Foreclosed Homeowners Sue 32 Hawaii Judges

by Purna Nemani, Courthouse News 

HONOLULU (CN) - A Hawaii family and a developer filed a federal class action against every Circuit Court judge in Hawaii, accusing them of using "ancient judge-made procedures" to enforce foreclosure judgments.

Jerry Agbannaoag, Ke Kailani Development et al. claim the judges' practice fostered the "flipping" of properties and unjustly enriched lenders.

Michael J. Fuchs, the founder of Home Box Office, is also a plaintiff.

They sued The Honorable Judges of the First Circuit of Hawaii - all 32 of them.

"Hawaii courts matter-of-factly merely assume routinely when determining and enforcing foreclosure deficiency judgments that the confirmed sale price minus the net proceeds of sale controls and mathematically determines by subtraction the monetary deficiency amount," the complaint states.

"This procedure completely ignores reality," the plaintiffs say. They call it an "arbitrary and mechanical method" that fails to protect borrowers.

The plaintiffs claim other states have passed laws against the practice.

"Today, many state legislatures have passed anti-deficiency statutes, requiring that after a foreclosure auction, state courts must hold a separate, evidentiary hearing to determine the 'fair value' of the foreclosed property, which is not necessarily the 'auction price,'" they say in the complaint.

The Agbannaoags say they got a $710,000 loan in 2007 to build a home on Maui.

Their lender, nonparty Finance Factors, got signatures from the Agbannaoag's parents as co-signers, even though they could not speak English, and extended the maturity date of the loan three times, according to the complaint.

The Agbannaoags say they lost the home and had to file for bankruptcy after a state court-appointed "Foreclosure Commissioner" auctioned the property back to Finance Factors for $618,600, though it was appraised at over $1.2 million. (60)

Michael J. Fuchs and his development company, Ke Kailani Development say they were similarly duped.

Fuchs claims that in 2005 and 2006 he borrowed more than $70 million to develop a 65-acre, luxury subdivision on the South Kohala coast of the Big Island.

By 2009, Fuchs says, due to the "worldwide recession" and loan modifications, it was impossible to repay the loans on the unsold lots, which had lost value.

Tat set off a bitter fight between Fuch's company and its borrowers.

First Circuit Judge Bert I. Ayabe dismissed Fuchs's complaints and entered deficiency judgments against him in 2012, for "a pitiful $16,601," without allowing Fuchs to do any discovery, he says in the complaint.

Fuchs claims that Judge Ayabe's wife did legal work for three of Fuchs's adversaries in the foreclosure case.

The plaintiffs seek declaratory judgment for violations of due process - but not monetary damages.

They are represented by Gary Victor Dubin.

LINK: Text of Suit