Court Opinion

ID: 9379494
Source: CourtListenerOpinion
Date Created: 2023-03-15 19:04:14.081623+00
Date Added: 2024-06-11T17:16:22.561103
License: Public Domain

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                                                         Electronically Filed
                                                         Supreme Court
                                                         SCWC-XX-XXXXXXX
                                                         15-MAR-2023
                                                         07:52 AM
                                                         Dkt. 27 OP

           IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                              ---o0o---

                      NATIONSTAR MORTGAGE, LLC,
                   Respondent/Plaintiff-Appellee,

                                  vs.

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

                                  and

   THOMAS BLAKE K. DAVID; SARAH L. DAVID; THE BANK OF NEW YORK
 MELLON, formerly known as THE BANK OF NEW YORK, as Trustee for
  the Certificateholders of CWEHQ, Inc., Home Equity Loan Asset
   Backed Certificates, Series 2006-S6; FIA CARD SERVICES, N.A,
                Respondents/Defendants-Appellees.

                           SCWC-XX-XXXXXXX

        CERTIORARI FROM THE INTERMEDIATE COURT OF APPEALS
              (CAAP-XX-XXXXXXX; CIVIL NO. 16-1-373K)

                           MARCH 15, 2023

  RECKTENWALD, C.J., NAKAYAMA, McKENNA, WILSON, AND EDDINS, JJ.
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              OPINION OF THE COURT BY RECKTENWALD, C.J.

                            I.    INTRODUCTION

            The Association of Apartment Owners of Elima Lani

Condominiums (AOAO) foreclosed on a unit owned by Thomas Blake

K. David and Sarah L. David (the Davids) for failure to pay

common assessments.      Later, Nationstar Mortgage, LLC

(Nationstar) filed a complaint for foreclosure of the unit

alleging the Davids had defaulted on their mortgage.            Almost two

years after AOAO came into possession of the unit, the Circuit

Court of the Third Circuit entered summary judgment and an

interlocutory decree of foreclosure in favor of Nationstar.

However, the circuit court did not confirm a foreclosure sale of

the unit at a public auction until nearly eleven months later.

AOAO contends that it is entitled to the rents that accrued from

the unit during the period between summary judgment and the

confirmation of sale. 1

            Under our precedents, a foreclosure judgment is a

final judgment extinguishing the previous owner’s interest in

property.    Thus, at common law, AOAO would not be entitled to

post-foreclosure rents.       However, and for the following reasons,

we hold that Hawai‘i Revised Statutes (HRS) § 514B-146(n) (Supp.

      1     The total amount of rents collected during this period was
$6,200.

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2015) 2 provides a scheme for distributing rents following a

lender’s foreclosure against an association.           Here, provided

AOAO has not already recouped its losses through the rent it

previously collected, it may be entitled to all or some of the

rent collected for Nationstar after summary judgment.

Accordingly, we vacate the circuit court’s judgment to the

extent it awards post-foreclosure rents to Nationstar and remand

for a calculation of what amount, if any, AOAO is owed from

post-foreclosure rents.

                              II.   BACKGROUND

            On July 24, 2015, AOAO foreclosed on the Davids’

condominium for unpaid assessments via quitclaim deed, filed

pursuant to the nonjudicial foreclosure process provided by

HRS § 667, et seq. (2016).

            On November 7, 2016, Nationstar filed a complaint for

foreclosure in the circuit court, alleging the Davids had

defaulted on a note and mortgage encumbering the unit and naming

AOAO as one of the defendants. 3       AOAO answered, asserting its

ownership interest in the property.         Nationstar filed a motion

      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.

      3     The Honorable Ronald Ibarra presided over the proceedings for
summary judgment, while the Honorable Robert D.S. Kim presided over the
proceedings to confirm the foreclosure sale.

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for summary judgment.      It asked that the court appoint a

commissioner and direct that person to “[p]ossess, preserve,

operate and manage the Property . . . including, but not limited

to, collecting rental payments and revenues,” and to sell the

property.

            AOAO filed a memorandum in limited opposition to

Nationstar’s motion for summary judgment.          In relevant part,

AOAO argued it remained the owner of the unit until a

foreclosure sale was confirmed by the court, that it was

entitled to exclusive possession and use throughout the

foreclosure process, and that its right to collect post-

foreclosure rents was reaffirmed by HRS § 514B-146(n). 4

    4       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

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           The circuit court disagreed.        On June 30, 2017, it

entered summary judgment against AOAO and an interlocutory

decree of foreclosure in favor of Nationstar, finding that

Nationstar was owed $382,957.56 in principal, interest, and

costs.   Further, it appointed a commissioner to take possession

of and sell the unit, and ordered:

                The Commissioner is authorized and directed, after the
          payment of all necessary expenses of such sale, to make
          application of all the proceeds thereof and all funds which
          they hold in their capacity as Commissioner so far as the
          same may be necessary to the payment of amounts found due
          and owing to [Nationstar] from the [Davids] under the Loan
          Documents . . . as determined by this court.

           The unit was sold to Nationstar at a public auction on

December 16, 2017.     Before the sale, the Commissioner collected

$3,200 in total rents for the months of November 2017, December

2017, and January 2018.

           Nationstar filed a motion to confirm the sale,

requesting that “rent on the Property collected by the

Commissioner, if any, shall be paid to Plaintiff . . . , which

sum shall be credited against the amounts due Plaintiff under

its Note and Mortgage.”      AOAO again opposed the request for

                      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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rents, arguing that it was entitled to any rent collected up

until the foreclosure sale. 5

            At the confirmation hearing, the circuit court

disagreed that AOAO was entitled to the rents, and directed the

Commissioner to pay all the funds in his possession to

Nationstar.    The Commissioner testified that in addition to the

$3,200 in rents from November 2017 to January 2018, he had

collected $1,000 in rent each month for February, March, and

April, for a total of $6,200.        The court entered an order

confirming the foreclosure sale on May 16, 2018.            Regarding

rents, it denied AOAO’s request for rental proceeds and ordered

the rent be paid to Nationstar.           AOAO filed a timely notice of

appeal from the circuit court’s judgment and order.

           Before the Intermediate Court of Appeals (ICA), AOAO

made a number of arguments as to why it retained legal and

equitable title until after the foreclosure sale was confirmed.

First, it argued that per the lien theory of mortgages,

Nationstar had only a lien against the property until it was

actually sold.     AOAO cited HRS § 506-1(a) (Supp. 2015), which

      5     Alternatively, AOAO requested that, if the circuit court denied
its request for rents, Nationstar be required to pay AOAO maintenance and
reserve fees from June 30, 2017 – the date of the entry of summary judgment –
to the sale’s closing. The court stated that it would consider its request
once AOAO submitted a ledger of what it was owed. While AOAO did submit a
ledger, in its order confirming the foreclosure sale, the court did not
address AOAO’s alternate request for assessments.

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provides that a mortgage “shall create a lien only as security

for the obligation and shall not be deemed to pass title.”               In

the condominium context, HRS § 514B-146(b) (Supp. 2015) 6 provides

that a mortgagee does not acquire title in a judicial foreclosure

until after the confirmation of sale.

          Second, AOAO argued that HRS § 667-102(b)(4) (Supp.

2013) provides that once an “affidavit and the conveyance

document are recorded” in a nonjudicial foreclosure, “[t]he

purchaser shall be entitled to immediate and exclusive

possession of the unit.”       Thus, the circuit court erred by

    6     HRS   § 514B-146(b) provides in relevant part:
                Except as provided in subsection (j), when the
          mortgagee of a mortgage of record or other purchaser of a
          unit obtains title to the unit as a result of foreclosure of
          the mortgage, the acquirer of title and the acquirer’s
          successors and assigns shall not be liable for the share of
          the common expenses or assessments by the association
          chargeable to the unit that became due prior to the
          acquisition of title to the unit by the acquirer. The
          unpaid share of common expenses or assessments shall be
          deemed to be common expenses collectible from all of the
          unit owners, including the acquirer and the acquirer’s
          successors and assigns. The mortgagee of record or other
          purchaser of the unit shall be deemed to acquire title and
          shall be required to pay the unit’s share of common expenses
          and assessments beginning:
                (1) Thirty-six days after the order confirming the
                sale to the purchaser has been filed with the court;
                (2) Sixty days after the hearing at which the court
                grants the motion to confirm the sale to the
                purchaser;
                (3) Thirty days after the public sale in a
                nonjudicial power of sale foreclosure conducted
                pursuant to chapter 667; or
                (4) Upon the recording of the instrument of
                conveyance;
          whichever occurs first[.]

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awarding the Commissioner legal and equitable title via the

summary judgment order when AOAO was entitled to possession.

Even if the circuit court had the equitable power to override

AOAO’s statutory right to exclusive possession and rents, to do

so in this case would be inequitable, because while AOAO would

have to burden other, non-defaulting owners with its losses,

Nationstar “would be fully compensated upon the foreclosure

sale.”

            Next, AOAO turned to its arguments regarding HRS §

514B-146(n).    That statute “contemplates [AOAO] receiving rental

income” after the foreclosure judgment as it “provides twice

that rent shall ‘be received by the association.’”            Thus, the

only instance in which Nationstar would be entitled to rental

income is if excess rental income exists, computed as the amount

of post-foreclosure rents “received by the association” after

deducting the items listed in subsections (n)(1) to (4). 7

            In response, Nationstar argued that the circuit court

properly distributed the rental income according to lien

priority.    It pointed to HRS § 667-102(b)(3) (Supp. 2013), which

provides that an association’s lien is “automatically

      7     Last, AOAO argued “[i]n the alternative and as a matter of
equity,” that it was entitled to common expenses assessed while the
Commissioner was in possession. According to AOAO, “[i]t would be wholly
inequitable to require [AOAO] to be responsible for the burdens of ownership
. . . while simultaneously giving all of the benefits of ownership to the
Commissioner for the eventual benefit of [Nationstar].”

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extinguished” when the association completes a foreclosure.              It

also pointed to HRS §§ 667-3 and 667-10 (Supp. 2013), which

provide that proceeds of a mortgage sale are distributed first

to lien holders according to priority and then to the prior

owner.

            Further, Nationstar disputed AOAO’s interpretation of

HRS § 514B-146(n).      Nationstar argued that this statute creates

an entitlement to post-foreclosure rents for senior mortgagees,

not associations.     Nationstar claimed AOAO already recouped the

delinquencies left over from the Davids, and AOAO had no

maintenance costs following summary judgment as the Commissioner

took possession. 8    This reading “harmonizes” HRS § 514B-146 with

HRS §§ 667-3 and 667-10.

            The ICA rejected AOAO’s arguments and affirmed the

circuit court’s order confirming the foreclosure sale.             First,

it held that AOAO did not state how the circuit court “vested

the Commissioner with title to the [unit].”           The circuit court’s

foreclosure decree directed the Commissioner to take possession

and control of the property, but it had not vested title in him.

      8     The AOAO alleged that the Davids left $34,002.57 in assessment
arrears, recoverable under HRS § 514B-146(n)(1). However, the record does
not indicate the amount AOAO was able to collect in rents from the property
prior to the appointment of the Commissioner. Nationstar claims that this
pre-foreclosure rental income exceeded the sum of the delinquencies, and that
the AOAO is therefore not entitled to the $6,200 in post-foreclosure rents.

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            Second, the ICA concluded that AOAO’s argument that it

was entitled to rent after the entry of the foreclosure decree

was without merit.      For the reasons stated in U.S. Bank Tr.,

N.A. v. Chinen, 150 Hawai‘i 573, 583-84, 506 P.3d 869, 879-80

(App. 2022), the ICA concluded that the circuit court did not

abuse its equitable discretion in ordering that the rents

collected by the Commissioner be turned over to Nationstar. 9

            AOAO filed a timely application for writ of

certiorari, arguing that the ICA erred by holding it was not

entitled to rents.      It reasserted that summary judgment does not

extinguish the foreclosed owners’ rights to possession because,

per HRS §§ 514B-146(b) and (l), 10 a mortgage lender’s foreclosure

of an already-foreclosed condo is not complete until after the

confirmation judgment.

            Next, AOAO expanded on its interpretation of HRS §

514B-146(n).    It explained that in 2013 the legislature amended

HRS § 514B-146(n) to “specify how excess rental income received

      9     With regard to AOAO’s argument that the circuit court should have
ordered the Commissioner to pay the condo assessments accrued during the
foreclosure to AOAO, the ICA held that the circuit court’s failure to award
AOAO this relief was not an abuse of discretion.

      10    As relevant here, HRS § 514B-146(i)(1) (Supp. 2018) defines the
“completion” of the foreclosure as the recording of an affidavit in a non-
judicial foreclosure pursuant to HRS chapter 667 or, in a judicial
foreclosure, when the purchaser is deemed to acquire title under HRS § 514B-
146(b).

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by a condominium association after a foreclosure proceeding

shall be paid to existing lien holders.”          (Quoting Conf. Comm.

Rep. No. 57, in 2013 House Journal, at 1539, 2013 Senate

Journal, at 799) (emphasis added).)         The conference committee

report also indicated a desire to balance the interests of

condominium associations, mortgagors, and the lending industry. 11

            AOAO further argued that the ICA’s interpretation of

HRS § 514B-146(n) rendered it superfluous.          If an association’s

interest is foreclosed by summary judgment and a commissioner is

normally given possession and control in foreclosure, “then

there is no situation where the [a]ssociation will ever receive

rents following a mortgagee’s foreclosure and there will never

be a situation where excess rents are found to exist.” 12

            In response, Nationstar argued that AOAO misinterpreted

HRS § 514B-146(n).      Rather than entitling AOAO to possession,

“the statute mandates that Nationstar be paid any net rental

income received by AOAO after the Foreclosure Judgment.”             It

      11     AOAO further quoted language from the conference committee
report that substantially tracked the language of subsection (n), namely by
providing that “any excess rental income received by a condominium association
after a foreclosure proceeding shall be applied to the benefit of the unit
owner” and defining excess rental income as “net income received by the
association after a court has issued a final judgment determining the priority
of a senior mortgagee.” (Quoting Conf. Comm. Rep. No. 57, at 2013 House
Journal, at 1539, 2013 Senate Journal, at 799-800 (emphasis added).)

      12    Additionally, AOAO repeated its argument that for any months that
Nationstar is awarded rent, it should be credited for common assessments.

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repeated that AOAO had already recouped its delinquencies and

that it incurred no upkeep costs after the foreclosure – as the

Commissioner was in possession – and therefore was not entitled

to any rents collected after the summary judgment.

            Next, Nationstar quoted Bank of N.Y. Mellon v. Larrua,

150 Hawai‘i 429, 431, 504 P.3d 1017, 1019 (App. 2022), for the

proposition that a foreclosure decree is a “final determination

of a foreclosed party’s ownership interests in the subject

property.”    In Larrua, as here, a lender foreclosed following an

association’s 13 previous foreclosure, and the circuit court

appointed a commissioner to collect rents, which it later

awarded to the lender.      Id. at 431-33, 38, 504 P.3d 1019-21.

There, the ICA explained that the foreclosure decree

extinguished the association’s interests, and, even though legal

title did not immediately pass, the circuit court had the

equitable power to appoint a commissioner to take possession.

Id. at 440, 504 P.3d at 1028.        So here, AOAO’s interest was

extinguished by summary judgment.

      13    The defendant association in Larrua was the Association of
Apartment Owners of Elima Lani Condominiums, the petitioner/defendant-
appellant here. Id. at 431, 504 P.3d at 1019.

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                      III. STANDARDS OF REVIEW

A.   Statutory Interpretation

          “Questions of statutory interpretation are questions

of law to be reviewed de novo under the right/wrong standard.”

Guth v. Freeland, 96 Hawai‘i 147, 149–50, 28 P.3d 982, 984–85

(2001).

B.   Foreclosure Actions
                Foreclosure is an equitable action. “Courts of
          equity have the power to mold their decrees to conserve the
          equities of the parties under the circumstances of the
          case.” A court sitting in equity in a foreclosure case has
          the plenary power to fashion a decree to conform to the
          equitable requirements of the situation. Whether and to
          what extent relief should be granted rests within the sound
          discretion of the court and will not be disturbed absent an
          abuse of such discretion.

Peak Cap. Grp., LLC v. Perez, 141 Hawai‘i 160, 172, 407 P.3d 116,

128 (2017) (citations omitted) (quoting Honolulu, Ltd. v.

Blackwell, 7 Haw. App. 210, 219, 750 P.2d 942, 948 (App. 1988)).

          A circuit court sitting in foreclosure abuses its

equitable discretion “by issuing a decision that clearly exceeds

the bounds of reason or disregard[s] rules or principles of law

or practice to the substantial detriment of the appellant.”

Haw. Nat’l Bank v. Cook, 100 Hawai‘i 2, 7, 58 P.3d 60, 65 (2002)

(quoting Shanghai Inv. Co. v. Alteka Co., 92 Hawai‘i 482, 493,

993 P.2d 516, 526 (2000)).

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                             IV.    DISCUSSION

            This application requires us to answer two questions:

(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, notwithstanding our precedents.

            With respect to the first question, the ICA and

Nationstar are correct that AOAO’s right to possession was

terminated by the foreclosure judgment. 14        We have long

maintained that “[a] judgment of foreclosure of mortgage or

other lien and sale of foreclosed property is final . . . on the

ground that such judgment finally determines the merits of the

controversy . . . .”      MDG Supply, Inc. v. Diversified Invs.,

Inc., 51 Haw. 375, 380, 463 P.2d 525, 528 (1969).            Unless

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

possession after the circuit court entered summary judgment in

favor of Nationstar.

      14    The court granted Nationstar’s motion for summary judgment, and
issued a judgment of foreclosure against AOAO. The term “judgment of
foreclosure” refers to the final determination in a judicial foreclosure
proceeding, whether it is entered upon summary judgment or otherwise (for
example, upon the defendant’s default, or after trial).

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           As to HRS § 514B-146(n), the statute entitles

associations to continue receiving rent after a subsequent

mortgage foreclosure, even if a commissioner is appointed,

subject to paying any rent received in excess of the total

amount of the reimbursements enumerated in HRS § 514B-146(n)(1)-

(4) over to the lienholders in order of priority.          Nationstar’s

argument that rents received by a commissioner are not “received

by the association” under the statute would result in the

statute having no practical effect.       Therefore, further

proceedings are necessary to determine if AOAO was entitled to

all or some portion of the rent collected after a commissioner

was appointed.

A.   A Foreclosure Judgment Extinguishes the Prior Owner’s Right
     to Possession, and a Commissioner May Take Possession Prior
     to a Foreclosure Sale

     1.   A foreclosure judgment is a final judgment
          extinguishing the prior owner’s right to possession

           AOAO argues that because it owned the property, it

should have been allowed to continue to hold possession and

collect rent until a foreclosure sale was confirmed – that is,

after the foreclosure judgment.      The ICA in this case relied on

Larrua.   In Larrua, the ICA determined:

                [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

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            effectuate the foreclosure decree and judgment.

150 Hawai‘i at 439, 504 P.3d at 1027.

            The ICA is correct: the foreclosure judgment was a

final judgment that cut off AOAO’s right to possession.             AOAO

was therefore not entitled to continue collecting rent.

            We have held that “[a] judgment of foreclosure of

mortgage or other lien and sale of foreclosed property is final,

although it contains a direction to commissioners to make a

report of sale and to bring the proceeds into court for an order

regarding their disposition.”        MDG Supply, 51 Haw. at 380, 463

P.2d at 528.    This is because such a judgment “finally

determines the merits of the controversy, and subsequent

proceedings are simply incidents to its enforcement.” 15           Id.; see

also 55 Am. Jur. 2d Mortgages § 592 (2023) (“A mortgage-

foreclosure decree is a final judgment even though it creates a

right to redeem.”).      Thus, we have analogized a confirmation-of-

sale proceeding to a “traditional ‘action upon a judgment’” in

that it merely “‘facilitate[s] the goal of securing satisfaction

of the original cause of action.’”         Mortg. Elec. Registration

Sys., Inc. v. Wise, 130 Hawai‘i 11, 19, 304 P.3d 1192, 1200

(2013) (quoting Nat’l Union Fire Ins. Co. v. Owenby, 42 F. App’x

59, 63 (9th Cir. 2002) (mem. op.)).         In other words, the

      15    HRS § 607-102(b) is not to the contrary, as it does not address
an association’s rights after a subsequent mortgage foreclosure.

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proceedings that follow the judgment “are treated as incidental

to enforcement of the foreclosure judgment.”      Id.

           Here, then, AOAO’s right to possession was terminated

when the court adjudged its interest foreclosed.

     2.   A mortgagee may seek the appointment of a commissioner
          to cut off the prior owner’s possession

          AOAO further argues that the appointment of a

commissioner with authority to take possession and collect rent

was in error because AOAO is entitled to the “benefits of

ownership” until a foreclosure sale.     (Emphasis omitted.)    In

support, AOAO cited HRS § 514B-146(b), which provides that a

mortgagee does not acquire title in a judicial foreclosure until

after the confirmation of sale.     However, Hawai‘i courts may

authorize a commissioner to take possession and collect rents

where the collateral is inadequate to satisfy a mortgagee.

HRS § 514B-146(b) establishes when a mortgagee or other

purchaser must begin paying common expenses and assessments; it

does not address the propriety of appointing a commissioner to

take possession of the property and facilitate the foreclosure

sale after the prior owner’s interest has been deemed

foreclosed.   Larrua, 150 Hawai‘i at 441-42, 504 P.3d at 1029-30.

          The appointment of a commissioner or a receiver is an

equitable remedy designed to preserve the status quo and protect

a lender’s collateral.    “There is no doubt of the inherent power

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of a circuit court sitting in equity or in probate to call to

its aid special masters, auditors, examiners or even translators

for the purpose of assisting the court . . . .” 16          Haw. Ventures,

LLC v. Otaka Inc., 114 Hawai‘i 438, 485, 164 P.3d 696, 743 (2007)

(brackets omitted) (quoting In re the Estate of Lee Chuck, 33

Haw. 220, 223 (Haw. Terr. 1934)); see also U.S. Bank Tr., N.A.

v. Ass’n of Apartment Owners of Waikōloa Hills Condo. Phase I,

150 Hawai‘i 573, 582, 506 P.3d 869, 878 (App. 2022) (holding that

the appointment of a commissioner upon entry of foreclosure

judgment was “consistent with the Circuit Court’s equitable

powers and standard practices”).          The appointment of a

commissioner is an appropriate remedy where the security for a

mortgage appears to be inadequate:          “A court may exercise its

equity jurisdiction in appointing a receiver if there is danger

that the property will be insufficient security for the debt

. . . .”    4 Richard R. Powell, Powell on Real Property §

37.26[4][c], at 37-175 (2022) (emphasis added).

            The United States Supreme Court has confirmed that the

foreclosed owner may continue in possession until its right of

occupancy is cut off by a court-appointed receiver:            “[T]he

general rule is that the mortgagee is not entitled to the rents

      16    Hawai‘i Rules of Civil Procedure (HRCP) Rule 66 (2018) preserves
this authority: “The practice in the administration of estates by receivers or
by other similar officers appointed by the court shall be in accordance with
the practice heretofore followed.”

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and profits of the mortgaged premises until he takes actual

possession, or until possession is taken in his behalf by a

receiver, or until, in proper form, he demands, and is refused,

possession[.]”   Freedman’s Saving & Tr. Co. v. Shepherd, 127

U.S. 494, 502–03 (1888) (emphasis added) (citations omitted).

This is because “[p]ossession draws after it the right to

receive and apply the income.”     Gilman v. Ill. & Miss. Tel. Co.,

91 U.S. 603, 617 (1875).

          Other jurisdictions have held that a prior owner or

other tenant is entitled to possession and rents until the court

appoints a commissioner.    See, e.g., United States v. Am. Nat’l

Bank & Tr. Co., 573 F. Supp. 1319, 1321–22 (N.D. Ill. 1983)

(“Illinois law does hold that a mortgagor is entitled to rents

collected from the mortgaged property until the mortgagee or

receiver takes possession of the property . . . .”); Hoelting

Enters. v. Trailridge Invs., L.P., 844 P.2d 745, 749–50 (Kan.

Ct. App. 1993) (“[A] purely executory agreement alone is not

effective to vest in a mortgagee the right to rents and profits.

The right to rents and profits may vest in a mortgagee, however,

if . . . the mortgagor defaults and the court appoints a

receiver . . . .” (citation omitted)); cf. Schmalzl v. Peretta,

276 N.Y.S. 224, 225 (N.Y. App. Div. 1934) (per curiam) (holding

that a mortgagee was not owed rents collected during foreclosure

where they did not demand possession of the premises).

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            In support, AOAO cited HRS § 514B-146(b), which

provides that a mortgagee does not acquire title in a judicial

foreclosure until after the confirmation of sale.      However, the

ICA was correct to hold in Larrua that HRS § 514B-146(b) simply

establishes when a mortgagee or other purchaser must begin

paying common expenses and assessments.      150 Hawai‘i at 441-42,

504 P.3d at 1029-30.    HRS § 514B-146(b) does not preclude

appointment of a commissioner to take possession of the property

and facilitate the foreclosure sale after the prior owner’s

interest has been deemed foreclosed.     Id.

            In sum, the appointment of a commissioner is an

equitable remedy that cuts off the prior owner’s possession and

right to collect rent.    Although the circuit court stated that

the Commissioner would become the title owner of the unit, this

was incorrect; the Commissioner is a neutral arm of the court

holding the property on the court’s behalf.      In any case,

however, AOAO’s arguments that it was entitled to continue to

possess the unit to the exclusion of the Commissioner are

mistaken.

B.   HRS § 514B-146(n) Implicitly Abrogated the Common Law and
     Provided for Associations to Receive Post-Foreclosure Rent

            AOAO claims it is entitled to rents by virtue of HRS §

514B-146(n), which “contemplates the [a]ssociation receiving

rental income from the [p]roperty following the issuance of a

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foreclosure decree.”      Because HRS § 514B-146(n) twice mentions

“income received by the association,” AOAO argues it

affirmatively grants associations the right to receive rents

“after a court has issued a final judgment determining the

priority of a senior mortgagee.”          Thus, AOAO should have

received all rents collected by the Commissioner except to the

extent they can be shown to be “excess rental income.”

           The ICA rejected this view, relying on its decisions

in Larrua and Chinen.      In Larrua, the ICA held that HRS § 514B-

146(n) “addresses only how an AOAO must utilize any rental

income it receives after its own foreclosure on the unit, when

its interest is subsequently foreclosed upon by a mortgagee.”

150 Hawai‘i at 444, 504 P.3d at 1032.         The ICA concluded that

“while the statutory language [of HRS § 514B-146(n)] may

contemplate the AOAO receiving rental income from a unit after

the entry of a foreclosure decree and judgment, it does not go

so far as entitling the AOAO to such income.” 17         Id.

           We disagree.     The statute authorizes an AOAO’s receipt

of post-foreclosure rents and entitles the association to those

rents up to the sum of the amounts in subsections (1)-(4).

HRS § 514B-146(n) reads:

     17     In Chinen, the ICA relied on Larrua to reject an association’s
claim for rents based on HRS § 514B-146(n). 150 Hawai‘i at 584, 506 P.3d at
880.

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                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.

          The first clause provides that the statute only

applies after an association has foreclosed.         Id.   The second

clause provides that “excess rental income” shall be paid to

senior lien holders by priority, to be applied for “the benefit

of the unit owner.”    Id.    In context, it is clear that “the unit

owner” refers to the owner prior to the association, on whom the

association foreclosed.      See HRS § 514B-146(a) (Supp. 2015)

(allowing the association, during its foreclosure, to collect a

“reasonable rental” from “the unit owner”).

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          In the second sentence of HRS § 514B-146(n), the words

“final judgment determining the priority of a senior mortgagee”

can only refer to a summary judgment and/or interlocutory decree

of foreclosure, which, as discussed, is a “final judgment” under

our precedent.   See Peer News LLC v. City & Cnty. of Honolulu,

138 Hawai‘i 53, 69, 376 P.3d 1, 17 (2016) (“The legislature is

presumed to know the law when it enacts statutes, including this

court’s decisions . . . .”).    Prior to such a judgment, the

association’s interest is unaffected.     And the clause “after

paying, crediting, or reimbursing the association or a third

party” indicates that the AOAO or a third party — i.e., whomever

is owed the costs enumerated in subsections (1) through (4) —

will receive post-foreclosure rents up to the total amount of

those costs.

          Read literally, HRS § 514B-146(n) only applies when

the rents are “received” by the association; arguably that would

not be the case if a commissioner is appointed and authorized to

collect rent.    However, 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.   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).       This

statutory scheme thus replaces the equitable distribution that

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our case law formerly required in cases where a commissioner was

appointed.

             This result is necessary for HRS § 514B-146(n) to have

any logical effect.      Appointment of a commissioner is common in

foreclosures where the security is inadequate to satisfy a

mortgage debt because it has substantial procedural advantages

for the mortgagor. 18    If the appointment of a commissioner

required that rent be awarded to the party that requested

appointment notwithstanding HRS § 514B-146(n), the statute would

only have practical effect in the very small number of cases

where the mortgagor failed to have a commissioner appointed by

the court.    As argued by AOAO: “[u]nder the ICA’s

interpretation, HRS § [514B-146(n)] is superfluous.            If at the

summary judgment stage, the Association’s interest is

‘foreclosed’ and a commissioner who is appointed is always given

possession and control of the Property—including the rents, then

there is no situation where the Association will ever receive

rents following a mortgagee’s foreclosure and there will never

be a situation where excess rents are found to exist.”             We

      18    “[T]he commissioner takes possession of the mortgaged property
and preserves the property for the benefit of the person or entity
subsequently entitled to it.” Larrua, 150 Hawaiʻi at 440, 504 P.3d at 1028;
see also 1 Real Estate Finance Law § 4:33 (6th ed. 2016) (explaining that
when foreclosing on properties, mortgagees generally prefer to seek
appointment of a commissioner rather than obtaining possession themselves —
even when the latter remedy is available — because it mitigates the need for
an ejectment action, avoids accounting responsibilities, and insulates the
mortgagor from tort liability).

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hesitate to read HRS § 514B-146(n) to apply only in this highly

unusual scenario.

            The legislative history of HRS § 514B-146(n) supports

this reading.    The bill that enacted subsection (n) was a

compromise between lenders and associations.      The legislature

found that “the costs of default in a condominium are

substantially born by condominium associations and non-

defaulting unit owners” and that “the needs of the lending

industry and condominium associations and non-defaulting unit

owners must be appropriately balanced . . . .”      Conf. Comm. Rep.

No. 57, in 2013 House Journal, at 1539, 2013 Senate Journal, at

799.    “This measure achieves this balance by providing

condominium associations and non-defaulting unit owners with

relief while also addressing interests of the lending industry.”

Id.    Indeed, an earlier version of the bill that enacted

subsection (n) also provided an unlimited super-priority lien to

associations for unpaid assessments, but the legislature

eventually settled on a six-month lien.      Compare H.B. 21, H.D.

1, 27th Leg., Reg. Sess. (2013), with 2013 Haw. Sess. Laws Act

196, § 1 at 629.

            Thus, in 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,

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the statute calls for an accounting to take 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.”   HRS § 514B-146(n).    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).

          This interpretation gives meaning to the common

understanding of the word “excess” as “the state of . . .

surpassing usual, proper, or specified limits.”      Excess,

Merriam-Webster’s Collegiate Dictionary (11th ed. 2003).

“[E]xcess rental income” is income collected by an association

above and beyond what it was owed by the prior owners and the

costs it incurred.   There is no reason for the association to

retain this amount while a mortgagee goes unpaid.      Thus, it is

truly “excess” and must be paid to mortgagees to avoid creating

an improper windfall for associations at the lenders’ expense.

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           One final interpretative problem arises.      HRS § 514B-

146(a) provides that “[a]ll sums assessed by the association but

unpaid for the share of the common expenses chargeable to any

unit shall constitute a lien,” and HRS § 514B-146(n)(1) allows

the association to be paid, credited, or reimbursed for that

lien before turning over any excess rental income.       But where an

association completes the HRS Chapter 667 power-of-sale

foreclosure process, HRS § 667-102(b)(3) provides that “[t]he

lien of the association . . . shall be automatically

extinguished from the unit.”    Nationstar argues that because

AOAO’s lien was “automatically extinguished” under HRS §

667-102(b)(3) upon foreclosure, it could not have any

entitlement to post-foreclosure rents.     Nationstar further

argues that under HRS §§ 667-3 and 667-10, proceeds from a

foreclosure sale must first be distributed to the unpaid loan

secured by the mortgage, with any remaining surplus distributed

next to junior lienholders in order of priority, then to the

owner, deducting any outstanding expenses owed.

           However, HRS §§ 514B-146(n), 514B-146(a), and 667-

102(b) can be reconciled.    “[W]here there is a ‘plainly

irreconcilable’ conflict between a general and a specific

statute concerning the same subject matter, the specific will be

favored.   However, where the statutes simply overlap in their

application, effect will be given to both if possible, as repeal

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by implication is disfavored.”        Richardson v. City & Cnty. of

Honolulu, 76 Hawai‘i 46, 55, 868 P.2d 1193, 1202 (1994) (quoting

Mahiai v. Suwa, 69 Haw. 349, 356–57, 742 P.2d 359, 366 (1987)).

            HRS § 667-102(b) applies generally to association

foreclosures, whether or not a lender subsequently forecloses.

However, HRS § 514B-146(n) applies specifically to rent received

“after a court has issued a final judgment determining the

priority of a senior mortgagee.”          Thus, while HRS § 667-

102(b)(3) generally extinguishes the association’s lien, this

lien continues to exist solely for the purposes of the

accounting in HRS § 514B-146(n), and the association may be

paid, credited, or reimbursed for it. 19

            HRS §§ 667-3 and 667-10 generally govern how proceeds

should be distributed among lien holders following a foreclosure

sale.   HRS § 514B-146(n) specifically governs rents collected by

an AOAO after a foreclosure sale and before confirmation.

Rather than a strict allocation according to the priority of the

lien under HRS §§ 667-3 and 667-10, these rents should be

allocated according to HRS § 514B-146(n)(1)-(4).

      19    As for the provision that the lien for delinquent assessments
“shall be paid, credited, or reimbursed first,” this provision merely directs
that the association must first apply the rental income it receives to reduce
the prior owner’s continuing liability to it. HRS § 514B-146(n).

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            In sum, HRS § 514B-146(n) created a scheme to divide

post-foreclosure rents whether or not a commissioner is

appointed, with the association retaining everything up to

“excess rental income.”       We remand to the circuit court to apply

this interpretation. 20

                             V.     CONCLUSION

            For the foregoing reasons, the circuit court’s May 16,

2018 confirmation judgment and the ICA’s May 2, 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 further proceedings specifically to determine

what portion of the rents collected by the Commissioner after

the circuit court’s June 30, 2017 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.

      20    Because HRS § 514B-146(n) displaces the equitable principles that
would normally govern allocation of rent in a proceeding where a commissioner
is appointed, we do not reach AOAO’s argument that the circuit court should
have considered its request to be awarded the association fees that accrued
while the Commissioner was in possession. However, we note as a general
principle that where HRS § 514B-146(n) does not apply, a circuit court should
consider the equities and allocate rents accordingly. Although rents
collected by a foreclosure commissioner will normally be awarded to the
secured party for whose benefit the proceeding was instituted, in some cases
equity may require a different result.

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R. Laree McGuire                       /s/ Mark E. Recktenwald
for Petitioner/
Defendant-Appellant                    /s/ Paula A. Nakayama

Kalama M. Lui-Kwan                     /s/ Sabrina S. McKenna
for Respondent/
Plaintiff-Appellee                     /s/ Michael D. Wilson

                                       /s/ Todd W. Eddins

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