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In Re: Margery Kanamu v. Ameriquest Mortgage

March 26, 2012


Appeal from the Ninth Circuit Bankruptcy Appellate Panel Pappas, Dunn, and Jury, Bankruptcy Judges, Presiding BAP No. HI-08-1166-JuPaD

The opinion of the court was delivered by: Trott, Senior Circuit Judge:



Argued and Submitted February 15, 2012-Honolulu, Hawaii

Before: Alfred T. Goodwin, Stephen S. Trott, and Mary H. Murguia, Circuit Judges.

Opinion by Judge Trott


This case requires us to determine whether a mortgage company violated Hawaii state law when it did not publicly announce the postponement of a foreclosure sale of property owned by Appellant Margery Kanamu-Kalehuanani Kekauoha-Alisa, and if so, to ascertain the proper remedy for that violation. A federal bankruptcy court held that Appellees' failure publicly to announce the foreclosure violated the requirements of Hawaii's non-judicial foreclosure procedure under Hawaii Revised Statute (HRS) § 667-5, as well as its consumer protection law, HRS § 480-2. The court voided the sale of the Appellant's property and awarded her treble damages of $417,761.66 under HRS § 480-13 for violation of the consumer protection statute. The Bankruptcy Appellate Panel reversed, ruling that the mortgagee's actions did not violate state law.

We hold that (1) the lack of public announcement did violate Hawaii's non-judicial foreclosure statute, and (2) this defect was a deceptive practice under state law. Accordingly, we affirm the bankruptcy court's avoidance of the foreclosure sale. However, we remand to the bankruptcy court for a proper calculation of attorneys' fees and damages under HRS § 480-13.


In 2002, Margery Kanamu-Kalehuanani Kekauoha-Alisa (Debtor) refinanced a mortgage on her property on Hawaii Island and executed a promissory note to Ameriquest Mortgage Company in the amount of $127,500. Debtor defaulted on her loan eight times, causing Ameriquest to initiate fore-closure proceedings in early 2005. On April 6, 2005 Ameri-quest assigned its interest in the mortgage to WM Specialty Mortgage LLC, which later became JPMC Mortgage, the named party in this action. The assignment notwithstanding, Ameriquest continued to service Debtor's mortgage (hereafter, Ameriquest and JPMC Mortgage are referred to collectively as "Lenders"). A foreclosure sale was scheduled for May 13, 2005.

On May 10, 2005, three days before the scheduled foreclo-sure sale, Debtor filed for Chapter 13 bankruptcy, triggering an automatic stay of the sale. To comply with the stay, a law firm employed by Lenders postponed the scheduled foreclo-sure sale. HRS § 667-5*fn1 authorizes a foreclosure sale to be "postponed from time to time by public announcement made by the mortgagee or by a person acting on the mortgagee's behalf." The law firm properly announced the postponement of the sale three times from May 13, 2005 until September 23, 2005.

On September 23, 2005, the law firm attempted to postpone the sale yet again, a fourth and final time. The auction was scheduled to occur at noon at a flagpole located in front of Hale Halewai, a local community center. The firm delegated the task to a legal secretary who had never before postponed a foreclosure sale. The secretary arrived ten or fifteen minutes before noon. Rather than shouting out the postponement to all those present, the secretary asked several of the people present if they were interested in Debtor's property. Everyone she spoke to said they were not. She did not attempt to speak to those individuals who appeared to be there for another auction that was occurring at the same time, and she did not speak to everyone in the area. She did not tell those she spoke with that the auction was postponed to December 2, 2005. The secretary stayed at the flagpole until approximately 12:25 PM, after the other auction had finished and the area was deserted. She left without ever announcing or posting the information that the sale of Debtor's property had been postponed.

On November 1, 2005, Lenders moved for relief from the stay to allow them to proceed on the foreclosure sale. On November 21, after Debtor failed to respond, the bankruptcy court granted Lenders' motion. The foreclosure sale took place on December 2. The successful - and only bid - was a credit bid made by the auctioneer on behalf of Lenders. A quitclaim deed to the property was recorded on December 27, 2005. Lenders initiated an ejectment action in state court in January, 2006. Lenders obtained a judgment in their favor on April 11, 2006, which Debtor appealed. That appeal is still pending in state court - apparently waiting for our decision.

On April 26, 2006, Debtor filed a complaint in the bankruptcy court, alleging, inter alia, that the sale had violated the automatic stay, breached the terms of the mortgage contract, constituted an unfair and deceptive trade practice under HRS § 480-2, violated various requirements of non-judicial foreclo-sure procedure under HRS § 667-5, and constituted a fraudulent transfer under HRS § 651C-7. The bankruptcy court dismissed on summary judgment Debtor's claims alleging a violation of the stay and fraudulent transfer.

After a five-day bench trial on the remaining claims, the bankruptcy court issued amended findings of fact and conclusions of law. The court concluded that Lenders' failure to publicly pronounce the postponement of the foreclosure sale on September 23, 2005, violated the "public announcement" requirement of HRS § 667-5 as well as the terms of the mortgage contract. Contrary to Debtor's assertion on appeal, the court found only a single violation of HRS § 667-5. As a remedy, the court voided the foreclosure sale. The court held that the improper postponement was also a breach of the mortgage contract, because the contract required that Lenders comply with state law in any foreclosure proceeding.

In addition, the court ruled that the improper postponement was an unfair and deceptive trade practice under HRS § 480-2. It awarded Debtor treble damages, under HRS § 480-13, for damages sustained as a result of the violation of § 480-2, calculating the damages sustained as (1) Debtor's lost equity in her house, (2) the rental value of the house for the time during which she lost possession of it, and (3) the attorneys' fees Debtor expended defending against the state court ejectment action. The total money judgment was $417,761.66.

Finally, the court awarded Debtor additional attorneys' fees under two Hawaii statutes: HRS § 607-14, allowing fees for the prevailing party in contract claims, and HRS § 480-13(b)(1), allowing fees for the party establishing a violation of HRS § 480-2. The court allocated attorneys' fees equally between the contract claim and the HRS § 480-2 claim. Because HRS § 607-14 limits attorneys fees to twenty-five percent of the judgment on a contract claim, the court allowed recovery of only $38,945.01 for that portion of the ...

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