Hawaii court ruling establishes precedent for reverse foreclosure cases

The case has made its way through the state court system since 2009

At the end of March, the Supreme Court of the State of Hawaii vacated a reverse mortgage foreclosure handed down by lender James B. Nutter and Co., which was doing business as Nutter Home Loans. The court found that Nutter “submitted a materially deficient attorney affirmation to the circuit court” regarding the foreclosure.

The case, which has made its way through the state court system since 2009, now sets a precedent for foreclosure cases within the state, according to legal experts who spoke to the Honolulu Civil Beat.

The foreclosure case

Plaintiff Elton Lane Namahoe, Sr. resided in Kurtistown, Hawaii and took out a reverse mortgage loan in 2009. In 2014, however, Namahoe was foreclosed on by Nutter after he allegedly “failed to make $500 worth of repairs” he had agreed to in a rider to the mortgage. The repairs were intended to fix a porch railing and a carport roof.

According to Nutter, the borrower “default[ed] in the observance and performance of the terms, covenants and conditions [of his mortgage] by failing to repair the property as required by the Repair Rider to the Loan Agreement in a timely manner.”

Nutter filed for summary judgment in circuit court and foreclosure against Namahoe, which was granted by the court that year.

Shortly thereafter, Namahoe sought relief from the Hawaii court system, but was initially denied. An additional appeal was then filed with the Intermediate Court of Appeals (ICA), contending that Nutter “committed fraud on the court by failing to disclose the facts supporting foreclosure and by failing to satisfy statutory attorney affirmation requirements.”

However, this appeal was found in favor of the lender.

Namahoe then filed an appeal on the foreclosure case with the state Supreme Court, and this time the case was decided in his favor.

“[W]e hold that there are grounds for relief both on a fraud on the court theory and under the equitable principles governing foreclosure,” the ruling states in part. The court reasoned that “the balance of equities weighed strongly against foreclosure,” and “vacate[d] the Decree of Foreclosure insofar as it would otherwise preclude Namahoe from asserting a wrongful foreclosure counterclaim.”

The case precedent

Legal professionals, who spoke with the Honolulu Civil Beat, told the outlet that the case creates a precedent for future litigation.

“They played fast and loose with the rules,” Nelson Locke, an attorney and mortgage compliance expert who provided advice to Namahoe’s defense, said. “They gave selective facts to the court […]. What they did is nothing short of cruel.”

An attorney for Namahoe, Will Rosdil, told the outlet that the outcome is significant, as it pertains to Hawaii foreclosure law.

“You’re going to have to look and see if the lender has made a fair and reasonable effort to exercise all other alternatives but foreclosure,” Rosdil told the Honolulu Civil Beat.

RMD reached out to Jesse Smith, the attorney who represented Nutter Home Loans in the case, but did not hear back.

However, Smith indicated to the Civil Beat that the company would continue to find other remedies for the case.

“The company is very disappointed in the decision, which they feel is erroneous, and they’re exploring all their options,” he said.

Nutter: now out of the business

Nutter Home Loans was an early pioneer in the reverse mortgage industry. However, the lender’s fortunes recently turned.

A 2020 lawsuit filed by the U.S. Department of Justice (DOJ) alleged that the lender forged certifications and used unqualified underwriters to approve FHA-backed HECM loans, which were originated between 2008 and 2010.

In September 2022, the trial was delayed to 2024. However, at the end of October 2022, Nutter announced that it would close its doors as the ongoing litigation with the DOJ became protracted.

Anonymous sources who spoke with the Kansas City Star, the local newspaper that broke the story, said that the lengthy nature of the upcoming trial, combined with president and CEO Jim Nutter Jr.’s health issues, led to the closure.

The lender ceased originating any mortgage loans in late October 2022, according to the Star.

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