), attached to

U.S. Bank's "Supplemental Memorandum in Support of Its [Motion 

1 The Honorable Joseph E. Cardoza presided.

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for Summary Judgment]," was hearsay and not admissible evidence

under Hawaii Rules of Evidence (HRE) 803(b)(6).2

In Bank of Am., N.A. v. Reyes-Toledo, 139 Hawai#i 361,

390 P.3d 1248 (2017), the Hawai#i Supreme Court held that in

order for a foreclosing plaintiff to establish standing to

foreclose, the plaintiff must show entitlement to enforce the

promissory note at the time the foreclosure action was commenced. 

Id. at 368, 390 P.3d at 1255.

Whether a party is entitled to enforce a promissory note is

determined by application of HRS § 490:3-301 (2008), which

provides the following:

"Person entitled to enforce" an instrument means (i)

the holder of the instrument, (ii) a nonholder in

possession of the instrument who has the rights of a

holder, or (iii) a person not in possession of the

instrument who is entitled to enforce the instrument

pursuant to section 490:3-309 or 490:3-418(d). A

person may be a person entitled to enforce the

instrument even though the person is not the owner of

the instrument or is in wrongful possession of the

instrument.

Id. at 369, 390 P.3d at 1256.

2 HRE Rule 803(b)(6) provides:

Rule 803 Hearsay exceptions; availability of declarant

immaterial.

The following are not excluded by the hearsay rule,

even though the declarant is available as a

witness:

. . . .

(b) Other exceptions.

. . . .

 (6) Records of regularly conducted activity. A

memorandum, report, record, or data compilation, in

any form, of acts, events, conditions, opinions, or

diagnoses, made in the course of a regularly conducted

activity, at or near the time of the acts, events,

conditions, opinions, or diagnoses, as shown by the

testimony of the custodian or other qualified witness,

or by certification that complies with rule 902(11) or

a statute permitting certification, unless the sources

of information or other circumstances indicate lack of

trustworthiness.

(Emphasis added).

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Here, U.S. Bank contends that it had standing to

foreclose because its servicing agent, Nationstar, or its

counsel, TMLF, had possession of the subject Note prior to the

commencement of this action. In this regard, business records

such as a promissory note may be admitted into evidence through

"the testimony of the custodian or other qualified witness" of

such records pursuant to HRE Rule 803(b)(6).

For purposes of admitting a promissory note in a

mortgage foreclosure action, and given Hawai#i case law on the

issue, it appears that someone purporting to be a "custodian or

other qualified witness" must establish sufficient foundation

upon which to admit the note. In Wells Fargo Bank, N.A. v.

Behrendt, 142 Hawai#i 37, 414 P.3d 89 (2018), the Hawai#i Supreme

Court stated:

The court in Mattos held that a witness may be qualified to

provide the testimony required by HRE Rule 803(b)(6) even if

the witness is not employed by the business that created the

document or lacks direct, personal knowledge of how the

document was created. Id. "There is no requirement that

the records have been prepared by the entity that has

custody of them, as long as they were created in the regular

course of some entity's business." Id. (quoting State v.

Fitzwater, 122 Hawai#i 354, 366, 227 P.3d 520, 532 (2010)). 

The witness, however, must have enough familiarity with the

record-keeping system of the business that created the

record to explain how the record was generated in the

ordinary course of business. Id.

Records received from another business and incorporated into

the receiving business' records may in some circumstances be

regarded as "created" by the receiving business. Id.

Incorporated records are admissible under HRE Rule 803(b)(6)

when a custodian or qualified witness testifies that the

documents were incorporated and kept in the normal course of

business, that the incorporating business typically relies

upon the accuracy of the contents of the documents, and the

circumstances otherwise indicate the trustworthiness of the

document. See id.; Fitzwater, 122 Hawai#i at 367-68, 227

P.3d at 533-34.

Id. at 45-46, 414 P.3d at 97-98. As further explained with

regard to custodians:

Obviously, mere possession or "custody" of records

under [circumstances where a second organization

incorporates the records into their own] does not

qualify employees of the possessing party to lay the

requisite foundation, and reliance by the organization

on records created by others, although an important

part of establishing trustworthiness, without more is

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not sufficient. However, when the business offering

the records of another has made an independent check

of the records, has integrated them into their own

business operation in a way that establishes

trustworthiness or contains other assurances of

trustworthiness, or can establish accuracy by other

means, the necessary foundation may be established.

2 McCormick On Evid. § 292 (8th ed. 2020) (emphasis added,

footnotes omitted). Consequently, even a custodian of records

must lay a proper foundation for the admission of records of

regularly conducted activity pursuant to HRE Rule 803(b)(6).

Here, Davis does not attest to being a custodian of

records, but an authorized signer for Nationstar. In her

declaration signed on September 8, 2017, and submitted with U.S.

Bank's Motion for Summary Judgment, Davis attests in relevant

part:

1. I am authorized to sign this Declaration on

behalf of Plaintiff, [U.S. Bank], as an authorized

signer of [Nationstar], which is Plaintiff's servicing

agent for the subject loan ("the loan").

2. Nationstar maintains records for the loan in

its capacity as Plaintiff's servicer. As part of my

job responsibilities for Nationstar, I am familiar

with the type of records maintained by Nationstar in

connection with the Loan. As such, I am authorized to

make this Declaration.

3. Nationstar is the current loan servicer for

Plaintiff and acts as the exclusive representative and

agent of Plaintiff in the servicing and administering

of mortgage loans referred to Nationstar, including

the Loan being foreclosed in this action.

4. The information in this Declaration is taken

from Nationstar's business records. I have personal

knowledge of Nationstar's procedures for creating

these records. They are: (a) made at or near the time

of the occurrence of the matters recorded by persons

with personal knowledge of the information in the

business record, or from information transmitted by

persons with personal knowledge; (b) kept in the

course of Nationstar's regularly conduced business

activities; and (c) created by Nationstar as a regular

practice.

. . . .

6. Plaintiff has possession of the Note with

standing to prosecute the instant action and the right

to foreclose the subject Mortgage. The Note has been

indorsed to Blank. In anticipation that the original

Note would be required for these foreclosure

proceedings, Plaintiff has since caused the original

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Note to be delivered to Nationstar, agent for the

Plaintiff. Nationstar received from the Plaintiff,

the original Note, reviewed the original Note and as

the agent for Plaintiff, is entitled to collect on the

original Note. Prior to the filing of the Complaint

on 01/24/17, Nationstar caused the original Note to be

delivered to the Plaintiff's attorney, TMLF Hawaii

LLLC, as agent for the Plaintiff. A true and correct

copy of the original Note is attached hereto as

Exhibit "1" and incorporated herein by reference.

7. Nationstar's records indicate that

Plaintiff, by and through Nationstar had possession of

the original Note prior to 01/24/17, the date of the

filing of the complaint in this foreclosure.

. . . .

13. Under the terms of Nationstar's servicing

arrangement, Plaintiff does not participate in, keep

and maintain any of the day to day loan documents,

inputting of accounting data, saving of business

records and all communications with borrowers.

14. The Plaintiff, as the Investor, has a

passive role with the primary emphasis on tracking its

return on investment. In terms of routine business

records on the Loan, Nationstar acts as the sole

custodian of Plaintiff's records.

15. Nationstar became Plaintiff's loan servicer

for the Loan being foreclosed in this action on

01-December-2013.

. . . .

23. The prior loan servicer for this mortgage

loan was Bank of America ("Prior Servicer").

24. Upon becoming Plaintiff's loan servicer,

Nationstar took custody and control of loan documents

and business records of the Prior Servicer and

incorporated all such records into the business

records of Nationstar.

25. Before the Prior Servicer's records were

incorporated into Nationstar' [sic] own business

records, it conducted an independent check into the

Prior Servicer's records and found them in keeping

with industry wide loan servicing standards and only

integrated them into Nationstar' [sic] own business

records after finding the Prior Servicer's records

were made as part of a regularly conducted activity,

met industry standards and determined to be

trustworthy.

26. In performing its services to the

Plaintiff, Nationstar relies upon the accuracy of the

Prior Servicer's records and those records are now a

part of and used for all purposes in the conduct of

Nationstar's regularly conducted activity of keeping

and maintaining its own business records.

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27. The Prior Servicer's records are regularly

used and relied upon by Nationstar in all dealings

with all the borrowers, in reporting all profit and

loss on the mortgage loans to the Plaintiff, in the

preparation, filing and payment of income taxes

dependent upon such information, and in evaluating

Nationstar's own job performance.

. . . .

29. Nationstar did review and determine the

Prior Servicer's business records were trustworthy

otherwise it would not have incorporated it into its

own records.

(Emphases added). Attached to Davis's declaration is a copy of

the Note, which states that Countrywide is the lender and which

has an undated blank indorsement by Countrywide on the second

page. 

The Davis declaration does not state that U.S. Bank

possessed the Note at the time the Complaint was filed, merely

stating that "[U.S. Bank] has possession of the Note," and that

based on Nationstar's records, U.S. Bank "by and through

Nationstar had possession of the original Note prior to 01/24/17,

the date of the filing of the complaint in this foreclosure." 

(Emphases added). 

Moreover, although Davis attests to Nationstar

incorporating the records of Bank of America, the "Prior

Servicer," and relying upon the accuracy of those records, Davis

does not aver that she is familiar with the record-keeping system

of Bank of America or the lender Countrywide, which purportedly

created the Note and signed the blank endorsement. Thus, Davis's

declaration failed to establish the foundation for the Note to be

admitted into evidence. Behrendt, 142 Hawai#i at 45, 414 P.3d at

97; U.S. Bank N.A. v. Mattos, 140 Hawai#i 26, 32-33, 398 P.3d

615, 621-22 (2017).

U.S. Bank also submitted a "Declaration of Custodian

Note" executed on May 18, 2018, by Gina Santellan, an employee of

TMLF CA and a "custodian of records," which states:

1. I am employed by [TMLF CA] as the custodian

of original loan records of foreclosing mortgagees,

their respective loan servicers and foreclosure

counsel.

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2. My custodial duties include taking

possession of original loan documents of foreclosing

mortgagees represented by both TMLF CA for the

foreclosure of the clients' California properties and

TMLF Hawaii LLLC. [sic] ("Plaintiff's Counsel") for

the foreclosure of the clients' Hawaii properties. 

Foreclosure mortgagees represented by both law firms

are referred to as "Common Law Clients".

3. In this Hawaii foreclosure, [U.S. Bank]

("Plaintiff") and its loan servicer, [Nationstar], are

both clients of TMLF CA and Plaintiff's Counsel.

4. As custodian for this Common Law Client, I

am duly authorized by the Plaintiff to make this

Supplemental Declaration in support of Plaintiff's

[Motion for Summary Judgment] filed on February 20,

2018. 

5. I am over the age of 18 years, and I have

personal knowledge of the facts and matters stated

herein based on my review of the business records

described below. The statements set forth in this

Supplemental Declaration are true and correct.

6. As custodian for Plaintiff's records, I

supervise and control TMLF CA's employees in the

regular maintenance of our receipt records, document

inventory, secure storage, retrieval, and transmittal

of the original loan collateral file, including the

original Note, of all Common Clients.

7. Until we are in receipt and possession of

the original documents, we do not advise Plaintiff's

Counsel it is clear to proceed with the foreclosure

process.

8. For Hawaii foreclosures, it is my duty to

transmit to Plaintiff's Counsel immediately upon its

request, the original loan documents as may be needed

for inspection by borrowers, production as part of

discovery by opposing counsel, hearings or other court

proceedings.

9. The process of documenting our receipt and

retention of loan documents for Common Law Clients is

part of a regularly conducted activity under my

immediate supervision and control. All such records,

including but not limited to the receipt of bailee

letters and its enclosures such as original notes are

made at or near the time of is [sic] occurrence and

recorded by a person with knowledge of those matters. 

This record custodial process is done in the course of

our regularly conducted activity as custodian for

Plaintiff's Counsel and this regularly conducted

activity is part of our regular custodial practice.

10. Receipt of the Plaintiff's original Note

was handled under standard operating procedures as

part of our regularly conducted activity describe

[sic] above.

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11. The document used to confirm the date of

our receipt of the foreclosing mortgagee's original

Note is a bailee letter.

12. On or about 01/02/2015, TMLF CA, as

custodian for Plaintiff and Plaintiff's Counsel,

received the Bailee Letter and original Note indorsed

in blank, among other documents, for the property

being foreclosed in this action. The Bailee Letter

and original Note indorsed in blank, among other

documents, have since remained in our possession as

custodian for Plaintiff and Plaintiff's Counsel.

13. The Bailee Letter was accepted by me on

01/07/2015, a TMLF CA employee with knowledge working

under by direct supervision and control as the

custodian for Plaintiff and Plaintiff's Counsel.

14. A true and correct copy of the Bailee

Letter is attached as Exhibit "12". TLMF CA took

possession of the original Note indorsed in blank as

custodian for Plaintiff and Plaintiff's Counsel on or

before 01/07/2015. Under the direction of and with

authority from Nationstar as Plaintiff's loan

servicer, it delivered the original Note indorsed in

blank to us with the Bailee Letter. Attached hereto

as Exhibit "13" is a true and correct copy of the

original Note indorsed in blank, received by TMLF CA

on or about 01/02/2015, and acknowledged on

01/07/2015.

15. The Bailee Letter Agreement attached

Exhibit "12" is part of the Plaintiff's business

records on this action and I have personal knowledge

as to how these records are created, used and

retained: [sic] The attached business records were

made at or near the time of the occurrence of the

matters recorded by persons with personal knowledge of

the information in the business record, or from

information transmitted by persons with personal

knowledge; (b) kept in the course of the law firm's

regularly conducted law business activities; and (c)

created by the Law Firm as part of its regular

practice when acting as custodian.

(Emphases added). The Bailee Letter attached to the Santellan

Declaration is dated January 2, 2015, addressed to Ryan Remington

at TMLF CA, and signed by "Nationstar Mortgage LLC Document

Control Department" as the creator of the Bailee Letter as

indicated by the "Nationstar Mortgage" logo on the top right

corner of the Bailee Letter. The Bailee Letter further indicates

that the recipients "acknowledge and agree that all of the

enclosed documents are being provided to you and are to be held

by you, as agent for and Bailee of, and subject to the direction

of, Nationstar Mortgage LLC." The "enclosed documents" consist

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of the "Note," "Security Instrument," and "Title Policy." 

Acknowledgment of receipt is signed by Santellan on January 7,

2015. 

Even if we assume, without deciding, that the Bailee

Letter is admissible evidence, Santellans' declaration does not

establish the foundation for admission of the Note to establish

possession. That is, like the Davis declaration, Santellan does

not attest that she has "familiarity with the record-keeping

system of the business that created the record to explain how the

record was generated in the ordinary course of business."

Behrendt, 142 Hawai#i at 45, 414 P.3d at 97 (quoting Mattos, 140

Hawai#i at 32, 398 P.3d at 621); Fitzwater, 122 Hawai#i at 365-66,

227 P.3d at 531-32) (determining that while there is no

requirement that the records have been prepared by the entity

that has custody of them, as long as they were created in the

regular course of some entity's business, the witness must have

enough familiarity with the record-keeping system of the business

that created the record to explain how the record was generated

in the ordinary course of business) (quotation marks omitted).

Accordingly, the Davis and Santellan declarations do

not lay adequate foundation to establish that U.S. Bank had

possession of the Note when the Complaint was filed. Behrendt,

142 Hawai#i at 45-46, 414, P.3d at 97-98; Mattos, 140 Hawai#i at

33, 398 P.3d at 622; Reyes-Toledo, 139 Hawai#i at 370-71, 390

P.3d at 1257-58.

Viewing the evidence in the light most favorable to

Compton, as we must for purposes of a summary judgment ruling, we

conclude that there is a genuine issue of material fact as to

whether U.S. Bank had standing to initiate this foreclosure

action when it was commenced. Accordingly, we conclude that the

Circuit Court erred in granting U.S. Bank's Motion for Summary

Judgment. Because plaintiff's standing to enforce the Note is

dispositive, we do not reach Compton's other point of error.

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III. Conclusion

Based on the foregoing, the Judgment and the "Findings

of Fact, Conclusions of Law and Order Granting Plaintiff's Motion

for Summary Judgment against All Defendants and for Interlocutory

Decree of Foreclosure," both entered on August 10, 2018, by the

Circuit Court of the Second Circuit, are vacated. This case is

remanded to the Circuit Court for further proceedings consistent

with this Memorandum Opinion.3

DATED: Honolulu, Hawai#i, September 18, 2020.

On the briefs:

Gary Victor Dubin,

Katherine S. Belford,

for Defendant-Appellant.

J. Blaine Rogers,

Madisson L. Heinze,

for Plaintiff-Appellee.

/s/ Lisa M. Ginoza

Chief Judge

/s/ Derrick H.M. Chan

Associate Judge

/s/ Keith K. Hiraoka

Associate Judge

3 On remand, the parties may need to address the Hawai#i Supreme

Court's "Order Regarding Foreclosure or Non-Judicial Foreclosure Related

Actions: Certification of Compliance With the Coronavirus Aid, Relief, and

Economic Security Act in Foreclosures," issued on June 26, 2020, and extended

on August 28, 2020. 

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