The Hawaii Supreme Court has ruled condominium associations did not and do not have the authority to use nonjudicial foreclosure procedures unless specific “power of sale” provisions are included “in association bylaws or in another enforceable agreement with unit owners.”
In reaching this position, the high court affirmed in part an earlier decision by the Intermediate Court of Appeals which had been challenged by lawyers representing condominium associations. It also overruled the ICA on other points, reinstating parts of the plaintiffs’ cases which had been dismissed.
Condominiums appeared to have gotten a reprieve from potential liability last year when the legislature passed a bill (SB551, which became Act 282 of 2019) intended to retroactively legalize prior, and now controversial, nonjudicial condo foreclosures.
But the Supreme Court’s latest rulings, issued last week, mean condominium associations and their attorneys again face significant exposure to damage claims by apartment owners who lost their properties in nonjudicial foreclosures which the court says were “wrongful.”
Neither of the decisions affect regular foreclosures that were conducted under the supervision of a court.
The court ruled Act 282 did not protect private foreclosures conducted under so-called “Part 1” of the state’s foreclosure law in effect up until 2012, which on its face applies to lenders enforcing power of sale provisions contained in mortgage loan contracts, long recognized by law. Part 1 was repealed in 2012 as a result of numerous complaints of abuse, but more than 600 nonjudicial foreclosures were done by condominium associations claiming to be acting under authority of Part 1 between 2009 and 2011. Dozens of lawsuits stemming from those foreclosures are currently pending in state and federal courts in Hawaii.
The Supreme Court declined to rule on a challenge to the constitutionality of Act 282 to limit the liability of condo associations. However, the court noted an April 10, 2020 ruling by Federal Judge Leslie Kobayashi, who found Act 282 an unconstitutional violation of the “contracts clause” of the U.S. Constitution, which provides that “[n]o state shall . . . pass any . . . Law impairing the Obligation of Contracts.”
The two cases before the Supreme Court were Malabe v. AOAO of Executive Centre, and Sakal v. AOAO of Hawaiian Monarch, et al.
Both cases were decided by 3-2 votes of a divided court, with Justices McKenna, Pollack, and Wilson in the majority in each decision, and Chief Justice Recktenwald and Justice Paula Nakayama, concurring in part and dissenting in part.
They were part of a series fifteen decisions issued this month that were decided by the same 3-2 majority. That majority coalition will be ended next week when Justice Richard Pollack reaches the mandatory retirement age of 70 that applies to all judges and justices.
Honolulu attorney Steven Chung who represented the Malabes, believes the Hawaii Supreme Court has now largely settled the issue of condominium association liability for wrongful foreclosures. The next question to be settled is how damages are to be calculated. In addition to possible return of the value of properties that were lost, some lawsuits brought on behalf of victims of wrongful foreclosures allege they also faced unfair or deceptive acts or practices, which increase the amount of potential liability.
Whatever the actual numbers, the financial stakes for condominium associations are obviously very, very high, and the controversy is far from over.
See:
Malabe vs. AOAO of Executive Centre, Hawaii Supreme Court, decided June 17, 2020.
Sakal vs. AOAO of Hawaiian Monarch, Hawaii Supreme Court, decided June 18, 2020.
“Ian Lind: Wrongful Foreclosure Claims Rock The Condo World”, Civil Beat, August 31, 2016.
“Ian Lind: Why Condo Associations Are Sweating After A Judge’s Ruling”, Civil Beat, April 12, 2017.
“Court deals major setback to condominium associations, attorneys”, iLind.net, September 26, 2018.
“Disagreement remains over nonjudicial foreclosures by condo associations”, iLind.net, August 10, 2019.
Discover more from i L i n d
Subscribe to get the latest posts sent to your email.
This, like any after-the-fact judgement, puts most of the reparations in undeserving hands and financially handicaps current owners of the HOA. In most foreclosures the majority of owners, who leave dealings to Boards, never knew of the decisions made by the then Boards and lawyers — with dollar signs often blurring vision.
These days, the HOA management industry “experts” are pointing fingers at Boards when large fiscal and mtnce issues arise. When researching nationally, misrepresentation and malfeasance goes deep in the “industry.” Boards are either complicit or uneducated, putting whole buildings in financial risk. It’s an area flying under the radar, but one that will eventually negatively affect the housing conditions of more citizens.