Mohr v. MLB SUB I
Filing
150
ORDER GRANTING DEFENDANT MLB SUB I'S MOTION FOR SUMMARY JUDGMENT AND ISSUING DECREE OF FORECLOSURE, re ECF 128 - Signed by JUDGE ALAN C. KAY on 4/13/2020.For the foregoing reasons, the Court GRANTS MLB's Motion for Su mmary Judgment, ECF No. 128, and DENIES the Mohrs' counter-motion for summary judgment, ECF No. 136. Accordingly, MLB is entitled to, and the Court hereby issues, a decree of foreclosure on the subject property as outlined above. Carol Monahan Jung, Esq. of Jung & Vassar PC is hereby appointed by this Court as Commissioner. (jni)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAI`I
___________________________________
)
SANFORD A. MOHR and TINA A.
)
MOHR, Individually and as
)
Co-Trustees of their October 15,
)
1996 unrecorded revocable trust,
)
)
Plaintiffs,
)
)
vs.
) Civ. No. 16-00493 ACK-WRP
)
MLB SUB I, LLC; JOHN DOES 1-20;
)
JANE DOES 1-20; DOE PARTNERSHIPS
)
1-20; DOE CORPORATIONS 1-20; and
)
DOE ENTITIES 1-20,
)
)
Defendants.
)
___________________________________)
ORDER GRANTING DEFENDANT MLB SUB I’S MOTION FOR SUMMARY JUDGMENT
AND ISSUING DECREE OF FORECLOSURE
The dispute underlying this litigation dates back to
2005.
Plaintiffs-Counterdefendants Sanford A. Mohr and Tina A.
Mohr (the “Mohrs”) stopped making payments on a loan, and the
original lender sought to foreclose shortly thereafter.
Several
assignments of the loan later, and following the Chapter 11
bankruptcy proceedings of now-dismissed defendant and prior
owner BNC Mortgage, Inc. (“BNC”), the dispute came to a head
before this Court in mid-2019 in the form of a motion for
summary judgment filed by BNC and a corresponding joinder motion
filed by Defendant-Counterclaimant MLB Sub I, LLC (“MLB”).
After the Court granted summary judgment to the Defendants on
most of the Mohrs’ claims, the Mohrs were granted leave to amend
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their complaint, which they did on October 30, 2019.
MLB
counterclaimed, and now before the Court is MLB’s motion for
summary judgment (the “Motion”), ECF No. 128, in which it
asserts that it is the current holder and owner of the Note and
Mortgage and seeks a decree of foreclosure.
For the reasons discussed below, the Court GRANTS
Defendant-Counterclaimant MLB’s Motion for Summary Judgment.
The Court hereby issues a decree of foreclosure in favor of MLB,
the holder of the underlying mortgage loan.
Likewise, the
Court’s holding necessarily disposes of Plaintiff’s remaining
claims, as further explained in this Order.
BACKGROUND
Unless otherwise indicated, the following facts are
undisputed.
They are principally drawn from the parties’
concise statements of facts (“CSFs”) and the evidentiary
exhibits attached thereto.
See MLB’s CSF, ECF No. 129; Mohrs’
CSF, ECF No. 135.
I.
The 2004 Mortgage Transaction and Subsequent Default
The mortgage transaction at issue took place in 2004
when, to refinance their home mortgage, the Mohrs executed a
promissory note (the “Note”) in favor of Finance America, LLC
(“Finance America”) in the amount of $467,500.
Mohrs’ CSF ¶ 1 (admitting).
MLB’s CSF ¶ 1;
The note was secured by a mortgage
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(the “Mortgage”) executed in favor of Mortgage Electronic
Registration Systems, Inc. (“MERS”) as sole nominee for Finance
America.
MLB’s CSF ¶ 2; Mot. Ex. 2, ECF No. 128-7.
The parties
executed the loan documents memorializing the transaction on
April 16, 2004.
MLB’s CSF ¶¶ 1-2.
The Mohrs have not made any payments on the loan since
late 2004.
MLB’s CSF ¶ 5.
They have been notified by various
owners throughout the years of the default, but they have
disputed the validity of the debt.
MLB’s CSF ¶ 6; Mohrs’ CSF at
p.1 (admitting to ¶ 5 of MLB’s CSF but noting that they
“disputed liability on the claimed mortgage loan and debt”).
II.
Reassignments of the Mortgage
Based on the evidence and recorded documents submitted
by MLB, the following tracks the various changes in ownership
and recorded assignments since the Mortgage and Note incepted:
1.
On April 16, 2004, the Mohrs executed the
Note and Mortgage, with Finance America as the
original lender and MERS as the sole nominee for
Finance America.
2.
In 2005, BNC merged with Finance America.
3.
On July 25, 2013, MERS as nominee for
Finance America (which had merged with BNC) assigned
the Mortgage to BNC’s parent company, Lehman Brothers
Holding, Inc. (“Lehman Brothers”).
- 3 -
Mot. Ex. 3, ECF
No. 128-8, ECF No. 128 (the “MERS-Lehman Brothers
Assignment”).
The MERS-Lehman Brothers Assignment was
recorded on April 22, 2014.
4.
On September 9, 2013, Lehman Brothers
entered into a Mortgage Loan Sale and Warranties
Agreement (the “Mortgage Sale Agreement”) to sell its
interest in the Note and Mortgage to MLB or one of its
affiliates.1/
5.
Mot. Ex. 7, ECF No. 128-12.
On April 22, 2014, Lehman Brothers assigned
the Mortgage to MLB, and that assignment was recorded
the same day.
Mot. Ex. 4, ECF No. 128-9 (the “Lehman
Brothers-MLB Assignment”).
The existence of these recorded assignments is
undisputed.
The Mohrs simply allege that the original Mortgage
and each of these assignments was fraudulent, and that the Note
was satisfied back in 2006.
See Mohrs’ CSF ¶¶ 3-4, 6-10.
III. The Lost Note Affidavit
The original Note was lost at some point since it was
executed back in 2004 and before it was sold to MLB.
¶ 7.
MLB’s CSF
MLB has presented a “Lost Note Affidavit” in place of the
1/
In its memorandum (ECF No. 128-1, “Mot.”), MLB acknowledges a
discrepancy with the ultimate purchaser, which appears to be MLB, but the
Mortgage Sale Agreement was signed by Mariners LB Holdings, LLC. See Mot. at
11; see also Mot. Ex. 10, ECF No. 128-15, at p. 13 of 20. The Lehman
Brothers-MLB Assignment ultimately reflects MLB as the assignee. See Mot.
Ex. 4.
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original Note.
See Mot. Ex. 1, ECF No. 128-6.
The Lost Note
Affidavit was executed on April 4, 2013, and identifies American
Home Mortgage Corp. d/b/a American Home Mortgage (“AHM”) as the
owner of the Note.
See id.
The Lost Note Affidavit is signed
by David Mitchell, an authorized Officer of AHM “by its attorney
in fact” Homeward Residential, Inc., f/k/a American Home
Mortgage Servicing, Inc. (“AHM Servicing”).
Id.
Based on
evidence in the record, AHM or AHM Servicing appears to have at
some point been the owner or servicer of the loan.
footnote 14.
See infra,
The Lost Note Affidavit states that “[t]he
original Note could not be located after a thorough and diligent
search, which consisted of searching through such records of
[AHM] as were appropriate and reasonably accessible.”
Id.
The
Lost Note Affidavit also confirms that it “is intended to be
relied on by the purchaser of the Note from the Company or from
affiliate of the Company and such purchaser’s successors and
assigns.”
Id.
A photocopy of the original Note is attached to
the Lost Note Affidavit, and with the Note is an allonge2/
containing an indorsement in blank.3/
See Mot. Ex. 1.
MLB has submitted evidence in the form of declarations
2/
An allonge is a slip of paper sometimes attached to a negotiable
instrument for the purpose of writing indorsements, often when there is no
space on the instrument itself. See Black’s Law Dictionary (11th ed. 2019).
3/
If an instrument is indorsed in blank (and the indorsement was
properly affixed to the note), it would be a bearer instrument and therefore
enforceable by the party in physical possession. See Haw. Rev. Stat. §
490:3-205(b).
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showing that it, through its custodian and counsel, has had and
maintained possession of the original Mortgage and Lost Note
Affidavit (which includes a photocopy of the Note and the
allonge) since 2014, after it purchased the loan from Lehman
Brothers.
MLB’s CSF ¶¶ 9-10; see also Mot. Ex. 10; Mot. at 9.
In addition, each page of the Note and Mortgage—including the
adjustable rate rider—has been initialed by the Mohrs, the only
exception being the prepayment rider page.4/
See ECF No. 128-6
(Note); ECF No. 128-7 (Mortgage).
IV.
Procedural Background
This case began in state court back in 2005.
Its
procedural history is thus long and complex, involving multiple
defendants and a bankruptcy.
Rather than reciting this history
in detail, the Court focuses on those events relevant to the
Motion before it now.5/
The Mohrs filed their initial complaint in Hawai`i
state court on April 19, 2005, and their first amended complaint
several months later, against Finance America, MERS, and other
entities.
See ECF No. 38-4 (initial complaint); ECF No. 38-14
(first amended complaint).
The Mohrs sought, inter alia,
rescission of the Mortgage and damages under TILA, damages under
4/
As addressed infra, the Mohrs dispute that the version they actually
initialed is the same as the recorded version of the Mortgage.
5/
The Court’s prior order ruling on BNC’s summary judgment motion and
MLB’s joinder contains a detailed factual and procedural history as well.
See ECF No. 94 at 2-7.
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Hawai`i’s unfair or deceptive acts or practices (“UDAP”) law,
and to quiet title.
ECF No. 38-14.
BNC—the successor by merger
with Finance America—filed for bankruptcy a few years later,
putting the state-court proceedings on hold.6/
(“Prior MSJ Order”) at 4-5.
See ECF No. 94
While the stay was in place, the
Mohrs filed a proof of claim in the bankruptcy proceedings, ECF
No. 52-5, seeking the same relief sought in their state-court
lawsuit:
rescission and damages under TILA and UDAP.
See id.
Lehman Brothers filed objections on BNC’s behalf, and the
bankruptcy court ultimately granted those objections and
disallowed and expunged the Mohrs’ claims, with prejudice.
See
id. at 5-6; ECF No. 52-8 (bankruptcy order).
MLB intervened in the state-court action in 2016 and
then removed it to federal court.
also ECF No. 1.
See Prior MSJ Order at 6; see
The bankruptcy stay was eventually lifted and
this Court heard arguments on a motion for summary judgment
filed by BNC, ECF No. 51, as well as a substantive joinder
motion filed by MLB, ECF No. 53.
On June 13, 2019, the Court
granted summary judgment to BNC.
See Prior MSJ Order at 22.
large part, the Court held that res judicata barred the Mohrs’
claims because they had already been litigated and decided in
the bankruptcy proceedings.
See id. at 9-20.
6/
The Court also
The bankruptcy proceedings were consolidated with those of BNC’s
parent company, Lehman Brothers.
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In
granted MLB’s joinder motion to the extent that it sought the
same relief as BNC and denied the joinder motion to the extent
that it went beyond the scope of BNC’s corresponding motion.
Id.
The Court recognized MLB’s privity with BNC, but expressly
declined to decide the validity and ownership of the Mortgage
and Note because doing so would exceed the relief sought by BNC
in its motion.
Id.
After the Prior MSJ Order disposed of the majority
of their claims, the Mohrs sought leave to amend their
complaint, which Magistrate Judge Porter granted in part.
Nos. 106 & 114.
ECF
Meanwhile, the parties had stipulated to
dismiss the action against BNC with prejudice.
ECF No. 112.
The Mohrs then filed their second amended complaint (the
“Amended Complaint”),7/ ECF No. 115, on October 30, 2019,
asserting four causes of action against MLB:
(1) wrongful
foreclosure, (2) declaratory relief under Haw. Rev. Stat.
(“HRS”) § 632-1, (3) quiet title, and (4) damages under UDAP.8/
Am. Compl. ¶¶ 9-19.
MLB counterclaimed, seeking judicial
7/
The Court acknowledges MLB’s observation that ECF No. 115, the
document labeled “First Amended Complaint” on the docket is actually the
second amended complaint. See Mot. 3 n.1; see also ECF No. 38-4 (complaint
filed in state court) & ECF No. 38-14 (first amended complaint filed in state
court). For consistency, the Court will simply refer to the operative
complaint—that is, ECF No. 115—as the “Amended Complaint.”
8/
Because the Amended Complaint no longer named MERS, Deutsche Bank
National Trust Company, and HomeQ Servicing Corporation—all of whom had been
named as defendants in the prior complaints—those parties were terminated and
MLB is the sole remaining named defendant.
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foreclosure, as well as equitable and declaratory relief.
ECF
No. 116 (the “Counterclaim”).
MLB filed the instant Motion and CSF on January 20,
2020, seeking summary judgment on “its Counterclaim’s first
claim for relief for judicial foreclosure under Haw. Rev.
Stat. § 667-1.5 . . . .”
ECF No. 128 at 2.
Specifically, MLB
seeks a ruling that it is entitled to a decree of foreclosure,
which it says would then by extension dispose of the Mohrs’
remaining claims.
See Mot. at 1.
The Mohrs filed their
Opposition to MLB’s Motion, ECF No. 136, and their separate CSF,
ECF No. 135, on February 4.
In their Opposition, the Mohrs
allude to cross-moving for summary judgment in their favor on
the claims in their Amended Complaint.
Opp. at 1.
MLB filed
its Reply, ECF No. 138, and responsive CSF, ECF No. 137, on
February 11, and the Court heard oral arguments on February 25.
At the hearing, the Court directed the parties to file
supplemental briefing calculating the outstanding amount of the
loan with interest.
MLB properly filed its brief containing
detailed calculations of the loan balance.
See ECF No. 142.
The Mohrs responded not by addressing the validity of those
calculations, but by rehashing the same arguments they made in
their Opposition and by presenting entirely new factual evidence
not presented to the Court in the original motions briefing.
See ECF No. 143.
In light of that new evidence, the Court
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provided MLB with a final opportunity to respond, which it did
on April 6, 2020.
See ECF No. 146.
STANDARD
Summary judgment is proper where there is no genuine
issue of material fact and the moving party is entitled to
judgment as a matter of law.
Fed. R. Civ. P. 56(a).
Federal
Rule of Civil Procedure 56(a) mandates summary judgment “against
a party who fails to make a showing sufficient to establish the
existence of an element essential to the party’s case, and on
which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548,
2552 (1986); see also Broussard v. Univ. of Cal., 192 F.3d 1252,
1258 (9th Cir. 1999).
“A party seeking summary judgment bears the initial
burden of informing the court of the basis for its motion and of
identifying those portions of the pleadings and discovery
responses that demonstrate the absence of a genuine issue of
material fact.”
Soremekun v. Thrifty Payless, Inc., 509 F.3d
978, 984 (9th Cir. 2007) (citing Celotex, 477 U.S. at 323, 106
S. Ct. at 2553); see also Jespersen v. Harrah’s Operating Co.,
392 F.3d 1076, 1079 (9th Cir. 2004).
“When the moving party has
carried its burden under Rule 56[(a)] its opponent must do more
than simply show that there is some metaphysical doubt as to the
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material facts [and] come forward with specific facts showing
that there is a genuine issue for trial.”
Matsushita Elec.
Indus. Co. v. Zenith Radio, 475 U.S. 574, 586–87, 106 S. Ct.
1348, 1356 (1986) (citation and internal quotation marks omitted
and emphasis removed); see also Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247–48, 106 S. Ct. 2505, 2509-10 (1986) (stating
that a party cannot “rest upon the mere allegations or denials
of his pleading” in opposing summary judgment).
“An issue is ‘genuine’ only if there is a sufficient
evidentiary basis on which a reasonable fact finder could find
for the nonmoving party, and a dispute is ‘material’ only if it
could affect the outcome of the suit under the governing law.”
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing
Anderson, 477 U.S. at 248, 106 S. Ct. at 2510).
When
considering the evidence on a motion for summary judgment, the
court must draw all reasonable inferences on behalf of the
nonmoving party.
Matsushita Elec. Indus. Co., 475 U.S. at 587,
106 S. Ct. at 1356; see also Posey v. Lake Pend Oreille Sch.
Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that
“the evidence of [the nonmovant] is to be believed, and all
justifiable inferences are to be drawn in his favor” (internal
citation and quotation omitted)).
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DISCUSSION
At issue in this case is whether MLB is entitled to a
decree of foreclosure.
The Mohrs argue that MLB has failed to
prove the requisite judicial-foreclosure elements.
Their
primary arguments are that the Note was paid off (though they do
not say by whom) and that MLB cannot establish the chain of
title showing that it is the lawful owner of the Note and
Mortgage.
The Court disagrees and holds that MLB has proven the
requisite foreclosure elements and that it has standing to
foreclose on the Mohrs’ property.
The Mohrs’ conclusory claims
of fraud and attempts to impose a nonexistent requirement that
MLB prove the validity of each transfer of title are
unpersuasive.
Accordingly, as discussed below, the Court GRANTS
summary judgment to MLB and enters a decree of foreclosure as
stated.
To the extent that the Mohrs cross-move for summary
judgment on their claims in the Amended Complaint, such motion
is DENIED.
I.
MLB has Established the Foreclosure Elements and that it
has Standing to Foreclose
In general, there is no federal foreclosure law;
rather, state law serves as the law of decision in foreclosure
actions.
See Whitehead v. Derwinski, 904 F.2d 1362, 1371 (9th
Cir. 1990), overruled on other grounds by Carter v. Derwinski,
987 F.2d 611 (9th Cir. 1993).
Under Hawai`i law, a foreclosure
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decree is appropriate if all four of the following material
facts have been established:
(1) the existence of a promissory
note, mortgage, or other debt agreement; (2) the terms of the
promissory note, mortgage, or other debt agreement; (3) default
by the borrower under the terms of the promissory note,
mortgage, or other debt agreement; and (4) the giving of
sufficient notice of default and that payment of the debt is due
and owning.
IndyMac Bank v. Miguel, 117 Haw. 506, 520, 184 P.3d
821, 835 (Ct. App. 2008); see also McCarty v. GCP Mgmt., LLC,
Civ. No. 10-00133 JMS/KSC, 2010 WL 4812763, at *8 (D. Haw. Nov.
17, 2010); Bank of Honolulu, N.A. v. Anderson, 3 Haw. App. 545,
551, 654 P.2d 1370, 1375 (Ct. App. 1982).
The foreclosing party’s burden to prove its
entitlement to enforce the note overlaps with the requirements
of standing.
Bank of Am., N.A. v. Reyes-Toledo, 139 Haw. 361,
367-68, 390 P.3d 1248, 1254-55 (2017) (“Toledo I”); see also
Bank of Am., N.A. v. Reyes-Toledo, 143 Haw. 249, 264-65, 428
P.3d 761, 776-77 (2018) (“Toledo II”).
The “underlying ‘injury
in fact’ to a foreclosing [party] is the mortgag[or]’s failure
to satisfy its obligation to pay the debt obligation to the note
holder.”
Id. at 368, 390 P.3d at 1255.
Thus, to establish
standing, the foreclosing party “must necessarily prove its
entitlement to enforce the note as it is the default on the note
that gives rise to the action.”
Id. (citing HRS § 490:9-601).
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As discussed in detail below, the record shows that
MLB has established as a matter of law all four factors
necessary for a foreclosure decree, and that it has standing to
enforce the loan documents.
a. MLB Has Established the Existence and Terms of the
Note and Mortgage, the Mohrs’ Default Thereunder, and
the Notice of Default
First, MLB has established all four of the foreclosure
factors as a matter of law.
As to the first two factors, the
existence of the Note and Mortgage is undisputed.
MLB has
offered evidence showing that on April 16, 2004, the Mohrs
executed the promissory Note in favor of Finance America for
$467,500, and, to secure payment on the Note, the Mohrs executed
the Mortgage, which was recorded in the Bureau of Conveyances on
April 27, 2004.
MLB’s CSF ¶¶ 1-2.
The Mohrs admit to executing the Note and Mortgage,
but they maintain that the recorded version of the Mortgage is
not the same version they signed, rendering it void.
¶¶ 1-2; Mohr Decl. ¶¶ 8-13, 24-32.
Mohrs’ CSF
This Court already held in
the Prior MSJ Order that such allegations of fraud and forgery
could have been raised in the bankruptcy action and are thus
barred by res judicata.
See Prior MSJ Order at 12 (“If
anything, these allegations are merely an ‘extension of facts’
already presented in the bankruptcy action, or facts that could
have been raised in the bankruptcy action.”).
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Accordingly, the
Court will not rehash the Mohrs’ allegations of fraud or forgery
in the Mortgage, when they surely have had in their possession
copies of the recorded Mortgage and the version they allege
signing all this time.
The Court reiterates its prior
observation that the Mohrs have offered no explanation for
failing to raise these allegations earlier.
See Prior MSJ Order
at 11-13.
The terms of the Mortgage and Note do not appear to be
in dispute anyway.9/
The Mohrs have not challenged the terms of
the original Note at all; they only allege that it was satisfied
in 2006 and that, regardless, MLB is not the proper party to now
enforce payment of the Note (which they inexplicably say is no
party at all, other than themselves as the owners of the
property).
And their challenges to the Mortgage are focused not
on the terms of the loan documents they admit signing, but on
the validity of the recorded documents.
Although they argue
that the recorded version of the Mortgage is not the same as the
one they admit to signing, the Mohrs have not pointed to any
material differences.
As discussed throughout this Order, their
assertions of forgery and fraud are simply not supported by the
evidence.
They have not shown that there was any
misrepresentation of any party’s obligations under the Mortgage,
9/
In fact, the Mohrs initialed each page of the Note and Mortgage,
signaling their review of the terms.
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or any reliance on such misrepresentations.
Because there is no
genuine dispute regarding the existence or terms of the Note and
Mortgage, MLB has satisfied the first and second of the
foreclosure requirements.
MLB has also shown—and the Mohrs have not disputed—
that the Mohrs defaulted on the loan and were notified of such
default, thus satisfying the third and fourth foreclosure
factors.
Roughly six months after executing the Note and
Mortgage, the Mohrs stopped making the scheduled payments and
have remained in default ever since.10/
After the Mohrs became
delinquent in their payments, written notice was provided
concerning the default and the intention to accelerate the loan
and foreclose the mortgage if the default was not cured.11/
Exs. 5 & 15 to MLB’s CSF.
See
Despite receiving notice, the Mohrs
neglected to cure the default.
Accordingly, there is no genuine
dispute regarding the Mohrs being in default or having received
notice of such default, and MLB has thus satisfied the third and
fourth requirements to foreclose.
See Anderson, 3 Haw. App. at
550, 654 P.2d at 1375.
10/
The Mohrs claim that they cannot have been in default when the
Mortgage and Note were paid off in 2006. As discussed in detail in this
Order, the Mohrs have offered no persuasive evidence in support of their
assertion that the note was paid off and satisfied.
11/
The Mohrs do not contest this. They simply assert that they
disputed the validity of the debt and that the debt was mysteriously paid off
after the loan was securitized.
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In sum, MLB has met its burden of proving all four of
the foreclosure prongs, and the Mohrs have failed to “set forth
specific facts showing that there is a genuine issue for trial.”
See Porter v. Calif. Dep’t of Corrections, 419 F.3d 885, 891
(9th Cir. 2005).
The Court now turns to the overlapping
question of whether MLB has standing as the “person entitled to
enforce” the Note and Mortgage.
b. MLB Has Established That It Has Standing to Enforce
the Note and Mortgage
As mentioned, the burden of proving entitlement to a
foreclosure decree overlaps with the burden of establishing
standing to foreclose.
Whether a party has standing as a
“person entitled to enforce” a promissory note is governed by
statute:
“Person entitled to enforce” an instrument
means (i) the holder of the instrument, (ii)
a nonholder in possession of the instrument
who has the rights of a holder, or (iii) a
person not in possession of the instrument who
is entitled to enforce the instrument pursuant
to section 490:3-309 or 490:3-418(d).
A
person may be a person entitled to enforce the
instrument even though the person is not the
owner of the instrument or is in wrongful
possession of the instrument.
HRS § 490:3-301.
In other words, when a person is not the
original payee identified on the note, there are three ways for
a person to establish that it is the “person entitled to
enforce” the note:
It can show that it is (1) a holder of the
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note, (2) a nonholder in possession of the note with the rights
of a holder, or (3) not in possession of the note but entitled
to enforce it pursuant to the cross-referenced statutes.
Here, MLB’s standing arguments hinge on it being
either or both a “holder” of the note and a person not in
possession of the instrument but entitled to enforce it under
HRS § 490:3-309, which governs enforcement of “lost, destroyed,
or stolen” instruments.
This latter concept allows a party to
enforce a lost instrument if it can prove the terms of the
instrument and its right to enforce the instrument.
HRS §
490:3-309(a) lists three requirements for a person to enforce a
lost instrument:
(i) the person was in rightful possession of
the instrument and entitled to enforce it when
loss of possession occurred, (ii) the loss of
possession was not the result of a transfer by
the person or a lawful seizure, and (iii) the
person cannot reasonably obtain possession of
the instrument because the instrument was
destroyed,
its
whereabouts
cannot
be
determined, or it is in the wrongful
possession of an unknown person or a person
that cannot be found or is not amenable to
service of process.
HRS § 490:3-309(a).
If a person successfully proves the right
to enforce the instrument under HRS § 490:3-309(a), the person
is treated as having produced the original instrument.
490:3-309(b); see also id. § 490:3-308.
Id. §
Simply put, the plain
meaning of HRS § 490:3-309 is that a person not in possession of
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an original instrument is entitled to enforce it so long as the
person was in possession and entitled to enforce it when the
loss of possession occurred.
The Ninth Circuit has concluded that even where a
person was not the party in possession of the note when it was
lost, the rights to a lost note may still be enforced by a
downstream assignee of the note.
See In re Allen, 472 B.R. 559,
565-66 (9th Cir. B.A.P. 2012) (collecting cases and affirming
the bankruptcy court’s holding that “rights under a lost note
may be assigned”).
To establish a right to enforce a lost note
under HRS § 490:3-309, courts rely on lost note affidavits,
which are “used to establish a party’s right to enforce a note
even without possession of the original instrument.”
Specialized Loan Serv. LLC, Civ. No. RDB-16-3743, 2017 WL
1001257, at *2 n.3 (D. Md. Mar. 15, 2017).
There is very little case law interpreting Hawai`i’s
statute on enforcing lost instruments.
MLB has offered one
Ninth Circuit case in which a bankruptcy appellate panel held
that an assignee of a lost note had standing to enforce the lost
note under a Washington statutory scheme identical to the one at
issue here.
See In re Allen, 472 B.R. at 565-66.
In In re
Allen, the panel affirmed the bankruptcy court’s finding that a
lost note affidavit was an acceptable substitute for the
original note because the affidavit complied with the statutory
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requirements for enforcement of lost instruments, identical to
those requirements in HRS § 490:3-309.
Id.
Although the party
seeking to enforce the note was not the one in possession of the
original note when it was lost, the panel agreed that it held
the rights in the lost note pursuant to a subsequent assignment
and its possession of the lost note affidavit.
Id. at 566.
The panel went on to hold that, because the original
note was indorsed in blank, it was a “bearer instrument,”
meaning it could be negotiated by transfer of possession alone.
Id. at 567.
Thus, the foreclosing party’s showing that it had
in its possession the lost note affidavit and a copy of the note
indorsed in blank—which it had purchased from the prior owner—
was sufficient to give it the “status of a holder and a ‘person
entitled to enforce’ the instrument . . . .”
Id.
To unpack the holding in In re Allen, a summary of the
law concerning a “holder” of a negotiable instrument is useful.
A “negotiable instrument” is an “unconditional promise or order
to pay a fixed amount of money” if it, among other things, is
“payable to bearer or to order at the time it is issued or first
comes into possession of a holder.”
HRS § 490:3-104.
If an
instrument is indorsed in blank, it “becomes payable to bearer
and may be negotiated by transfer of possession alone until
specially indorsed.”
Id. § 490:3-205(b).
“Negotiation” is
defined as “a transfer of possession, whether voluntary or
- 20 -
involuntary, of an instrument by a person other than the issuer
to a person who thereby becomes its holder.”
201(a).
Id. § 490:3-
In turn, “Holder” is defined as “[t]he person in
possession of a negotiable instrument that is payable either to
bearer or to an identified person that is the person in
possession.”
HRS § 490:1-201(b); see also In re Tovar, Nos. CC-
11-1696-MkDKi, LA-10-41664-BR, LA-10-03016-BR, 2012 WL 3205252,
at *5 (9th Cir. B.A.P. Aug. 3, 2012) (explaining the
circumstances where a party is a “holder” of a negotiable
instrument).
In other words, like the court held in In re
Allen, once a note indorsed in blank is negotiated, the
subsequent party becomes a holder and, thereby, a person
entitled to enforce the note.
See id. § 490:3-201; see also In
re Allen, 472 B.R. at 565-67.
Here, because it is undisputed that the original Note
is lost and all that MLB has produced is the Lost Note Affidavit
with a photocopy of the Note (showing the Mohrs’ initials) and
the allonge, the Court must decide whether MLB’s possession of
these items provides it with the present right to enforce the
Note.
The Court holds that it does.
i. MLB’s Right to Enforce the Note Based on the Lost
Note Affidavit
MLB has submitted evidence showing that (1) a loan was
made and secured by the Note and Mortgage in favor of Finance
- 21 -
America in April 2004; (2) the Note contained an allonge with an
indorsement in blank; (3) the original Note was lost and a Lost
Note Affidavit was signed in April 2013; and (4) MLB bought the
Note and Mortgage from Lehman Brothers in September 2013,
through the Mortgage Sale Agreement.12/
MLB has also submitted
evidence establishing that it obtained possession of the Lost
Note Affidavit in connection with its purchase of the loan.
MLB
now relies on the Lost Note Affidavit as evidence of the terms
of the original Note.
The Lost Note Affidavit produced by MLB is signed by
“a duly authorized Officer” of AHM “by its attorney in fact” AHM
Servicing.
See Lost Note Affidavit.
In this regard, the Lost
Note Affidavit characterizes AHM as the lawful owner of the Note
at the time the Note was lost and the affidavit sworn.
See id.
The Lost Note Affidavit confirms that it may also be relied on
by the purchaser and successors and assigns.
Id.
In turn, the
Lost Note Affidavit encloses a photocopy of the original Note
with each page initialed by the Mohrs, as well as a photocopy of
the allonge with an indorsement in blank.
12/
The Mortgage Sale Agreement expressly lists—among other loan
purchases—the transfer of the Mortgage and Note on the Mohrs’ property, with
reference to the Lost Note Affidavit.
- 22 -
Evidence in the record indicates that at some point
AHM indeed came to own or service the mortgage.13/
Still, a few
months after the Lost Note Affidavit was signed, the Mortgage
and Note were sold and assigned from MERS (on behalf of the
original lender, Finance America) to Lehman Brothers and then
from Lehman Brothers to MLB.
MLB has submitted evidence showing
that it purchased the rights under the Mortgage and Note for
$466,73714/ through the Mortgage Sale Agreement.
MLB has also
provided evidence that it, through its custodian and counsel,
has had and maintained possession of the original Lost Note
Affidavit—which includes a photocopy of the original Note and
allonge—since MLB purchased the loan.15/
MLB’s CSF ¶¶ 9-10; see
also Mot. at 9.
13/
See ECF No. 52-5 at pp. 71-72 (letter dated June 10, 2008, advising
the Mohrs that a new loan servicer, AHM Servicing, would be handling their
payments); ECF No. 52-5 at p. 76 (December 2, 2008 letter sent by the Mohrs’
attorney noting, “We are informed that the mortgage was assigned to American
Home Mortgage”). Strangely, the latter correspondence was sent along with
the Mohrs’ signatures on a release of Mortgage, which was to be signed by
BNC—presumably understood to be the owner of the Mortgage at the time—in
connection with a settlement arrangement. See id. That settlement
ultimately fell apart, and the release the Mohrs and BNC had signed was
rescinded on February 4, 2009 (reestablishing BNC as the owner). See Mot. at
10; Prior MSJ Order at 3-4; see also ECF No. 52-7 (recorded rescission).
14/
The Court understands that this is the amount MLB paid based on the
copy of the Mortgage Sale Agreement submitted as an exhibit by MLB. See Mot
Ex. 7. The Agreement lists the purchase price for each asset as the amount
listed in the asset schedule, and the amount listed for the Mohrs’ property
is the unpaid principal balance, $466,737. Id.
15/
In its supplemental brief meant to address interest calculations,
the Mohrs raise for the first time the argument that AHM was in Chapter 11
bankruptcy since August 2007, which—according to the Mohrs—is further
evidence that the Lost Note Affidavit is “a fraud on the Court.” ECF No. 143
¶ 8. The Mohrs fail to allege the particulars of any such “fraud,” nor do
they explain how the prior owner’s bankruptcy would impact MLB’s current
status as the possessor of the Lost Note Affidavit. Without such
particulars, the Court sees no genuine issue of material fact raised by the
Mohrs’ unproven assertion that AHM was previously in bankruptcy.
- 23 -
The Mohrs have offered nothing to dispute these facts.
Their only responses to MLB’s reliance on the Lost Note
Affidavit are that the Note was “in a REMIC [real estate
mortgage investment conduit] and paid in 2006” and that “MLB
cannot be a lawful beneficiary of a mortgage if it lacked
possession of the promissory note.”
Opp. ¶ 36.
On their first
point, it is not clear to the Court why exactly the REMIC
matters.
Cf. Klohs v. Wells Fargo Bank, N.A., 901 F. Supp. 2d
1253, 1259-60 (D. Haw. 2012) (explaining that “[s]ecuritization
does not alter the relationship or rights of the parties to the
loan” and “does not modify the terms of the underlying
obligations”).
And the Mohrs’ position that the Note was paid
off and satisfied in 2006 is unpersuasive.
The Mohrs’ only
support for this argument is a declaration made by their private
investigator William J. Paatalo, who opined that the “chain of
title for the Mohr Mortgage is clouded and cannot be verified”
and that the Note appears to have been “paid off” sometime in
2006.
See ECF No. 135-3 (“Paatalo Decl.”).
This declaration—
which was previously before the bankruptcy court and then this
Court in connection with BNC’s motion for summary judgment—does
not create any dispute as to the material facts:
whether the
Mohrs defaulted on the loan and whether MLB is the party with
- 24 -
standing to enforce Note and Mortgage.16/
The Mohrs have simply
provided no evidence that they or anyone on their behalf paid
off the loan.17/
The Mohrs’ second point regarding MLB lacking
possession of the original Note fares no better.
The statutory
scheme plainly provides for alternatives to enforcing an
instrument when a party seeking to enforce lacks possession of
the original document.
Here, MLB has offered into evidence the
Lost Note Affidavit, which establishes that a prior owner or
servicer had possession of the Note and affirmed under oath that
the Note was lost and its whereabouts could not be determined,
and that affiliates, successors, and assigns could rely on the
Affidavit as proof of the lost Note.
Likewise, MLB submitted
evidence that it purchased the Note and Mortgage and, in doing
16/
Paatalo’s only “proof” that the loan has been paid off is a notation
in an electronic database of a trust showing a blank space for the “current
loan balance.” See Ex. 8 to Paatalo Decl. The database contains several
blank spaces for what might be relevant information about the loan, and the
Mohrs have offered no evidence of any payment, including the amount, date, or
payor. Not to mention, the “release” that Paatalo relies on to opine that
the Mortgage was satisfied was expressly rescinded after the settlement that
led to the initial release failed. See Mot. at 5-6 & n.5 & n.6 (discussing
rescission based on failed TILA settlement); Reply at 8 & n.5 (same); see
also ECF No. 94 (prior order discussing the recording of the document
rescinding and cancelling the release, ECF No. 52-7).
17/
The Court also cannot help but wonder why the Mohrs would possibly
have agreed to enter into settlement discussions with BNC in 2008—two years
after they say the loan was paid off. The settlement terms would have had
the Mohrs paying $463,394.32 to the prior lender, the amount of the original
loan less some bank charges and interest payments made, when the loan had
purportedly already been satisfied. Faced with this question at the hearing,
counsel for the Mohrs indicated that they were not aware that the loan had
been paid by some unknown party within the trust until they hired Paatalo to
investigate the title in 2018. Their phantom-payment theory defies common
sense. And the Mohrs have offered no factual evidence of such a payment.
- 25 -
so, took possession of the original Lost Note Affidavit and
allonge.
From that point on, the Lost Note Affidavit became the
substitute for the Note.
Applying the analysis in In re Allen, the Lost Note
Affidavit—standing in for the Note—is a bearer instrument, which
may “be negotiated by the transfer of possession alone . . . .”
See HRS §§ 490:3-204(a) & 490:3-205(b); see also In re Allen,
472 B.R. at 567 (“As a bearer instrument, the Note was
negotiable by transfer of possession alone.”).
Like the
instrument in In re Allen, the Note here contains an indorsement
in blank.
Although the indorsement in blank is on an allonge
rather than on the face of the instrument like in In re Allen,
that distinction is irrelevant because the undisputed evidence
in the record shows that the allonge was “affixed to” the
original Note.18/
Cf. In re Allen, 472 B.R. at 567 (discussing
18/
Plaintiff has not challenged the validity of the allonge or whether
it was “affixed to” the original Note. Regardless, the evidence submitted by
MLB establishes it was. A review of the record shows that the allonge has
been together with the copies of the Note submitted previously to this Court
and to the bankruptcy court. The allonge also references the correct loan
number, and MLB’s custodian has attested that the Note and allonge have been
together in its possession since it purchased the loan. Moreover, the
photocopy of the original Note and allonge (both attached to the Lost Note
Affidavit) have consistent facial markings showing staple marks in the top
left corner and two-hole punches at the top center of the papers, which
indicates that the allonge was affixed to the Note. See Lost Note Affidavit.
Compare In re Tovar, 2012 WL 3205252 at *6 (holding that bankruptcy court did
not clearly err in holding that allonge was affixed to note even though
document did not contain consistent hole-punch marks), with U.S. Bank, N.A.
v. Miller, 2013 WL 12114100, at *7 (C.D. Cal. Sept. 30, 2013) (holding that
evidence failed to show that allonge was “affixed to” the note because the
documents were attached as separate exhibits and there was no indication that
the allonge was physically attached).
- 26 -
In re Weisband, 427 B.R. 13 (D. Ariz. Bankr. 2010), which held
that GMAC failed to establish that it was a holder of the note
because the evidence did not demonstrate that the allonge was
affixed to the note).
The allonge is thus treated as being made
on the face of the Note.
See HRS § 490:3-204(a) (“For the
purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the
instrument.”).
Accordingly, because the Note is indorsed in blank, it
is a bearer instrument enforceable by a showing of possession.
MLB has established its uninterrupted possession of the Lost
Note Affidavit since late 2014, which entitles it to enforce the
terms of the Note.
Under these circumstances, MLB has
demonstrated that it has standing to pursue rights under the
Note and Mortgage as a holder and person not in possession of
the Note but entitled to enforce it pursuant to HRS § 490:3309.19/
ii. The Mohrs’ Arguments in Opposition
The Mohrs assert three main arguments in opposition,
none of which the Court finds persuasive.
19/
See Opp. ¶ 1.
They
Because Hawai`i follows the common-law rule that a transfer of an
obligation secured by a security interest (here, the Note) also transfers the
security interest (here, the Mortgage on the property), HRS § 490:9-203(g),
that MLB has established its interest in the Note is sufficient to also
establish its ownership of the Mortgage, regardless of the Mohrs’ claims of
fraudulent assignments. Cf. Toledo I, 139 Haw. at 372 n.17, 390 P.3d at 1259
n.17.
- 27 -
argue that (1) MLB “never invested in the mortgage loan nor paid
anything to the Mohrs,” id. ¶¶ 17, 24; (2) the Note and Mortgage
have been satisfied, id. ¶ 4; and (3) the original Mortgage and
subsequent assignments are all void, id. ¶¶ 2, 5, 19-23.
The
Court rejects these arguments and will address each in turn.
The Mohrs’ first two arguments are easily disposed of.
The Mohrs have not cited any Hawai`i law to support their
argument that MLB could not have an interest in the Mortgage
merely because it never “paid anything to the Mohrs.”
17.
Opp. ¶
MLB has submitted evidence of the Mortgage Sale Agreement
with Lehman Brothers, through which the latter agreed to assign
the Mortgage to MLB in exchange for payment.
Payment to the
mortgagor is not a condition of foreclosing on mortgage.
On the
Mohrs’ second point—that the Note and Mortgage have been
satisfied—the Court already rejected this argument above.
The
Mohrs have not provided sufficient evidence to create a genuine
issue of material fact as to whether the Note has been
satisfied.
The Mohrs’ third argument is the crux of their
Opposition.
The Mohrs claim that the original Mortgage and
subsequent assignments are all fraudulent and invalid.
In this
regard, their Opposition makes sweeping allegations of fraud and
forgery to contend that the original Mortgage and subsequent
assignments are all void.
- 28 -
Not only does this argument fly in the face of the
fact that the Mohrs’ initials appear on each page of the
Mortgage and Note, but as the Court alluded to above and
discussed in its Prior MSJ Order, these arguments are largely
barred by the doctrine of res judicata.
11-12.
See Prior MSJ Order at
The Mohrs’ claims were or could have been raised in
BNC’s bankruptcy proceedings or in the prior summary judgment
proceedings before this Court.
And while the Mohrs have
attempted to now clarify some of their past fraud allegations—
including by listing the apparent “differences” between the
recorded version of the Mortgage and the version the Mohrs claim
they actually signed, Mohr Decl. ¶ 8—they have provided no
indication for why these arguments were not raised before the
bankruptcy court and then this Court in connection with BNC’s
motion for summary judgment and MLB’s associated joinder.
Regardless, the Mohrs at best point out clerical
errors or immaterial differences that have absolutely no impact
on the terms of the agreement that they themselves admit to
signing.
See Paik-Apau v. Deutsche Bank Nat’l Tr. Co., Civ. No.
10-00699 SOM/RLP, 2012 WL 6569289, at *3-4 (D. Haw. Dec. 14,
2012) (rejecting arguments that clerical errors rendered
mortgage void when the mortgagor failed to show “that the
substance of any of her own loan obligations [wa]s
misrepresented or altered”); U.S Bank Nat’l Ass’n v. Benoist,
- 29 -
136 Haw. 373, 362 P.3d 806 (Table) (Ct. App. 2015) (rejecting
arguments of fraud because the mortgagors failed to cite facts
or law showing how supposed irregularities “caused them any harm
of damages”).
The Court holds that Mohrs have not raised any
genuine issue of material fact with respect to the validity of
the Mortgage.
As to the Mohrs’ attempts to challenge the assignments
of the Mortgage, res judicata would also apply because they
raised or could have raised these challenges before the
bankruptcy court after the assignments were made.
Nonetheless,
the Court will briefly address the Mohrs’ arguments on this
point.
The Mohrs primarily argue that some entities lacked the
power and authority to transfer the Mortgage, and therefore MLB
is without good title to enable it to foreclose on the secured
property.
In essence, the Mohrs suggest that MLB must prove the
validity of each and every transfer in the chain of title before
it can foreclose on the property.20/
While MLB must prove it has
standing to foreclose, “this court has never required a lender
to go back and establish that every person or entity who
assigned a note and mortgage had the power to do so.”
Deutsche
Bank Tr. Co. v. Beesley, Civ. No. 12-00067 SOM/KSC, 2012 WL
20/
The Mohrs list “3 known fraudulent mortgage assignments involved in
this case.” Opp. ¶ 19. As MLB points out in its Reply, it is unclear what
third assignment the Mohrs are referring to. See Reply at 11-12. The two
relevant assignments are MERS-Lehman Brothers and Lehman Brothers-MLB.
- 30 -
5383555, at *4 (D. Haw. Oct. 30, 2012) (collecting cases); see
also Paik-Apau, 2012 WL 6569289 at *4 (“There is simply no
requirement that a lender go back through the chain of title
before foreclosing on a loan to prove that every assignment of
the loan was valid.”).
Moreover, Hawai`i law is well settled that borrowers
like the Mohrs generally lack standing to challenge the
assignments of their loans.
(collecting cases).
See Beesley, 2012 WL 5383555 at *4
The Mohrs cannot show that they were
parties to any of the assignments and, therefore, they cannot
dispute the validity of those contracts.
The Mohrs would only
have authority to challenge the assignments as void, not merely
as voidable.
Igarashi v. Deutsche Bank Nat’l Tr. Co., Civ. No.
19-00083 JAO/KJM, 2019 WL 6689882, at *6 (D. Haw. Dec. 6, 2019);
U.S. Bank N.A. v. Mattos, 140 Haw. 26, 35, 398 P.3d 615, 624
(2017); see Paik-Apu, 2012 WL 6569289 at *3 (holding that
assignee had standing to foreclose even though a transfer to it
may technically have been “voidable by one of the parties to the
transfer”).
None of the Mohrs’ arguments support a finding that
the Mortgage is void.21/
Accordingly, the Mohrs lack standing to
21/
See Lowther v. U.S. Bank N.A., Civ. No. 13-00235 LEK-BMK, 2014 WL
2452598, at *7 (D. Haw. May 30, 2014) (noting that allegations that a prior
assignor lacked authority to assign a loan would “make the assignments
voidable, not void, and thus do not support mortgagor standing”); see also
Igarashi, 2019 WL 6689882 at *6-7 (collecting cases on void versus voidable).
The only exception would be their argument under Hawai`i’s UDAP law. Courts
in this district have held that a contract formed in violation of UDAP laws
- 31 -
challenge—and MLB is not burdened with proving—the validity of
each of the assignments.
The Mohrs’ arguments also fail on the merits.
The
Mohrs argue in part that the MERS-Lehman Brothers Assignment is
void because MERS lacked the agency and authority to transfer
the Note and Mortgage.
Their argument is that MERS’s agency
ended when Finance America was dissolved following its merger
with BNC.
Opp. ¶ 5.
Thus, they say, MERS’s interest in the
Note and Mortgage had “expired” and it was not authorized to
assign any interest to Lehman Brothers (who in turn assigned the
Mortgage to MLB).
with Hawai`i law.22/
Id. ¶ 19.
These arguments are inconsistent
See In re Tyrell, 528 B.R. 790, 794 (D.
Haw. Bankr. 2015) (holding that indorsements on a promissory
note by out-of-business payees did not raise a genuine issue
that the indorsements were forged); Bank of Am. v. Hill, 136
is void. See, e.g., Bateman v. Countrywide Home Loans, Civ. No. 12-00033
SOM/BMK, 2013 WL 2181131, at *1 (D. Haw. May 20, 2013). This argument holds
no weight, however, because the Court has already dismissed the Mohrs’ UDAP
claims as barred by res judicata and conclusory allegations of UDAP
violations would not create a material factual dispute. Cf. Igarashi, 2019
WL 6689882 at *7 (“Plaintiffs’ conclusory claim that Defendants have engaged
in unfair or deceptive trade practices is also insufficient to demonstrate
standing to challenge the assignment.”).
22/
The Mohrs cite Toledo II as authority for their argument that the
MERS-Lehman Brothers Assignment was a sham because MERS was acting as a
“strawman.” Yet Toledo II barely discusses the issue of MERS’s authority or
its position in the loan process. The court merely lists the homeowner’s
argument that a prior assignment was a sham because “MERS was not the
mortgagee” and “acted only as a strawman” as one of several arguments that
survived the motion to dismiss stage under the relaxed state-law pleading
standard. See Toledo II, 143 Haw. at 265, 428 P.3d at 777 (noting that “it
does not appear beyond doubt that Homeowner could not prove a set of facts
entitling her to relief”).
- 32 -
Haw. 372, 362 P.3d 805 (Table) (Ct. App. 2015) (rejecting a
similar argument that MERS had improperly assigned a mortgage on
behalf of the principal entity, which no longer existed at the
time of the assignment).
Regardless, the plain language of the
Mortgage here clearly granted MERS the authority to act on
behalf of Finance America and its successors and assigns.
See
Mortgage (“MERS is a separate corporation that is acting solely
as nominee for Lender and Lender’s assigns”).
In sum, the Mohrs have failed to present sufficient
evidence to contradict MLB’s showing that its purchase through
the Mortgage Sale Agreement and possession of the Lost Note
Affidavit made it the holder or person not in possession but
entitled to enforce the Note.23/
MLB has presented evidence that
23/
The evidence the Mohrs raised for the first time in their
supplemental briefing, ECF No. 143, likewise does not present any material
factual disputes. The Mohrs challenge MLB’s standing based on (1) an
assignment recorded just before the instant Motion was filed purporting to
assign the loan from MLB to MCH SUB I, LLC (“MCH”); (2) evidence that, in the
course of the dissolution of MLB and winding up its affairs, MLB cancelled
its authority to transact business in Hawai`i; and (3) a loan-servicing
document MLB submitted with its Motion that the Mohrs suddenly contend is
evidence of the loan’s zero balance. ECF No. 143 ¶¶ 1-4, 10-11. First, the
loan document still provides no proof of payment and any disputes the Mohrs
have with respect to MLB’s specific balance or tax calculations can be taken
up at a later time. Second, as MLB explains in its response, the assignment
from MLB to MCH was subsequently rescinded, as was MLB’s apparently
erroneously-filed cancellation of authority. ECF Nos. 146-2 (rescission of
assignment) & 146-3 (correction of cancellation). Regardless, none of these
facts impact the Court’s above analysis and conclusion that MLB has standing
as the party entitled to enforce the Note. See McCarty v. GCP Mgmt., LLC,
495 F. App’x 836, 837 (9th Cir. Nov. 7, 2012) (explaining that entity without
a certificate of authority may still maintain a counterclaim if it does not
qualify as “transacting business” in the state (citing HRS §§ 428-1008, 4281003)). As explained throughout this Order, MLB has established that it
continues to possess the Lost Note Affidavit and there is no genuine issue of
material fact as to it being the proper party to enforce the Note.
- 33 -
the Note and Mortgage were conveyed and delivered, with the
right to enforce the terms of the original Note intact, from
prior owner Lehman Brothers to MLB, and the Mohrs have provided
no evidence to the contrary.
The Mohrs’ concocted arguments for
avoiding foreclosure while it remains undisputed that they have
not made any payments since 2004 are insufficient to preclude
summary judgment on MLB’s Counterclaim.
Accordingly, to the
extent that MLB seeks summary judgment on its Counterclaim
seeking a decree of foreclosure, the Motion is GRANTED.
II.
The Mohrs’ Remaining Claims are Dismissed
In their Opposition and at oral arguments, the Mohrs
cross-moved for summary judgment on the claims in their Amended
Complaint.
See Opp. at 1.
Because the Court has already held
that MLB is entitled to summary judgment on its Counterclaim,
the Mohrs’ claims necessarily fail as well.
Counts I through III of the Amended Complaint allege
wrongful foreclosure, and seek a declaratory judgment and to
quiet title.
Having held that MLB is entitled to a decree of
foreclosure as the “person entitled to enforce” the Note and
Mortgage, the Mohrs’ claims for wrongful foreclosure,
declaratory judgment, and quiet title based on the same material
facts also fail.
Count IV of the Mohrs’ Amended Complaint must also be
dismissed pursuant to res judicata and the law of the case
- 34 -
doctrine.
Count IV of the Mohrs’ Amended Complaint asserts UDAP
violations:
The acts and conduct of Defendant MLB Sub I,
LLC, its agents, predecessors, constitute an
unfair or deceptive trade practice in the
conduct of their trade or commerce as either
or both mortgage lenders, mortgage servicers,
mortgage
holders,
or
claimants,
debt
collectors, and/or finance companies.
Am. Compl. ¶ 17.
In its Prior MSJ Order addressing, in part,
MLB’s joinder motion, the Court unequivocally granted summary
judgment to MLB on the Mohrs’ UDAP claims.
The Mohrs have
offered no reason to stray from its prior holding on this point.
See Thomas v. Bible, 983 F.2d 152, 154 (9th Cir. 1993) (“[A]
court is generally precluded from reconsidering an issue that
has already been decided by the same court, or a higher court in
the identical case.”); see also United States v. Alexander, 106
F.3d 874, 876 (9th Cir. 1997) (discussing circumstances where a
court has discretion to depart from law of the case).
The Court
thus declines to disturb its prior ruling that MLB is entitled
to summary judgment for the UDAP claim.
That claim remains
barred by res judicata.
For these reasons, MLB’s Motion is GRANTED to the
extent that it seeks summary judgment on all four counts of the
Amended Complaint.
To the extent that the Mohrs seek summary
judgment in their favor on the claims in the Amended Complaint,
such relief is DENIED.
- 35 -
III. MLB is Entitled to a Decree of Foreclosure
Because MLB has met the four prongs necessary for a
decree of a foreclosure and shown that it has standing to
foreclose, and because the Mohrs have failed to present any
genuine issue of material fact, the Court holds that summary
judgment in MLB’s favor is appropriate.24/
The Court hereby
orders an interlocutory decree of foreclosure.25/
In view of the ongoing COVID-19 pandemic, the
government shutdown and stay-at-home order, the common-law duty
to obtain the best price for the property as enunciated in
Hungate v. Law Office of David B. Rosen, 139 Haw, 394, 408, 391
P.2d 1, 15 (2017), and the fact that the real estate market is
inactive and Hawai`i has temporarily halted evictions, the Court
24/
The Court notes that it has considered the requirement in HRS §
490:3-309(b) that judgment not be entered in favor of MLB unless the Court
finds that the Mohrs are “adequately protected against loss that might occur
by reason of a claim by another person to enforce the instrument.” The Mohrs
have not offered any alternative party who may stake a claim in ownership of
the Note and Mortgage, and the Court does not see any danger of double
enforcement of the security interest. At the hearing, MLB’s counsel also
represented and agreed that the foreclosure would be conditioned on MLB’s
agreement to indemnify the Mohrs in the event they are faced with enforcement
of the same promissory Note by another party.
25/
At the hearing, counsel for MLB indicated that MLB was not seeking a
deficiency judgment, even in the event the sale of the property is less than
the outstanding loan balance. Further, at the Court’s request, MLB submitted
proof of its calculation of the outstanding amount of the loan balance. See
Decl. of S. Lisby, ECF No. 142-1. According to MLB, the outstanding
principal balance is $466,737.39, and the interest at the adjustable rate
through January 31, 2020, is $600,294.34. Id. ¶ 4. The Court hereby
reserves the question of the exact amount (including interest) of the
indebtedness secured by the Mortgage until after the confirmation of the
sale. See United States v. Guerette, Civ. No. 09-00133-ACK-KSC, 2010 WL
3260191, at *6, 10 (D. Haw. Aug. 13, 2010) (reserving the question of the
exact amount owed until after the confirmation of sale) (citing Anderson, 3
Haw. App. at 550, 654 P.2d at 1375)).
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finds that it would be inequitable and not in the interest of
either party to proceed with the foreclosure sale under the
existing conditions.
The Court thus finds and so orders that
the Commissioner may not commence any actions to foreclose on
the Mohrs’ property until further ordered by this Court.
Either
party may petition the Court to authorize proceeding with the
sale when it appears that the foregoing conditions have ended
and the real estate market is once again active; and the other
party will have an opportunity to respond.
It is hereby ORDERED, ADJUDGED, and DECREED for the
reasons stated herein that:
1.
MLB’s Motion for summary judgment, ECF No. 128,
is hereby GRANTED.
2.
The Mohrs are in default under the terms of the
Note and Mortgage, which are currently held by MLB.
3.
The Mortgage currently held by MLB shall be and
is hereby foreclosed as prayed, and the property described in
Exhibit 2 to MLB’s Concise Statement of Facts shall be sold at
public auction or by private sale, without an upset price.
Such
sale of the subject property shall not be final until approved
and confirmed by the Court.
The Court hereby reserves the
question of the exact amount (including interest) of the
indebtedness secured by the Mortgage.
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4.
The Commissioner as appointed herein by the Court
shall sell the property within four (4) months after the
Commissioner is notified of a separate and forthcoming order
issued by this Court in which the Court recognizes that the
COVID-19 threat has passed and that the foreclosure sale may
commence.
The Commissioner shall hold all proceeds of the sale
of the property in an interest-bearing account to the credit of
this cause subject to the directions of this Court. Upon payment
according to such directions, the Commissioner shall file an
accurate accounting of the Commissioner’s receipts and expenses.
5.
Carol Monahan Jung, Esq. of Jung & Vassar PC is
hereby appointed by this Court as Commissioner, and as
Commissioner she shall henceforth sell the property at
foreclosure sale to the highest bidder at the Commissioner’s
sale by public auction or by private sale, without an upset
price, after first giving notice of such sale by publication in
at least one newspaper regularly issued and of general
circulation in the District of Hawai`i.
Said notice shall be
published once a week for at least three (3) consecutive weeks,
with the auction to take place no sooner than fourteen (14) days
after the appearance of the third advertisement.
Said notice
shall give the date, time, and place of the sale and an
intelligible description of the property, including any
improvements, and shall follow the format described in HRS §
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667-20.
The Commissioner shall have further authority to
continue the sale from time to time at the Commissioner’s
discretion.
Any change in the time, place, or terms specified
in the original notice of sale requires that MLB ensure that the
Commissioner publishes a new notice of postponed sale with the
new terms, and such notice shall follow the format described in
HRS § 667-20.1.
The public sale shall take place no sooner than
fourteen (14) days after the date of the notice of postponed
sale, and not less than fourteen (14) days before the
rescheduled date a copy of the new notice of postponed sale
shall be posted on the mortgaged property and delivered to the
Mohrs, MLB, and any other person entitled to receive such
notifications.
6.
No bond shall be required of the Commissioner.
7.
In the event that the Commissioner refuses, or
becomes unable, to carry out her duties set forth herein, the
Court shall appoint another without further notice of hearing.
8.
The Commissioner shall sell the subject property
by foreclosure sale in its “AS IS” condition, without any
representations or warranties whatsoever as to title,
possession, or condition.
9.
The Commissioner and all persons occupying the
subject property shall allow reasonable access to view the
subject property, a minimum of two separate days prior to the
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sale of the subject property, by means of an open house or other
reasonable means.
10.
The fee of the Commissioner shall be such as the
Court deems just and reasonable, together with actual and
necessary expenses incurred with the sale of the subject
property.
11.
The sale so made and confirmed shall perpetually
bar the Mohrs and all persons and parties claiming by, through
or under the Mohrs, except governmental authorities enforcing
liens for unpaid real property taxes, from any and all right,
title and interest in the subject property or any part thereof.
12.
MLB is hereby authorized to purchase the subject
property at the foreclosure sale.
The successful bidder at the
foreclosure sale shall be required at the time of such sale to
make a down payment to the Commissioner in an amount not less
than ten percent (10%) of the highest successful price bid, such
payment to be in cash, certified check or cashier’s check,
provided that should MLB be the high bidder, it may satisfy the
down payment by way of offset up to the amount of its secured
debts.
The balance of the purchase price must be paid in full
at the closing of the sale, which shall take place 35 days after
entry of the order confirming the sale.
If the bidder fails to
fulfill this requirement, the deposit shall be forfeited and
applied to cover the cost of sale, including the Commissioner’s
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fee, with distribution of any amount remaining to be determined
by the Court.
Such payment is to be in cash, certified check,
or cashier’s check, provided that, should MLB be the high bidder
at the confirmation of sale, it may satisfy the balance of the
purchase price by way of offset up to the amount of its secured
debts, as discussed above, as appropriate.
Costs of
conveyancing, including preparation of the conveyance document,
conveyance tax, securing possession of such mortgage property,
escrow services, and recording of such conveyance, shall be at
the expense of such purchaser.
13.
Pending the sale of the mortgaged property, the
Mohrs shall take all reasonable steps necessary to preserve the
real property (including all buildings, improvements, fixtures,
and appurtenances on the property) in its current condition.
The Mohrs shall not commit waste against the property, nor shall
they cause or permit anyone else to do so.
The Mohrs shall not
do anything that tends to reduce the value or marketability of
the property, nor shall they cause or permit anyone else to do
so.
The Mohrs shall not record any instruments, publish any
notice, or take any other action (such as running newspaper
advertisements or posting signs) that may directly or indirectly
tend to adversely affect the value of the property or that may
tend to deter or discourage potential bidders from participating
- 41 -
in the public auction or private sale, nor shall they cause or
permit anyone else to do so.
14.
All persons occupying the mortgaged property
shall leave and vacate the property permanently within sixty
(60) days of the date of the Court’s order finding that the
COVID-19 threat has passed and the foreclosure may commence,
each person taking with them their personal property (but
leaving all improvements, buildings, and appurtenances to the
property).
If any person fails or refuses to leave and vacate
the property by the time specified in this Decree, the
Commissioner is authorized and directed to take all actions that
are reasonably necessary to bring about the ejectment of those
persons, including obtaining a judgment for possession and a
writ of possession.
If any person fails or refuses to remove
his or her personal property from the premises by the time
specified herein, any personal property remaining on the
property thereafter is deemed forfeited and abandoned, and the
Commissioner is authorized to remove it and dispose of it in any
manner the Commissioner sees fit, including sale, in which case
the proceeds of the sale are to be applied first to the expenses
of sale and the balance to be paid into the Court for further
distribution.
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15.
The sale can be supplemented with the practices
and procedures in the State of Hawai`i and Section 667 of the
Hawai`i Revised Statutes.
16.
The Court reserves jurisdiction to determine the
party or parties to whom any surplus shall be awarded herein.
CONCLUSION
For the foregoing reasons, the Court GRANTS MLB’s
Motion for Summary Judgment, ECF No. 128, and DENIES the Mohrs’
counter-motion for summary judgment, ECF No. 136.
Accordingly,
MLB is entitled to, and the Court hereby issues, a decree of
foreclosure on the subject property as outlined above.26/
IT IS SO ORDERED.
DATED: Honolulu, Hawai`i, April 13, 2020.
________________________________
Alan C. Kay
Sr. United States District Judge
Mohr v. MLB SUB I, LLC, et al., Civ. No. 16-00493-ACK-WRP, Order Granting
Defendant MLB SUB I’s Motion for Summary Judgment and Issuing Decree of
Foreclosure.
26/
On April 8, 2020, the Mohrs filed a motion to continue the trial
date and pretrial deadlines, ECF No. 147, which MLB does not oppose, ECF No.
148. In view of this Order and Decree, that motion is denied as moot.
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