The plaintiffs, Gilbert and Daisy Malabe, owned a unit in the Executive Centre condominium project and fell behind on the maintenance fees and their mortgage. The Association proceeded with non-judicial foreclosure of the unit pursuant to Hawaii Revised Statutes ("HRS") §5148-146 and §667-5. At the time, there were two parts of HRS Chapter 667, Part I and Part II. HRS §667-5 was in Part I. Part II was not used by lenders or community associations because it required that the debtor sign the quit claim deed to complete the foreclosure.
The nonjudicial foreclosure public sale was conducted on December 10, 2010. The sale was subject to the mortgage and the Association submitted the winning bid and a quit claim deed was issued to the Association on January 7, 2011. Mr. and Mrs. Malabe took no action until they filed a lawsuit against the Association on December 13, 2016. The complaint alleged that the Association was only permitted to proceed with a nonjudicial foreclosure under Part II of HRS Chapter 667 and that nonjudicial foreclosure under Part I was illegal.
The Association filed a motion to dismiss on two major grounds. First, it sought to dismiss the complaint on the grounds that the Plaintiff should have raised the Part I argument at the time of the foreclosure by enjoining the auction or setting aside the nonjudicial foreclosure. The Association argued that the case law for judicial foreclosures requires that someone challenging a foreclosure must act with reasonable promptness to set aside the foreclosure. Second, the Association sought to dismiss the complaint on the grounds that the Association was authorized to proceed with nonjudicial foreclosure under Part I of HRS Chapter 667. The court granted the motion. Plaintiff timely filed a notice of appeal on March 9, 2017.
This case is important because the case represents an after the fact challenge to an association's foreclosure years after the foreclosure is completed. The use of nonjudicial foreclosures was and is an important tool for associations particularly when the unit mortgagee whose mortgage is generally superior to the Association's and fails to act timely to foreclose their mortgage. Although associations in Hawaii have a six-month priority, it becomes a lien only after the lender's foreclosure.
Further, the Hawaii Legislative Action Committee supported the amendments to the condominium statute authorizing nonjudicial foreclosure. It provided and continues to provide an important tool for associations when their delinquencies are high and when lenders are not pursuing their own foreclosures. They provided relief to associations faster and with less expense. Associations should not be subject to challenges to nonjudicial foreclosures 6 or more years after they have been completed.
Amicus Brief: Pending
Brief Authors: Richard S. Ekimoto, Esq. and John A. Morris, Esq.
CAI Amicus Review Committee: Robert Diamond, Esq. (VA), Chair of Amicus Committee, Jennifer Loheac, Esq. (GA), Karyn Branco (NJ), Gary Kessler, Esq. (CA).