Legal Update 2020
Instructor: John Henderson
Wrongful Foreclosure May Warrant Damages, But Not Title to Unit
Sakal v. Assn. of Apt. Owners of Hawaiian Monarch, 143 Haw. 219, 426 P.3d 443 (2018)
Intermediate Court of Appeals of Hawai'i
Facts: Sakal held a leasehold interest in a condominium unit. The owner’s association for the condominium project filed a “Notice of Lien” against Sakal based on unpaid assessments, followed by a “Notice of Default and Intention to Foreclose” and a “Notice of Association's Non-Judicial Foreclosure Under Power of Sale.” The association then held a public auction and issued a quitclaim deed conveying the unit from the association to Kogen for $50,500. Kogen filed an ejectment action against Sakal in a District Court, which entered judgment for possession of the unit in favor of Kogen. Sakal then filed a lawsuit alleging wrongful foreclosure and sale of the unit. A Circuit Court upheld the sale to Kogen, ruling that the applicable Hawaii statutes provide the association with broad powers, including foreclosure and sale. Sakal appealed.
Issue: Whether the association conducted a wrongful nonjudicial foreclosure without a valid power of sale, whether by contract or statute.
Held: Judgment affirmed, in part. Pursuant to the applicable foreclosure statutes, an association’s nonjudicial foreclosure is a foreclosure under a power of sale. The statutes specifically allow an association to conduct a nonjudicial power of sale foreclosure only where a law or written document “contains, authorizes, permits, or provides for a power of sale, a power of sale foreclosure, a power of sale remedy, or a nonjudicial foreclosure.” The applicable statutes provide procedures for owner’s associations to conduct a nonjudicial power of sale foreclosure, as well as to proceed by judicial action, but do not themselves grant powers of sale to associations over all condominium units. Likewise, the association’s Bylaws refer to those statutory procedures, but do not unambiguously give the association a power of sale over all of the units. Therefore, the Circuit Court erred in concluding that Sakal failed to state any legally cognizable claim for relief based on the theory that the nonjudicial foreclosure sale was unauthorized and unlawful. However, Sakal failed to challenge the foreclosure prior to the recordation of the quitclaim deed to Kogen, as required by statute, and is thus barred from any claim of right, title or interest in the property. Sakal may, however, proceed on his wrongful foreclosure claim for damages.