Hawaii Class Action Accuses Two Law Firms, 70 HOAs Of Illegally Using Non-Judicial Foreclosures To Enforce Collection Of Unpaid Maintenance Fees; Plaintiffs Claim Defendants' Condo Documents Lack "Power Of Sale" Clause That Would Allow Non-Court Process To Be Employed

In Honolulu, Hawaii, Honolulu Civil Beat reports:

• A class action lawsuit recently filed in federal court accuses two prominent law firms, and more than 70 condominium associations they represent, of “the wrongful and unlawful sale” of condominium units through an improper foreclosure process.
  
  Nonjudicial foreclosures allow real property to be sold to satisfy debts without going to court. Instead, the party initiating the foreclosure, typically a mortgage lender, is simply required to notify the property owner and, if the debt isn’t paid, proceed to auction off the property themselves, selling to the highest bidder.
  
  In the majority of cases, the properties end up being sold to the lender or the condominium association, often with little or no money actually changing hands.
  
  Hawaii law allows nonjudicial foreclosures in certain circumstances, but their use to collect debts owed to condominium associations is controversial.
  
  The suit alleges that these foreclosures are barred unless the condominium declaration contains a specific “power of sale” clause, which acts as a contract giving the condo association the right to foreclose on an owner’s property to collect delinquent maintenance fees or other unpaid assessments. And, according to the suit, none of the defendant associations had the required “power of sale” in their governing documents.
  
  The lawsuit seeks payment of restitution and damages, including punitive damages, along with interest, to those whose properties were allegedly improperly foreclosed.
  
  The defendants reject the allegations, pointing to a specific provision the Legislature added into the state’s condominium law that provides condo associations with the same foreclosure powers given to mortgage lenders, including the right to choose a nonjudicial process.
  
  This case is far from the first case challenging the legality of nonjudicial foreclosures by condominium associations seeking to recoup unpaid and past due maintenance fees from owners, and it’s not the first seeking certification as a class action.
  
  But it is prompting an unusual amount of concern among those with special interests in condominiums, including condo boards, attorneys, management companies, and insurers, because a respected local law firm has teamed up in the case with attorneys from two San Diego-based firms specializing in consumer-oriented class-action lawsuits.
  
  If the plaintiffs win, the potential damages are staggering, and could give a whole new meaning to the often-heard term, “foreclosure crisis.”
  
  ***
  Honolulu attorney Jim Bickerton, who recently filed a separate class-action lawsuit in state court challenging similar nonjudicial foreclosures and naming the Porter law firm as one of the defendants, agreed condo boards need to assess the risks.
  
  He advised condo boards to avoid pursuing nonjudicial foreclosures unless they have insurance protecting against wrongful foreclosures.
  
  Bickerton acknowledged he could be wrong, and the courts could determine the association’s Part 1 nonjudicial foreclosures are legally permitted.
  
  “But it’s a gamble,” he said. “If I’m right, it could bankrupt these law firms and many condominium associations along with them.”

For more, see Wrongful Foreclosure Claims Rock The Condo World (A class-action lawsuit alleges at least 160 individuals had their property illegally foreclosed by 72 condominium associations).