������Ƶ

One day in 2009, some strangers appeared at the door of Elton Namahoe in Kurtistown with an offer he found hard to turn down.

He could get a reverse mortgage on his Big Island house, they said, allowing him to live on the proceeds. In essence, he could access the equity locked up in by far his most valuable asset. The loan would not come due until he died, sold the house or moved out.

Namahoe was trying to get by just on Social Security checks. Sometimes lacking a car, he would hitch rides into Hilo 10 miles away to grocery shop or check his post office box. So he agreed to the mortgage that could provide him as much as $189,000.

“I believed them,” Namahoe said in a later court declaration. “I spent the money over the years paying bills and buying food.”

Five years later, he’d been kicked out of his house and was living in a van. A few weeks after that, when the van broke down, he started sleeping on the beach.

The mortgage company, , had foreclosed.

The reason? Nutter claimed Namahoe had failed to make a repair he had agreed to do in a rider to the mortgage – a $500 fix of a porch railing and a carport roof.

Now, nine years later, the Hawaii Supreme Court has vacated that foreclosure. It found that Nutter and its lawyer committed fraud against the court, assuring a judge that all the proper steps had been taken for a foreclosure when they hadn’t.

Not only that, the Supreme Court said in its decision last week – basic fairness should have prevented a person being ejected from his home over a $500 repair anyway.

That question led to a dramatic exchange between a Supreme Court justice and Nutter’s lawyer during oral arguments.

If someone can lose a house over $500, “Is failure to do a $250 repair material enough to institute a foreclosure,” Justice Paula Nakayama asked Nutter’s attorney at the time, David Minkin.

“I believe that it would,” Minkin said.

“What about $100?” Nakayama asked

�Ԩ���”

“$50?”

�Ԩ���”

“OK,” Nakayama said, “so for $50 somebody could lose their home, for just getting a $50 judgment against them.”

The Supreme Court’s decision sets a precedent for Hawaii foreclosures, making it clear that lawyers who go before a judge saying that all the proper steps have been taken must make sure that’s true.

“They played fast and loose with the rules,” said Nelson Locke, a California attorney and mortgage industry compliance expert who testifies as an expert witness and provided advice on the Namahoe case. “They gave selective facts to the court … What they did is nothing short of cruel.”

It also underscores the principle that judges have the leeway in foreclosures to do what they think is fair – for instance, by not letting a dispute over a minor repair lead to someone losing their home.

Will Rosdil, who represented Namahoe through years of motions and appeals, called it perhaps the most significant decision in 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,” he said.

Jesse Smith, Nutter’s current attorney, said “The company is very disappointed in the decision, which they feel is erroneous, and they’re exploring all their options.”

Namahoe, now in a nursing home, can’t get the house back – it was sold in 2016 to someone else. But he can seek damages and plans to, Rosdil said.

Living On Social Security

Namahoe, a Native Hawaiian, was born and raised in Honolulu and attended Kamehameha Schools. He worked in construction in Honolulu, then moved to California and found a job as a heavy equipment operator, specializing in backhoes.

After his mother and father died, he inherited a house that had been owned by his mother in Kurtistown, south of Hilo, Rosdil said. A brother also moved in.

He had no pension and depended on Social Security checks.

When Namahoe signed up for a reverse mortgage, lenders were pushing them aggressively in daytime TV ads featuring minor but familiar celebrities such as Fred Thompson, Henry Winkler and Robert Wagner.

They were attractive to seniors on fixed incomes, allowing them to pay for living expenses, with the loan only becoming due after they died, sold the home or moved out. For older adults facing rising medical costs and other essential expenses, reverse mortgages could look like a lifeline.

But they came with often hidden perils.

“Seniors face a significant risk of abuse by lenders, and the consequences of reverse mortgages can be unclear at the time of signing, but disastrous for mortgagors,” the Supreme Court wrote in the Namahoe decision.

The court cited 2007 Senate testimony from Sen. Herb Kohl, chair of the Special Committee on Aging: Reverse mortgage agents “are targeting seniors aggressively in ways that this Committee has seen before: through direct mail, celebrity endorsements, and free lunch seminars. Marketers often gloss over the risks of a reverse mortgage, but they convey the pay-off quite clearly.”

Because of the potential for abuse, the federal government set up protections, such as requiring the lender to try to conduct fact-to-face interviews with homeowners who have fallen behind and considering ways to reinstate the mortgage. Hawaii requires lenders to refer borrowers to HUD-approved counselors before accepting an application for a mortgage.

After the subprime mortgage meltdown in the late 2000s, the Hawaii Legislature required attorneys to affirm that all the paperwork was in order and that the lender had legal grounds for proceeding. This was a response to reports of false affidavits that documents had been reviewed and the widespread use of “robosigning.”

A Rotten Porch Railing And A Carport Leak

When Namahoe got his reverse mortgage in 2009, a rider required him to make a repair to a porch railing and the roof of the carport. Nutter withheld $750 from his loan proceeds to cover the cost of repair in case he did not do it. Such riders are a common method for lenders to assure that the property, collateral for their loan, maintains its value.

In a later declaration, Namahoe said he got a neighbor’s tenant to help him repair the front porch railing and bought putty to plug the leak in the carport roof.

“What they did is nothing short of cruel.”

Nelson Locke, a California attorney and mortgage industry compliance expert

Nutter, however, says that Namahoe never told the company he had made the repair. And so it concluded that he had not. It’s unclear why Nutter, believing the repairs had not been done, didn’t use the $750 reserved for that purpose.

Instead, it called the loan due, demanding principle and interest.

“Thus, for a $500.00 deficiency, Namahoe was presented with a bill for $75,946.58 plus interest, and he ultimately lost his home,” the Supreme Court wrote.

In Circuit Court, Nutter said that it was foreclosing because of Namahoe’s failure to live up to the terms of the repair rider, without mentioning the dollar amount at issue. Its attorney at the time, Robert Ehrhorn, signed a document affirming Nutter’s allegations and the lender’s legal standing to foreclose. A judge approved it. (Ehrhorn has since voluntarily made his law license inactive, meaning he is no longer eligible to practice.)

Nutter says it served Namahoe with notice that he was in default, and the document contains his signature.

Yet Namahoe said he doesn’t remember signing anything and “would not have understood it anyway.” He said he first became aware of the foreclosure when he got a call from a lawyer who said he wanted to inspect the house because he was selling it in a foreclosure auction. “I was shocked!” he wrote.

Namahoe threatened to greet anyone who tried to take his house with a gun, Rosdil said. And so a judge allowed the case to proceed without the normal visits by inspectors and potential buyers, leaving Namahoe in the dark about what was about to happen.

Then one day, a man in a suit arrived and said he would write Namahoe a check for $5,000 if he signed a release, Rosdil said – enough to buy him a van he could live in. Namahoe, now aware that foreclosure was imminent, accepted.

He lived in a van for a short time until it broke down, he said in a declaration. Then he lived on the streets and slept on the beach for a time until a sister in Texas persuaded him to come live on her ranch. He eventually made his way back to the Big Island.

Failed Appeals

With Rosdil now his attorney, Namahoe made motions in Circuit Court to reconsider the foreclosure and, when that failed, appealed to the Hawaii Intermediate Court of Appeals. Namahoe argued, among other things, that Nutter and its lawyers had committed “fraud on the court” by failing to include any record of a HUD-certified inspector verifying that the repairs had not been done.

Namahoe lost on all fronts – until he got to the Supreme Court.

It was Nutter’s job to show that Namahoe had not made the repairs, the justices found. Yet, the lender did not introduce any evidence showing that he hadn’t or that it had arranged for a HUD-approved inspector to check. And the attorney affirmed that all the proper steps had been taken, even though they hadn’t, adding up to fraud on the court.

The concept of “fraud on the court” goes beyond a simple misrepresentation made in the case, zeroing in instead on failures to be forthcoming that undermine the integrity of the judicial process itself.

Rosdil has fought Nutter over two other foreclosures, one also involving an alleged failure by the borrower, Faustino Domingo, to make a repair.

Domingo said the repairs – some $14,000 of fixes in the bathroom and kitchen – had in fact been done. Rosdil said he paid a HUD-certified inspector to show as much.

In that case, both the Circuit Court judge and the ICA said that Nutter’s assumption that the repairs had not been made was not enough to justify foreclosure.

In a separate case, Domingo and Namahoe sued for wrongful foreclosure.

But a Circuit Court judge put Namahoe in what the Supreme Court called a Catch-22 by requiring him to pursue his wrongful foreclosure action in the case with Domingo, even though the Circuit Court had said he couldn’t be part of that action because the foreclosure had already been finalized.

Domingo, who unlike Namahoe had never been forced from his house, ended up settling with Nutter for an undisclosed amount.

A New Chance At Justice

The Supreme Court’s decision gives Namahoe a way to seek justice for what he believes was a wrongful foreclosure.

The justices emphasized that foreclosures are done in “courts of equity” – an English common law concept that gives judges more leeway to do what they think is fair.

A judge should consider whether a foreclosure would be “harsh and unreasonable,” the court said.

“We can think of no better example of a harsh and unreasonable forfeiture than foreclosure of one’s home based on an alleged default of a $500.00 agreement,” according to the decision.

Rosdil said he plans to seek damages for Namahoe’s loss of his house, in addition to punitive damages based on Namahoe’s suffering and punitive damages tied to the grievousness of JBNC’s actions.

“To me it’s got to be seven figures,” Rosdil said.

Kai Lawrence, the attorney who handled the appeal before the Supreme Court, said the decision will increase protections for borrowers.

It also will put lawyers on notice that they must verify independently that everything was done by the book, he said.

“In this case” Lawrence said, “it definitely wasn’t.”

Read the Hawaii Supreme Court decision below: