State-specific statute of limitations (SOL) cases establishing different applications of legal theory require mortgagees to focus on creating state-specific processes to ensure the loan portfolios move in a methodological way. These processes generally produce the desired results. However, as this is a developing area of law, the processes must remain nimble to accommodate evolving case law. A recent case in Hawaii will challenge the established processes, but un- like many other SOL changes, there’s a better strategy available for the mortgagee.
In Hawaii, the SOL for enforcement of
a note is six years. HRS §490:3-118. Hawaii has, by statute, adopted accrual analysis in determining when the statute begins to run, starting on “the due date or dates stated in the note or, if a due date is accelerated, within
six years after the accelerated due date.” Id.
Consequently, the exact language of demand letters is extremely important in determining if acceleration has occurred.
The SOL can be restarted by some new occurrence expressing the debtor’s express or implied intention to repay. First Hawaiian Bank v. Zukerkorn, 2 Haw. App. 383, 385, 633 P.2d 550, 552 (1981). This principle was further defined by Blake v. Alexander & Baldwin, LLC, 143 Hawaii 330, 430 P.3d 891 (Ct. App. 2018). The Blake court emphasized the importance of the debtor’s intent. Id. To restart debt liability, the occurrence must be made by the debtor such that it expresses intention to repay and cannot be made by someone else to bind the debtor. Id. Specifically, the Blake court stated, “[a]s expressed in Zukerkorn, ‘(a) new promise by the debtor to pay his debt, whether then barred by the applicable statute of limitations
or not, binds the debtor for a new limitations period.’ [Zuckercorn] (emphasis added). As argued by [Alexander & Baldwin], the rule expressed in Zukerkorn applies to extend the statute of limitation to assert claims against the debtor. It does not apply to the circumstances in this case, where plaintiffs (the debtors) have paid part of an out- standing amount and seek to revive time-barred claims they wish to now assert.” Id. (emphasis appears in Blake text). After the SOL has run, the mortgagee cannot unilater- ally bind the debtor as such an action lacks intent; only the debtor can express the requisite intent to renew the debt.
Hawaii distinguishes the difference between an action
to recover a debt pursuant to a note and an action to foreclose a mortgage. Bowler v. Christiana Tr., a Div. of Wilmington Sav. Fund Soc›y, FSB, 143 Hawaii 235, 426 P.3d 459 (Ct. App. 2018). The SOL for enforcing a mort- gage is 20 years. HRS §657-31. The Supreme Court of Hawaii stated, “The mortgage and note are two distinct securities, and nothing but payment of the debt will discharge the mortgage.” Id. quoting Campbell v. Kamaiopili,
3 Haw. 477, 478 (Haw. Kingdom 1872); see also HRS § 506-8; Bowler, 143 Hawai›i 235, 426 P.3d 459 (Ct. App. 2018). These statutes run concurrently; “A mortgagee may foreclose on the mortgage after the statute of limita- tions has run on an action to recover on the underlying note, except that the mortgagee is not entitled to a deficiency judgment.” Id. Deficiency relief is forgone, but as a practical matter, that relief is rarely sought. Considering appreciating property values in Hawaii and recent case law, this approach provides the most direct path to recovery without substantial debt forgiveness.
This approach will also avoid the collateral exposure for claims related to the Hawaiian statutory affirmation requirements, which specifically demand “…that the attorney has verified the accuracy of the documents sub- mitted, under penalty of perjury and subject to applicable rules of professional conduct.” HRS § 667-17. This requirement provides an opportunity for both the borrower and the trial court to challenge the affirmation. The affirming attorney is obligated to verify that no false statements of facts appear in the records relied upon to the best of his or her knowledge. Considering that a creditor cannot unilaterally renew obligations, affirmation
based on unilateral payment changes risk the counsels’ good standing with the state bar, may violate Rule 3.3 of the Hawaii Rules of Professional Conduct, and may draw perjury claims and court sanctions. The affirming attorney may provide explanatory details to supplement the statutory affirmation; howev- er, explanations of unilateral debt forgiveness may attract litigation. Further, any judgment obtained based on an affidavit that is later deemed improper risks vacation.
The current approach to foreclosure at or beyond the note’s SOL should be re-evaluat- ed. The best practice in Hawaii is to preserve the payment history, avoid unilateral pay- ment changes, foreclose the mortgage, and seek full recovery of the debt up to the total foreclosure sale proceeds from appreciated property values. This strategy provides the greatest opportunity for recovery and reduces liability exposure.