Ocwen Loan Servicing, LLC v. Lum et al

Filing 85

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT re 28 Motion for Summary Judgment. Signed by JUDGE LESLIE E. KOBAYASHI on 04/20/2015. Plaintiff Ocwen Loan Servicing, LLC's Motion for Summary Judgme nt, filed November 12, 2014, is HEREBY GRANTED. The Court therefore GRANTS summary judgment as to Count I of the Complaint on behalf of Plaintiff and DISMISSES AS MOOT Count V. Counts II through IV from the Complaint, as well as the cross-claims, and the third-party complaints, remain. (eps )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
OCWEN LOAN SERVICING, LLC,

)
)
Plaintiff,
)
)
vs.
)
)
KENNY T. LUM, MIE VIVI WELLS, )
REX SCHAUMLEFFEL, SOVEREIGN
)
PACIFIC ASSET MANAGEMENT,
)
)
)
Defendants.
_____________________________ )

CIVIL 13-00497 LEK-KSC

ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
Before the Court is Plaintiff Ocwen Loan Servicing,
LLC’s (“Plaintiff”) Motion for Summary Judgment (“Motion”), filed
November 12, 2014.

[Dkt. no. 28.]

Defendant Rex Schaumleffel

(“Schaumleffel”) filed his memorandum in opposition on February
13, 2015, and Plaintiff filed its reply on February 23, 2015.
[Dkt. nos. 58, 61.]
2015.

This matter came on for hearing on March 9,

After the hearing, the Court directed Plaintiff to file a

supplemental brief regarding its standing to bring the instant
case.

[Entering Order, filed 3/12/15 (dkt. no. 77 (“3/12/15

EO”)).]

Accordingly, on March 19, 2015, Plaintiff filed its

supplemental brief and, on March 24, 2015, Schaumleffel filed his
supplemental response.

[Dkt. nos. 79, 80.]

After careful

consideration of the Motion, supporting and opposing memoranda,
and the arguments of counsel, Plaintiff’s Motion is HEREBY
GRANTED for the reasons set forth below.

BACKGROUND
I.

Complaint
On September 30, 2013, Plaintiff – a Delaware

corporation with its principal place of business in Florida –
filed its complaint against Defendants – and Hawai`i residents –
Kenny T. Lum (“Lum”), Mie Vivi Wells (“Wells”), Schaumleffel,
Marc Melton (“Melton”), and Sovereign Pacific Asset Management
Trust (“SPAM,” all collectively “Defendants”),1 asserting
diversity jurisdiction.

[Complaint at ¶¶ 1-9.]

This action is,

in essence, an attempt by Plaintiff, the successor in interest in
a mortgage, to reassert the lien after the recordation of a
fraudulent satisfaction executed by Melton, and subsequent sale
of the property by Lum and Wells to Schaumleffel, a bona fide
purchaser for value.

[Id. at ¶¶ 10-35.]

The Complaint alleges the following claims: a
declaratory judgment against all Defendants that Plaintiff’s lien
has priority, even over Schaumleffel (“Count I”); conversion
against Lum, Wells, and Melton, for their involvement in the
purported fraud (“Count II”); tortious interference with
contractual relations against Melton for signing the fraudulent
satisfaction on behalf of Plaintiff’s predecessor in interest,
GMAC Mortgage, LLC (“Count III”); civil conspiracy against Lum,

1

According to the Complaint, SPAM is a “fictitious
business” operated by Melton. [Complaint at ¶ 5.]
2

Wells, and Melton (“Count IV”); and an equitable lien against
Defendants, in the event that the Court does not void the
fraudulent satisfaction (“Count V”).

[Id. at ¶¶ 36-71.]

Plaintiff seeks a declaratory judgment that: Plaintiff
has a superior, valid, and enforceable interest in the property;
the mortgage was not eliminated by the satisfaction; to the
extent it was eliminated, the mortgage and lien interest are
reinstated; and Schaumleffel’s interest is subject to the
mortgage.

[Id. at pgs. 10, 16.]

In addition, Plaintiff requests

the following remedies: actual and punitive damages, based on the
tort claims; attorneys’ fees and costs; and all other appropriate
relief.
II.

[Id. at pgs. 10, 13, 14.]

Answers and Defendants’ Cross Claims and Third-Party Claims
Rather than filing an answer, on February 21, 2014,

Melton – who appears to have been at the center of the fraudulent
mortgage elimination scheme – filed a number of documents, in
which he admitted the allegations in the Complaint.

[Melton

Notice of Acceptance (dkt. no. 12-1) at 1 (“I do not dispute any
of the facts in the accepted Presentment, and, because the
Presentment is accepted and returned to the Court timely, there
is no genuine controversy for the Court to adjudicate involving
MARC MELTON.” (emphasis omitted)).]

3

He does not oppose the

Motion.2
Lum and Wells deny wrongdoing, and Wells has brought a
cross claim against Melton.3

[Dkt. no. 11-1 (Defendant Mie Vivi

Wells Cross-Claim against Defendants Sovereign Pacific Asset
Management Trust and Marc Melton (“Cross-Claim”)), filed
2/24/14.]

Wells appears to request indemnification in the event

there is a judgment against her and Lum.

[Cross-Claim at 6.]

Lum and Wells also bring third-party complaints against McTigue
and Blackwell, and their businesses, Optimum Realty LLC, and
Optimum Marketing & Management, who Lum and Wells allege
participated in the fraud.
(filed 3/20/14).]

[Dkt. nos. 19 (filed 3/10/14), 22

However, neither Lum nor Wells oppose the

Motion.

2

On January 3, 2014, Jennifer Ann McTigue (“McTigue”),
Melton, and Sakara Blackwell, also known as “Dawn Sakaguchi”
(“Blackwell”), were indicted in a forty-five count indictment
related to the mortgage elimination scheme. See United States v.
McTigue, CR 14-00010 HG (“McTigue”), Indictment (dkt. no. 1). On
January 21, 2015, the district judge accepted Melton’s plea of
guilty to Counts 1 and 2 of the indictment, charging him with
Conspiracy to Commit Wire Fraud, Mail Fraud and Money Laundering;
and Conspiracy to Launder Monetary instruments. [McTigue, dkt.
no. 112.] McTigue and Blackwell are currently set for trial
starting August 18, 2015. [McTigue, dkt. no. 116 (filed
4/2/15).]
3

It appears that Lum may have attempted to bring a crossclaim against Melton as well. He filed a document titled,
“Defendant Kenny T. Lum’s Answer to Complaint Filed Sepetmber
[sic] 30, 2013 and Cross-Claim against Defendants Sovereign
Pacific Asset Managmenet [sic] Trust and Marc Melton.” [Dkt. no.
18.] Unlike Wells’s answer, however, Lum’s answer did not attach
a cross-claim even though Wells and Lum are represented by the
same counsel.
4

Schaumleffel, on the other hand, has brought cross
claims against his co-defendants, including against Lum and
Wells, who he alleges were part of the fraud.

[Dkt. no. 24

(filed 6/30/14) at 7-10 (Cross-Claim Against Defendants Kenny T.
Lum, Mie Vivi Wells, Sovereign Pacific Asset Management, and Marc
Melton (“Schaumleffel Cross-Claim”)).]

He also filed a third-

party complaint against Richard Ornellas and Kevin Lum, alleging
they were involved in the fraud along with the co-defendants.
[Dkt. no. 57 (filed 2/12/15).]

Schaumleffel is the sole

Defendant that opposes the Motion.
III. Factual Background
The following facts are undisputed.4
On January 22, 2007, GMAC Mortgage USA Corporation

4

On November 12, 2014, Plaintiff filed its Separate Concise
Statement of Facts in Support of its Motion for Summary Judgment
and, on November 13, 2014, it filed its Amended Separate Concise
Statement of Facts in Support of its Motion for Summary Judgment.
[Dkt. nos. 30, 32.] All references in this Order to the
“Plaintiff CSOF” are to the amended version. On February 13,
2015, Schaumleffel filed his (1) Objections to Ocwen Loan
Servicing LLC’s Separate Concise Statement of Facts in Support of
Its Motion for Summary Judgment and (2) Separate Concise
Statement of Facts in Support of His Opposition to Plaintiff
Ocwen Loan Servicing, LLC’s Motion for Summary Judgment
(“Schaumleffel CSOF”). [Dkt. no. 59.] Since none of the
defendants dispute Plaintiff’s CSOF as to Facts 1-6 and 10, they
are deemed admitted. See Local Rule LR56.1(g) (“For purposes of
a motion for summary judgment, material facts set forth in the
moving party’s concise statement will be deemed admitted unless
controverted by a separate concise statement of the opposing
party.”). To the extent that Schaumleffel disputes Facts 7-9 and
11-13, those objections are specifically noted, or the facts are
not included in this section.
5

(“GMAC-USA”) extended a $469,600.00 loan to Lum to purchase a
condominium unit in Waikiki (“Property”) in exchange for a
promissary note (“Note”).

[Pltf. CSOF at ¶ 1; id., Affidavit in

Support of Motion for Summary Judgment (“Montoya Aff.”), Exh. 2.]
Lum and Wells executed and granted Mortgage Electronic
Registration Systems, Inc. (“MERS”), as nominee for GMAC-USA, a
mortgage (“Mortgage”) encumbering the Property, which was
recorded on January 30, 2007 with the Hawai`i Bureau of
Conveyances (“Hawai`i BOC”).
Exh. 3.]

[Pltf. CSOF at ¶ 2; Montoya Aff.,

On September 30, 2010, MERS assigned the Mortgage to

GMAC Mortgage, LLC (“GMACM”) and, on October 7, 2010, GMACM
recorded the assignment with the Hawai`i BOC.

[Pltf. CSOF at

¶ 3; Montoya Aff., Exh. 4.]
Lum and Wells defaulted on their mortgage payments and,
on October 18, 2010, GMACM recorded a Notice of Mortgagee’s
Intention to Foreclose Under Power of Sale with the Hawai`i BOC
(“Notice of Intent”).
(Notice of Intent).]

[Pltf. CSOF at ¶ 4; Montoya Aff., Exh. 5
On November 9, 2010, GMACM and Lum and

Wells executed a repayment plan (“Repayment Plan”), which
acknowledged default, and reaffirmed their debt obligation.
[Pltf. CSOF at ¶ 5; Montoya Aff., Exh. 6.]

Thereafter, Lum and

Wells breached the Repayment Plan by failing to make the required
payments.

[Pltf. CSOF at ¶ 6.]

6

On August 19, 2011, Lum mailed GMACM documents,
including a “Certified Promissory Note” (“Fraudulent Note”), and
“Mortgage Satisfaction Agreement” (“Fraudulent Agreement,” all
together “Mortgage Satisfaction Packet”).
Aff., Exh. 7.5]

[Id. at ¶ 7; Montoya

The Fraudulent Note, executed by Lum, McTigue

and Melton, purported to pay $490,000.00 to GMACM in full
satisfaction of Lum’s debts, [Mortgage Satisfaction Packet at 78,] and the Fraudulent Agreement provided for release from the
Mortgage if GMACM did not respond within three days [id. at 1011].
On September 16, 2011, Melton executed a document,
titled “Satisfaction,” which purported to release Wells and Lum
from the Mortgage (“Fraudulent Satisfaction”).
¶ 8; Montoya Aff., Exh. 8.]

[Pltf. CSOF at

The Fraudulent Satisfaction reads in

full:
On this 16th day of September, 2011, before
me, a Notary Public, personally appeared Marc
Melton, Assistant Secretary for GMAC MORTGAGE,
LLC, who proved to me on the basis of satisfactory
evidence to be the person whose name is subscribed
to the within instrument and acknowledged to me
that he executed the same in his authorized
capacity and that by his signature on the
instrument the person, or the entity upon behalf
of which the person acted, executed the
instrument.

5

Since the Mortgage Satisfaction Packet is comprised of
multiple documents, the Court refers to the exhibit’s page number
from the court’s Case Management/Electronic Case Filing (CM/ECF)
system in discussing Exhibit 7.
7

I certify under PENALTY OF PERJURY under the laws
of the State of Hawai`i that the foregoing
paragraph is true and correct.
[Fraudulent Satisfaction at 2.]

Further, Melton executed the

satisfaction as the “Asst. Secretary For GMAC MORTGAGE, LLC.”
[Id.]
On September 19, 2011, Melton recorded the Fraudulent
Satisfaction “for GMAC MORTGAGE, LLC” with the Hawai`i BOC.
[Pltf. CSOF at ¶ 10; Fraudulent Satisfaction at 1.]

Melton was

not at that time, or any other, an employee or affiliate of
GMACM, nor was he authorized to speak on behalf of GMACM.6
[Pltf. CSOF at ¶¶ 8-9; Melton Notice of Acceptance.]
On October 17, 2011, Lum, Wells, and Schaumleffel
executed an Exchange Apartment Deed (“Exchange Deed”) conveying
the Property to Schaumleffel and, on November 9, 2011,
Schaumleffel recorded the Exchange Deed with the Hawai`i BOC.
[Pltf. CSOF at ¶ 12; Montoya Aff., Exh. 9.]

On August 27, 2013,

an assignment of the Mortgage was recorded with the Hawai`i BOC,
conveying the Mortgage from GMACM to Plaintiff (“Assignment”).7

6

While Schaumleffel does not object to the substance of the
facts about the Fraudulent Satisfaction, he raises a hearsay
objection, arguing that Plaintiff relies solely on inadmissible
evidence, namely a purported copy of the Fraudulent Satisfaction.
See Schaumleffel CSOF at ¶¶ 8-9 (citing Fed. R. Evid. 802).
Since no party objects to the facts themselves, the Court has
accepted them as undisputed.
7

Roberto Montoya, a Senior Loan Analyst for Plaintiff,
attests that there is a current unpaid principal balance of
(continued...)
8

[Pltf. CSOF at ¶ 13; Montoya Aff., Exh. 1.]
DISCUSSION
The central issue in the Motion, and the case, is the
effect of the Fraudulent Satisfaction on the Mortgage: whether
the Fraudulent Satisfaction extinguished the Mortgage and, if it
did, whether the Court should reinstate the Mortgage as an
equitable remedy.

The result will be that either Plaintiff or

Schaumleffel will bear the loss and be forced to seek
indemnification from Melton and the other individuals involved in
the mortgage elimination scheme.
I.

Standing
As an initial matter, Schaumleffel argues that

Plaintiff does not have standing to bring this action.
Specifically, he argues that, although Plaintiff has offered
evidence that it was assigned the Mortgage, it has neither
offered any evidence that it actually possesses the Mortgage nor
that it offered consideration for the Assignment.

He further

points out that it is incongruous that GMACM is actively pursuing
foreclosure on the Mortgage in state court, while Plaintiff is

7

(...continued)
$469,482.60, exclusive of unpaid interest, escrow items, and
other costs accruing from the date of default. [Montoya Aff. at
¶¶ 2, 19.] Schaumleffel objects that the affidavit alone,
without business records, is insufficient to support this fact.
[Schaumleffel CSOF at ¶ 11.]
9

asserting its own interest in the Mortgage before this Court.8
[Mem. in Opp. at 16-18; Schaumleffel’s Suppl. Response at 2-7.]
The law is settled in this jurisdiction, however, that
a mortgagee need not hold paper title to assert its right under a
mortgage.

See, e.g., March v. Mortg. Elec. Registration Sys.,

Inc., Civil No. 12-00306 DKW-BMK, 2014 WL 4804218, at *4 (D.
Hawai`i Sept. 26, 2014) (“Under Hawai`i law, a party who shows a
direct chain of paper title that he is the owner of the land
demonstrates prima facie evidence of their contents and that
title is vested in that party.” (citation, internal quotation
marks, and brackets omitted)); Lowther v. U.S. Bank N.A., Civil
No. 13-00235 LEK-BMK, 2014 WL 2452598, at *5 (D. Hawai`i May 30,
2014) (“Hawai`i law holds that proof of possession of a note is
not required.” (emphasis in Lowther) (some citations omitted)
(citing Bank of New York Mellon Trust Co., Nat’l Ass’n v.
Timosan, No. CAAP–12–0000865, 2014 WL 37886, at *4 (Hawai`i Ct.
App. Jan. 6, 2014))).

And this Court is not persuaded that a

different standard should apply from the standard foreclosure
context just because the Fraudulent Satisfaction purportedly

8

While Schaumleffel raised these issues in his memorandum
in opposition to the Motion, Plaintiff’s response on the issue
was conclusory. See Reply at 13-15. Similarly, Plaintiff did
little to support its standing argument at the hearing on the
Motion. Consequently, on March 12, 2015, this Court issued the
3/12/15 EO directing Plaintiff to make a “showing that it is
entitled to bring these claims.” [Dkt. no. 77 at 2.]
Accordingly, Plaintiff filed its supplemental brief and
Schaumleffel filed his supplemental response.
10

severed the chain of title.

Where, as here, the Assignment is

undisputed, see supra Background Section III, Plaintiff need not
actually hold the paper title to assert its rights.

Further,

Schaumleffel does not cite to any precedent, and this Court is
not aware of any, requiring Plaintiff to have paid consideration
for the Assignment to assert its rights under the Mortgage.9
The Court thus rejects Schaumleffel’s argument and
CONCLUDES that Plaintiff has standing to bring this action, at
least as to Counts I through IV.

See supra n.9.10

However, the

Court agrees with the parties that this conclusion is
inconsistent with GMACM pursuing the foreclosure action in the
state court.

See Pltf.’s Suppl. Brief (stating that “GMAC no

longer has any interest in the Mortgage or Note”); Mem. in Opp.
at 17 (“GMAC claims to hold and have the rights under the Note in
the pending state court foreclosure action, whereas [Plaintiff]
claims to have the rights in this federal court reinstatement

9

Beneficial Hawaii, Inc. v. Kida, 96 Hawai`i 289, 312, 30
P.3d 895, 918 (2001), provides no support for Schaumleffel.
There the question was whether the mortgagee had a right to an
equitable lien where its interest was erased when the Court found
the initial mortgage void. Here, the issue is whether the
Fraudulent Satisfaction, not the Mortgage, is void, so Beneficial
Hawaii only applies to Plaintiff’s equitable claim in the event
that the Court concludes that the Fraudulent Satisfaction is not
void. As discussed below, the Court concludes that the
Fraudulent Satisfaction is void. See infra Discussion Section
IV.
10

Moreover, the Court finds that Schaumleffel’s standing
here is not an issue because he does not challenge the
Assignment. See Pltf.’s Suppl. Brief at 4-5.
11

action.

Both cannot be true.”).

Thus, it appears proper that

GMACM dismiss the state case or substitute Plaintiff as the
plaintiff in that action.
II.

Whether the Fraudulent Satisfaction is Void
As to the merits of the case, the parties’ arguments

focus on whether the fraudulent conduct was fraud in the factum
or fraud in the inducement.

Schaumleffel argues that Melton’s

act of signing and filing the Fraudulent Satisfaction was fraud
in the inducement and thus the satisfaction was voidable, not
void, and Plaintiff’s lax assertion of its rights tips the
equities toward Schaumleffel.

[Mem. in Opp. at 6-16.]

Plaintiff, on the other hand, argues that the Fraudulent
Satisfaction constitutes fraud in the factum, which automatically
voids the Satisfaction.

Since the Satisfaction is void, there is

no need to balance the equities and, even if there was, Plaintiff
was blameless and thus retains priority.

[Mem. in Supp. of

Motion at 7-12; Reply at 4-13.]
The Hawai`i Supreme Court has recognized three
types of fraud in the mortgage context:
(1) fraud in the factum, (2) fraud in the
inducement, and (3) constructive fraud. Honolulu
Fed. Sav. & Loan Ass’n v. Murphy, 7 Haw. App. 196,
201, 753 P.2d 807, 811 (1988). “‘Fraud in the
factum is fraud which goes to the nature of the
document itself.’” Id. at 201 n.6, 753 P.2d at
811 n.6 (quoting Adair v. Hustace, 64 Haw. 314,
320 n.4, 640 P.2d 294, 299 n.4 (1982)). “‘Fraud
in the inducement is fraud which induces the
transaction by misrepresentation of motivating
12

factors.’” Id. at 201, 753 P.2d at 811 (quoting
Adair, 64 Haw. at 320 n.4, 640 P.2d at 299 n.4
(internal quotation marks and citation omitted)).
“Constructive fraud is characterized by the breach
of fiduciary or confidential relationship.” Id.
at 201 n.6, 753 P.2d at 811 n.6 (citing Silva v.
Bisbee, 2 Haw. App. 188, 190, 628 P.2d 214, 216
(1981)).
Aames Funding Corp. v. Mores, 107 Hawai`i 95, 103-04, 110 P.3d
1042, 1050-51 (2005).

If a party proves that it was the victim

of fraud in the factum, the fraudulent document is void; however,
if it proves fraud in the inducement, the document is merely
voidable.

See, e.g., Standard Fin. Co. v. Ellis, 3 Haw. App.

614, 618, 657 P.2d 1056, 1059 (1983).

“‘[A]n action to cancel a

deed for fraud may be maintained against a true bona fide
purchaser if the alleged fraud is fraud in the factum, but not if
it is fraud in the inducement.’”

Newcomb v. Cambridge Home

Loans, Inc., 861 F. Supp. 2d 1153, 1167 (D. Hawai`i 2012)
(alteration in Newcomb) (quoting Adair v. Hustace, 64 Haw. 314,
640 P.2d 294, 299 n.4 (1982)).
“To constitute fraudulent inducement sufficient to
invalidate the terms of a contract, there must be
(1) a representation of a material fact, (2) made
for the purpose of inducing the other party to
act, (3) known to be false but reasonably believed
true by the other party, and (4) upon which the
other party relies and acts to his or her damage.”
Camat v. Fed. Nat’l Mortg. Ass’n, Civil No. 12-00149 SOM/BMK,
2012 WL 2370201, at *6 (D. Hawai`i June 22, 2012) (some citations
omitted) (quoting Hawaii Cmty. Fed. Credit Union v. Keka, 94 Haw.
213, 230, 11 P .3d 1, 18 (2000)).
13

“‘Compared to fraud in the

inducement, fraud in the factum occurs only rarely, as when a
blind person signs a mortgage when misleadingly told that it is
just a letter.’”

Beazie v. Amerifund Fin., Inc., Civil No.

09-00562 JMS/KSC, 2011 WL 2457725, at *10 (D. Hawai`i June 16,
2011) (quoting Black’s Law Dictionary 732, fraud in the factum
(9th ed. 2009)).
Plaintiff argues that the Fraudulent Satisfaction was
fraud in the factum because Melton purported to sign as an
officer of GMACM and he had no authority whatsoever to do so.
Schaumleffel responds that the mortgage elimination scheme does
not fall within the narrow set of fraud in the factum cases.
Rather, the scheme was fraud in the inducement for two alternate
reasons: (1) the Fraudulent Note was used to induce GMACM to
release the Mortgage; or (2) the Fraudulent Satisfaction was used
to induce a bona fide purchaser, here Schaumleffel, to purchase
the Property.
While Schaumleffel may have a meritorious claim of
fraud in the inducement against the perpetrators of the
fraudulent mortgage elimination scheme, that is not the issue in
this case.

The issue is whether Plaintiff may void a document

that purports to bear its signature, which it neither executed
nor authorized to be executed.

Put another way, this is not a

“fraud case” that fits squarely with the factum/inducement
dichotomy because Melton neither tricked Plaintiff into signing

14

anything nor induced it to sign anything.

Rather, it is a case

of simple forgery or false authority, both of which result in
void documents under Hawai`i law.11
This district court, quoting Hawai`i law, recently
concluded that a “‘forged deed is void and passes no title.’”
Hancock v. Kulana Partners, LLC, 992 F. Supp. 2d 1053, 1060 (D.
Hawai`i 2014) (quoting Palau v. Helemano Land Co., 22 Haw. 357,
361 (Hawai`i Terr. 1914)).

While the issue here is of a forged

satisfaction and not a forged deed, Palau applies equally here.
The parties, however, cite to out-of-state decisions to
dispute whether the Fraudulent Satisfaction is technically a
forgery.

[Mem. in Opp. 8-9; Reply at 5-8.]

Under Hawai`i law,

the answer is relatively straight-forward:
A person commits the offense of forgery in the
second degree if, with intent to defraud, the
person falsely makes, completes, endorses, or
alters a written instrument, or utters a forged
instrument, or fraudulently encodes the magnetic
ink character recognition numbers, which is or
purports to be, or which is calculated to become
or to represent if completed, a deed, will,
11

Contrary to Schaumleffel’s argument, this is not a
constructive fraud case. Under Hawai`i law, constructive fraud
is a term of art used to describe an act done without “an actual
design to perpetrate actual fraud or injury” but that involves a
“special confidential or fiduciary relation which affords the
power and means to one to take undue advantage of, or exercise
undue influence over, the other.” Wolfer v. Mut. Life Ins. Co.
of New York, 3 Haw. App. 65, 76, 641 P.2d 1349, 1357 (1982)
(citations omitted). That is clearly not the case here. To the
extent that Schaumleffel cites out-of-circuit decisions that
conflict with Hawai`i law and this Court’s ruling, the Court does
not follow them.
15

codicil, contract, assignment, commercial
instrument, or other instrument which does or may
evidence, create, transfer, terminate, or
otherwise affect a legal right, interest,
obligation, or status.
Haw. Rev. Stat. § 708-852 (emphasis added).

According to Haw.

Rev. Stat. § 708-850, “falsely endorse” means “to endorse,
without the authority of the ostensible maker, drawer, or issuing
commercial establishment, . . . so that the written instrument so
endorsed falsely appears or purports to be authorized by the
ostensible maker, drawer, or issuing commercial establishment.”
According to Hawai`i law, Melton forged the Fraudulent
Satisfaction, and thus it is void.
Alternatively, no party argues that Melton had
authority to execute the Fraudulent Satisfaction.

It is black

letter law that a document is void if it is signed with “a want
of authority for its issue.”

Territory, by Bailey v. Robinson,

25 Haw. 651, 661-62 (1920) (“But if those officers acted without
authority; if the land which they purported to convey had never
been within their control, or had been withdrawn from that
control at the time they undertook to exercise such authority,
then their act was void - void for want of power in them to act
on the subject-matter of the patent, not merely voidable[.]”).
The Court therefore reaches the same conclusion following this
analysis.

16

The Court FINDS that, since it was a forgery and Melton
had no authority to execute it, the Fraudulent Satisfaction is
void.
III. Balancing the Equities
Schaumleffel argues that, “even where a satisfaction or
release of mortgage is forged and void, courts have allowed a
subsequent bona fide purchaser or mortgagee to be protected if
the first mortgagee was lax or careless in failing to pay
attention to ‘red flags’ and taking steps to prevent subsequent
potential victims of a scam.”

[Mem. in Opp. at 11 (citing and

discussing Sunrise Sav. & Loan Ass’n of Florida v. Giannetti, 524
So. 2d 697 (Fla. Dist. Ct. App. 1988)).]

Even if the Court were

to find the Fraudulent Satisfaction merely voidable or that void
contracts were only selectively enforceable against bona fide
purchasers for value, the equities tip in favor of Plaintiff.12
Schaumleffel contends that GMACM was more “blameworthy”
than Schaumleffel because it: (1) should never have made the loan
to Lum since he purportedly lied on his application materials to
secure the Note and Mortgage; (2) had “ample opportunity to
investigate and avoid the loss[;]” and (3) delayed in filing its
foreclosure action, which directly caused harm to the public and
Schaumleffel.

Moreover, Plaintiff has been “dirtied” by GMACM’s

12

The Court notes that Schaumleffel cites to no Hawai`i law
that supports application of this balancing test to void
documents, and the Court is not aware of any.
17

conduct since it took the Assignment with full knowledge of the
Fraudulent Satisfaction.

[Id. at 13-14.]

While the Court is sensitive to the harm caused to
Schaumleffel by the conspirators’ conduct, and the fact that
Schaumleffel is a blameless victim of the fraud, it does not find
that GMACM was complicit or blameworthy in any way.

First, the

issue of whether GMACM was careless in extending a loan to Lum in
2007 is not relevant to whether it was careless in pursuing its
rights in light of the Mortgage Satisfaction Packet in 2011.
Second, the Court finds that, under the circumstances,
GMACM did not delay in investigating the fraudulent scheme and
filing for foreclosure.

On or about August 19, 2011, GMACM

received the Mortgage Satisfaction Packet.

[Pltf. CSOF at ¶ 7.]

Just over thirty days later, on September 21, 2011, GMACM sent a
letter to Lum threatening that, “[i]f you or an agent acting on
your behalf, fraudulently attempt to release the lien securing
the subject property without properly satisfying the underlying
debt, GMACM may seek all available remedies under the law
including, but not limited to, criminal prosecution and civil
damages.”

[Schaumleffel CSOF, Exh. E.13]

13

Roughly three weeks

Schaumleffel offers exhibits to support his CSOF.
However, with the exception of two exhibits, he does not provide
any authentication for the exhibits. In his opposition, he
alludes to a “Declaration of Counsel,” which does not appear on
the docket. It seems that his counsel inadvertently failed to
file the declaration. This issue is not determinative since the
(continued...)
18

later, on October 13, 2011, GMACM sent Lum a letter offering
various loan modification, repayment, and sale options,
demonstrating that Lum was in default again.

[Id., Exh. F.]

Approximately one month after that, on November 10, 2011, GMACM
filed a Complaint for Foreclosure in the Circuit Court of the
First Circuit, State of Hawai`i and, on November 14, 2011, a
Notice of Pendency of Action with the Hawai`i BOC.
M, N.]

[Id., Exhs.

It is unfortunate that, in the interim, on October 17,

2011, Schaumleffel purchased the Property and verified title.
[Id., Exh. B.]

Simply put, however, this timeline does not

evidence any delay on the part of GMACM.

It took reasonable

steps to notify the public about its intention to foreclose and,
even if it had discovered the fraud, the law does not require it
to file notice in under thirty days.
Last, since GMACM was not lax, no negative attribution
can be made with regard to Plaintiff.

Thus, contrary to

Schaumleffel’s arguments, the Court FINDS that GMACM was not
“negligent,” “lax,” “careless,” “neglectful,” or “incautious,”
see Mem. in Opp. at 11-14 (characterizing or quoting cases), or
that the Fraudulent Satisfaction or harm to Schaumleffel is in

13

(...continued)
Court finds that his CSOF fails to raise any genuine issues of
material fact, even if the exhibits had been properly
authenticated.
19

any way attributable to GMACM.14

Plaintiff’s interest thus

retains priority.15
IV.

Summary
Since the Fraudulent Satisfaction is a forgery,

executed without authorization, and thus void, even viewing the
evidence in the light most favorable to Schaumleffel, the Court
FINDS that there is no genuine issue of material fact that

14

Schaumleffel’s cases are not to the contrary. See, e.g.,
MI Co. v. McLean, 482 S.E.2d 597, 602 (S.C. Ct. App. 1997)
(agreeing that “corporation was negligent in sitting on its
rights for over five years”); Sunrise Sav., 524 So. 2d at 700
(mortgagee found lax for “his failure actively to pursue his
belatedly aroused suspicions for more than a year”). In fact,
they support the Court’s conclusion here. See, e.g., Sunrise
Sav., 524 So. 2d at 700 (“Where a mortgage has been cancelled
because of the fraudulent conduct of an intervening third party,
without authority from or consent of the mortgagee,” it retains
its “priority, even against an innocent purchaser for value and
without notice, who relied on the record.” (citation omitted));
In re O’Reilly, 30 B.R. 562, 564 (Bankr. N.D. Ohio 1983) (“In the
case where an intervening third party fraudulently cancels a
mortgage, without authority or consent of the mortgagee, the
result is the same as that of a mistaken cancellation as
previously described. The mortgage could be revived without
damage to the mortgagee’s priority.”).
15

The Court finds Plaintiff’s case, Household Realty Corp.
v. Lambeth, 656 S.E.2d 336 (N.C. Ct. App. 2008), instructive.
The court there found that, under analogous circumstances to the
instant case, the original priority mortgagee was not blameworthy
because, inter alia: the letter it received from the fraud
perpetrator akin to the Mortgage Satisfaction Packet was “wholly
inadequate to raise [the mortgagee’s] suspicions of potential
impending wrongdoing[;]” and the mortgagee “filed a lawsuit
within four months of discovering the fraud, a reasonable
time[.]” Id. at 341.
20

Plaintiff has a valid and enforceable interest in the Mortgage.16
See Grenning v. Miller-Stout, 739 F.3d 1235, 1238 (9th Cir. 2014)
(“Summary judgment is appropriate when, with the evidence viewed
in the light most favorable to the non-moving party, there are no
genuine issues of material fact, so that the moving party is
entitled to a judgment as a matter of law.” (citation and
internal quotation marks omitted)).

The Court thus GRANTS

summary judgment in favor of Plaintiff as to Count I, and
DISMISSES AS MOOT Count V.

Accordingly, the Court GRANTS a

declaratory judgment that the Mortgage continues to encumber the
Property as a valid and enforceable interest, and Schaumleffel’s
interest remains subject to the Mortgage.
CONCLUSION
On the basis of the foregoing, Plaintiff Ocwen Loan
Servicing, LLC’s Motion for Summary Judgment, filed November 12,
2014, is HEREBY GRANTED.

The Court therefore GRANTS summary

judgment as to Count I of the Complaint on behalf of Plaintiff
16

The Court reaches this conclusion in spite of
Schaumleffel’s public policy arguments. At the hearing, for the
first time, counsel for Schaumleffel argued that the Court should
find the Fraudulent Satisfaction voidable because it would
strengthen reliance on the public record. While that is an
admirable objective, the Court finds it unwise to decide the
issue on a policy ground where doing so would countermand
established Hawai`i law. Additionally, while not argued in
response, there are numerous policy arguments that could be made
for why it would be impractical to require mortgagees to
immediately investigate and/or file documents in the public
record whenever there is even the slightest suggestion of
impropriety.
21

and DISMISSES AS MOOT Count V.

Counts II through IV from the

Complaint, as well as the cross-claims, and the third-party
complaints, remain.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, April 20, 2015.

/s/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

OCWEN LOAN SERVICING, LLC VS. KENNY T. LUM, ET AL; CIVIL 13-00497
LEK-KSC; ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT

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