A class-action lawsuit filed in federal court last month alleges that 72 Oahu homeowner associations and two law firms acting as their agents unlawfully foreclosed on 160 homes beginning in September 2010.
The complaint contends the associations and the law firms unlawfully used a swift, nonjudicial foreclosure process intended for use by mortgage lenders, not by homeowners associations, and only when specific language is contained in a mortgage.
Nonjudicial foreclosure is available only when a mortgage contains a “power of sale,” a clause that pre-authorizes the lender to sell the property at public auction, without going to court for authorization, if the borrower defaults.
A public sale is quick and would only require a legal notice published in a newspaper.
The 160 who lost their homes in the nonjudicial foreclosures may be able to recoup the full value, said Honolulu attorney Steven Chung, who represents plaintiffs Benita Brown, Craig and Kristine Connelly, and others.
Disabled Marine veteran Charles Hicks, 66, and his wife, Deneen, 51, first-time homeowners, lost their condo to their homeowners association two years ago, and are among the 60 homeowners that have been contacted by Chung about the lawsuit.
“We knew it was done illegally, and finally someone listened and understood and really cared and tried to do something for us. It was really like a godsend,” said Deneen Hicks. “Me and my husband cried because this thing has been a nightmare.”
Shortly after moving into their Makaha Valley Plantation condo in November 2008, a storm hit and the unit was inundated with water from external leaks. Later their ceiling collapsed after upstairs tenants left the water running before vacating the unit, the couple said.
They had been dealing with mounting repair and mold remediation bills when they fell behind by $2,500 on maintenance fees and said they asked the association whether they could work out a payment plan. Instead, they said, they received a letter from the association attorneys, and attorneys’ fees and costs were added to the $2,500 they owed.
“They would not work with us,” Deneen Hicks said. “They only sicced their attorneys on us to get our condo, and this is not fair.”
Plaintiffs’ attorney Chung, of the Imanaka Asato law firm, teamed up with two San Diego firms to represent plaintiffs and filed the class-action complaint Aug. 10 against the following Hawaii law firms and associations: Porter McGuire Kiakona & Chow; Ekimoto & Morris; the Association of Apartment Owners of Terrazza/Cortbella/Las Brisas/Tiburon; and the Association of Apartment Owners of Ko Olina Kai Golf Estates and Villas.
Plaintiffs also say the associations were not getting the signatures of homeowners on conveyance documents in the nonjudicial foreclosures, as required under Hawaii law.
This resulted in what plaintiffs allege is the wrongful and unlawful sale of the condos, or in some cases the rental of the homes by the homeowners associations, sometimes for years.
Attorney John Morris of Ekimoto & Morris says the law has a “fatal flaw” in that there is no requirement to follow it. “We’ve had the power (to use the nonjudicial power of sale) for years because we were almost always behind the lender.”
However, none of the cases covered by this lawsuit involves foreclosure by lender.
Morris also says the requirement to get the homeowner’s signature is a flaw in the law. “You could spend thousands of dollars, and if a person … refused to sign, the whole thing was a waste of time,” he said.
Chung said, “Rather than a flaw, however, that is one of the safeguards the Legislature specifically enacted.” Chung added that attorneys for the associations used nonjudicial foreclosures to circumvent safeguards enacted by the Legislature.
Damages may exceed $80 million for the 160 homes identified, but most of the former homeowners have not yet been contacted.
Charles Hicks said the homeowners association should have investigated the leaks and taken care of the problem, as well as other problems, but instead foreclosed on the condo in 2014.
The couple moved to Georgia in 2014 and have been without a permanent home since.
“For this to happen, it was devastating,” Charles Hicks said. The lawsuit has “given me quite a bit of hope,” he said, adding, “To think that you go through that and there’s no hope. … My home is there and somebody’s collecting rent.
“I knew it was wrong, and to know that and you can’t do anything about it, it actually nearly drove me insane,” he said. “I worked all my life for that, never broken the law and to get treated like this.”
Porter McGuire and Ekimoto & Morris are two of a handful of Honolulu firms specializing in condominium law.
Kapono Kiakona, a partner with the Porter firm, contends there was never a requirement to obtain signatures in nonjudicial foreclosures.
After the Legislature amended the law (HRS Sec. 514A) in 1999, “it gave the right to the associations to use the nonjudicial foreclosure in a manner like a lender,” he said. “The associations went forward because people weren’t paying. Unlike lenders, the association can’t choose who moves into an association.
“The association has to protect itself,” Kiakona said.
Correction: An earlier version of this story misidentified the law firm of Ekimoto & Morris as Ekimoto & Harris in a subsequent reference.