Failure To Make 'Public Announcement' Of Auction Cancellation Voids Subsequent F'closure Sale 10 Weeks Later; Legal Secretary Screw-Up Sinks Bankster

The following facts are taken from a recent Hawaii foreclosure case decided by the U.S. Court of Appeals for the 9th Circuit:

• A foreclosure sale of a home in Hawaii was scheduled and then postponed on four separate occasions.



• For each of the first three postponements, the sale's postponement was made in accordance with Hawaii state law.



• On a fourth occasion, the following narrative taken from the ruling describes what happened:
  
  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.
  



• 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.



• The homeowner subsequently sued the foreclosing parties for all kinds of things, one of which being the fact that the fourth sale was cancelled without any "public announcement" being made at the time the sale was cancelled.



• On this issue, the homeowner sought to void the foreclosure sale.



• Federal bankruptcy court Judge Robert J. Faris agreed with the homeowner, but on initial appeal, the Bankruptcy Appelllate Panel reversed Judge Faris' ruling.

On second appeal, to the 9th Circuit Court Court of Appeals, the court respectfully considered the ruling of the Bankruptcy Appelllate Panel and promptly reversed it, agreeing with the initial determination of Judge Faris, essentially saying that the legal secretary in fact screwed up by failing to make a "public announcement" of the cancellation at the sale, and accordingly, ruled that the foreclosure sale was to be voided.(1)

For the ruling, the thorough analysis of what constitutes a "pubic announcement" under Hawaii state law, as well as the other issues litigated in this case, see In re Kekauoha-Alisa (Kekauoha-Alisa v. Ameriquest Mortgage Company), No. 09-60019 (9th Cir. March 26, 2012).

Thanks to Deontos for the heads-up on the ruling.

(1) In the following excerpt, the appellate court emphasized the importance of strict compliance with (seemingly hypertechnical) procedures governing non-judicial foreclosure sales, such as the procedures in Hawaii:

• That Hawaii law requires strict compliance with statutory foreclosure procedures is confirmed by the Hawaii Supreme Court's recent decision in Lee, a decision that was not available at the time the BAP issued its decision.
  
  The Lee court, answering a question certified to it by a federal district court, held that a foreclosure sale conducted after the mortgagors had cured their default was not valid.
  
  The court cited Silva for the proposition that the "foreclosure sale did not comply with the requirements of HRS section 667-5 and was, thus, invalid." Lee, 218 P.3d at 779. As in Silva, there was no discussion in Lee of the degree to which the violation of HRS § 667-5 prejudiced the mortgagor that would suggest that prejudicial impact is relevant under Hawaii's law.
  
  While Lee involved the violation of a different requirement of HRS § 667-5 than is at issue here, the court's reasoning encompasses the facts of this case.
  
  Finally, we note that a strict compliance requirement is not so out of step with the law of other jurisdictions that we have reason to second-guess our interpretation of Hawaii law.
  
  The BAP is accurate in noting that the majority of states draw a distinction between procedural defects that are insignificant and those that are prejudicial enough to render a foreclosure sale void or voidable. See, e.g., Gilroy v. Ryberg, 667 N.W.2d 544, 553-54 (Neb. 2003) (describing the majority approach and collecting cases).
  
  However, this trend is far from unanimous. Several states have long required strict compliance with nonjudicial foreclosure statutes. See Univ. Sav. Ass'n v. Springwoods Shopping Ctr., 644 S.W.2d 705, 706 (Tex. 1982) (mortgagee's failure to perform "ministerial act" of recording appointment of successor trustee grounds for voiding sale); Bottomly v. Kabachnick, 434 N.E.2d 667, 669-70 (Mass. App. Ct. 1982) (failure in notice of sale to identify the holder of mortgage voids sale).
  
  Other states have begun to strictly construe the terms of recently enacted statutes designed to protect mortgagors. See Aurora Loan Servs., LLC v. Weisblum, 923 N.Y.S.2d 609, 614 (N.Y. App. Div. 2011) (strict compliance with statutorily mandated notice requirements is condition precedent to foreclosure, without consideration of prejudice to mortgagor); EMC Mortg. Corp. v. Chaudhri, 946 A.2d 578, 586 (N.J. Super. Ct. App. Div. 2008) ("[A] lender's substantial compliance with the contents of a notice of intent, sent by a lender prior to initiation of foreclosure,. . . was not authorized by the statute's terms." (internal quotation marks omitted)).
  
  Hawaii's approach, therefore, might place it in the minority, but does not place it out of the mainstream.