A bank cannot void its own foreclosure to escape maintenance fees
A bank cannot void its own foreclosure to escape maintenance fees
2026-09-10 · Hawaii · Courts
A bank that foreclosed defectively, bought the unit itself, paid maintenance fees for a decade and then sued to have its own foreclosure declared void has lost. The Intermediate Court of Appeals vacated the judgment it had won below, and the Hawaii Supreme Court rejected certiorari on July 7, 2026.12
The Bank of New York Mellon v. Association of Apartment Owners of Palm Villas II, No. CAAP-23-0000402, was decided by summary disposition order on February 6, 2026 — unpublished, which under Hawaii Rules of Appellate Procedure Rule 35 limits its citation value, though not its practical significance.
What happened
BNYM nonjudicially foreclosed a mortgage at Palm Villas II in 2009. The auction was postponed three times and no postponement notice was ever published. BNYM bought the unit at its own sale, took a quitclaim conveyance, and paid the association’s maintenance fees for roughly ten years.
Then it stopped, and sued to have the 2009 foreclosure declared “null and void,” the mortgage reinstated, and its lien restored to Land Court — which would have unwound its ownership and the fee obligation that came with it. The circuit court granted it partial summary judgment.
What the ICA held
The bank had standing to seek declaratory relief under HRS § 632-1 — the association “may claim an interest in the Property by virtue of… unpaid maintenance fees,” which is a live controversy. On the merits it lost.
Quoting Delapinia v. Nationstar Mortgage LLC: “[I]f a foreclosure violates a statute governing the nonjudicial foreclosure scheme, or other law extrinsic to the mortgage itself, the sale is voidable at the election of the mortgagor.” And then the sentence that decides the case: “BNYM presented no evidence that either of its mortgagors elected to void the nonjudicial foreclosure.… BNYM’s argument is contrary to the law.”
Why this is the most useful defensive ruling of the year for a Hawaii board
Lender-owned REO units are common in Hawaii condominiums, and a bank that owns a unit owes assessments like any other owner. What Palm Villas II shuts down is the retroactive escape: the argument that because the foreclosure was procedurally defective, the bank never really became the owner and never really owed the fees.
The election belongs to the borrower. Not to the bank, not to the court, and not to whoever finds the defect most convenient.
What to demand when the letter arrives
An association facing a rescission or quiet-title suit from an REO lender should ask for one thing before anything else: evidence that the mortgagor elected to void. Absent that, on this authority, the lender’s own procedural defect is not its remedy.
Two supporting points from the opinion are worth having at hand. The court rejected the argument that voidability is confined to good-faith-purchaser cases, quoting Wilmington Savings Fund Society v. Domingo: a mortgagee that purchased at its own sale does not “free itself from the underlying dispute to which it is a party.” And a decade of paying the fees was, on the court’s own reasoning, exactly what gave the association a recognised interest.
The flip side, which is not comfortable
The election belongs to the mortgagor, and the mortgagor may exercise it late. A former owner can still surface and unwind a sale where the mortgagee bought the unit in — which means an association’s REO fee stream is not unconditionally safe either, it is safe against the bank.
That risk is bounded by limitations, and Hawaii has a separate 2026 decision on exactly where that clock starts. It runs from the recorded deed, not from the day someone realises they have a claim.
What it does not decide
Nothing about whether the 2009 foreclosure was in fact defective — the failure to publish postponement notices was assumed, not adjudicated as a holding. Nothing about the amount owed. And nothing about a mortgagor’s remedies, which remain open.
The judgment was vacated and the case returned to circuit court, so the underlying accounting between this bank and this association is unresolved. We do not predict how it comes out.
What to watch
Whether any published decision takes up the same question — an unpublished SDO is persuasive at best under HRAP Rule 35, and a bank with a large Hawaii REO book has an incentive to find a vehicle for a published answer. Until then, this is the clearest statement Hawaii has.
Related Hawaii HOA Topics
Stay on top of Hawaii HOA law
Every week: new Hawaii legislation, court rulings, and regulatory developments affecting condos, planned communities, and property managers. Free.
No spam. Unsubscribe anytime.