Background
Bank of America sought to foreclose on a property mortgaged by Ricardo Ebia Sr. Ebia paid the loan until his death in 2013. His daughter, Constance Magalong, became successor trustee of his trust and opposed the foreclosure. Between 2012 and 2016, Magalong attempted to negotiate a loan modification but the Bank refused. After initial dismissal without prejudice in 2017, the Bank refiled the complaint in 2024. The Circuit Court of the First Circuit granted summary judgment for the Bank, and Magalong appealed to the Intermediate Court of Appeals.
Magalong raised three challenges: (1) that the Bank violated Hawaii Revised Statutes § 454M-5.5 by refusing to modify the loan; (2) that individuals who endorsed the promissory note lacked authority to do so; and (3) that prior servicers’ records incorporated by the current servicer were not sufficiently trustworthy. The Circuit Court rejected all three arguments and entered judgment for the Bank.
The Court’s Holding
The Intermediate Court of Appeals affirmed the summary judgment. On the loan modification argument, the court held that Magalong waived this issue by failing to raise it at the circuit court level. Moreover, the statute applies only to borrowers, and Magalong was not a borrower on the note—she was a successor trustee to the original borrower’s trust. The court rejected her laches argument, noting that the statute of limitations for mortgage foreclosure actions is twenty years and the Bank filed suit only four years after the original attempted foreclosure, well within the limitations period.
Regarding the endorsement challenge, the court applied Hawaii Revised Statutes § 490:3-308(a), which creates a presumption that signatures on an instrument are authentic and authorized. The Bank presented evidence that it possessed the original note endorsed in blank. Magalong failed to introduce any evidence—such as declarations that the signatures were forged or unauthorized—to overcome this statutory presumption. Her arguments about Fannie Mae guidance documents, a 2010 officer registration requirement, and annual reports of a different corporate entity were all meritless and failed to cast doubt on the signatories’ authority.
Finally, regarding business records, the court found sufficient trustworthiness based on PennyMac’s servicing agent’s declaration that prior servicers’ records were reviewed, found compliant with industry standards, and incorporated into PennyMac’s regularly-conducted business records. The agent also testified to her personal knowledge of PennyMac’s record-creation procedures and that the loan documents—including the note, mortgage, assignment, default letter, and payment history—were accurate and verified.
Key Takeaways
- Arguments not presented at the trial court level are waived on appeal and need not be considered by the appellate court.
- HRS § 454M-5.5’s loan modification obligations apply only to borrowers; non-borrowers, including successors in interest or trustees, cannot invoke these protections.
- Under HRS § 490:3-308(a), signatures on promissory notes are presumptively authentic and authorized; the burden shifts to the party challenging endorsement only if evidence is presented to support non-authenticity.
- Business records from prior servicers are admissible in foreclosure actions if the receiving servicer establishes they meet industry standards and were incorporated into its regularly-conducted business practices.
Why It Matters
This decision clarifies important limits on foreclosure defenses in Hawaii. It confirms that loan modification statutes protect only actual borrowers, not family members or trustees acting for deceased borrowers’ estates. The ruling also reinforces the evidentiary burden on foreclosure defendants: mere speculation or documentary gaps do not overcome statutory presumptions of signature authenticity. For servicers and lenders, the opinion confirms that properly documented integration of prior servicers’ records into current systems satisfies admissibility standards, streamlining the production of evidence in foreclosure proceedings.
The decision has practical implications for Hawaii homeowners and their representatives considering foreclosure litigation. Appellate challenges must be grounded in arguments raised below, and defenses must be supported by affirmative evidence, not inference or procedural technicalities unrelated to the actual parties’ obligations.