Court Opinion

ID: 4566956
Source: CourtListenerOpinion
Date Created: 2020-09-18 18:03:09.812978+00
Date Added: 2024-06-11T12:53:53.173262
License: Public Domain

NOT FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER

                                              Electronically Filed
                                              Intermediate Court of Appeals
                                              CAAP-XX-XXXXXXX
                                              18-SEP-2020
                                              07:49 AM

                        NO. CAAP-XX-XXXXXXX

               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
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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:                            /s/ Lisa M. Ginoza
                                          Chief Judge
Gary Victor Dubin,
Katherine S. Belford,                     /s/ Derrick H.M. Chan
for Defendant-Appellant.                  Associate Judge

J. Blaine Rogers,                         /s/ Keith K. Hiraoka
Madisson L. Heinze,                       Associate Judge
for Plaintiff-Appellee.

      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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