Opinion ID: 4530567
Heading Depth: 2
Heading Rank: 2

Heading: HawaiiUSA’s Motion for Deficiency Judgment

Text: 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 3 HawaiiUSA requested the following additional sums: “continuing interest” on both notes from December 30, 2011, until “the date of entry of the deficiency judgment and statutory interest” thereafter on both notes; attorneys’ fees and costs for the preparation of the motion for deficiency judgment; and attorneys’ fees and costs related to the Monalims’ previously dismissed ICA appeal. 6 FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER 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 7 FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER 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 4 A credit bid allows a secured lender to bid up to the amount of debt owed to it in lieu of cash at sale. Lambert v. Teisina, 131 Hawai‘i 457,