The borrower paid almost everything. One overlooked accounting slip still nearly cost them the keys
A Hawaiʻi appeals court has ruled a lender cannot keep the payoff money and foreclose on the property too.
The decision, handed down May 29, 2026 by the Intermediate Court of Appeals of the State of Hawaiʻi, is a sharp reminder that a foreclosure remedy written into a settlement is not a sure thing once the borrower has paid.
The loan goes back to May 2007. Nancy P. Young, Jack B. Young, and Ridgeway Rentals, LLLP - the opinion calls them Ridgeway together – borrowed $650,000 from the predecessor of McCormick 106, LLC. The loan was secured by a mortgage on a rental property at 4597 Lehua Street in Kapaʻa, Kauaʻi. Ridgeway defaulted, and in June 2012 the lender's predecessor filed to foreclose.
The case dragged for more than a decade. On the eve of a May 2023 trial, the two sides settled. McCormick agreed to a $762,500 short payoff in return for releasing the mortgage. Ridgeway had to make a $100,000 non-refundable escrow deposit and turn over all net rent from the property.
The settlement carried a hard deadline and stated that time was of the essence. Miss the July 27, 2023 payment date, and McCormick could immediately move to foreclose using a consent judgment – a foreclosure order the parties signed in advance and clipped to the deal.
Ridgeway paid, but late and in pieces. It sent $14,408.28 in rent in May 2023, another $11,409.00 that November, and was slow handing over the leases. McCormick returned to court repeatedly. The circuit court eventually ordered Ridgeway to pay $45,124.70 - the short payoff balance plus unpaid rent – and ordered McCormick to release the mortgage once that landed.
Ridgeway parked the $45,124.70 in escrow in June 2024. By that point it had already paid $773,908.28 under the settlement. Counting the escrowed amount, the borrowers' total reached $819,032.98.
McCormick still pushed to foreclose. It argued that Ridgeway's pattern of late, partial compliance was precisely what the time-is-of-the-essence clause existed to stop, and that more than a year of incomplete payment justified the harsher remedy.
The trial judge balked. Keeping the payments already made and foreclosing on top of them, the judge suggested, looked like a windfall. McCormick countered that it was no windfall, given that this was a rental property and that foreclosure was the remedy the parties had agreed to. The court denied the motion.
The appeals panel affirmed. Hawaiʻi strongly favors enforcing settlements, the judges noted, but equity disfavors forfeitures. A time-is-of-the-essence clause will not force foreclosure where forfeiture would be harsh and unreasonable. Ridgeway had paid almost everything. The leftover gap traced to its own attorney applying one payment twice – an error McCormick acknowledged it never pointed out. And McCormick could show only profits it might speculatively have earned and the burden of more litigation, not genuine harm.
For lenders and servicers, the lesson lands plainly. You can write a foreclosure remedy into a workout, you can insist time is of the essence, and you can still lose the right to use it. When a borrower in breach has paid the debt in all but the last detail, a court sitting in equity can refuse to hand you the keys. Being made nearly whole can be the very thing that takes foreclosure off the table.
