Background
In September 2005, Daryl Jean Katsuko Whittington executed a home equity line of credit agreement (HELOC) with First Magnus Financial Corporation (FMFC), secured by a second mortgage on residential property in Honolulu owned by Daryl and her husband Jeffrey. The HELOC provided a revolving line of credit up to $200,000, obligating Daryl to repay whatever amounts she drew, plus interest. Over the following years, the HELOC was endorsed from FMFC to Countrywide Bank, N.A., then to Countrywide Home Loans Inc., and finally endorsed in blank. The Mortgage was separately transferred twice by written assignment, ultimately reaching The Bank of New York Mellon (BONYM) via a 2022 assignment.
After Daryl defaulted, BONYM filed a foreclosure complaint in February 2023. In its motion for summary judgment, BONYM argued it had standing to enforce the HELOC as the “holder” under Hawaii’s Uniform Commercial Code because it possessed the HELOC endorsed in blank at the time the complaint was filed. The Whittingtons, appearing pro se, opposed the motion, arguing the HELOC was not a negotiable instrument and therefore could not be enforced through mere possession of a blank-endorsed instrument. The Circuit Court agreed that the HELOC was not a negotiable instrument but nonetheless granted summary judgment for BONYM, reasoning that no Hawaii precedent prohibited transfer of a nonnegotiable instrument by blank endorsement. Jeffrey Whittington died after the notice of appeal was filed.
The Intermediate Court of Appeals took up Daryl’s appeal. It also addressed a preliminary mootness question as to Jeffrey: BONYM had obtained a Circuit Court order dismissing the complaint and vacating the foreclosure decree as to Jeffrey in May 2025, rendering his portion of the appeal moot and incapable of providing effective relief. The court accordingly dismissed the appeal as to Jeffrey and proceeded to the merits solely as to Daryl.
The Court’s Holding
The court held that the HELOC is not a negotiable instrument under HRS § 490:3-104 because it does not contain an unconditional promise to pay a fixed amount of money. A HELOC by its nature permits draws of varying amounts up to a credit limit, meaning the principal is not fixed at execution. Because the HELOC is nonnegotiable, BONYM could not qualify as a “holder” under HRS §§ 490:1-201(b) and 490:3-301, and possession of the HELOC endorsed in blank did not, by itself, confer the right to enforce it.
The court further held that while enforcement rights in a nonnegotiable instrument may be transferred by written assignment — consistent with both the majority common law view and existing Hawaii contract-assignment principles — mere endorsement and delivery of a nonnegotiable instrument does not necessarily vest the possessor with enforcement authority. BONYM pointed to no written assignment of the HELOC itself; the mortgage assignments transferred only the mortgage and the assignor’s interest in the property, and did not on their face purport to transfer the HELOC. BONYM therefore failed to establish standing to foreclose as a matter of law.
The court vacated the Foreclosure Decree and Judgment as to Daryl and remanded to the Circuit Court for further proceedings. It declined to reach Daryl’s remaining argument regarding the endorsements.
Key Takeaways
- A HELOC is not a negotiable instrument under Hawaii’s UCC (HRS § 490:3-104) because it does not contain an unconditional promise to pay a fixed amount of money; the variable draw structure is disqualifying.
- Possession of a nonnegotiable instrument endorsed in blank does not establish standing to enforce or foreclose — the “holder” framework of HRS § 490:3-301 applies only to negotiable instruments.
- Enforcement rights in a nonnegotiable instrument can be transferred by written assignment, but a foreclosing plaintiff must produce an assignment that expressly covers the HELOC itself; an assignment of the mortgage alone is insufficient if it does not reference the underlying loan agreement.
- The appeal was dismissed as moot as to a co-defendant who died after the notice of appeal was filed and whose claims were separately dismissed and vacated by the trial court during the pendency of the appeal.
Why It Matters
This decision is a significant development for mortgage servicers and HELOC trustees operating in Hawaii. It closes a gap that some foreclosing plaintiffs had used to their advantage: arguing that possession of a blank-endorsed HELOC was sufficient proof of standing, even after conceding the instrument was nonnegotiable. The court’s ruling makes clear that this shortcut is unavailable and that a clean chain of written assignments — expressly covering the HELOC, not just the mortgage — is necessary to establish standing in a HELOC foreclosure action.
The decision also aligns Hawaii with the emerging national majority view on HELOC negotiability, citing a April 2026 Washington Supreme Court opinion to the same effect, and signals that Hawaii courts will require documentary proof of assignment rather than treating endorsement and delivery as a functional equivalent. Lenders, trustees, and their counsel should audit their assignment chains before filing HELOC foreclosure complaints in Hawaii to ensure that written assignments reference the loan agreement itself and not only the mortgage security instrument.