August 29, 2014
by Sandra A. Brown
Little, Bradley & Nesbitt, P.A. – USFN Member (New Mexico)
On February 13, 2014, the New Mexico Supreme Court changed the landscape of the foreclosure map in New Mexico, by specifying when and how lenders need to establish standing to foreclose, and by providing further guidance on the New Mexico Home Loan Protection Act. [Bank of New York as Trustee for Popular Financial Services Mortgage/Pass Through Certificate Series # 2006 v. Romero, 2014-NMSC-007, 320 P.3d 1].
Romero presented the court with an intriguing and rare set of facts. The borrowers had signed a promissory note to refinance their home with Equity One, Inc. Two years later, Bank of New York proceeded to foreclosure, with a note attached to its complaint lacking any indorsements. The original note admitted into evidence at trial contained two indorsements: an indorsement to bearer from Equity One, and a special indorsement from Equity One to JPMorgan Chase. A witness for the current servicer of the loan testified at trial that his records indicated that the note had been transferred to the Bank of New York based upon a pooling and servicing agreement (which was not entered into evidence at trial).
The Supreme Court held that the lack of standing is a potential jurisdictional defect, which may not be waived, and may be raised at any time, even for the first time by the Supreme Court. The court further held that a lender is required to demonstrate, under the New Mexico Uniform Commercial Code, that it has standing to bring a foreclosure action at the time it files suit.
In Romero, the court determined that the explanation provided by the lender as to the indorsements contained on the original note was not sufficient to establish standing, as the indorsements were conflicting. The court found that without dates establishing when the conflicting indorsements were executed, it could not determine whether the indorsement to bearer or the special indorsement should control. The court further opined that Bank of New York could not establish itself as the holder of the note simply by possession of it, and that the court would not consider the fact that no one else was attempting to claim possession of the note as supporting Bank of New York’s status as note holder. Since this decision, the New Mexico Court of Appeals has issued subsequent decisions supporting the Supreme Court’s ruling, recognizing that a lender must be able to establish its standing at the time of the filing of its complaint. See Deutsche Bank National Trust Co. v. Beneficial N.M., 2014-NMCA-__, No. 31,503, 2014 WL 1819300; Bank of New York Mellon v. Lopes, 2014-NMCA-__, No. 32,310, 2014 WL 3670094.
Even though it noted that this issue was moot in the present case, the court also held that the New Mexico Home Loan Protection Act is not preempted by federal law, and that the ability of a borrower to have a reasonable chance of repaying a mortgage loan must be a factor in determining whether a “reasonable, tangible net benefit” was conveyed to the borrower, so as not to violate the anti-flipping provisions of the statute. See NMSA 58-21A-4(B) 2003. In Romero, the court found that such a benefit was not conveyed, despite the $43,000 that the borrowers received from the refinance, because the lender did not adequately consider the borrowers’ ability to repay the loan and relied on their self-reported income.
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