Court Opinion

ID: 4530567
Source: CourtListenerOpinion
Date Created: 2020-04-30 22:03:48.086865+00
Date Added: 2024-06-11T12:24:36.186631
License: Public Domain

***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

                                                              Electronically Filed
                                                              Supreme Court
                                                              SCWC-XX-XXXXXXX
                                                              30-APR-2020
                                                              10:08 AM

           IN THE SUPREME COURT OF THE STATE OF HAWAI‘I

                                ---o0o---

                   HAWAIIUSA FEDERAL CREDIT UNION,
                    Respondent/Plaintiff-Appellee,

                                    vs.

             JONNAVEN JO MONALIM; MISTY MARIE MONALIM,
                Petitioners/Defendants-Appellants,

                                    and

  ASSOCIATION OF APARTMENT OWNERS OF BEACH VILLAS AT KO OLINA,
by its Board of Directors; KO OLINA COMMUNITY ASSOCIATION, INC.,
                 a Hawai‘i nonprofit corporation;
                Respondents/Defendants-Appellees.

                            SCWC-XX-XXXXXXX

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
              (CAAP-XX-XXXXXXX; CIV. NO. 10-1-1388)

                             APRIL 30, 2020

McKENNA, POLLACK, AND WILSON, JJ., WITH NAKAYAMA, J., CONCURRING
       AND DISSENTING, WITH WHOM RECKTENWALD, C.J., JOINS

                OPINION OF THE COURT BY POLLACK, J.

          The law has long permitted a borrower, or mortgagor,

to pledge real property to a lender, or mortgagee, as security
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

for a loan.     In the event of a default, the mortgagee may sell

the property to generate funds that will go toward paying what

is owed.    In some instances, however, the proceeds of the sale

are insufficient to pay what is due under the mortgage, and the

mortgagee is entitled to a deficiency judgment holding the

mortgagor liable for the remaining balance.

            Such a deficiency occurred in this case.         The

mortgagors defaulted on the loans, the property was sold, and

the foreclosure sale price was less than the amount due on the

mortgage.     Thereafter, the mortgagee waited over four years,

without explanation, before attempting to collect a deficiency

judgment.     The mortgagors contend that this delay was

unreasonable and prejudiced them because they had begun to

rebuild their lives in the years since the sale, and the

mortgagee should therefore be barred from now seeking a

deficiency judgment by the doctrine of laches.          They also argue

that, because the circumstances of a foreclosure auction are

likely to result in the sale of the property for less than its

fair market value, the process by which Hawai‘i courts calculate

a deficiency judgment is unfair.         They ask that we instead adopt

the approach favored by a majority of other jurisdictions and

the Restatement (Third) of Property, in which the greater of the

fair market value as of the date of the foreclosure sale or the

                                     2
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

sale price of the property is deducted from the money owed when

calculating the deficiency.

           On review, we hold that the mortgagors’ challenge to

the deficiency judgment is not barred by res judicata and that

the circuit court erred by failing to rule on their laches

defense.   We also hold that, because the traditional approach

can result in unjust enrichment and the majority rule protects

all parties to the mortgage, the equities weigh in favor of

adopting the method of calculating a deficiency judgment

employed by a majority of other jurisdictions.          However, our

adoption of the majority rule is prospective in effect and

applies only to foreclosure cases in which a deficiency judgment

is entered after the date of this opinion.

               I.       FACTS AND PROCEDURAL HISTORY

                              A. Background

           In 2008, Jonnaven Jo Monalim and Misty Marie Monalim

(the Monalims) received two loans from HawaiiUSA Federal Credit

Union (HawaiiUSA) to purchase a property located in Kapolei,

Hawai‘i (the Property).     The Property was a three bedroom, three

bathroom unit of the Beach Villas at Ko Olina Condominium built

in 2008.   The first loan (Note 1) was for $911,200.00; the

second loan (Note 2) was for $113,900.00.         Each loan was secured

by a mortgage on the Property to HawaiiUSA.

                                     3
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

          On June 24, 2010, HawaiiUSA filed a complaint in the

Circuit Court of the First Circuit (circuit court) against the

Monalims,1 alleging that the Monalims had defaulted on the notes

and seeking to foreclose on the mortgages.         Thereafter,

HawaiiUSA filed a motion for summary judgment, which the circuit

court granted on August 29, 2011 (Foreclosure Order).            The

circuit court found that the Monalims owed $1,024,428.04 on Note

1 and $121,547.20 on Note 2 and that HawaiiUSA was entitled to

foreclose upon the mortgages securing the notes.           On the same

day, the circuit court entered its judgment on the Foreclosure

Order (Foreclosure Judgment).

          In the Foreclosure Order, the circuit court appointed

a commissioner to take possession of the Property and oversee

its sale, subject to confirmation by the court.          HawaiiUSA was

allowed under the Foreclosure Order to request a deficiency

judgment in the event that the proceeds recovered from the

Property’s auction were insufficient to cover the Monalims’

outstanding debt on the notes:

          At the hearing for confirmation of sale, if it appears that
          the proceeds of the sale of the Mortgaged Property are
          insufficient to pay all amounts due and owing to
          [HawaiiUSA], [HawaiiUSA] may request a deficiency judgment
          in its favor and against the [Monalims] for the amount of
          the deficiency which shall be determined at the time of
          confirmation and have immediate execution thereafter.

     1
          The Honorable Bert I. Ayabe presided.

                                     4
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

            The Monalims filed an appeal of the Foreclosure Order

and Foreclosure Judgment to the Intermediate Court of Appeals

(ICA) on September 28, 2011.        The appeal was dismissed on

September 20, 2012, for failure to submit an opening brief.

            The Property was auctioned at public sale on October

24, 2011.    Prior to the sale, the Property received a 2011 tax

assessment from the City and County of Honolulu in which it was

valued at $703,600.00.      According to the commissioner’s report,

only three people attended the auction and sixteen bids were

received.    The last bid was for $760,000.00.         In the report, the

commissioner stated that $760,000.00 was a fair and reasonable

bid price based on comparable sales and recommended that the

court confirm the sale.       HawaiiUSA filed a motion to confirm the

sale and for deficiency judgment.         After a hearing, the circuit

court entered an order granting the motion on December 22, 2011.

            The circuit court outlined the amounts outstanding and

directed the commissioner to disburse the proceeds of the sale

in order of priority.2      The court further ordered

            that since the proceeds from the sale of the Mortgaged
            Property are insufficient to fully satisfy the amounts due
            to [HawaiiUSA], that a motion for deficiency judgment may

     2
            The circuit court found that as of October 31, 2011, the Monalims
owed $1,080,852.79 on Note 1, which included the principal balance, interest,
accumulated late charges, and an escrow advance, and owed $127,821.36 on Note
2, which included the principal balance and interest, plus any accruing late
charges or advances up to the date of escrow closing. The order granting
confirmation of sale also included amounts for commissioner’s and attorneys’
fees and costs.

                                      5
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

           subsequently be filed by [HawaiiUSA] against [the
           Monalims], jointly and severally.

The record indicates that the circuit court--based on the

Monalims’ objection--ordered a further hearing on the matter of

the deficiency judgment.       The judgment confirming the sale was

also entered on December 22, 2011.

            B. HawaiiUSA’s Motion for Deficiency Judgment

           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,
459 n.5, 319 P.3d 376, 378 n.5 (2014) (per curiam) (“A ‘credit bid’ is a bid
up to an amount equal to the unpaid principal and interest of a debt,
together with costs, fees, and other expenses, without tendering cash.”).

                                      8
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

in lieu of the sale price if it is the greater of the two.

(Citing Sostaric v. Marshall, 766 S.E.2d 396 (W.Va. 2014).)

          In its reply, HawaiiUSA argued that its motion for

deficiency judgment was proper because Hawai‘i law does not

require such a motion to be filed within a certain time from the

date of confirmation.     Further, HawaiiUSA argued, the Monalims

did not suffer any prejudice because HawaiiUSA did not prevent

the Monalims from filing bankruptcy or make representations that

it would not seek a deficiency judgment, and the Monalims could

still file for bankruptcy.      HawaiiUSA also contended that under

Hawai‘i caselaw, the court may refuse to confirm the sale if the

highest bid “is so grossly inadequate as to shock the

conscience,” which it was not in this case.          (Quoting Wodehouse

v. Hawaiian Trust Co., 32 Haw. 835, 854 (Haw. Terr. 1933).)

HawaiiUSA maintained that third party bidders were not

discouraged from bidding; HawaiiUSA did not receive a windfall;

and the Monalims’ due process rights were not violated.

          At the hearing on the motion for deficiency judgment,

the circuit court asked counsel for HawaiiUSA if there was any

reason why it had waited four years to file the motion.            Counsel

responded that, without going into attorney-client privileged

information, counsel could not “comment about any particular

client’s” propensity to seek a motion.         However, counsel

contended that once a judgment is obtained it lasts for ten

                                     9
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

years and, by analogy, the motion should be considered timely

because it was brought within that time period.           The Monalims

responded that the analogy worked the opposite way because

HawaiiUSA could wait an indefinite amount of time to seek the

deficiency judgment, effectively extending the statutory period

for collecting the judgment, which was contrary to the

legislature’s intention to give the borrower some peace by

limiting the time period of liability.          HawaiiUSA replied that a

further hearing on the deficiency judgment was ordered based on

the Monalims’ objection at the confirmation hearing and argued

that the foreclosure price was reasonable.

            On October 13, 2016, the circuit court entered its

“Order Granting in Part and Denying in Part [HawaiiUSA’s] Motion

for Deficiency Judgment Against [the Monalims] Filed January 12,

2016” (Order Granting Deficiency Judgment) and the “Deficiency

Judgment Against the [the Monalims] and in Favor of [HawaiiUSA]”

(Deficiency Judgment).      The Order Granting Deficiency Judgment

awarded HawaiiUSA a deficiency judgment of $493,282.04.5             “[D]ue

to the delay in filing” the motion, however, the circuit court

denied HawaiiUSA’s request for interest for the period between

the closing date of the sale and the entry of the Deficiency

      5
            The amount included the deficiencies on the two loans, attorneys’
fees and costs incurred in the preparation of the motion, and attorneys’ fees
and cost associated with the Monalims’ dismissed ICA appeal.

                                     10
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

Judgment, as well as its request for statutory interest for the

period after the entry of the Deficiency Judgment.            The Order

Granting Deficiency Judgment did not address the laches defense

raised by the Monalims or their request for a hearing as to the

market value of the Property.        The Monalims appealed to the ICA.

                            C. ICA Proceedings

            On appeal, the Monalims maintained that HawaiiUSA’s

motion for deficiency judgment was barred by laches and that the

circuit court should have held evidentiary hearings on prejudice

resulting from the untimely motion and on the amount owed.

            The ICA entered its Summary Disposition Order (SDO) on

May 17, 2018.6    The ICA held that the Monalims’ assertion that

the deficiency judgment was required to be determined at the

time of the confirmation of sale was without merit because the

Monalims objected and sought a further hearing in regard to the

deficiency judgment.

            The ICA also stated that the Monalims made no

discernable argument about laches.         Nevertheless, the ICA

addressed the prejudice posed by HawaiiUSA’s delay in filing the

motion, concluding that the order confirming the sale of the

Property gave the Monalims notice of the possibility of a

deficiency judgment such that their contentions related to
      6
            The ICA’s SDO can be found at HawaiiUSA Fed. Cred. Union v.
Monalim, No. CAAP-XX-XXXXXXX, 2018 WL 2254707 (May 17, 2018).

                                     11
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

prejudice were without merit.         The ICA additionally found that

the Monalims had not requested a hearing on prejudice and held

that the circuit court therefore did not deny their request for

a hearing.     Further, the ICA noted, the circuit court did

address potential prejudice to the Monalims when it denied

HawaiiUSA’s request for continuing interest from the closing

date of the sale to the entry of the Deficiency Judgment and for

statutory interest after the entry of the Deficiency Judgment.

The ICA also pointed to the Monalims’ failure to seek a

dismissal under Hawai‘i Rules of Civil Procedure (HRCP) Rule

41(b)(1) or to file a motion to bring closure to the

proceedings.

            The ICA likewise rejected the Monalims’ contention

that the circuit court should have held an evidentiary hearing

on the amount owed.       The ICA ruled that the method for

calculating the deficiency was not determined by the Deficiency

Judgment but rather the amount was incident to the enforcement

of the Foreclosure Judgment.        The ICA found that the Monalims

had the opportunity to challenge how the deficiency judgment

would be calculated in their first appeal, and they failed to do

so.   The ICA therefore held that the Monalims were precluded by

                                      12
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

res judicata from challenging the method of calculating the

Deficiency Judgment and affirmed the circuit court.7

                    II.        STANDARDS OF REVIEW

                          A.    Questions of Law

           “Questions of law are reviewed de novo under the

right/wrong standard of review.”          Roes v. FHP, Inc., 91 Hawai‘i

470, 473, 985 P.2d 661, 664 (1999) (quoting Francis v. Lee

Enters., Inc., 89 Hawai‘i 234, 236, 971 P.2d 707, 709 (1999)).

                     B.    Courts Sitting in Equity

           The extent of the relief granted by a court in equity

rests within the sound discretion of the circuit court and will

not be disturbed unless the circuit court abused its discretion.

Peak Capital Grp., LLC, v. Perez, 141 Hawai‘i 160, 172, 407 P.3d
116, 128 (2017); Hawaii Nat’l Bank v. Cook, 100 Hawai‘i 2, 7, 58
P.3d 60, 66 (2002).       A court abuses its discretion by “issuing a

decision that clearly exceeds the bounds of reason or

disregard[ing] rules or principles of law or practice to the

substantial detriment of the appellant.”          Cook, 100 Hawai‘i at 7,
58 P.3d at 66 (quoting Shanghai Inv. Co. v. Alteka Co., 92

Hawai‘i 482, 493, 993 P.2d 516, 526 (2000)).

      7
            The Monalims further argued as points of error that the
deficiency judgment was “contrary to the law of the case,” HawaiiUSA waived
its right to a deficiency judgment, and they were irreparably prejudiced
because they reasonably relied on HawaiiUSA’s waiver. The ICA did not
address the merits of these issues.

                                     13
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

                      C.    Statutory Interpretation

            The interpretation of a statute is a question of law

that is reviewed de novo.         Deutsche Bank Nat’l Trust Co. v.

Greenspon, 143 Hawai‘i 237, 243, 428 P.3d 749, 755 (2018).

                           III.     DISCUSSION

 A.     The Monalims’ Challenge to the Deficiency Judgment Is Not
                       Barred by Res Judicata.

            The ICA held that res judicata barred the Monalims

from challenging the method in which the Deficiency Judgment was

calculated because they failed to raise the issue in their

appeal of the Foreclosure Judgment.          It is true that the

doctrine of res judicata prohibits parties from relitigating a

previously adjudicated cause of action or claims that could have

been brought in a previous action between the same parties but

were not.     Mortg. Electr. Registration Sys., Inc. v. Wise, 130

Hawai‘i 11, 17-18, 304 P.3d 1192, 1198-99 (2013).            However, under

this court’s precedents, “foreclosure cases are bifurcated into

two separately appealable parts: (1) the decree of foreclosure

and the order of sale, if the order of sale is incorporated

within the decree, and (2) all other orders.” Id. at 16, 304

P.3d at 1197 (quoting Sec. Pac. Mortg. Corp. v. Miller, 71 Haw.
65, 70, 783 P.2d 855, 857 (1989)).          And the bifurcated nature of

mortgage foreclosure proceedings is treated as two separate

                                      14
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

proceedings for res judicata purposes. Id. at 17, 304 P.3d at

1198.

            Additionally, Hawai‘i Revised Statutes (HRS)

§ 667-51(a) (Supp. 2010) sets forth the specific orders that are

deemed final and appealable in the foreclosure context.             Section

667-51(a)(1)8 provides that an adjudication of the right to a

deficiency judgment incorporated into a judgment on a decree of

foreclosure is final and appealable.         Separately, section

667-51(a)(3)9 states that an appeal may be taken from the amount

      8
            HRS § 667-51(a)(1) provides as follows:

            (a) Without limiting the class of orders not specified in
            section 641-1 from which appeals may also be taken, the
            following orders entered in a foreclosure case shall be
            final and appealable:

               (1) A judgment entered on a decree of foreclosure, and
               if the judgment incorporates an order of sale or an
               adjudication of a movant’s right to a deficiency
               judgment, or both, then the order of sale or the
               adjudication of liability for the deficiency judgment
               also shall be deemed final and appealable[.]

Additionally, HRS § 667-51(a)(2) provides that, in the event it is not
incorporated with another order, “[a] judgment entered on an order confirming
the sale of the foreclosed property,” is appealable “if the circuit court
expressly finds that no just reason for delay exists, and certifies the
judgment as final pursuant to rule 54(b) of the Hawaii rules of civil
procedure[.]”
      9
            HRS § 667-51(a)(3) provides that the following order entered in a
foreclosure case shall be final and appealable:

            (3) A deficiency judgment; provided that no appeal from a
            deficiency judgment shall raise issues relating to the
            judgment debtor’s liability for the deficiency judgment (as
            opposed to the amount of the deficiency judgment), nor
            shall the appeal affect the finality of the transfer of
            title to the foreclosed property pursuant to the order
            confirming sale.

                                     15
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

of a deficiency judgment provided that the appeal does not raise

issues related to the judgment debtor’s right to the deficiency

judgment or affect the finality of the transfer of title of the

foreclosed property.      It is thus unsurprising that in Wise, this

court held that the defendant’s “timely appeal from the

Deficiency Judgments would entitle it to challenge errors unique

to it, such as an erroneous upset price or miscalculation of

deficiency.”10    130 Hawai‘i at 16, 304 P.3d at 1197 (second

emphasis added) (quoting Miller, 71 Haw. at 71, 783 P.2d at

858).

            The ICA misapprehended this holding in concluding that

because the Monalims failed to challenge the method for

calculating the deficiency in their appeal of the Foreclosure

Judgment--which was dismissed--they were barred by res judicata

from challenging it in an appeal of the Deficiency Judgment.                 In

Wise, the petitioner appealed from an order confirming sale,

challenging the respondent’s standing to bring the foreclosure

suit “in the first place.”       130 Hawai‘i at 15, 17, 304 P.3d at

1196, 1198.    We concluded that because the issue of standing

could have been raised at any time, it was not “unique” to the

confirmation of sale and should therefore have been challenged

      10
            Although the court did not cite HRS § 667-51(a) as a basis for
its decision in Wise, its holding is consistent with the statute.

                                     16
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

in an appeal from the judgment of foreclosure. Id. at 17, 304

P.3d at 1198.

            In contrast to the standing issue before the Wise

court, the Monalims’ appellate challenge is to the method by

which the circuit court calculated the deficiency judgment,

which pertains to the amount of the deficiency judgment--not

HawaiiUSA’s right to collect it “in the first place.”            See id.

at 15, 17, 304 P.3d at 1196, 1198.        When the Monalims’ appeal of

the Foreclosure Judgment was dismissed by the ICA, the Monalims

lost the ability to contest HawaiiUSA’s right to a deficiency

judgment pursuant to the Foreclosure Judgment.          However,

pursuant to HRS § 667-51(a)(3) and this court’s precedents, the

Monalims may still appeal the Deficiency Judgment as long as

their challenge contests the calculation of the deficiency

amount and not HawaiiUSA’s right to the deficiency judgment

under the Foreclosure Judgment.       The Foreclosure Judgment did

not set out the amount or method for calculating the deficiency

judgment.    Because the Monalims were not required to contest the

amount of the deficiency judgment in their appeal from the

Foreclosure Judgment, the prior proceeding does not implicate

res judicata.    The ICA therefore erred in concluding that the

                                    17
       ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

Monalims were barred from contesting the method for calculating

the amount of the deficiency judgment.11

  B.        The Circuit Court Failed To Address the Monalims’ Laches
                                 Argument.

               “Mortgage foreclosure is a proceeding equitable in

nature and is thus governed by the rules of equity.”              Beneficial

Hawaii, Inc. v. Kida, 96 Hawai‘i 289, 312, 30 P.3d 895, 918

(2001).       An equity court’s sound discretion is not bound by

strict rules of law, but it can be molded to do justice. Id.

Although laches was originally a doctrine reserved for equitable

proceedings like the present case, this court has stated that,

in the State of Hawai‘i, “laches is a defense in all civil

actions.”       Ass’n of Apartment Owners of Royal Aloha v. Certified

Mgmt., Inc., 139 Hawai‘i 229, 235, 386 P.3d 866, 872 (2016).

Therefore, laches is a defense against a motion for deficiency

judgment.       See BayBank Conn., N.A., v. Thumlert, 610 A.2d 658,

662 (Conn. 1992) (“[A] defendant who is demonstrably prejudiced

by a plaintiff’s delay in filing a motion for deficiency

judgment may invoke the equitable defense of laches.”); E.

Banking Co. v. Robbins, 149 N.W. 779, 780 (Neb. 1914) (holding

       11
            We also overrule the following ICA cases to the extent that they
held that res judicata barred the mortgagee from challenging the method in
which the deficiency judgment was calculated: Ke Kailani Partners, LLC v. Ke
Kailani Dev. LLC, Nos. CAAP-XX-XXXXXXX & CAAP-XX-XXXXXXX, 2016 WL 2941054
(App. Apr. 29, 2016) (mem.); LCP-Maui, LLC v. Tucker, No. CAAP-XX-XXXXXXX,
2018 WL 1082855 (App. Feb. 28, 2018) (SDO).

                                       18
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

that “a court of equity in the exercise of its inherent power to

deny relief on account of laches, independently of the statute

of limitations, should refuse to enter a deficiency judgment”

when the petitioner had waited more than 14 years).

          The doctrine of laches reflects the maxim that equity

aids the vigilant, not those who slumber on their rights.             Small

v. Badenhop, 67 Haw. 626, 640, 701 P.2d 647, 656 (1985).            There

are two prongs of the laches defense, both of which must be

satisfied in order for the doctrine to become applicable:

          First, there must have been a delay by the plaintiff in
          bringing his claim, and that delay must have been
          unreasonable under the circumstances. Delay is reasonable
          if the claim was brought without undue delay after
          plaintiff knew of the wrong or knew of facts and
          circumstances sufficient to impute such knowledge to him.
          Second, that delay must have resulted in prejudice to
          defendant.

Herrmann v. Herrmann, 138 Hawai‘i 144, 153, 378 P.3d 860, 869

(2016) (quoting Adair v. Hustace, 64 Haw. 314, 321, 640 P.2d
294, 300 (1982)).

          Despite ruling that the Monalims made no discernable

argument as to a laches defense, the ICA also stated that the

Monalims’ arguments as to prejudice--the second prong of laches-

-were without merit.     However, a review of the record

demonstrates that the Monalims raised substantive arguments as

to both of the defense’s requirements.

          When evaluating the first prong of laches, a court

considers whether, under the circumstances, the delay in

                                    19
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

bringing the claim was unreasonable. Id.   In this case, the

judgment confirming the sale was entered on December 22, 2011.

More than four years later, on January 12, 2016, HawaiiUSA filed

its motion for deficiency judgment.        The Monalims argued in

their opposition to HawaiiUSA’s motion that the four-year delay

was unprecedented, and that HawaiiUSA had provided no

explanation for the delay in its submissions to the court.             And

when asked directly during the hearing on the motion, counsel

for HawaiiUSA declined to provide an explanation for the delay,

citing attorney-client privilege.        The Monalims’ establishment

of a four-year delay in HawaiiUSA seeking to recover a

deficiency amount from the Monalims and the lack of any

explanation for this delay by HawaiiUSA satisfied the Monalims’

burden to adduce sufficient facts to raise a laches defense with

regard to the first prong.      Cf. Herrmann, 138 Hawai‘i at 153-54,
378 P.3d at 869-70 (noting that the plaintiff did not proffer a

satisfactory excuse for the almost seven-year delay in bringing

suit); see also In re Kawai, 36 Haw. 533, 536 (Haw. Terr. 1943)

(observing that a party who waited nearly five years after the

final order of distribution before commencing an action to

revoke a will did not provide a “satisfactory excuse”).

          As to the second prong, that the delay must have

resulted in prejudice to the defendant, we have stated, “What

qualifies as prejudice for purposes of the laches doctrine

                                    20
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

invariably depends on the facts and circumstances of a

particular case, but it is ordinarily understood as anything

that places the defendant ‘in a less favorable position.’”

Herrmann, 138 Hawai‘i at 154, 378 P.3d at 870 (citing 27A

Am.Jur.2d Equity § 143 (2008)).

          At the circuit court, the Monalims averred in a

declaration that they had planned to file a Chapter 7 Bankruptcy

Petition to discharge the potential deficiency judgment but had

abandoned their plan “after waiting close to a year” in

anticipation of the deficiency judgment.         In the interim, the

Monalims explained, they had each started a business, started

saving for their daughter’s college tuition, and were only

months from clearing the foreclosure from their credit reports.

The Monalims argued to the circuit court that the deficiency

judgment would “wipe out” all of their financial gains since the

confirmation of sale, which would not have occurred if HawaiiUSA

moved for a deficiency judgment in 2011.         The Monalims therefore

contended that they would be in a significantly worse position--

and suffer significant prejudice--as a result of HawaiiUSA’s

delay.

            The Monalims thus alleged facts concerning each prong

of their laches defense.      See Kerrigan v. Kerrigan, 642 A.2d
1324, 1327 (D.C. App. 1994) (holding that the defendant made a

prima facie showing sufficient to establish that injustice would

                                    21
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

result from the plaintiff’s unexplained eight-year delay in

bringing suit based on evidence that the defendant’s financial

situation had greatly changed in the interim).          The ICA in this

case thus clearly erred in holding that the Monalims made no

discernable argument as to a laches defense.          Additionally,

despite the presentation of the defense, the circuit court did

not render findings of fact and conclusions of law or otherwise

rule upon the applicability of the Monalims’ laches defense in

its Order Granting Deficiency Judgment or the Deficiency

Judgment.

            The present case is analogous to Herrmann v. Herrmann,

in which the plaintiff brought a motion for post-decree relief

against the defendant to recover overpaid child support

approximately seven years after being notified about the

overpayments.    138 Hawai‘i at 147-48, 378 P.3d at 863-64.          The

defendant argued that the seven-year delay was unreasonable and

that the plaintiff provided no explanation for waiting to bring

the action for reimbursement. Id. at 148, 378 P.3d at 864.           The

family court denied the plaintiff’s motion, citing the seven-

year delay in raising the issue and concluding that the

plaintiff was “estopped” from pursuing the claim. Id. at 150,

378 P.3d at 866.    On appeal, the ICA determined that the family

court’s decision was based on “estoppel by laches” and that the

family court had not made an independent conclusion as to

                                    22
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

prejudice. Id. at 150, 378 P.3d at 866.        Applying its own

judgment, the ICA held that both requirements of “estoppel by

laches” were not present, and it accordingly vacated the family

court’s decision. Id. at 150-53, 378 P.3d at 866-69.

            On review, this court determined that there were three

possible explanations for the family court’s failure to make

findings of fact as to prejudice: (1) the family court did not

apply the laches doctrine; (2) the court implicitly found that

the prejudice prong had been satisfied; or (3) the family court

failed to recognize that prejudice was a required prong for the

application of laches. Id. at 155, 378 P.3d at 871.        Because of

the family court’s silence, we stated that it was uncertain

whether the prejudice prong had been satisfied, and the case was

remanded to the family court to render factual findings with

respect to whether the defendant was prejudiced by the delay.
Id.

            Similarly, there are at least three possible

explanations for the circuit court’s silence regarding the

Monalims’ laches defense: (1) the circuit court implicitly

concluded that laches was inapplicable because it determined

that there was no unreasonable delay or that the Monalims

suffered no prejudice; (2) the circuit court failed to properly

apply the laches defense; or (3) the circuit court failed to

duly consider the Monalims’ laches defense.            That is to say,

                                      23
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

based on the circuit court’s lack of findings as to the laches

defense, we are unable to determine on review whether the

circuit court appropriately considered this defense presented by

the Monalims.12    See 138 Hawai‘i at 155, 378 P.3d at 871.

           The ICA alternatively held that the circuit court

addressed the potential prejudice to the Monalims by denying

HawaiiUSA’s requested interest on the deficiency amount.

However, as our holding in Herrmann illustrates, because the

circuit court did not issue any findings with regard to

prejudice, we cannot know whether this constituted appropriate

consideration of the laches defense.         See Herrmann, 138 Hawai‘i

at 155-56, 378 P.3d at 871-72.        The ICA also concluded that the

Monalims were on notice of the deficiency amount such that their

contentions related to prejudice were without merit.            Though the

     12
            The concurring and dissenting opinion (dissent) agrees with our
conclusion that the circuit court erred by failing to address the Monalims’
laches argument, but it then proceeds to consider and rule on the merits of
the Monalims’ claim as if it were in the position of the trial court.
Dissent at 23. When an appellate court discerns that a trial court has
failed to make a finding because of an erroneous view of the law, the
standard rule is that the case should be remanded to the trial court to
permit that court to evaluate and render the findings that should have been
made in the first instance. Pullman-Standard v. Swint, 456 U.S. 273, 291
(1982). The only exception to this rule is when the record permits only one
resolution of the factual issue. Sprint/United Mgmt. Co. v. Mendelsohn, 552
U.S. 379, 387 (2008). Because the trial court in this case failed to rule
upon the applicability of the Monalims’ laches defense and rendered no
findings of facts on this defense, this court is clearly not in a position to
rule as a matter of law regarding factual aspects of the Monalims’ laches
defense. We accordingly decline to deviate from the basic principle of law
that fact-finding should be left to the fact-finder. See also Goo v.
Arakawa, 132 Hawai‘i 304, 317, 321 P.3d 655, 668 (2014) (“[A] trial court is
better equipped than an appellate court operating at a distance to fashion
equitable relief.”).

                                     24
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

fact that the Monalims were on notice of the potential

deficiency judgment against them in 2011 is part of the

circumstances to be considered by the circuit court in

evaluating the prejudice prong, it is not dispositive of the

Monalims’ contention that they have been prejudiced by

HawaiiUSA’s delay in pursuing the deficiency judgment, nor can

we conclude that this fact was actually considered by the

circuit court.13    See id.; Badenshop, 67 Haw. at 640, 701 P.2d at

657 (“Prejudice has been found . . . where changes in the value

of the subject matter or in the defendant’s position have

occurred[.]” (emphasis added)).

           In sum, we hold that the ICA erred in affirming the

circuit court’s Deficiency Judgment without the circuit court

having demonstrably addressed the Monalims’ laches defense.14

     13
            The ICA also noted that the Monalims did not seek a dismissal
order or file any motions to bring closure to the proceeding. However, under
a laches analysis, the Monalims are not required to show they actively tried
to bring the proceedings to a close to demonstrate prejudice.
     14
            The Monalims also argued to the ICA that the Deficiency Judgment
violated the “Law of the Case” and that HawaiiUSA waived its right to the
deficiency judgment. On certiorari review, the Monalims additionally argue
the defense of estoppel by acquiescence. The Monalims’ contentions are
premised on their interpretation of the term “shall” in the provision in the
Foreclosure Order granting HawaiiUSA the right to a deficiency judgment.

           At the hearing for confirmation of sale, if it appears that
           the proceeds of the sale of the Mortgaged Property are
           insufficient to pay all amounts due and owing to
           [HawaiiUSA], [HawaiiUSA] may request a deficiency judgment
           in its favor and against the [Monalims] for the amount of
           the deficiency which shall be determined at the time of
           confirmation and have immediate execution thereafter.

                                                             (continued . . .)

                                     25
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

And thus, the Order Granting Deficiency Judgment and the

Deficiency Judgment must be vacated, and on remand the circuit

court shall consider and render a determination on the Monalims’

laches defense.15

C. The Traditional Approach to Determining a Deficiency Judgment
     May Hold Mortgagors Liable for More than What Is Owed and
                   Grant Mortgagees a Windfall.

            In what appears to be a matter of first impression

before this court, we review the method by which Hawai‘i courts

calculate deficiency judgments.        The Monalims argue that courts

in Hawai‘i “matter-of-factly” calculate a deficiency judgment by

subtracting the net proceeds of the foreclosure sale from the

mortgage debt owed without considering evidence of the

foreclosed property’s true market value at the time of sale.

The Monalims contend that lower courts should be instructed to

hold an evidentiary hearing to determine the true value of a

property when calculating a deficiency judgment, and that this

(. . . continued)

(Emphases added.)

            On its face, the term “shall” in the provision relates only to
when the court intended to determine the amount of the deficiency judgment
should one be requested. By contrast, the order specified that HawaiiUSA
“may” request a deficiency judgment at the hearing on the confirmation of
sale--a right HawaiiUSA appears to have exercised. We therefore hold that
these arguments are without merit.
      15
            In light of our disposition, we do not address the Monalims’
contention that the circuit court should have conducted a separate
evidentiary hearing on prejudice.

                                     26
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

amount should be deducted from the mortgage debt in lieu of the

sale price if it is the greater of the two.

            Determination of the amount of a deficiency judgment

generally follows two approaches.         Under the traditional

approach, the price obtained at a foreclosure sale is the

“conclusive measure” of the amount to be deducted from the

outstanding mortgage debt.       Restatement (Third) of Property:

Mortgages § 8.4 cmt. a. (Am. Law Inst. 1997).16           The amount of

the deficiency judgment is thus automatically calculated by

subtracting the foreclosure sale price from the outstanding

mortgage debt.     1 Grant S. Nelson & Dale A. Whitman, Real Estate

Finance Law § 8:3 (6th ed. 2014).         A majority of jurisdictions

have rejected this approach, however.         “Whether by judicial

decision or by statute, the majority view ‘afford[s] the

deficiency defendant the right to insist that the greater of the

fair market value[17] of the real estate or the foreclosure sale

price be used in calculating the deficiency.’”           Sostaric v.
      16
            “At the opposite extreme, some states flatly prohibit deficiency
judgments in certain contexts.” Restatement (Third) of Property: Mortgages §
8.4 Reporters’ Note to cmt. a.
      17
            The exact terminology used varies by jurisdiction and includes,
for example, “fair market value,” “true market value,” “actual value,”
“reasonable value,” “fair value,” and “true value.” See Restatement (Third)
of Property: Mortgages § 8.4 Reporters’ Note to cmt. a. This opinion treats
these terms interchangeably with “fair market value” and defines “fair market
value” as “the price which would result from negotiation and mutual
agreement, after ample time to find a purchaser, between a vendor who is
willing, but not compelled to sell, and a purchaser who is willing to buy,
but not compelled to take a particular piece of real estate.” Id. § 8.4
cmt. c (defining “fair market value”).

                                     27
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

Marshall, 766 S.E.2d 396, 400 (W.Va. 2014) (footnote omitted)

(quoting Restatement (Third) of Property: Mortgages § 8.4 cmt.

a).

            Scholars of foreclosure law have observed that the

price obtained at a foreclosure sale is often far below the fair

market value of the property as a result of the forced nature of

a foreclosure sale.       Robert M. Washburn, The Judicial and

Legislative Response to Price Inadequacy in Mortgage Foreclosure

Sales, 53 S. Cal. L. Rev. 843, 848 (1980); Nelson & Whitman,

supra.    In times of economic depression a foreclosed property is

likely to bring an even lower price.          Nelson & Whitman, supra.

Measuring the deficiency judgment based on the foreclosure sale

price therefore may result in a double-loss to the deficiency

debtor: the debtor has lost the foreclosed property, and the

debtor has not been credited the actual value of the property

against the outstanding mortgage debt.           See Restatement (Third)

of Property: Mortgages § 8.4 cmt. a; Washburn, supra, at 850.

            Conversely, these conditions may allow a mortgagee to

potentially recover more than the original mortgage debt owed to

it.   This situation occurs, for example, when a mortgagee

purchases the property during a foreclosure sale at a price

below its fair market value, obtains a deficiency judgment for

the difference between the foreclosure price and the outstanding

mortgage debt, and then resells the property at or above its

                                      28
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

fair market value.      Restatement (Third) of Property: Mortgages

§ 8.4 cmt. a; Nelson & Whitman, supra; Washburn, supra, at 849.

The traditional approach to calculating a deficiency judgment

thus may produce inequity between mortgagors and mortgagees by

holding a mortgagor liable for more than what is owed and

granting mortgagees a windfall they are not due.            This has

prompted several state legislatures since the 1930s to abandon

the traditional approach and instead mandate the use of a

property’s fair market value as the minimum measure for

determining a deficiency judgment.18        Nelson & Whitman, supra.

            In addition to the states that have adopted the

majority view through legislation, several state courts have

adopted the majority view through judicial decision.            In

Trustees of Washington-Idaho-Montana-Carpenters Employers

Retirement Trust Fund v. Galleria Partnership, for example, the

Supreme Court of Montana was called upon to review a

$1,308,193.35 deficiency judgment against the defendants, whose

foreclosed property had been valued at $1,100,000 two years

prior to a sheriff’s sale but was sold for $565,000.            780 P.2d
608, 609, 611 (Mont. 1989).       The court determined that its own

      18
            At least 23 states statutorily define a deficiency using the
“fair value” of the foreclosed property. See Restatement (Third) of
Property: Mortgages § 8.4 Reporters’ Note to cmt. a; Sostaric, 766 S.E.2d at
400 n.11. Of those that have not, many prohibit deficiency judgments
entirely or with respect to purchase money mortgages. See Restatement
(Third) of Property: Mortgages § 8.4 Reporters’ Note to cmt. a.

                                     29
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

statutes were silent as to the duty of the court to determine

whether the sheriff’s sale reflected the fair market value of

the foreclosed property. Id. at 616-17.     The court observed,

however, that the majority of the neighboring states had

statutes that “limited [a deficiency judgment] to the difference

between the fair market value of the secured property at the

time of the foreclosure sale, regardless of a lesser amount

realized at the sale, and the outstanding debt for which the

property was secured.” Id. at 616-17.      The Ninth Circuit had

recognized that the purpose of two of those states’ statutes was

to prevent the injustice that befalls the judgment debtor whose

foreclosed property brings a price significantly less than its

fair market value, the Montana court noted. Id. at 617 (citing

U.S. v. MacKenzie, 510 F.2d 39, 41 (9th Cir. 1975)).           In the

exercise of its equity jurisdiction, the court deemed it proper

to remand the case for determination of the property’s fair

market value as of the time of the sheriff’s sale, which would

then be used to calculate the deficiency judgment. Id.

          The Supreme Court of West Virginia has similarly

adopted the majority view through judicial decision.           In

Sostaric v. Marshall, the court noted that, while the governing

state statute was silent as to whether the value of real

property could be challenged at a deficiency judgment

proceeding, the court had previously applied common law

                                    30
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

principles of equity to set aside foreclosure sales. 766 S.E.2d

at 403.     Concluding that adoption of the majority view would,

inter alia, prevent a creditor from receiving a windfall at the

expense of a deficiency defendant, the court overruled its

previous precedent in favor of adopting the majority view. Id.

at 405.     Thus, state supreme courts have not shied from using

their inherent equity powers to adopt the majority view to

create fairness between the parties in foreclosure proceedings.

See also Wansley v. First Nat. Bank of Vicksburg, 566 So. 2d
1218, 1223-25 (Miss. 1990) (holding that every aspect of the

foreclosure sale must be “commercially reasonable”); Vantium

Capital, Inc. v. Hobson, 137 So. 3d 497, 499 (Fla. Ct. App. 2014)

(utilizing the “fair market value” as the measure for awarding a

deficiency decree); Licursi v. Sweeney, 594 A.2d 396, 398-99

(Vt. 1991) (using the “value” of the property as the measure to

determine whether a deficiency existed).

            In 1997, the American Law Institute also adopted the

majority approach in the Restatement (Third) of Property:

Mortgages § 8.4.     As set forth in the Restatement, the

deficiency judgment debtor may request a determination of the

“fair market value” of foreclosed property as of the date of the

foreclosure sale.     Restatement (Third) of Property: Mortgages

§ 8.4(c).     If the fair market value is greater than the

foreclosure price, the deficiency judgment debtor is entitled to

                                    31
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

offset the deficiency against the fair market value. Id.

§ 8.4(d).     Determination of a property’s fair market value is

not automatic and must be requested by a deficiency judgment

debtor. Id. § 8.4 cmt. b.     Thus, the Restatement “adopts the

position of the substantial number of states that, by

legislation or judicial decision,” allow for the calculation of

the deficiency award using the greater of the fair market value

or foreclosure price. Id. § 8.4 cmt. a.

            In adopting the majority view, the Restatement’s

approach is aimed at making the mortgagee whole while

simultaneously preventing the unjust enrichment that could

result from the traditional approach:

            This approach enables the mortgagee to be made whole where
            the mortgaged real estate is insufficient to satisfy the
            mortgage obligation, but at the same time protects against
            the mortgagee purchasing the property at a deflated price,
            obtaining a deficiency judgment and, by reselling the real
            estate at a profit, achieving a recovery that exceeds the
            obligation.
Id.   Logically, the majority rule protects a mortgagee against

any loss that would occur from a sale of the property at less

than its fair market value because the mortgagee retains the

option of tendering a credit bid for the amount of the

outstanding mortgage debt and obtaining the property without

additional monetary payment if there are no greater bids.                The

dissent disagrees, arguing that “the mortgagee will still not be

made whole if the outstanding mortgage debt exceeds the fair

                                      32
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

market value of the property.”        Dissent at 22.     But this focus

on cases in which the outstanding mortgage debt exceeds the fair

market value of the property “deflects consideration of the risk

management techniques available to lenders when the loan is

made.”19   See Sostaric, 766 S.E.2d at 404 n.17 (quoting First

Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216, 227 n.5 (Mo.

2012) (Teitelman, C.J., dissenting)).          Further, by allowing the

deficiency judgment debtor to request a determination of the

fair market value, the Restatement’s approach protects the

mortgagor from the danger of double-loss that would result from

“a deficiency judgment that does not fairly recognize the value”

of the foreclosed property.       Restatement (Third) of Property:

Mortgages § 8.4 cmt. a; see also CSA 13-101 Loop, LLC v. Loop

101, LLC, 341 P.3d 452, 456 (Ariz. 2014) (“Restatement § 8.4

seeks to protect against artificially increased deficiencies.”).

      19
            As stated by the Sostaric court:

            A lender compensates for risk by charging an interest rate
            that is set both by the financial markets and by the
            lender’s assessment of the borrower’s creditworthiness.
            The lender also manages risk by appraising the fair market
            value of the property to ensure that the loan is adequately
            secured. Changing to a fair market value approach
            certainly would lessen the lender’s chance of a large
            windfall and would mean only that [the mortgagee], like the
            borrower, is losing or gaining money based on fair market
            value of property. The risk of loss is part of the risk of
            lending. That risk of loss should not be borne solely by
            the borrower and then amplified by measuring the deficiency
            by reference to the foreclosure sale price.

Sostaric, 766 S.E.2d at 404 n.17 (quoting First Bank v. Fischer & Frichtel,
Inc., 364 S.W.3d 216, 227 n.5 (Mo. 2012) (Teitelman, C.J., dissenting)).

                                     33
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

          Thus, section 8.4 of the Restatement provides a

greater balance of the equities between mortgagor and mortgagee

in the foreclosure process than the traditional approach.

     D. We Adopt the Majority Approach Because It Is Consistent
               with Principles of Equity and Hawai‘i Law.

          In Hawai‘i, HRS § 667-1.5 (Supp. 2015) authorizes

foreclosure by action and provides as follows:

          The circuit court may assess the amount due upon a
          mortgage, whether of real or personal property, without the
          intervention of a jury, and shall render judgment for the
          amount awarded, and the foreclosure of the mortgage.
          Execution may be issued on the judgment, as ordered by the
          court.

Our interpretation of statutes is guided by the following well-

settled principles:

          First, the fundamental starting point for statutory-
          interpretation is the language of the statute itself.
          Second, where the statutory language is plain and
          unambiguous, our sole duty is to give effect to its plain
          and obvious meaning. Third, implicit in the task of
          statutory construction is our foremost obligation to
          ascertain and give effect to the intention of the
          legislature, which is to be obtained primarily from the
          language contained in the statute itself. Fourth, when
          there is doubt, doubleness of meaning, or indistinctiveness
          or uncertainty of an expression used in a statute, an
          ambiguity exists.

State v. Castillon, 144 Hawai‘i 406, 411, 443 P.3d 98, 103 (2019)

(quoting Panado v. Bd. of Trs., Emps.’ Ret. Sys., 134 Hawai‘i 1,

11, 332 P.3d 144, 154 (2014)).       Therefore, our interpretation of

HRS § 667-1.5 must begin with the language of the statute

itself.   HRS § 667-1.5 plainly states that the circuit court

“may assess the amount due upon a mortgage . . . and shall

render judgment for the amount awarded.”         By its use of the word

                                    34
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

“may” the legislature has permitted courts to exercise

discretion in assessing the amount due on a mortgage, “without

the intervention of a jury.”      HRS § 667-1.5.      Further, the

statute confers on the court “specific authority to render a

deficiency judgment, as an incident to the foreclosure.”             Bank

of Honolulu, N.A. v. Anderson, 3 Haw. App. 545, 549, 654 P.2d
1370, 1374 (1982) (emphasis omitted) (citing 2 Committee on

Coordination of Rules and Statutes, Report of Committee on

Coordination of Rules and Statutes (1971)).          Under its plain

language, Chapter 667 (governing foreclosures) does not mandate

either the traditional or majority approach to calculating

deficiency judgments.     Instead, the legislature has left the

determination of the amount due in a deficiency judgment and

thereby the method for its calculation to the discretion of the

courts.

          The Monalims contend that courts in Hawai‘i currently

determine a deficiency judgment by mechanically subtracting the

price obtained at a foreclosure sale from the outstanding

mortgage debt.    They ask that this court follow the approach of

the majority of states and the Restatement by requiring lower

courts to conduct an evidentiary hearing to determine the fair

market value of a foreclosed property when calculating a

deficiency judgment.     Citing Wodehouse v. Hawaiian Trust Co., 32
Haw. 835, 854 (Haw. Terr. 1933), HawaiiUSA argues that no such

                                    35
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

inquiry is required under Hawai‘i law and contends that our

caselaw requires the mortgagor to bear the burden of any loss

unless the foreclosure price “is so grossly inadequate as to

shock the conscience.”

            In Wodehouse, the trial court ordered the foreclosure

and sale of property at a public auction with an upset price of

$82,000. Id. at 840.       After the property twice failed to receive

any bids, the court gave the mortgagees a choice between taking

possession of the mortgaged property as credit for $82,000 of

the debt or postponing the sale to a later date. Id.   The

mortgagees declined both options, but the court nonetheless

ordered the conveyance of the property to the mortgagees and

credited the mortgagor $82,000 toward their outstanding debt.
Id.

            On appeal, the Supreme Court of the Territory of

Hawai‘i concluded that while a court may refuse to confirm a sale

where “the highest bid offered is so grossly inadequate as to

shock the conscience,” the trial court could not compel the

mortgagee to purchase the property at a price set by the court

because the mortgagee had a contractual right to foreclose on

the property. Id. at 852-54.      The court therefore set aside the

trial court’s decree and remanded the case to the lower court

with instructions to have the property offered at public auction

under foreclosure. Id. at 854.

                                      36
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

          Wodehouse thus dealt with the court’s discretion with

regard to the sale and confirmation of sale of a foreclosed

property and not with the separate question of whether and for

what amount a deficiency judgment is due.         See Wansley, 566
So. 2d at 1224 (holding that the rule that “a foreclosure sale

may not be set aside unless the sales price is so inadequate as

to shock the conscience . . . . has nothing whatsoever to do

with the separate and distinct question of what, if any,

deficiency judgment may be allowed” (citations omitted)).

Wodehouse is therefore not controlling with regard to the

question presently before the court.

          “Mortgage foreclosure is a proceeding equitable in

nature and is thus governed by the rules of equity.”           Beneficial

Hawaii, Inc. v. Kida, 96 Hawai‘i 289, 312, 30 P.3d 895, 918

(2001).   A court sitting in equity has the power to mold its

decrees to conserve the equities of the parties under the

circumstances.    Peak Capital Grp., LLC v. Perez, 141 Hawai‘i 160,

179, 407 P.3d 116, 135 (2017).       When considering the equities in

a foreclosure case, “all of the equities must be considered”

including “[t]he equities affecting the mortgagees . . . as well

as those affecting the mortgagors.”        Wodehouse, 32 Haw. at 842.

The equitable discretion provided to our courts by HRS § 667-1.5

is therefore governed by principles of equity and fairness.

                                    37
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

           As observed in the commentary to the Restatement, the

majority rule “enables the mortgagee to be made whole” and “also

protects the mortgagor from the harsh consequences of suffering

both the loss of the real estate and the burden of a deficiency

judgment that does not fairly recognize the value of that real

estate.”    Restatement (Third) of Property: Mortgages § 8.4

cmt. a.    By contrast, the traditional approach is susceptible to

abuse, potentially permitting a mortgagee to reap an undue

windfall at a mortgagor’s expense. Id.   The commentary goes on

to note that “[t]he approach of this section is embodied in

statutes in many jurisdictions, but the principles of this

section are applicable whether a statute requires it or not.”
Id. (emphasis added).      Because the equities clearly weigh in

favor of the majority approach, we now adopt section 8.4 of the

Restatement (Third) of Property as Hawai‘i law.           We thus hold

that a deficiency defendant “may request . . . a determination

of the fair market value of the real estate as of the date of

the foreclosure sale.” Id. § 8.4(c).20

      20
            Pursuant to HRS § 667-1.5, the court may determine the fair
market value of the property “without the intervention of a jury.” Section
8.4 of the Restatement (Third) of Property, which we expressly adopt, gives
guidance on how the fair market value may be calculated. Comment c to
section 8.4 provides as follows:

           The determination of fair market value may appropriately
           utilize a variety of approaches including (1) the “market
           data” approach indicated by recent sales of comparable
           properties; (2) the “income approach,” or the value which
           the real estate’s net earning power will support based upon
                                                            (continued . . .)

                                     38
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

            The dissent asserts that by adopting section 8.4 of

the Restatement (Third) of Property, which accords with the rule

in the majority of jurisdictions and the modern trend, this

court usurps the legislature’s role.         Dissent at 10, 13, 13 n.4,

22-23.   The dissent’s contention is groundless in light of the

fact that the legislature, through HRS § 667-1.5, has expressly

provided that the determination of the amount due in a

deficiency judgment, and thereby the method for its calculation,

is entrusted to the discretion of the courts.           HRS § 667-1.5

(“The circuit court may assess the amount due upon a mortgage

. . . and shall render judgment for the amount awarded, and the

foreclosure of the mortgage.”).        By not specifying a method of

calculation, the legislature authorized the courts to exercise

discretion in determining how to calculate deficiency judgments.

Nothing in the language of HRS § 667-1.5 suggests that the

legislature sought to circumscribe a court’s discretion in this

regard by precluding consideration of the fair market value of

(. . . continued)

            a capitalization of net income; and (3) the current cost of
            reproducing the property less depreciation.

            Additionally, we adopt section 8.4’s prohibition on the advance
waiver of the right to a determination of the fair market value because “[i]f
such waiver were permitted, most mortgage forms would routinely incorporate
waiver language and the impact of this section would be significantly
weakened.” Id. § 8.4 Reporters’ Note to cmt. b.

                                     39
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

the foreclosed property.21      The dissent’s assertion reflects a

core misunderstanding of the legal principle at the foundation

of this opinion--the application of a statute to the facts of a

case.   It is axiomatic that it is “the province and duty of the

judicial department to say what the law is.”            Marbury v.

Madison, 5 U.S. 137, 177 (1803).            And accordingly, “[t]hose who

apply the rule to particular cases, must of necessity expound

and interpret that rule.” Id.

            Despite the clear language of the statute, the dissent

claims that our interpretation of HRS § 667-1.5 is “misguided.”

Dissent at 18.     Specifically, the dissent first posits that a

court’s assessment of “the amount due upon a mortgage” under HRS

§ 667-1.5 is not related to the amount of a subsequent

deficiency judgment, but instead refers to a determination of

the amount due on the mortgage before a foreclosure sale has

taken place.     Dissent at 15.       However, the dissent’s

interpretation is directly contrary to longstanding precedent.

See Anderson, 3 Haw. App. at 549, 654 P.2d at 1374 (“[HRS § 667-

1.5] does not require the determination of a sum certain before

foreclosure is decreed since a deficiency judgment is rendered

only after the sale of the mortgaged property.”) (emphases

      21
            Indeed, at oral argument HawaiiUSA’s counsel acknowledged that
the circuit court could, under the right procedural circumstances, consider
the fair market value of a foreclosed property. Oral Argument at 00:59:45-
01:00:10, HawaiiUSA v. Monalim, (No. SCWC-XX-XXXXXXX), http://oaoa.hawaii.gov
/jud/oa/19/SCOA_011119_SCWC_16_807.mp3 [https://perma.cc/TBK2-9K9G].

                                       40
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

added) (citing Indep. Mortg. Tr. v. Glenn Constr. Corp., 57 Haw.
554, 555 n.1, 560 P.2d 488, 489 n.1 (1977)).22

           Second, the dissent maintains that HRS § 667-1.5 does

not vest any discretion in the courts to determine the method by

which deficiency judgments are calculated.          Particularly, the

dissent relies on the fact that HRS § 667-1.5 does not contain

language that “expressly permit[s] the court to consider fair

market value.”     Dissent at 16.     But it is this very absence of

      22
            The dissent criticizes our citation to Anderson because, the
dissent asserts, it is a decision of the ICA that “this court has never
referenced or adopted.” Dissent at 15 n.5. Respectfully, this is a
misstatement of our jurisprudence. See Bank of America, N.A. v. Reyes-
Toledo, 139 Hawai‘i 361, 367, 390 P.3d 1248, 1254 (2017) (citing Anderson for
the rule that a foreclosing party must prove the existence of an agreement,
the terms of the agreement, a default by the mortgagor under the terms of the
agreement, and the giving of the cancellation notice in order to prove
entitlement to foreclose); Bank of N.Y. Mellon v. R. Onaga, Inc., 140 Hawai‘i
358, 361, 370, 400 P.3d 559, 562, 571 (2017) (affirming circuit court’s
judgment confirming the sale of foreclosed property after the foreclosing
party proved it was entitled to foreclosure under the “[Anderson]
requirements”).
            The dissent then asserts that its interpretation of HRS § 667-1.5
is in fact consistent with the interpretation of the statute in Anderson. To
reiterate, the dissent interprets HRS 667-1.5’s statement that “[t]he circuit
court may assess the amount due upon a mortgage” as referring to the
determination of the amount due upon the mortgage before a foreclosure sale
takes place. Dissent at 15. In Anderson, the ICA rejected a foreclosure
defendant’s contention that the decree of foreclosure, which entitled the
foreclosing party to a foreclosure sale, was invalid because it failed to
specify the actual amount due on the mortgage. The rule set out by the ICA
in Anderson, which we adopted in Reyes-Toledo, is that the foreclosing party
need only prove the existence of an agreement, the terms of the agreement, a
default by the mortgagor under the terms of the agreement, and the giving of
the cancellation notice in order to prove entitlement to foreclose.
Anderson, 3 Haw. App. at 549, 654 P.2d at 1374; Reyes-Toledo, 139 Hawai‘i at
367, 390 P.3d at 1254. Our law does not burden the foreclosing party with
the obligation to prove the amount due on the mortgage before the foreclosure
sale because “a deficiency judgment is rendered only after the sale of the
mortgaged property.” Anderson, 3 Haw. App. at 549, 654 P.2d at 1374. This
process does not require a court to determine the amount due on the mortgage
before granting a decree of foreclosure to the mortgagee.

                                     41
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

an express directive on the method of calculation that enables a

court to exercise discretion in determining the deficiency

judgment, including applying, or not applying, the traditional

method that the dissent appears to favor.

            The dissent next relies upon 2012 “legislative

history” to HRS § 667-1.5, a statute that the dissent

acknowledges has essentially remained unchanged since its

enactment in 1859.23     Dissent at 16-17.      Even if the legislative

“history” cited by the dissent had been contemporaneous with the

enactment of the 1859 version of the statute, resort to

legislative history in this manner would only be appropriate if

the word “may” in the statute were ambiguous.             Castillon, 144

Hawai‘i at 411, 443 P.3d at 103 (“[W]here the statutory language

is plain and unambiguous, our sole duty is to give effect to its

plain and obvious meaning.” (quoting Panado, 134 Hawai‘i at 11,
332 P.3d at 154)).      And assuming arguendo that the word “may” in

HRS § 667-1.5 is ambiguous, reliance on a subsequent legislative

committee report written 153 years after enactment of the

statute underscores the criticism this approach has repeatedly

garnered from the United States Supreme Court.             United States v.

Texas, 507 U.S. 529, 535 n.4 (1993) (“[S]ubsequent legislative
      23
            The dissent describes the 2012 legislature   as “the Legislature
which most recently amended HRS § 667-1.5[.]” Dissent    at 18. We observe
that the only changes to HRS § 667-1.5 effected by the   2012 amendments were
to the section number and title. 2012 Haw. Sess. Laws    Act 182, § 3 at 648.

                                     42
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

history is a ‘hazardous basis for inferring the intent of an

earlier’ Congress.” (quoting Pension Benefit Guar. Corp. v. LTV

Corp., 496 U.S. 633, 650 (1990))); United States v. Price, 361
U.S. 304, 313 (1960).24

            The dissent’s accusation of usurpation and judicial

activism is therefore without any validity in light of our

statutory law vesting such discretion in the circuit court and

the equitable nature of foreclosure proceedings.25

            Additionally, the dissent disagrees with our adoption

of the Restatement’s approach because “the new rule will

not . . . protect both parties to the mortgage.”            Dissent at 10.

However, the dissent’s view has been overwhelmingly rejected by

      24
            Additionally, the committee report in fact acknowledges the
inequity of the traditional method of calculating deficiency judgments. See
S. Stand. Comm. Rep. No. 3325, in 2012 Senate Journal, at 1075 (“Your
Committee further notes that owner-occupants who lose their primary
residences to foreclosure suffer harsh personal losses that leave them
particularly susceptible in cases where the lender may pursue a deficiency
judgment . . . . As such, owner-occupants should be provided with greater
relief from deficiency judgments.”). As the committee report noted, the
tendency of the traditional method to produce inequitable results merited
further discussion. Id. It is not surprising that the majority rule, which
we adopt today, is cognizant of the concern articulated in the committee
report and provides an equitable means to calculate the deficiency judgment
in such cases.
            The dissent argues to the contrary, stating that the legislature
“expressed concern about limiting lenders’ ability to pursue deficiency
judgments, even in the case of a displaced owner-occupant, due to the
prevalence of borrowers refinancing their mortgages for more than the value
of their home.” Dissent at 17-18 (footnote omitted). Respectfully, the
dissent misconstrues the legislature’s apprehension, which pertained solely
to “prohibiting” deficiency judgments, and not at all to consideration of a
more equitable means to determine their amount.
      25
            Indeed, in the Missouri case that the dissent relies upon, the
court declined to reconsider the manner in which deficiency judgments are
calculated substantially because Missouri lacked a statutory equivalent to
HRS § 667-1.5. Dissent at 18-19; First Bank, 364 S.W.3d at 223.

                                     43
      ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

the majority of jurisdictions, legal scholars, and the American

Law Institute.      See Washburn, supra, at 939 (“Fairness in the

mortgage foreclosure process can be achieved only by balancing

the rights of the mortgagee with the need to protect the

mortgagor.     The fulcrum of this balance is the market value of

the foreclosed property.”); Restatement (Third) of Property:

Mortgages § 8.4 cmt. a (adopting position of the substantial

number of jurisdictions providing the deficiency defendant with

the right to have “the greater of the fair market value of the

real estate or the foreclosure sale price be used in calculating

the deficiency”).

            The dissent also posits that our adoption of the

majority rule “will unnecessarily burden parties to a

foreclosure action,” and that tasking the trial court with

assessing the fair market value of real property is unduly

burdensome because it will “require[] additional time and

force[] all parties to incur additional costs.”            Dissent at 20-

21.   Despite the dissent’s speculative concerns, the experience

of jurisdictions following the majority rule is quite the

contrary:

            [W]e find no authority or data demonstrating that our
            trustee foreclosure laws would be unsettled were we to
            allow a trust deed grantor to challenge the value of real
            property at a deficiency judgment proceeding. A majority
            of states allow grantors to challenge the value of real
            property at a deficiency judgment proceeding. We have
            found no authority suggesting that the states that follow
            the majority rule suffer from unsettled foreclosure laws,

                                      44
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

           nor have we found any data demonstrating that the banking
           institutions in those states have been negatively affected
           as a result of their jurisdictions adhering to the majority
           rule.

Sostaric, 766 S.E.2d at 404 (emphases added).           Moreover, any

administrative concerns entailed by our adoption of section 8.4

are more than offset by the equity and fairness gained in

determining a deficiency judgment based on the fair market value

of the property, as manifestly demonstrated by the widespread

adoption of the majority approach.26

           The dissent further contends that our adoption of the

majority rule in this case is unwarranted because, “[t]he record

     26
            Further, our courts are already called upon to make financial
determinations similar to assessing the fair market value of real property in
many other contexts. See, e.g., State v. Nelson, 140 Hawai‘i 123, 134 n.14,
398 P.3d 712, 723 n.14 (2017) (deeds of real property used to secure a bail
bond must have a market value at least twice the amount of the bail); Gordon
v. Gordon, 135 Hawai‘i 340, 349, 350 P.3d 1008, 1017 (2015) (division of real
property for divorce); City & Cty. of Honolulu v. Steiner, 73 Haw. 449, 459,
834 P.2d 1302, 1308 (1992) (tax appeals); Burgess v. Arita, 5 Haw. App. 581,
589, 704 P.2d 930, 936-37 (1985) (damages for breach of land sale contract).
Parties may adduce evidence of the fair market value of the foreclosed-upon
property in a variety of ways that do not entail significant additional
expenditure. See City & Cty. of Honolulu v. Int’l Air Serv. Co., 63 Haw.
322, 332, 628 P.2d 192, 200 (1981) (“Most courts presume an owner is familiar
with his land and the market therefor and thus is competent to state an
opinion of its value.”); State v. Kunimoto, 62 Haw. 502, 507, 617 P.2d 93, 97
(1980) (“[R]ecent sales of similar real estate are admissible as evidence in
condemnation cases, either as substantive proof of value of property taken or
in support of an expert’s opinion as to value.”); Krog v. Koahou, No. SCWC-
XX-XXXXXXX, 2014 WL 813038 (Feb. 28, 2014) (mem.) (holding that a declaration
of a real estate broker was properly admitted to prove the rental value of
real property).
            In response to the many authorities cited above, the dissent
criticizes our citation to International Air Services Co. because “[n]either
the mortgagee nor the mortgagor would be a disinterested party who could
proffer an impartial opinion.” Dissent at 21 n.9. But assessing the
credibility of interested witnesses and the weight to be given to testimony
is a core function of a trial court. Additionally, this critique is equally
applicable to any case in which parties retain expert witnesses.

                                     45
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

shows that the deficiency judgment will not unjustly enrich the

credit union.”     Dissent at 11.27     In support of this contention,

the dissent focuses on the fact that HawaiiUSA did not purchase

the Property at the foreclosure auction. Id.   The Restatement,

however, rejects the requirement that the fair value

determination be restricted to mortgagee purchasers.            Section

8.4 instructs that

           limiting the application of the fair value determination to
           mortgagee purchasers may discourage mortgagees who
           contemplate obtaining deficiency judgments from taking part
           in the foreclosure bidding and hence may remove a
           significant impetus to higher bidding by third parties. In
           addition, even when a third party is the purchaser, the
           mortgagor may still suffer the unjustifiable double burden
           imposed by the loss of his or her real estate and an
           unfairly measured deficiency judgment. Consequently, under
           this section foreclosing mortgagees are subject to the fair
           value limitation on deficiency judgments irrespective of
           who purchases at the sale.

Restatement (Third) of Property: Mortgages § 8.4 Reporters’ Note

to cmt. b (emphases added).       Thus, while section 8.4’s primary

purpose is “preventing the unjust enrichment of the mortgagee .

. . . [section 8.4] also protects the mortgagor from the harsh

consequences of suffering both the loss of the real estate and

the burden of a deficiency judgment that does not fairly

recognize the value of that real estate.”          Restatement (Third)

of Property: Mortgages § 8.4 cmt. a.         This second purpose is

served even when a third party is the purchaser because the fair

value determination protects the mortgagor from a deficiency
     27
            HawaiiUSA also argues that it did not secure a windfall profit
over what was actually owed because it was not the purchaser of the Property.

                                      46
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

judgment that does not fairly recognize the value of the lost

real estate.28

           We observe that both the dissent and HawaiiUSA argue

that the deficiency judgment awarded against the Monalims fairly

recognizes the value of the Property because the sale price at

the foreclosure auction exceeded the City and County’s valuation

of the Property for purposes of tax assessment.           Dissent at 11.

The reliance by HawaiiUSA and the dissent on the tax-assessed

value of the Property to demonstrate market value does not

recognize the longstanding and “overwhelming weight of authority

that assessed value is not competent direct evidence of value

for purposes other than taxation.”         C. C. Marvel, Annotation,

Valuation for Taxation Purposes as Admissible to Show Value for

Other Purposes 39 A.L.R. 2d 209 §4[a] (1955); see also Mettee v.

Urban Renewal Agency, 518 P.2d 555, 557 (Kan. 1974) (“Although

the assessor is required to appraise the value of the property,

     28
            The dissent claims incredulity of our adoption of the majority
rule in this case. Dissent at 10, 14, 22-23. The dissent acknowledges,
however, that in instances where, for example, (1) the lender is the
purchaser, (2) the borrower alleges that the sale terms were unconscionable,
or (3) the borrower alleges that the sale was conducted fraudulently, a court
could be required to make a fair value determination when there are
suggestions of inequity to ensure fairness to the borrower. Dissent at 20
n.7. But waiting for a case in which the mortgagee is unjustly enriched
before adopting the majority rule is imprudent. Our adoption of the majority
rule shall be prospective only--as it would be in any subsequent case. See
infra pp. 49-51. It would thus result in a greater injustice if we were to
await a case in which the mortgagee receives an undue windfall and the
borrower suffers the “harsh consequences” of “a deficiency judgment that does
not fairly recognize the value of that real estate.” Restatement (Third) of
Property: Mortgages § 8.4 cmt a.

                                     47
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

it is an open secret that the assessment rarely approaches the

true market value.” (quoting 5 Nichols on Eminent Domain § 22.1

(3d ed.))).    For over a century, courts in this country have

recognized that tax assessments of real estate are not always

aimed at estimating fair market value, and even when that is the

case it is well understood that the custom of assessors is to

assess property in comparison with the surrounding land.             Wray

v. Knoxville, L.F. & J.R. Co., 82 S.W. 471, 475 (Tenn. 1904)

(“This court knows judicially and as a part of the financial

history of the State that land is never assessed for purposes of

taxation at its real cash market value, though that may be the

law, but only in comparison with other lands around it[.]”); see

also McClure v. Delguzzi, 767 P.2d 146, 148 (Wash. Ct. App.

1989) (“[N]otwithstanding statutory requirements, assessor’s

values were relative, not actual.”).29         As such, the reliance by

the dissent and HawaiiUSA on the tax-assessed valuation of the

Property is misguided.      In fact, examination of the facts in

this very case disabuses one of the notion that tax assessments

accurately reflect market value.          The Monalims purchased the

Property in 2008.     The mortgages the Monalims executed on the

property at the time of sale were for the total amount of

     29
            Assessed values may also exceed market values. See, e.g, Kuiters
v. Cty. of Freeborn, 430 N.W.2d 461, 462 (Minn. 1988) (agricultural property
in the county was assessed, on average, at 115% of its market value).

                                     48
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

$1,025,100.     The tax-assessed value of the Property in 2008 was

$322,600.

            In any event we need not resolve whether the

deficiency judgment awarded against the Monalims fairly

accounted for the value of the Property.          Of more fundamental

importance, there is little disagreement that the equitable

considerations of foreclosure proceedings warrant affording the

mortgagee the right to apply the fair market value of mortgaged

property towards the amount due on the mortgage, as section 8.4

provides.     The majority of jurisdictions and the growing

consensus regarding a mortgagor’s right to a fair market value

determination firmly establishes that, by adopting section 8.4,

we advance the fundamental fairness of foreclosure proceedings

in Hawai‘i, protect mortgagors from the double burden of losing

their land and suffering an unfairly measured deficiency

judgment, and enable mortgagees to be made whole.

            Because our adoption of section 8.4 “announce[s] a new

rule . . . we are free to apply this new rule with or without

retroactivity.”30     Lewi v. State, 145 Hawai‘i 333, 349 n.21, 452
P.3d 330, 346 n.21 (2019) (internal quotations and alterations

omitted) (quoting State v. Jess, 117 Hawai‘i 381, 401, 184 P.3d
30
            We reject the Monalims’ contention that procedural and
substantive due process was violated in determining the amount of the
deficiency judgment in light of the circumstances of this case.

                                     49
    ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

133, 153 (2008)).    Regarding the retroactive effect of our

holdings, we have adopted the following approach:

          This court has generally considered three primary
          alternatives in deciding to what degree a new rule is to
          have retroactive effect. First, this court may give a new
          rule purely prospective effect, which means that the rule
          is applied neither to the parties in the law-making
          decision nor to those others against or by whom it might be
          applied to conduct or events occurring before that
          decision. Second, this court may give a new rule limited
          or “pipeline” retroactive effect, under which the rule
          applies to the parties in the decision and all cases that
          are on direct review or not yet final as of the date of the
          decision. Third, this court may give a new rule full
          retroactive effect, under which the rule applies both to
          the parties before the court and to all others by and
          against whom claims may be pressed. . . .

          In exercising our discretion in deciding the effect of a
          new rule, we weigh the merits and demerits of retroactive
          application of the particular rule in light of (a) the
          purpose of the newly announced rule, (b) the extent of
          reliance . . . on the old standards, and (c) the effect on
          the administration of justice of a retroactive application
          of the new standards.
Id. (internal citations and quotations omitted).           Here, we adopt

the majority approach to calculating deficiency judgments in

order to properly balance the equities between mortgagors and

mortgagees, protect mortgagors from double-loss by not fairly

recognizing the value of the foreclosed property, and prevent

undue windfalls at mortgagors’ expense.         However, parties have

relied on the finality of the many deficiency judgments that

have occurred within this state over the years, and allowing

petitions to reopen finalized deficiency judgments would impose

                                    50
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

a significant effect on the administration of justice.31             See

id.; see also HRCP Rule 60(b)(6) (permitting courts to upon

motion relieve a party of final judgment for any “reason

justifying relief from the operation of the judgment”).

Therefore, our adoption of the majority rule is prospective in

effect and applies only to foreclosure cases in which a

      31
            Citing federal caselaw, the dissent counsels that “we do not
promulgate new rules to be applied prospectively only[.]” Dissent at 13 n.4
(quoting James B. Beam Distilling Co. v. Georgia, 501 U.S. 529, 547 (1991)
(Blackmun, J., concurring)). Respectfully, the citation is simply inapposite
because that case concerned “a newly declared constitutional rule,” James B.
Beam Distilling Co., 501 U.S. at 547 (Blackmun, J. concurring), and more
significantly, the courts of this state are not subject to the limitations of
the federal case and controversy requirement cited by Justice Blackmun.
Additionally, Justice Blackmun was not advocating against the prospective
application of a new rule, instead he was arguing that the Court’s decision
was required to be applied both prospectively and retroactively. It is also
well settled that “[w]hen questions of state law are at issue, state courts
generally have the authority to determine the retroactivity of their own
decisions.” Garcia, 96 Hawai‘i at 211, 29 P.3d at 930; State v. Yong Shik
Won, 137 Hawai‘i 330, 355 n.49, 372 P.3d 1065, 1090 n.49 (2015); Schwartz v.
State, 136 Hawai‘i 258, 272, 361 P.3d 1161, 1175 (2015). Our decision to
apply the holding in this case only prospectively is based on the application
of the factors set forth in our precedent. We note, at oral argument,
HawaiiUSA’s counsel specifically stated that if this court were “inclined to
adopt the majority view and to adopt a new rule for calculating deficiency
judgments . . . it should be prospective in application.” Oral Argument at
00:59:07-19, HawaiiUSA v. Monalim, (No. SCWC-XX-XXXXXXX),
http://oaoa.hawaii.gov/jud/oa/19/SCOA_011119_SCWC_16_807.mp3
[https://perma.cc/TBK2-9K9G].
            In addition, this course of applying our decisions prospectively
is one we have frequently followed when doing so is in the interests of
justice. See, e.g., Chen v. Mah, 146 Hawaiʻi 157, 177, 457 P.3d 796, 816
(2020) (applying a holding prospectively); State v. Torres, 144 Hawai‘i 282,
295, 439 P.3d 234, 247 (2019) (same); State by Office of Consumer Prot. v.
Joshua, 141 Hawaiʻi 91, 98-99, 405 P.3d 527, 534-35 (2017) (same); State v.
Auld, 136 Hawai‘i 244, 255-56, 361 P.3d 471, 482-83 (2015) (same); In re T.M.,
131 Hawai‘i 419, 319 P.3d 338 (2014) (same); State v. Hussein, 122 Hawai‘i
495, 229 P.3d 313 (2010) (same); Jess, 117 Hawai‘i at 404, 184 P.3d at 156
(same); Kahale v. City & Cty. of Honolulu, 104 Hawai‘i 341, 348, 90 P.3d 233,
240 (2004) (same); Lindinha v. Hilo Coast Processing Co., 104 Hawai‘i 164,
170, 86 P.3d 973, 979 (2004) (same); Tachibana v. State, 79 Hawai‘i 226, 238,
900 P.2d 1293, 1305 (1995) (same); State v. Stanley, 60 Haw. 527, 533, 592
P.2d 422, 426 (1979) (same).

                                      51
     ***FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER***

deficiency judgment is first entered after the date of this

opinion.32

                          IV.      CONCLUSION

             Based on the foregoing, we vacate the ICA’s August 16,

2018 Judgment on Appeal, the circuit court’s Order Granting

Deficiency Judgment, and the Deficiency Judgment, and the case

is remanded to the circuit court for proceedings consistent with

this opinion.

Gary Victor Dubin                         /s/ Sabrina S. McKenna
(Frederick J. Arensmeyer
with him on the briefs,                   /s/ Richard W. Pollack
application, and reply)
for petitioners                           /s/ Michael D. Wilson

Thomas J. Berger
(Jonathan W.Y. Lai and
Tracey L. Ohta with him
on the briefs and response)
for respondent

     32
            In the event a deficiency judgment is entered on remand, our
adoption of the majority rule will not be applicable to the Monalims as the
Deficiency Judgment was initially entered before the date of this decision.

                                     52