The bank had a senior mortgage and a foreclosure win - but one detail sank its rental claim
A Hawaii appeals court just blocked US Bank from clawing back a decade of condo rent, ruling its foreclosure win was not enough.
The court held that when an association takes a unit by deed rather than through foreclosure, a bank cannot force it to surrender years of rental income under the state's condo recovery statute. The ruling came down on June 8, 2026.
The fight centered on a unit at Haleakala Gardens on Maui. The owners, Cynthia and Troy Smith, took out a loan secured by a mortgage on the unit. They defaulted in 2009 and stopped paying maintenance fees to their association, AOAO Haleakala Gardens. In June 2013, the Smiths signed the unit over to the association by quitclaim deed to settle the maintenance debt. The association took possession, rented the unit, and kept it up.
The mortgage took a different path. It was assigned to US Bank Trust National Association, acting as owner trustee for VRMTG Asset Trust, in 2021. US Bank filed a judicial foreclosure in June 2022 and won summary judgment in November 2023, a ruling in its favor without a full trial. A commissioner was appointed to run the sale, and the association stopped collecting rent.
Then came the costly part. When US Bank moved to confirm the foreclosure sale in April 2024, the trial court told the association to account for every dollar of rent it had collected since June 2013, when it first took the unit, and to pay out any excess. That stretched back roughly a decade.
The trial court rested its order on two things: a state statute, HRS § 514B-146(n), and a 2023 Hawaii Supreme Court decision known as Elima. Both govern what happens to rental income after a foreclosure. But the statute opens with a condition. By its own terms, it applies only after a judicial or nonjudicial foreclosure in which the association acquires title to the unit.
That condition was never met. The association did not foreclose. It received the unit by quitclaim deed in a settlement. On that basis, the appeals court ruled the statute did not apply, and neither did Elima, which it read as governing associations that take title through their own foreclosure, not by deed.
For the mortgage side, the signal is clear. What unlocks a clawback of an association's rental income is how the association got title, not simply that a senior mortgage is in play. If the association came by the unit through a deed rather than a foreclosure, § 514B-146(n) will not carry the argument.
The court vacated the judgment and struck the parts of the confirmation order demanding a decade of rental accounting and disbursement. But it stopped short of closing the case. It sent the matter back to the trial court and pointed to that court's equitable authority to order an accounting on some footing other than the statute and Elima. Put simply: the statutory route failed, but a fairness-based route may still be open when the case is reheard.
