Insights

Showing up at the county courthouse to publicly announce that a foreclosure sale is postponed is not a glamorous job. Many states require a foreclosing lender to publicly “announce” that they are postponing the sale. In many cases, the task likely falls to a law firm’s junior associate or legal secretary. After all, what can go wrong?

Here’s what happened when a Hawaii law firm sent one legal secretary to publicly announce that a foreclosure sale was postponed.

Margery Kanamu-Kalehuanani Kekauoha-Alisa refinanced a mortgage on her Hawaii Island property with a $127,500 loan from Ameriquest Mortgage Company. After Margery defaulted on her loan eight times, Ameriquest started foreclosure proceedings. Ameriquest assigned its interest in the mortgage to WM Specialty Mortgage, which later became JPMC Mortgage. However, Ameriquest continued to service the mortgage.

Three days before the scheduled foreclosure sale, Margery filed for Chapter 13 bankruptcy, triggering an automatic stay of the sale. To comply with the stay, the lender’s law firm postponed the sale. Hawaii law 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.” Haw. Rev. Stat. § 667-5. The foreclosure sale was postponed four times, and the law firm properly announced the postponement of the sale the first three times.

On the fourth and final time, the sale was scheduled to occur at a public auction at noon by a flagpole located in front of a local community center. The law firm sent a legal secretary who had never before postponed a foreclosure sale. The secretary arrived 10 or 15 minutes before the sale was scheduled to start. However, instead of shouting out the postponement to all those present, the secretary asked several people present if they were interested in buying Margery’s property. Everyone she spoke to said they were not. The secretary did not try to speak to people who appeared to be standing near the flagpole for another auction that was occurring at the same time, and she did not speak to everyone in the area. She also did not tell anyone that the auction was postponed. The secretary stayed at the flagpole until approximately 12:25 p.m., after the other auction had finished and the area was deserted. She left without ever announcing or posting the information that the sale had been postponed until December 2, 2005.

The bankruptcy court granted the lender’s relief from the bankruptcy stay, and the lender was the only bidder at the December 2, 2005 sale. The lender then filed an ejectment action in state court to obtain possession of the property. In response, Marjorie filed a complaint in bankruptcy court alleging that because the secretary failed to publicly announce that the foreclosure sale had been postponed, the sale violated Haw. Rev. Stat. 667-5. She also claimed that the lender’s acts breached the mortgage contract and constituted an unfair or deceptive practice under Hawaii law.

The bankruptcy court agreed that the lender failed to satisfy the “public announcement” requirement of the Hawaii statute, and that this failure was a breach of contract and an unfair or deceptive trade practice. The bankruptcy court voided the foreclosure sale and awarded Margery treble damages and attorney’s fees under Hawaii’s unfair or deceptive practice laws. As a result, the bankruptcy court awarded Margery $417,761, plus additional attorneys fees of $38,945.

The lender appealed to the bankruptcy appellate panel, which reversed the bankruptcy court’s decision. The panel found that although the secretary failed to publicly announce that the sale was postponed, her efforts to communicate with people at the site of the sale met the spirit and purpose of the statutory requirement.

Margery then appealed that decision to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit reversed the bankruptcy appellate panel’s decision and affirmed the trial court’s finding that the lender had violated the Hawaii statute because the secretary failed to publicly announce that the foreclosure sale was postponed. The Ninth Circuit held that even though this was only a technical violation of Hawaii’s statutory foreclosure requirements, under Hawaii law even a technical violation results in a void foreclosure sale. The Ninth Circuit also agreed with the bankruptcy court that the lender had breached the mortgage contract and violated Hawaii’s unfair or deceptive practice statutes.

The Ninth Circuit vacated the award of treble damages and attorneys’ fees and remanded the issue to the bankruptcy court, instructing the court to determine what, if any, money damages were caused by the lender’s failure to publicly announce that the sale was postponed and to recalculate the award of attorneys’ fees.

This case is a good reminder that even the seemingly simple tasks in a foreclosure need to be conducted with care.

See In re Kekauoha-Alisa (Kekauoha-Alisa v. Ameriquest Mortgage Company), 2012 U.S. App. LEXIS 6147 (9th Cir. (9th Cir. BAP) March 26, 2012)

Kate Fisher is an associate in the Maryland office of Hudson Cook, LLP. Kate can be reached at 410-782-2356 or by email at kfisher@hudco.com.