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Electronically Filed Supreme Court SCAP-XX-XXXXXXX 20-JUN-2024 10:39 AM Dkt. 42 OP
IN THE SUPREME COURT OF THE STATE OF HAWAI‘I
---o0o---
RONNIE R. LLANES; SHARON L. LLANES; LAUREN C. CODIE, in her capacity as Personal Representative of the Estate of Michael Codie (Deceased); and LAUREN C. CODIE, Plaintiffs-Appellants,
vs.
BANK OF AMERICA, N.A.; CHRIS EDWARD K. KAM; KRISTEN M. KAM; JP MORGAN CHASE BANK, N.A.; AKIKO MIYAZAKI, INDIVIDUALLY AND AS TRUSTEE OF THE AKIKO MIYAZAKI REVOCABLE LIVING TRUST DATED SEPTEMBER 7, 2017; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; and HIGHTECHLENDING, INC., Defendants-Appellees.
SCAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE THIRD CIRCUIT (CAAP-XX-XXXXXXX; CASE NO. 3CC19100106K)
JUNE 20, 2024
RECKTENWALD, C.J., McKENNA AND EDDINS, JJ., AND CIRCUIT JUDGE WONG, ASSIGNED BY REASON OF VACANCY, AND CIRCUIT JUDGE SOMERVILLE, IN PLACE OF CIRCUIT JUDGE CHANG, RECUSED
OPINION OF THE COURT BY RECKTENWALD, C.J.
Ronnie and Sharon Llanes and Michael and Lauren Codie
(Borrowers) purchased homes with mortgages from Bank of America, *** FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER ***
N.A. (Lender). After the mortgages entered default, the
mortgaged properties were foreclosed upon and sold in
nonjudicial foreclosure sales. Borrowers then sued Lender for
wrongful foreclosure, alleging that Lender’s foreclosures did
not comply with Hawai‘i Revised Statutes (HRS) § 667-5
(2008) (since repealed). The circuit court granted summary
judgment to Lender. For the reasons set forth below, we hold
that outstanding debt may not be counted as damages in wrongful
foreclosure cases. Because the circuit court correctly
concluded that Borrowers did not prove the damages element of
their wrongful foreclosure claims, it properly granted summary
judgment to Lender. Accordingly, we affirm.
I. BACKGROUND
A. Factual Background
According to Borrowers, “the parties do not
substantially dispute the amounts expended by [Borrowers] on
their properties.” In April 2019, Borrowers sued Lender for
wrongfully foreclosing upon their properties. Borrowers also
sued the subsequent purchasers of the properties and others for
title and possession, but those claims are not before the Court
on appeal.
1. The Llanes property
In February 2008, Ronnie and Sharon Llanes (Llanes)
obtained a mortgage loan for $505,800.00 from Countrywide Bank,
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FSB (Countrywide), which would merge with Lender in 2009, that
included a provision allowing Countrywide to conduct a
nonjudicial foreclosure sale in case of default.
That same month, Llanes paid $562,067.00 to purchase a
property in Kailua-Kona, Hawai‘i. They financed the purchase
with (1) the $505,800.00 Countrywide loan, secured by the Llanes
property, and (2) at least $56,200.00 in personal funds. They
also paid $11,799.04 in closing costs. After closing, they
spent at least $17,000.00 to improve their property, paid
$26,169.51 in mortgage interest, and paid $3,500.00 for property
taxes and insurance. Llanes claimed that they invested a total
of $620,535.55 in the property.
In December 2008, Llanes defaulted on their loan.
Before defaulting, Llanes paid down the principal of the
original loan by $4,623.48. The following year, Llanes modified
their loan with a new payment schedule that increased their
principal balance owed from $501,176.52 to $525,254.63, before
defaulting on the modified loan.
In May 2010, Lender’s nominee assigned the Llanes
mortgage to BAC Home Loans Servicing, LP (BAC), a subsidiary
that would merge with Lender in 2011. That same month, BAC
notified Llanes of its intent to foreclose under the power of
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sale included in their mortgage, which stated that an
acceleration notice following a breach of the agreement
shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this [agreement] and sale of the [p]roperty.
BAC then nonjudicially foreclosed under HRS
§ 667-5, repealed by H.B. 1875, 26th Leg., Reg. Sess.
(2012).
BAC published notice of the Llanes property auction on
August 16, 2010, but, according to its October 2010 foreclosure
affidavit and related documents, postponed the auction to
September 7, 2010, and then again to September 27, 2010, where
it placed the highest bid of $439,690.66. In October 2010,
BAC’s nominee, Federal National Mortgage Association (Fannie
Mae), took title to the property and sold the same to a third
party the following year.
At the time of the September 2010 foreclosure auction,
Llanes owed a total of $549,613.33. Llanes had paid $5,513.74
in principal and $26,169.51 in interest.
2. The Codie property
In 2005, Michael Codie and Lauren Codie (Codie)
purchased an unimproved lot in Waikoloa, Hawai‘i, for
$225,000.00, including a $191,250.00 mortgage loan and a
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$33,750.00 down payment. In 2006, they obtained a construction
loan for $464,000.00, used to satisfy the original mortgage and,
along with other funds, build a dwelling on the lot.
In June 2007, Codie refinanced the existing mortgage
with a $548,000.00 mortgage loan with Countrywide Home Loans,
Inc. That same month, they acquired a $68,500.00 home equity
line of credit (HELOC) from Lender. They paid at least
$14,000.00 in closing costs associated with the 2007 refinance
and used the refinanced mortgage to pay off the construction
loan and related debts.
In September 2008, Codie defaulted on the refinanced
mortgage. In March 2009, Countrywide Home Loans, Inc. assigned
the Codie mortgage to Countrywide Home Loans Servicing, L.P.
(CHLS), which nonjudicially foreclosed upon the property. That
same month, Countrywide notified Codie that it intended to
foreclose under the power of sale contained in their mortgage,
which was identical to the one in the Llanes mortgage. CHLS
published notice of the initial May 21, 2009, foreclosure
auction in a newspaper once in March 2009 and twice the
following month. CHLS then postponed the auction seven times
until December 15, 2009.
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According to CHLS’s foreclosure affidavit, at a
December 15, 2009 auction, CHLS — which by then changed its name
to BAC — bought the property for $615,062.91. In April 2010,
Fannie Mae took title to the Codie property and subsequently
sold the same to a third party the following year.
At the time of the December 2009 foreclosure auction,
Codie owed $673,497.97: $609,710.71 on the refinanced mortgage
and $63,787.26 on the HELOC. Lender claims it “discharged” the
HELOC in September 2012, but Codie disputes this claim, as set
forth below. Codie paid $42,878.94 on the loans in total.
Borrowers alleged, among other things, that BAC did
not publish the actual auction dates for the foreclosed
properties by newspaper at least fourteen days in advance
thereof, as required by HRS § 667-5(a)(1).
B. Circuit Court Proceedings
In April 2019, Borrowers sued Lender for wrongful
foreclosure. Count I alleged that Borrowers “were unlawfully
deprived of the title, possession, and use of their real
property” by Lender, who from 2008 to 2011, “offer[ed]
properties without warranties of any kind and without any
description, and h[eld] auctions on dates that were unpublished
in any newspaper” to “reduce[] interest and attendance at the
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auctions and increase[] the likelihood that [Lender] would be
able to acquire the [p]roperty and hold it for resale.” Count
II alleged that Lender engaged in unfair or deceptive acts or
practices (UDAP) under HRS § 480-2(a) (2002).
As relevant here, Borrowers sought restitution and
damages, including the foreclosed properties’ market values plus
interest, lost rent, acquisition and improvement costs, and
treble damages under HRS § 480-13 (1987).
In March 2021, after removal to and remand from
federal court, Lender moved for partial summary judgment,
contending that Borrowers did not prove damages. In July 2021,
the circuit court, the Honorable Wendy M. DeWeese presiding,
denied the motions because, “[b]ased on the factual disputes
raised and the lack of clarity in existing law, the [c]ourt
cannot find that there is no genuine issue of material fact and
that [Lender] is entitled to judgment as a matter of law.”
(Emphasis omitted.)
In September 2021, we issued our decision in Lima v.
Deutsche Bank Nat’l Tr. Co., answering a question certified by a
federal court as follows: “[u]nder Hawai‘i law, a borrower with
no pre-foreclosure rights in property except as encumbered by a
mortgage bears the burden of accounting for the effect of the
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mortgage in establishing the element of harm.” 149 Hawai‘i 457,
469, 494 P.3d 1190, 1202 (2021).
In December 2021, Lender renewed its summary judgment
motion, arguing that, under Lima, Borrowers’ “claims fail as a
matter of law” because Borrowers “put forth no evidence of
damages that account for their pre-foreclosure mortgage debts.”
Borrowers opposed the motion, arguing as relevant here that
(1) Lima did not affect this Court’s earlier decisions providing
out-of-pocket damages in certain wrongful foreclosure cases, and
(2) Borrowers’ “[t]otal [d]amages [e]xceed the [l]awfully
[f]orgiven [d]ebt.” Specifically, Borrowers claimed that
Llanes’ “gross damages” were $650,535.55, including, among other
things, the $505,200.00 obtained through the mortgage loan.
Borrowers also claimed that Codie’s “gross damages” were either
$654,878.94, if using what Codie claimed was spent on the
property, or $779,878.94, if using what Codie claimed was the
market value of the property.
In August 2022, after hearing the summary judgment
motion and permitting Borrowers to submit a supplemental
memorandum on the same, the circuit court granted summary
judgment to Lender, concluding that, under Lima, Borrowers had
not “come forward with evidence of compensatory damages in an
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amount that exceeds their respective debt” when debt amounts are
counted as “debt owed,” rather than damages.
The circuit court reasoned that “[t]he proceeds from
the Llanes [l]oan constitute debt owed by the Llanes
[p]laintiffs to [Lender], not damages to the Llanes
[p]laintiffs. Therefore, the loan proceeds cannot be included
as damages to the Llanes [p]laintiffs and cannot be used to
account for their debt on the Llanes [l]oan.” The circuit court
further reasoned that “[t]here is no basis for including the
value of the [Codie property] at the time of the Codie [l]oan as
damages to the Codie [p]laintiffs or for using that value to
offset their debt” because “[a]llowing such a valuation as
damages would put the Codie [p]laintiffs in a much better
position than they were pre-foreclosure where the property was a
distressed asset in a depressed housing market.”
The circuit court concluded that
[e]xcluding the financed portion of the purchase price for the [Llanes p]roperty — but even including the alleged lost rental income — the Llanes [p]laintiffs claim that they sustained total damages in the amount of $144,668.55. The Llanes [p]laintiffs’ remaining claimed damages of $144,668.55 does not exceed their debt on the Llanes [l]oan at the time of foreclosure, which was $549,613.33.
. . . . Excluding the purported value of the [Codie p]roperty at the time of the Codie [l]oan — but even including the alleged lost rental income — the Codie [p]laintiffs claim that they sustained total damages in the amount of $104,878.94. The Codie [p]laintiffs’ remaining claimed damages of $104,878.94 does not exceed their debt on the Codie [l]oan at the time of foreclosure, which was $609,710.71.
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(Footnote omitted.)
In September 2022, the circuit court entered final
judgment on all claims and parties, and Borrowers appealed.
We subsequently granted Borrowers’ application to
transfer the case to this Court.
C. The Parties’ Arguments on Appeal
On appeal and as relevant here, Borrowers argue that
the circuit court erred by concluding that they bore the burden
of proving their damages and did not meet that burden.
Specifically, Borrowers argue that the damages calculation
undertaken by the circuit court (1) “precludes any plaintiff
from recovering damages,” (2) “bears no relationship to any
reality of the exchange of property for debt,” (3) “provides no
disincentive or deterrent to wrongful foreclosure at all[,]” and
(4) “treats a person who invested and lost $200,000 of their own
savings the same as one who invested less than $10,000.”
First, Borrowers argue that the circuit court erred by
failing to “apply the out-of-pocket loss damages remedy that
Hawai‘i law provides for wrongful nonjudicial foreclosure.”
(Internal quotation marks omitted.) Specifically, the circuit
court “mistakenly subtract[ed] forgiven debt from the out-of-
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pocket losses rather than from the price paid, thereby
subtracting or accounting for the debt twice, and thus
eliminating the out-of-pocket losses entirely.” (Emphasis and
internal quotation marks omitted.) Subtracting the debt twice,
Borrowers argue, effects a “forfeiture” they claim our case law
precludes.
Second, Borrowers argue that the circuit court erred
by concluding that the Codie HELOC debt “had been discharged and
that discharge meant forgiveness” because (1) Lender “never
showed or explained what it meant by discharge,” (2) “no
discharge (or forgiveness or satisfaction) could have occurred
by way of the tortious foreclosure sale since liability for a
loan secured by a second mortgage loan is [not]
forgiven . . . by a foreclosure performed under the first
mortgage,” and (3) “the record showed that any claimed discharge
occurred more than a year after the tort was complete and
damages had already been sustained.” (Emphasis and internal
quotation marks omitted.)
Finally, Borrowers argue that the circuit court erred
“because the evidence presented by [Lender] on both the original
2021 (denied) summary judgment motion and on the Renewed Motion
did not meet the movant’s burden to establish a right to summary
judgment.”
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While Borrowers acknowledge that Lima requires them to
“account for” outstanding debt, they maintain that out-of-pocket
damages should be calculated by “subtracting [forgiven] debt
from the total of all sums invested, both savings and borrowed.”
For its part, Lender argues that the circuit court
correctly determined that Lima requires Borrowers to subtract
their debt from their damages. Specifically, Lender argues that
Borrowers impermissibly “include[] the unpaid portion of [their]
mortgage loans in their damages calculations.” Second, Lender
argues that the circuit court did not err in holding that
Borrowers must show damages to survive summary judgment because
the burden at summary judgment lies with the party bearing the
burden of proof at trial.
II. STANDARD OF REVIEW
Summary judgments are reviewed de novo and are only
appropriate where no genuine issue of material fact is
established by admissible evidence, when the evidence and
inferences drawn therefrom are viewed in the light most favoring
the party opposing summary judgment. City and Cnty. of Honolulu
v. Victoria Ward, Ltd., 153 Hawai‘i 462, 475-76, 541 P.3d 1225,
1238-39 (2023). We may affirm summary judgments on any grounds
in the record, including those upon which the circuit court did
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not rely. Reyes v. Kuboyama, 76 Hawai‘i 137, 140, 870 P.2d 1281,
1284 (1994).
III. DISCUSSION
Borrowers ask this Court to hold that defaulting
borrowers may receive compensatory damages for wrongful
foreclosures of encumbered properties by adopting a novel
approach that includes outstanding mortgage debt as part of
Borrowers’ damages under Lima. As set forth below, however, we
conclude that outstanding mortgage debt may not be counted as
damages. Without including debt as part of their damages,
Borrowers cannot prove their damages after accounting for their
debts under Lima. Accordingly, we affirm the circuit court’s
grant of summary judgment to Lender.
“[S]ummary judgment in favor of the movant is proper
when the non-movant plaintiff [f]ails to make a showing
sufficient to establish the existence of an element essential to
the plaintiff’s case, and on which the plaintiff will bear the
burden of proof at trial” because, “[i]n such a situation, there
can be no genuine issue as to any material fact, since a
complete failure of proof concerning an essential element of the
plaintiff’s case necessarily renders all other facts
immaterial.” Lima, 149 Hawai‘i at 464, 494 P.3d at 1197
(brackets omitted).
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“It is axiomatic that plaintiffs bear the burden of
establishing all necessary elements for their claims.” Lima,
149 Hawai‘i at 464, 494 P.3d at 1197. A borrower “may assert a
claim of wrongful foreclosure by establishing the following
elements: (1) a legal duty owed to the mortgagor by the
foreclosing party; (2) a breach of that duty; (3) a causal
connection between the breach of that duty and the injury
sustained; and (4) damages.” Bank of Am., N.A. v. Reyes-Toledo,
143 Hawaiʻi 249, 264 n.12, 428 P.3d 761, 776 n.12 (2018).
For their UDAP claims to survive summary judgment,
Borrowers must show “(1) either that the defendant violated the
UDAP statute (or that its actions are deemed to violate the UDAP
statute by another statute), (2) that the consumer was injured
as a result of the violation, and (3) the amount of damages
sustained as a result of the UDAP violation.” Lima, 149 Hawai‘i
at 464-65, 494 P.3d at 1197-98. “[I]t is well-settled that all
tort claims require that damages be proven with reasonable
certainty.” Id. at 467, 494 P.3d at 1200. Thus, Borrowers
“must adduce evidence that they have suffered damages.” Id. at
465, 494 P.3d at 1198.
“Hawai‘i law recognizes three categories of damages in
tort actions: (1) compensatory damages, (2) punitive damages,
and (3) nominal damages.” Id. at 465, 494 P.3d at 1198.
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Because (1) a wrongful foreclosure plaintiff “cannot rely on
nominal damages to withstand a motion for summary judgment,”
id., (2) “punitive damages generally must be supported by an
award of nominal or compensatory damages,” id., and (3) the
damages which may be trebled under HRS § 480-13 and for which
Borrowers prayed are compensatory, see Leibert v. Fin. Factors,
Ltd., 71 Haw. 285, 293, 788 P.2d 833, 838 (1990) (holding that
treble compensatory damages is maximum amount allowed under HRS
§ 480-13); Zanakis-Pico v. Cutter Dodge, Inc., 98 Hawai‘i 309,
319, 47 P.3d 1222, 1232 (2002) (noting same), Borrowers must
show compensatory damages, which are intended “to recompense a
tort victim for the value of the loss sustained,” Lima, 149
Hawai‘i at 467, 494 P.3d at 1200, to survive summary judgment.
Because our decisions in Santiago v. Tanaka, 137
Hawai‘i 137, 366 P.3d 612 (2016), and Lima are central to
Borrowers’ arguments, we recount them below. Other cases relied
upon by Borrowers do not change our analysis and are not
discussed.
Santiago was a case where a property seller made
fraudulent misrepresentations to a buyer and foreclosed upon the
subject property without having any right to do so. Louis and
Yong Hwan Santiago purchased a tavern from seller Ruth Tanaka,
who misrepresented the tavern’s sewer service costs during their
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negotiations. 137 Hawaiʻi at 154, 366 P.3d at 629. The
Santiagos purchased the tavern from Tanaka with an $800,000.00
down payment and a $500,000.00 mortgage loan, the terms of which
did not include a power of sale. Id. at 140, 156, 366 P.3d at
616, 631. Upon discovery of the sewer fees, the Santiagos
disputed the fees and initially withheld mortgage payments
before curing the default. See id. at 157, 366 P.3d at 632.
Some four months later Tanaka sold the tavern to herself in a
nonjudicial foreclosure auction, and then resold it to a third
party. Id. at 148, 157-58, 366 P.3d at 623, 632-33.
We held that Tanaka improperly foreclosed upon the
Santiagos’ tavern because (1) her misrepresentations and non-
disclosures induced the Santiagos to purchase the tavern,
(2) the mortgage altogether lacked a power of sale, and (3) the
Santiagos cured their default. Id. at 152, 156-57, 366 P.3d at
627, 631-32. Because the tavern could not be returned to the
Santiagos, having been resold, we concluded that they were
entitled to “out-of-pocket losses of $1,412,790.79 as a result
of [the seller’s] wrongful foreclosure of the [m]ortgage and
subsequent sale of the [t]avern.” Id. at 158-59, 366 P.3d at
633-34.
Five years later, we decided Lima, which directly
addressed the issues at the center of this appeal.
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Specifically, we addressed the following question, certified by
a federal court:
Is the effect of the mortgage considered only as a matter of setoff that a lender has the burden of proving after the borrower establishes the amount of the borrower's damages, or does a borrower with no preforeclosure rights in property except as encumbered by a mortgage bear the burden of accounting for the effect of the mortgage in establishing the element of harm in the liability case?
Lima, 149 Hawai‘i at 460, 494 P.3d at 1193.
Lima arose from three putative class actions,
initially filed in the Hawai‘i courts but later removed to
federal court and involving substantially similar facts:
[e]ach [p]laintiff [b]orrower mortgaged real property to one of the [d]efendant [b]anks. However, [p]laintiff [b]orrowers defaulted on their mortgages. The relevant [d]efendant [b]ank conducted nonjudicial foreclosure sales of the mortgaged properties pursuant to [HRS] § 667-5. However, [d]efendant [b]anks did not strictly comply with the procedural requirements of HRS § 667-5. For instance, [d]efendant [b]anks allegedly postponed some of the foreclosure auctions without publishing a notice. The properties were then either sold to third parties during the foreclosure sales or purchased by the mortgage-holding [d]efendant [b]ank and resold to third parties after the foreclosure sales.
Id. at 460-61, 494 P.3d at 1193-94 (footnote omitted).
After the Lima borrowers sued for wrongful
foreclosure, the defendant banks moved for summary judgment,
contend[ing] that [the borrowers] would not be able to show that they were harmed, or suffered any damages, because [the borrowers] did not show that (1) they could have made their loans current, (2) their properties could have sold at a higher price but for [d]efendant [b]anks’ alleged actions, or (3) their properties were worth more than their remaining mortgage debts.
Id. at 462, 494 P.3d at 1195.
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The Lima borrowers “respond[ed] that it was sufficient
for [them] to show that they lost title, possession, and any
investments in their properties to establish their damages to
survive a motion for summary judgment,” and that “they did not
need to factor in their remaining mortgage debts because the
debts were only relevant as a set off [d]efendant [b]anks must
prove.” Id. The federal court then certified the question to
this Court, which agreed to consider the question. Id.
As relevant here, we held that “[b]orrowers must
account for their mortgage debts when establishing harm.” Id.
at 467, 494 P.3d at 1200. We reasoned that the “[b]orrowers
bear the burden of establishing their damages,” and, “[i]n
establishing damages, [the b]orrowers must account for the value
of their mortgages.” Id. This, we wrote, was “confirm[ed]” by
Santiago because, while factually distinct — the Santiago
plaintiffs “had effectively paid off their mortgage debt” and
therefore “had no remaining mortgage debt to disregard” — “under
the out-of-pocket rule, the damages are the difference between
the actual value of the property received and the price paid for
the property, along with any special damages naturally and
proximately caused, including expenses incurred in mitigating
the damages.” Id. at 468-69, 494 P.3d at 1201-02 (brackets,
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ellipsis, and internal quotation marks omitted). And,
“[n]otably, when determining out-of-pocket losses, the party
seeking damages is precluded from any recovery if the value of
the property that he or she received in exchange equals or
exceeds the value of the property parted with by him or her,”
meaning that “Santiago demonstrates that [the borrowers’] price
paid must be set off by the actual value of the property
received when calculating damages.” Id. at 469, 494 P.3d at
1202 (internal quotation marks omitted).
We therefore concluded that
[b]orrowers must account for their remaining mortgage debts when they establish their damages. Although [the borrowers] did not receive any actual property, they nevertheless received significant value in the form of forgiven mortgage debts. This constitutes the “actual value of the property received” by [the borrowers]. Meanwhile, [the borrowers’] “price paid for the property” consists of whatever mortgage payments they had made before the nonjudicial foreclosures as well as any other special damages they can prove. Under these circumstances, Santiago establishes that [the borrowers’] investments and special damages must be offset by their mortgage debts.
Id. (footnote omitted).
Borrowers argue that Hawai‘i courts should not consider
why a given foreclosure was wrongful when calculating damages.
We disagree. Hawai‘i law distinguishes between unlawful
foreclosures that were “merely procedurally defective” and those
that were undertaken “without foreclosure authority” at all.
Wong v. Ass’n of Apartment Owners of Harbor Square, 154 Hawai‘i
58, 63, 67, 545 P.3d 547, 552, 556 (2024).
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Santiago and Lima support the distinction between
procedurally defective wrongful foreclosures and those that were
altogether unauthorized. We clarified this distinction in Lima.
There, we wrote that, “in contrast to [the Lima borrowers] who
owed significant sums they could not repay on their mortgages,
the Santiagos had effectively paid off their mortgage debt,”
meaning “the Santiagos had no remaining mortgage debt to
disregard.” Lima, 149 Hawai‘i at 468-469, 494 P.3d at 1201-1202.
Therefore, “Santiago does not support th[e] proposition” that
“any remaining mortgage debt be disregarded, and the investment
value in the property be returned to borrowers without setoff.”
Id. at 468, 494 P.3d at 1201.
We recently had occasion to further clarify this
distinction, noting that “not all plaintiffs are like the
Santiagos. For damages purposes, they do not automatically slot
into a pre-tort world where they never bought the property.”
Wong, 154 Hawai‘i at 65, 545 P.3d at 554. “First, no lender
could foreclose” upon the Santiagos’ property. Id. Second,
“[t]he Santiagos were current on their mortgage.” Id.
Here, Borrowers were in different pre-foreclosure
positions than were the Santiagos for two reasons. First,
Lender had the right to foreclose upon their properties under
powers of sale. Thus, their “pre-tort position still includes a
looming foreclosure.” Id. at 66, 545 P.3d at 555. Second, 20 *** FOR PUBLICATION IN WEST’S HAWAI‘I REPORTS AND PACIFIC REPORTER ***
Borrowers were not current on their mortgages. Thus, to the
extent that they were improper at all, the foreclosures at issue
here appear from the record to have been “merely procedurally
defective.” Indeed, the circuit court noted in its summary
judgment order that Borrowers “claim that [Lender] conducted the
foreclosures in a wrongful manner by not complying with the
technical requirements of the nonjudicial foreclosure statute
and power of sale,” instead of “claim[ing] that the foreclosures
were wrongful because they should not have happened at all.”
As we explained in Lima, Santiago does not support the
proposition that mortgage debt may be disregarded for the
purposes of proving damages. We wrote in Santiago that,
“[u]nder the out-of-pocket rule, the damages are the difference
between the actual value of the property received and the price
paid for the property, along with any special damages naturally
and proximately caused . . . , including expenses incurred in
mitigating the damages.” 137 Hawai‘i at 159, 366 P.3d at 634
(internal quotation marks omitted). The actual value received
here was, as in Lima, the “forgiven mortgage debts,” and this is
the amount by which “Borrowers’ price paid must be set off.”
149 Hawai‘i at 469, 494 P.3d at 1202 (internal quotation marks
omitted).
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As Borrowers indicated at oral argument, they arrived
at their damages figures by “taking everything that was invested
in this property, removing the debt, and what was left in there
was [Borrowers’] out-of-pocket loss.” Oral Argument at
00:07:04, http://oaoa.hawaii.gov/jud/oa/24/SCOA-021524-SCAP-22-
0000547.mp3 [https://perma.cc/59FE-9SQ4]. However, Borrowers
conceded in their briefing that under their damages
calculations, “[d]ebt is in both the top line and bottom line,
but in the top line it is the invested portion of the debt, and
in the bottom line it is the forgiven portion of the debt.”
(Emphases and internal quotation marks omitted.) The effect of
this approach is to factor out — rather than to factor
in – debt.
Lima requires factoring in debt, which is the opposite
of what Borrowers’ proposed damages calculations do. Because
“invested . . . debt” remains debt, it cannot count as damages.
As we wrote in Lima, “[u]nder Hawai‘i law, a borrower with no
pre-foreclosure rights in property except as encumbered by a
mortgage bears the burden of accounting for the effect of the
mortgage in establishing the element of harm.” 149 Hawai‘i at
469, 494 P.3d at 1202. This means that “[t]o prove compensatory
damages, the [borrower] must factor in the mortgage’s value.”
Wong, 154 Hawai‘i at 64, 545 P.3d at 553. Borrowers’ formula
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does not account for the mortgages that were encumbering their
properties at the time of the foreclosures. We therefore
decline to adopt Borrowers’ formula for the purposes of
calculating damages under Lima.
Borrowers argue that, to the extent that Lima
addressed wrongful foreclosure damages calculations, it did so
via dicta. Specifically, Borrowers assert that Lima “expressly
declined to address the broader question of how damages are
measured.” Thus, they argue, “comments in Lima that go beyond
the certified question, and address the minuend of the
subtraction, should be treated as dicta.”
We conclude that the circuit court properly relied
upon Lima and correctly applied its rationale. As the circuit
court concluded, “[t]he proceeds from the Llanes [l]oan
constitute debt owed by the Llanes [p]laintiffs to [Lender], not
damages to the Llanes [p]laintiffs. Therefore, the loan
proceeds cannot be included as damages to the Llanes
[p]laintiffs and cannot be used to account for their debt on the
Llanes [l]oan.” The circuit court also properly determined that
“[t]here is no basis for including the value of the [Codie
property] at the time of the Codie [l]oan as damages to the
Codie [p]laintiffs or for using that value to offset their debt”
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because “[a]llowing such a valuation as damages would put the
Codie [p]laintiffs in a much better position than they were pre-
foreclosure where the property was a distressed asset in a
depressed housing market.” Finally, the circuit court correctly
concluded that Borrowers were “not entitled to damages for lost
rental income post-foreclosure because such an award ignores
that [Borrowers] were in default on their respective loans and
[Lender] had the right to foreclose on the properties such that
[Borrowers] could not earn rental income.”
“[A]ccounting for the effect of the mortgage in
establishing the element of harm,” Lima, 149 Hawai‘i at 469, 494
P.3d at 1202, means, as noted above, “factor[ing] in the
mortgage’s value,” Wong, 154 Hawai‘i at 64, 545 P.3d at 553.
This reading comports with “the general rule in measuring
damages[, which] is to give a sum of money to the person wronged
which as nearly as possible, will restore him or her to the
position he or she would be in if the wrong had not been
committed.” Lima, 149 Hawai‘i at 467, 494 P.3d at 1200 (internal
quotation marks and brackets in original omitted). Because we
hold that debt may not be counted as damages in wrongful
foreclosure actions, the circuit court properly concluded that
Borrowers did not prove the damages element of their wrongful
foreclosure claims under Lima.
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Moreover, under Borrowers’ own theory, they did not
walk away empty-handed — their initial “invested debt” was
returned to them on the backend when it was forgiven. The
satisfaction of Borrowers’ mortgage debts, which they do not
contest here, represents a return of their “investment” on their
own theory. If the “invested debt” was theirs on the front end,
it was also theirs on the backend. Thus, contrary to Borrowers’
claims, they did not “forfeit[]” their investments. Indeed, the
claimed out-of-pocket losses, less the outstanding mortgage
debts, are exceeded by their “forgiven debt[s].”
We further conclude that Borrowers are not entitled to
loss of rent damages. Llanes and Codie prayed for $30,000.00
and $40,000.00, respectively, in lost rent, which the circuit
court denied them because
such an award ignores that [Borrowers] were in default on their respective loans and [Lender] had the right to foreclose on the properties such that [Borrowers] could not earn rental income. In other words, [Borrowers'] pre-tort position to which they must be restored was in default on their loans and facing imminent foreclosure. To award [Borrowers] lost rental income post-foreclosure assumes that the foreclosures should not have happened at all, which is incorrect — there is no dispute that [Borrowers] were in default on their respective loans and that [Lender] had the right to foreclose on the properties.
We agree with the circuit court’s analysis. There is
no dispute that Lender’s mortgages were valid or that the
Borrowers were subject to foreclosure. This is clearly
distinguishable from Santiago, where the Lender had no right to
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foreclose but did so anyway. See Wong, 154 Hawai‘i at 65, 545
P.3d at 554 (“But not all plaintiffs are like the Santiagos.
For damages purposes, they do not automatically slot into a pre-
tort world where they never bought the property.”). In a
situation like Santiago, it is appropriate to place borrowers
back in the position they were in prior to the purchase of the
property. But here, the wrong is different: rather than a
foreclosure conducted with no basis whatsoever, the foreclosure
here was “procedurally defective.” Id. In these circumstances,
compensatory damages serve to return Borrowers to the position
they were in immediately prior to the foreclosure. See Lima,
149 Hawai‘i at 466, 494 P.3d at 1199 (noting that plaintiffs
“must make a prima facie case that their requested damages will
restore them to their pre-tort position to survive summary
judgment”).
As we stressed in Lima, the borrowers’ mortgage debt
must be taken into account in determining their pre-foreclosure
position. Id. (“Plaintiff Borrowers consequently must still
factor in their pre-nonjudicial foreclosure statuses to
demonstrate their compensatory damages”). In doing so, courts
should consider the implications of that debt being delinquent,
and the mortgage therefore being subject to “imminent
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foreclosure.” See In re Tirso, No. 11-01873 (RJF), 2022 WL
567704, at *3 (Bankr. D. Haw. 2022), aff’d, 642 B.R. 833 (D.
Haw. 2022) (in circumstances similar to those here, federal
bankruptcy court concludes that award of damages for loss of use
of property “would put the [plaintiff borrowers] in a better
position than they occupied just before the foreclosure sale”).
We agree with the Bankruptcy Court’s reasoning, and accordingly,
we affirm the circuit court’s ruling on lost rent damages.
Borrowers’ other arguments against this reading of
Lima are unavailing. For example, Borrowers’ contention that
Santiago, Lima, and related cases “make clear that calculating
damages to avoid forfeiture of the plaintiff’s interest involves
calculating the difference between two values to arrive at out-
of-pocket loss” lacks merit. (Emphasis and internal quotation
marks omitted.) “[A] key factor” in determining a plaintiff’s
pre-tort interest in a wrongful foreclosure case is what debt
was encumbering the foreclosed-upon asset. Lima, 149 Hawai‘i at
467, 494 P.3d at 1200. Without factoring in mortgage debt in
calculating a defaulting plaintiff’s pre-tort interest in the
asset, that interest would be over-valued.
While “there is a remedy” under our law “for every
wrong,” as Borrowers emphasize, that principle does not support
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overlooking other relevant principles governing damages awards.
Kamau v. Cty. of Haw., 41 Haw. 527, 539 (1957). As we wrote in
Lima, the wrongful foreclosure remedy is compensatory damages
“proven with reasonable certainty.” 149 Hawai‘i at 467, 494 P.3d
at 1200.
As set forth above, such proof requires consideration
of the actual value of the property received by the borrower.
Borrowers’ suggestion that the circuit court’s approach
“provides no disincentive or deterrent to wrongful foreclosure
at all” does not change this analysis. This case calls for a
straightforward application of Lima’s holding that debt must
factor in to damages calculations. Lima forecloses the
possibility that debt may be counted as damages. However, this
does not mean that the law provides no remedy or deterrent.
Hawai‘i’s wrongful foreclosure law provides compensatory damages
for proven out-of-pocket losses, taking debt into account, and,
where a subject property has not been sold to a subsequent
purchaser, “the classic remedy for such a cause of action:
return of title and possession.” Santiago, 137 Hawai‘i at 154
n.33, 366 P.3d at 629 n.33.
Lastly, the argument that Codie did not bear the
burden of showing that Lender never forgave the Codie HELOC
lacks merit. As noted above, Codie bore the burden at summary
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judgment of proving the damages element of their wrongful
foreclosure claim, which included establishing that the
purportedly unforgiven Codie HELOC satisfied this element.
For the foregoing reasons, we hold that outstanding
debt may not be counted as damages in wrongful foreclosure
cases. Because the circuit court correctly determined that
Borrowers did not prove the damages element of their wrongful
foreclosure claims, it properly granted summary judgment to
Lender.
IV. CONCLUSION
The circuit court’s grant of summary judgment is
affirmed.
James J. Bickerton /s/ Mark E. Recktenwald Van-Alan H. Shima (Bridget G. Morgan-Bickerton /s/ Sabrina S. McKenna on the briefs) for Plaintiffs-Appellants /s/ Todd W. Eddins
Elizabeth Z. Timmermans /s/ Paul B.K. Wong Allison Mizuo Lee (Patricia J. McHenry /s/ Rowena A. Somerville on the briefs) for Defendant-Appellee BANK OF AMERICA