Background
The Association of Apartment Owners of Kawaihae Crescent East judicially foreclosed its statutory lien for unpaid assessments on a condominium owned by Scott C.H. Yang and Keith Yang. In its 2013 foreclosure order and judgment, the circuit court expressly determined that the mortgage later held by U.S. Bank Trust, N.A., as Trustee for LSF10 Master Participation Trust, was senior to the Association’s lien. The Association acquired the property in 2015 and subsequently collected $230,792.90 in rent.
U.S. Bank later pursued foreclosure of its senior mortgage. When confirming the resulting foreclosure sale, the circuit court allowed the Association to retain $165,091.53 for expenses, fees, and other charges permitted by HRS § 514B-146(n), but classified the remaining $65,701.37 as excess rental proceeds and ordered the Association to deposit that amount with the court clerk. The Association appealed, arguing that only rent received after the judgment in U.S. Bank’s foreclosure could qualify as excess rental income.
The Court’s Holding
The Intermediate Court of Appeals affirmed. It held that HRS § 514B-146(n) makes the relevant starting point the entry of a final judgment determining the priority of a senior mortgagee—not necessarily the judgment entered in the senior mortgagee’s own foreclosure. Because the 2013 judgment in the Association’s foreclosure had already determined the seniority of U.S. Bank’s mortgage, rent received after that judgment was subject to the statute’s excess-rental-income calculation.
The court rejected the Association’s reading of Nationstar Mortgage, LLC v. Association of Apartment Owners of Elima Lani Condominiums. Unlike this case, Elima Lani involved a nonjudicial association foreclosure, and the judgment determining mortgage priority was also the lender’s foreclosure judgment. The circuit court therefore did not abuse its discretion by treating $65,701.37 as excess rental proceeds or by ordering the money deposited with the clerk. It also properly denied reconsideration because the Association presented no new evidence or arguments.
Key Takeaways
- Under HRS § 514B-146(n), excess rental income is calculated from the final judgment that first determines the senior mortgagee’s priority.
- The priority judgment need not be entered in the senior mortgagee’s own foreclosure proceeding.
- A foreclosing condominium association may recover authorized liens, expenses, and costs, but may not retain rental income exceeding those amounts while a senior mortgagee remains unpaid.
Why It Matters
The decision clarifies that a condominium association cannot postpone the statutory accounting for excess rent until entry of the senior lender’s foreclosure judgment when an earlier final judgment has already established mortgage priority. Associations acquiring units through foreclosure must account for rents received after that earlier priority determination.
For lenders and foreclosure practitioners, the opinion makes the procedural location of the priority ruling less important than its substance and finality. An express priority determination in the association’s own foreclosure can trigger HRS § 514B-146(n) years before the lender completes its separate foreclosure.