Court Opinion

ID: 9384726
Source: CourtListenerOpinion
Date Created: 2023-04-04 19:03:12.224116+00
Date Added: 2024-06-11T17:17:56.003796
License: Public Domain

***NOT FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

                                                               Electronically Filed
                                                               Supreme Court
                                                               SCWC-XX-XXXXXXX
                                                               04-APR-2023
                                                               07:53 AM
                                                               Dkt. 36 SO

                 SCWC-XX-XXXXXXX and SCWC-XX-XXXXXXX

            IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                        MTGLQ INVESTORS, L.P.,
                    Respondent/Plaintiff-Appellee,

                                     vs.

   ASSOCIATION OF APARTMENT OWNERS OF ELIMA LANI CONDOMINIUMS,
                 Petitioner/Defendant-Appellant,

                                     and

NOAH HENRY CLIFFORD; THE BANK OF NEW YORK MELLON, formerly known
 as THE BANK OF NEW YORK, as Successor Trustee to JPMORGAN CHASE
  BANK, N.A., as Trustee on behalf of THE CERTIFICATEHOLDERS OF
   CWEHQ, INC., CWHEQ REVOLVING HOME EQUITY LOAN TRUST, SERIES
            2005-F; and WAIKOLOA VILLAGE ASSOCIATION,
                Respondents/Defendants-Appellees.

        CERTIORARI FROM THE INTERMEDIATE COURT OF APPEALS
    (CAAP-XX-XXXXXXX, CAAP-XX-XXXXXXX; CASE NO. 3CC17100299K)

                    SUMMARY DISPOSITION ORDER
   (By: Recktenwald, C.J., Nakayama, McKenna, and Eddins, JJ.,
         and Wilson, J., assigned by reason of vacancy1)

      1     See Order of Designation filed on March 29, 2023, in
SCMF-XX-XXXXXXX.
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                           I.     INTRODUCTION

          This case is brought by Association of Apartment

Owners of Elima Lani Condominiums (AOAO), the same condominium

association that brought suit in Nationstar Mortgage, LLC v.

AOAO, No. SCWC-XX-XXXXXXX, 2023 WL 2519855 (Haw. Mar. 15, 2023).

The facts of this case are similar to Nationstar, and as set

forth below, we reach the same result here.

                            II.   BACKGROUND

          After recording a notice of default and intention to

foreclose on the property’s owner for unpaid assessments and

costs, AOAO acquired the property by quitclaim deed filed

July 27, 2015 after a non-judicial foreclosure sale.            On

September 27, 2017, MTGLQ Investors, L.P. (MTGLQ) filed a

complaint in the Circuit Court of the Third Circuit for

foreclosure of the property.      In response, AOAO denied that its

interest was junior to MTGLQ’s and alleged that the original

property owner owed it $35,079.61 in delinquent assessments as

of July 27, 2015.

          On October 29, 2018, MTGLQ moved for summary judgment

and an interlocutory decree of foreclosure.          It asked that a

commissioner be appointed to take possession of the property,

rent it out, and sell it.       AOAO objected to MTGLQ’s request for

possession and rents.     It argued that Hawai͑i Revised Statutes

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(HRS) § 514B-146(n) (Supp. 2015) referenced “any excess rental

income received by the association” after a bank foreclosure,

which meant the statute “clearly contemplated and accepted” that

the association would continue in possession and collect rents.2

On June 17, 2019, the court granted summary judgment in favor of

MTGLQ and an interlocutory decree of foreclosure, and appointed

     2      HRS § 514B-146(n) was numbered as HRS § 514B-146(k) before the
statute was renumbered in 2018, and it is referred to as HRS § 514B-146(k) in
the briefing. See 2018 Haw. Sess. Laws Act 195, § 4 at 672. Because there
was no change to the substance of the statute, we refer to the current
numbering, HRS § 514B-146(n), throughout. See id. HRS § 514B-146(n)
provides:

                 After any judicial or nonjudicial foreclosure
           proceeding in which the association acquires title to the
           unit, any excess rental income received by the association
           from the unit shall be paid to existing lien holders based
           on the priority of lien, and not on a pro rata basis, and
           shall be applied to the benefit of the unit owner. For
           purposes of this subsection, excess rental income shall be
           any net income received by the association after a court
           has issued a final judgment determining the priority of a
           senior mortgagee and after paying, crediting, or
           reimbursing the association or a third party for:
                 (1)   The lien for delinquent assessments pursuant to
                       subsections (a) and (b);
                 (2)   Any maintenance fee delinquency against the
                       unit;
                 (3)   Attorney’s fees and other collection costs
                       related to the association’s foreclosure of the
                       unit; or
                 (4)   Any costs incurred by the association for the
                       rental, repair, maintenance, or rehabilitation
                       of the unit while the association is in
                       possession of the unit including monthly
                       association maintenance fees, management fees,
                       real estate commissions, cleaning and repair
                       expenses for the unit, and general excise taxes
                       paid on rental income;
           provided that the lien for delinquent assessments under
           paragraph (1) shall be paid, credited, or reimbursed first.

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a commissioner to take possession and collect rents.3           AOAO filed

a timely notice of appeal.

            In a report dated January 21, 2020, the Commissioner

stated that he had conducted a public auction of the property

and recommended the court confirm the sale.            He attested that he

had collected $3,275.00 in total rents for the months of August,

September, and October 2019, and that the tenant had vacated on

November 1.    The court confirmed the sale and awarded the rent

to MTGLQ on June 12, 2020.       AOAO filed another timely notice of

appeal from this judgment.

            The ICA consolidated both of AOAO’s appeals for

disposition, and affirmed both the interlocutory decree of

foreclosure and the judgment confirming the sale.           It found that

the circuit court’s order that the Commissioner should possess,

rent, and sell the property was not in error because AOAO’s

rights in the property were foreclosed by the foreclosure

judgment.    The ICA then rejected AOAO’s interpretation of HRS

§ 514B-146(n), quoting its holding in Bank of N.Y. Mellon v.

Larrua that the statute addresses “how an AOAO must utilize any

rental income it receives” but it “does not, however, necessarily

entitle an AOAO to receive such rental income” following a

     3      The Honorable Melvin H. Fujino presided.

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mortgagee’s foreclosure.      150 Hawai‘i 429, 443—44, 504 P.3d 1017,

1031—32 (App. 2022).

                            III. DISCUSSION

          This case raises the same two questions of law as

Nationstar: (1) whether, under our precedents, a foreclosed

owner (in this case, the association) is entitled to exclusive

possession and rents after the entry of summary judgment and an

interlocutory decree of foreclosure, but prior to the

confirmation of sale; and (2) if not, whether HRS § 514B-146(n)

entitles the association to rents accruing during this period,

or some portion of them.      Nationstar, 2023 WL 2519855, at *5.

          With respect to the first question, we hold here, as

in Nationstar, that AOAO’s right to rents and possession was

terminated by the foreclosure judgment.         See id.    Unless

provided otherwise by statute, AOAO was not entitled to rent or

possession after the circuit court entered summary judgment in

favor of MTGLQ.    Id.   In Nationstar, we affirmed the following

holding of the ICA, which was based on Larrua:

                [U]nder Hawai‘i law, it is well-established that a
          judgment entered on a foreclosure decree is a final
          determination of the parties’ rights in the subject
          property – in other words, the property owners’ rights in
          the property are foreclosed, notwithstanding that further
          proceedings are necessary to enforce and otherwise
          effectuate the foreclosure decree and judgment.

Id. at *6 (alteration in original) (quoting Larrua, 150 Hawai‘i

at 439, 504 P.3d at 1027).

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          We further explained that proceedings that follow the

judgment, such as confirmation-of-sale proceedings, “are treated

as incidental to enforcement of the foreclosure judgment.”              Id.

(quoting Mortg. Elec. Registration Sys., Inc. v. Wise, 130

Hawai‘i 11, 19, 304 P.3d 1192, 1200 (2013)).         And, as an

equitable remedy designed to preserve the status quo and protect

a lender’s collateral, “Hawai‘i courts may authorize a

commissioner to take possession and collect rents where the

collateral is inadequate to satisfy a mortgagee.”            Id.   In sum,

the appointment of a commissioner cuts off the prior owner’s

possession, and AOAO was not entitled to continue possession and

collection of rents after the Commissioner’s appointment.             See

id. at *6—7.

          With respect to the second question, we interpret HRS

§ 514B-146(n) to apply to rental income received by the

association after a mortgagee’s subsequent foreclosure, whether

or not a commissioner is appointed.        Id. at *8.    The statute

entitles the association to such income, however collected, but

only to the extent it does not exceed the sum of the amounts

listed in subsections (1) through (4).         Id.   As we held in

Nationstar:

                [I]n enacting HRS § 514B-146(n), the legislature
          intended for a foreclosing association to be able to
          collect what it was due and no more; hence, the association
          is to receive all rents short of “excess rental income.”
          Accordingly, the statute calls for an accounting to take

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          place upon confirmation. The association must account for
          all rents from the time it foreclosed on the property. If
          this amount exceeds the sum of the assessment and
          maintenance delinquencies, the costs of foreclosure, and
          the maintenance fees that accrued while the association was
          in possession, the AOAO is not entitled to retain rents
          accruing after the foreclosure. However, if it still faces
          a shortfall even after the rent it collected, it may
          continue to collect rent short of “excess rental income.”
          When a commissioner is in possession, the commissioner
          collects and holds the rent on behalf of the court, which
          will ultimately be distributed upon confirmation of the
          sale according to HRS § 514B-146(n).

Id. at *9 (citation omitted).

          Here, the Commissioner collected $3,275.00 in rent for

August, September, and October 2019.        Under Nationstar, AOAO may

be entitled to all or some of the rent collected by the

Commissioner after summary judgment, provided that it has not

already recouped its losses through the rent previously

collected.   Id. at *8—9.     We accordingly remand for the circuit

court to allocate these rents according to HRS § 514B-146(n)(1)-

(4) and our holding in Nationstar.

                            IV.   CONCLUSION

          For the foregoing reasons, the circuit court’s

June 26, 2020 Order Confirming Foreclosure Sale, Approving

Commissioner’s Report, Allowance of Commissioner’s Fees,

Attorney’s Fees, Costs, Directing Conveyance and for Writ of

Ejectment and the ICA’s June 3, 2022 Judgment on Appeal are

vacated with regard to the allocation of rents collected by the

Commissioner.   This case is remanded to the circuit court for

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further proceedings specifically to determine what portion of

the rents collected by the Commissioner after the circuit

court’s June 17, 2019 Amended Findings of Fact, Conclusions of

Law and Order Granting Plaintiff’s Motion for Summary Judgment

Against AOAO constituted excess rental income pursuant to HRS

§ 514B-146(n).     Per that statute, AOAO is entitled to receive

any portion of those rents that do not constitute excess rental

income.

          DATED:    Honolulu, Hawai͑i, April 4, 2023.

R. Laree McGuire                  /s/ Mark E. Recktenwald
for petitioner
Association of Apartment          /s/ Paula A. Nakayama
Owners of Elima Lani
Condominiums                      /s/ Sabrina S. McKenna

Charles R. Prather,               /s/ Todd E. Eddins
Jason T. Cotton, and
Peter T. Stone                    /s/ Michael D. Wilson
for respondent
MTGLQ Investors, L.P.

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