Você está na página 1de 14

New Mexico Supreme Court Wipes Out Bank of New York

February 18, 2014 by Neil Garfield

BAS!C ,REM!SES* -at .i/in0.ies*com1
"!ere are a lot of t!in#s t!at could be analy$ed in t!is case t!at as very recently
decided %February 1&, 2014'. "!e main ta(e aay is t!at t!e New Mexico Supreme
Court is 6emonstratin0 t7at t7e 8u6icia. s9stem is turnin0 a corner in approac7in0
t7e cre6i:i.it9 of t7e interme6iaries w7o are preten6in0 to :e rea. parties in
interest* ! su00est t7at t7is case :e stu6ie6 carefu..9 :ecause t7eir reasonin0 is
extreme.9 0oo6 an6 t7eir wor6in0 is c.ear* )ere are some of t!e salient *uotes t!at +
t!in( it be used in motions and pleadin#s,
-e !old t!at t!e Bank of New York 6i6 not esta:.is7 its .awfu. stan6in0
in t7is case to fi.e a 7ome mort0a0e forec.osure action* -e also !old t!at
a borroer.s ability to repay a !ome mort#a#e loan is one of t!e
/borroer.s circumstances0 t!at lenders and courts must consider in
determinin# compliance it! t!e Ne 1e2ico )ome 3oan 4rotection 5ct,
N165 1788, 99 :8-215-1 to -14 %200&, as amended t!rou#! 2007' %t!e
)345', w7ic7 pro7i:its 7ome mort0a0e refinancin0 t7at 6oes not
pro/i6e a reasona:.e% tan0i:.e net :enefit to t7e :orrower.
Finally, e !old t!at t!e )345 is not preempted by federal la. -e reverse
t!e ;ourt of 5ppeals and district court and reman6 to t7e 6istrict court
wit7 instructions to /acate its forec.osure 8u60ment an6 to 6ismiss t7e
Bank of New York;s forec.osure action for .ack of stan6in0*
"!e <omeros soon became delin*uent on t!eir increased loan payments.
On Apri. <% =>>?% a t7ir6 part9@t7e Bank of New York% i6entif9in0
itse.f as a trustee for ,opu.ar inancia. Ser/ices Mort0a0e@fi.e6 a
comp.aint in t7e irst Au6icia. )istrict Court seekin0 forec.osure on t7e
Romeros; 7ome an6 c.aimin0 to :e t7e 7o.6er of t7e Romeros; note an6
mort0a0e wit7 t7e ri07t of enforcement*
"!e <omeros also raised several counterclaims, only one of !ic! is
relevant to t!is appeal, t!at t!e loan violated t!e antiflippin# provisions of
t!e Ne 1e2ico )345, 6ection :8-215-4%=' %200&'.>"!ey ere lured into
refinancin# into a loan it! orse provisions t!an t!e one t!ey !ad?.
Litton Loan Ser/icin0 6i6 not :e0in ser/icin0 t7e Romeros; .oan unti.
No/em:er <% =>>?% se/en mont7s after t7e forec.osure comp.aint was
fi.e6 in 6istrict court*
5t a benc! trial, @evin Flanni#an, a senior liti#ation processor for 3itton
3oan 6ervicin#, testified on be!alf of t!e =an( of Ne Aor(. .anni0an
asserte6 t7at t7e copies of t7e note an6 mort0a0e a6mitte6 as
tria. e/i6ence :9 t7e Bank of New York were copies of t7e
ori0ina.s an6 a.so testifie6 t7at t7e Bank of New York 7a6
p79sica. possession of :ot7 t7e note an6 mort0a0e at t7e time
it fi.e6 t7e forec.osure comp.aint*
BCD "!e <omeros obBected to Flanni#an.s testimony, ar#uin# t!at !e lac(ed
personal (noled#e to ma(e t!ese claims #iven t!at 3itton 3oan 6ervicin#
as not a servicer for t!e =an( of Ne Aor( until after t!e foreclosure
complaint as filed and t!e 1C<6 assi#nment occurred. "!e district court
alloed t!e testimony based on t!e business records e2ception because
Flanni#an as t!e present custodian of records.
B<>D T7e Romeros a.so pointe6 out t7at t7e cop9 of t7e 3ori0ina.4 note
.anni0an purporte6.9 aut7enticate6 was 6ifferent from t7e 3ori0ina.4
note attac7e6 to t7e Bank of New York;s forec.osure comp.aint* W7i.e
t7e note attac7e6 to t7e comp.aint as a true cop9 was not
in6orse6% t7e 3ori0ina.4 a6mitte6 at tria. was in6orse6 twice"
first% wit7 a :.ank in6orsement :9 EEuit9 One an6 secon6%
wit7 a specia. in6orsement ma6e pa9a:.e to A,Mor0an C7ase*
"!e ;ourt of 5ppeals affirmed t!e district court.s rulin#s t!at t!e =an( of
Ne Aor( !ad standin# to foreclose and t!at t!e )345 !ad not been
violated but determined as a result of t!e latter rulin# t!at it as not
necessary to address !et!er federal la preempted t!e )345. See Bank
of N.Y. v. Romero, 2011-N1;5-110, D E, 1:0 N.1. 8E7, 2EE 4.&d E&8
%/=ecause e conclude t!at substantial evidence e2ists for eac! of t!e
district court.s findin#s and conclusions, and e affirm on t!ose #rounds,
e do not address t!e <omeros. preemption ar#ument.0'. We 7a/e
reco0niFe6 t7at 3t7e .ack of Gstan6in0H is a potentia. 8uris6ictiona.
6efect w7ic7 Ima9 not :e wai/e6 an6 ma9 :e raise6 at an9 sta0e of t7e
procee6in0s% e/en sua sponte :9 t7e appe..ate court*.0 Gunaji v. Macias,
2001-N16;-028, D 20, 1&0 N.1. 8&4, &1 4.&d 1008 %citation omitted'.
-!ile e disa#ree t!at t!e <omeros aived t!eir standin# claim, because
t7eir c7a..en0e 7as :een an6 remains .ar0e.9 :ase6 on t7e note;s
in6orsement to A,Mor0an C7ase% w7et7er t7e Romeros fai.e6 to fu..9
6e/e.op t7eir stan6in0 ar0ument :efore t7e Court of Appea.s is
immateria.* T7is Court ma9 reac7 t7e issue of stan6in0 :ase6 on
pru6entia. concerns* See New Energy Economy, Inc. v. Shoobridge % =><>5
NMSC5>JC% K <L% <JC N*M* J=% =JM ,*M6 NJL %/+ndeed, Fprudential rules.
of Budicial self-#overnance, li(e standin#, ripeness, and mootness, are
Ffounded in concern about t!e properGand properly limitedGrole of courts
in a democratic society. and are alays relevant concerns.0 %citation
omitted''. 5ccordin#ly, e address t!e merits of t!e standin# c!allen#e.
t7e Romeros ar0ue t7at none of t7e Bank;s e/i6ence 6emonstrates
stan6in0 :ecause -<1 possession a.one is insufficient% -=1 t7e 3ori0ina.4
note intro6uce6 :9 t7e Bank of New York at tria. wit7 t7e two un6ate6
in6orsements inc.u6es a specia. in6orsement to A,Mor0an C7ase%
w7ic7 cannot :e i0nore6 in fa/or of t7e :.ank in6orsement% -M1 t7e
Aune =O% =>>?% assi0nment .etter from MERS occurre6 after
t7e Bank of New York fi.e6 its comp.aint% an6 as a mere
assi0nment of t7e mort0a0e 6oes not act as a .awfu. transfer of
t7e note% an6 -J1 t7e statements :9 Ann 'e..e9 an6 'e/in
.anni0an are ina6missi:.e :ecause :ot7 .ack persona.
know.e60e 0i/en t7at Litton Loan Ser/icin0 6i6 not :e0in
ser/icin0 .oans for t7e Bank of New York unti. se/en mont7s
after t7e forec.osure comp.aint was fi.e6 an6 after t7e
purporte6 transfer of t7e .oan occurre6*
-3GSHtan6in0 is to :e 6etermine6 as of t7e commencement of
suit*01P accord OO Am* Aur* =6 Mortgages Q O?J -=>>C1 -3A p.aintiff 7as
no foun6ation in .aw or fact to forec.ose upon a mort0a0e in w7ic7 t7e
p.aintiff 7as no .e0a. or eEuita:.e interest*41* One reason for suc7 a
reEuirement is simp.e" 3One w7o is not a part9 to a contract cannot
maintain a suit upon it* !f Gt7e entit9H was a successor in interest to a
part9 on t7e GcontractH% it was incum:ent upon it to pro/e t7is to t7e
court*4 L.R. Prop. Mgmt., Inc. v. Grebe % <C?<5NMSC5>MO% K N% CL N*M*
==% L=N ,*=6 ?LJ -citation omitte61* T7e Bank of New York 7a6 t7e
:ur6en of esta:.is7in0 time.9 owners7ip of t7e note an6 t7e mort0a0e
to support its entit.ement to pursue a forec.osure action* See Gona!es
v. "ama % <C??5NMSC5 ><L% K N% <>L N*M* NMN% NJC ,*=6 <<<L*
-3One w7o 7o.6s a note secure6 :9 a mort0a0e 7as two separate an6
in6epen6ent reme6ies% w7ic7 7e ma9 pursue successi/e.9 or
concurrent.9P one is on t7e note a0ainst t7e person an6 propert9 of t7e
6e:tor% an6 t7e ot7er is :9 forec.osure to enforce t7e mort0a0e .ien
upon 7is rea. estate*4 -interna. Euotation marks an6 citation omitte611.
M* None of t7e Bank;s E/i6ence )emonstrates Stan6in0 to orec.ose
B<CD "!e =an( of Ne Aor( ar#ues t!at in order to demonstrate standin#, it
as re*uired to pro/e t7at :efore it fi.e6 suit% it eit7er -<1 7a6 p79sica.
possession of t7e Romeros; note in6orse6 to it or in6orse6 in :.ank or
-=1 recei/e6 t7e note wit7 t7e ri07t to enforcement% as reEuire6 :9 t7e
&CC. See 9 ::-&-&01 %definin# />p?erson entitled to enforce0 a ne#otiable
instrument'. W7i.e we a0ree wit7 t7e Bank t7at our state;s &CC
0o/erns 7ow a part9 :ecomes .e0a..9 entit.e6 to enforce a ne0otia:.e
instrument suc7 as t7e note for a 7ome .oan% we 6isa0ree t7at t7e Bank
put fort7 suc7 e/i6ence.
a* ,ossession of a Note Specia..9 !n6orse6 to A,Mor0an C7ase )oes
Not Esta:.is7 t7e Bank of New York as a Ho.6er
B=>D 6ection ::-&-&01 of t!e I;; provides t!ree ays in !ic! a t!ird
party can enforce a ne#otiable instrument suc! as a note. Id.%3I,erson
entit.e6 to enforce; an instrument means -i1 t7e 7o.6er of t7e
instrument% -ii1 a non7o.6er in possession of t7e instrument w7o 7as t7e
ri07ts of a 7o.6er% or -iii1 a person not in possession of t7e instrument
w7o is entit.e6 to enforce t7e G.ost% 6estro9e6% sto.en% or mistaken.9
transferre6H instrument pursuant to Gcertain &CC enforcement
pro/isionsH.0'K see also 9 ::-&-104%a'%1', %b', %e' %definin# /ne#otiable
instrument0 as includin# a /note0 made /payable to bearer or to order0'.
Because t7e Bank;s ar0uments rest on t7e fact t7at it was in p79sica.
possession of t7e Romeros; note, e need to consider only t!e first to
cate#ories of eli#ibility to enforce under 6ection ::-&-&01.
B=<D "!e I;; defines t!e first type of /person entitled to enforce0 a noteG
t!e /!older0 of t!e instrumentGas /t!e person in possession of a ne#otiable
instrument t7at is pa9a:.e eit7er to :earer or to an i6entifie6 person
t7at is t7e person in possession.0 N165 1788, 9 ::-1-201%b'%21'%5'
%200:'K see also Frederic( 1. )art L -illiam F. -illier, Negotiable
Instruments Under the Uniform ommercial ode, 9 12.02%1' at 12-1& to
12-1: %2012' %/T7e first reEuirement of :ein0 a 7o.6er is possession of
t7e instrument* Howe/er% possession is not necessari.9 sufficient to
make one a 7o.6er* * * * T7e pa9ee is a.wa9s a 7o.6er if t7e pa9ee 7as
possession. W7et7er ot7er persons Eua.if9 as a 7o.6er 6epen6s upon
w7et7er t7e instrument initia..9 is pa9a:.e to or6er or pa9a:.e to
:earer% an6 w7et7er t7e instrument 7as :een in6orse6.0 %footnotes
omitted''. 5ccordin#ly, a t!ird party must prove bot! p!ysical
possession and t!e ri#!t to enforcement t!rou#! eit!er a proper
indorsement or a transfer by ne#otiation. SeeN165 1788, 9 ::-&-201%a'
%1772' %/FNe#otiation. means a transfer of possession . . . of an instrument
by a person ot!er t!an t!e issuer to a person !o t!ereby becomes its
!older.0'. >C.6.? Because in t7is case t7e Romeros; note was c.ear.9
ma6e pa9a:.e to t7e or6er of EEuit9 One% we must 6etermine w7et7er
t7e Bank pro/i6e6 sufficient e/i6ence of 7ow it :ecame a 37o.6er4 :9
eit7er an in6orsement or transfer*
Wit7out exp.anation% t7e note intro6uce6 at tria. 6iffere6
si0nificant.9 from t7e ori0ina. note attac7e6 to t7e forec.osure
comp.aint% 6espite testimon9 at tria. t7at t7e Bank of New
York 7a6 p79sica. possession of t7e Romeros; note from t7e
time t7e forec.osure comp.aint was fi.e6 on Apri. <% =>>?*
Neit7er t7e unin6orse6 note nor t7e twice5in6orse6 note
esta:.is7es t7e Bank as a 7o.6er*
B=MD ,ossession of an unin6orse6 note ma6e pa9a:.e to a t7ir6 part9
6oes not esta:.is7 t7e ri07t of enforcement% 8ust as fin6in0 a .ost c7eck
ma6e pa9a:.e to a particu.ar part9 6oes not a..ow t7e fin6er to cas7 it *
>C.6.?See N165 1788, 9 ::-&-107 cmt. 1 %1772' %/5n instrument t!at is
payable to an identified person cannot be ne#otiated it!out t!e
indorsement of t!e identified person.0'. T7e Bank;s possession of t7e
Romeros; unin6orse6 note ma6e pa9a:.e to EEuit9 One 6oes not
esta:.is7 t7e Bank;s entit.ement to enforcement* We are not
persua6e6* T7e Bank pro/i6es no aut7orit9 an6 we know of none t7at
exists to support its ar0ument t7at t7e pa9ment restrictions create6 :9
a specia. in6orsement can :e i0nore6 contrar9 to our .on057e.6 ru.es on
in6orsements an6 t7e ri07ts t7e9 create* See! e.g., id. %reBectin# eac! of
to entities as a !older because a note lac(ed t!e re*uisite indorsement
folloin# a special indorsement'Kaccord N165 1788, 9 ::-&-204%c' %1772'
%3or t7e purpose of 6eterminin0 w7et7er t7e transferee of an
instrument is a 7o.6er% an in6orsement t7at transfers a securit9 interest
in t7e instrument is effecti/e as an unEua.ifie6 in6orsement of t7e
t7e Bank of New York re.ies on t7e testimon9 of 'e/in .anni0an% an
emp.o9ee of Litton Loan Ser/icin0 w7o maintaine6 t7at 7is re/iew of
.oan ser/icin0 recor6s in6icate6 t7at t7e Bank of New York was t7e
transferee of t7e note* T7e Romeros o:8ecte6 to .anni0an;s testimon9
at tria.% an o:8ection t7at t7e 6istrict court o/erru.e6 un6er t7e
:usiness recor6s exception* We a0ree wit7 t7e Romeros t7at
.anni0an;s testimon9 was ina6missi:.e an6 6oes not esta:.is7 a proper
Litton Loan Ser/icin0% 6i6 not :e0in workin0 for t7e Bank of New York
as its ser/icin0 a0ent unti. No/em:er <% =>>?@se/en mont7s after t7e
Apri. <% =>>?% forec.osure comp.aint was fi.e6*
,rior to t7is 6ate% ,opu.ar Mort0a0e Ser/icin0% !nc* ser/ice6 t7e Bank
of New York;s .oans* .anni0an 7a6 no persona. know.e60e to support
7is testimon9 t7at transfer of t7e Romeros; note to t7e Bank of New
York prior to t7e fi.in0 of t7e forec.osure comp.aint was proper :ecause
.anni0an 6i6 not 9et work for t7e Bank of New York* See Ru.e <<5L>=
NMRA -3 A witness ma9 testif9 to a matter on.9 if e/i6ence is
intro6uce6 sufficient to support a fin6in0 t7at t7e witness 7as persona.
know.e60e of t7e matter* >C.6.? Cvidence to prove personal (noled#e
may consist of t!e itness.s on testimony.0'. We make a simi.ar
conc.usion a:out t7e affi6a/it of Ann 'e..e9% w7o a.so testifie6 a:out
t7e status of t7e Romeros; .oan :ase6 on 7er work for Litton Loan
Ser/icin0* As wit7 .anni0an;s testimon9% suc7 statements :9 'e..e9
were ina6missi:.e :ecause t7e9 .acke6 persona. know.e60e.
>H=MC;"+HN "H )C5<65A =I6+NC66 <C;H<J6 <CNC<6CJ 5NJ
-!en pressed about Flanni#an.s basis of (noled#e on cross-e2amination,
Flanni#an merely stated t!at /our records do indicate0 t!e =an( of Ne
Aor( as t!e !older of t!e note based on /a poolin# and servicin#
a#reement.0 No suc! business record itself as offered or admitted as a
business records !earsay e2ception. See <ule 11-80&%F' N1<5 %2008'
%namin# t!is cate#ory of !earsay e2ceptions as /records of re#ularly
conducted activity0'.
"!e district court erred in admittin# t!e testimony of Flanni#an as a
custodian of records under t!e e2ception to t!e inadmissibility of !earsay
for /business records0 t!at are made in t!e re#ular course of business and
are #enerally admissible at trial under certain conditions.See <ule
11-80&%F' %2008' %citin# t!e version of t!e rule in effect at t!e time of
trial'. "!e business records e2ception allos t!e records t!emselves to be
admissible but not simply statements about t!e purported contents of t!e
records. >C.6.? See State v. ofer, 2011-N1;5-08:, D 18, 1:0 N.1. 48&,
2E1 4.&d 111: %!oldin# t!at, based on t!e plain lan#ua#e of <ule 11-80&%F'
%2008',/it is clear t!at t!e business records e2ception re*uires some form of
document t!at satisfies t!e rule.s foundational elements to be offered and
admitted into evidence and t!at testimony alone does not *ualify under t!is
e2ception to t!e !earsay rule0 and concludin# t!at /Ftestimony re#ardin#
t!e contents of business records, unsupported by t!e records t!emselves, by
one it!out personal (noled#e of t!e facts constitutes inadmissible
!earsay..0 %citation omitted''. Neit7er .anni0an;s testimon9 nor 'e..e9;s
affi6a/it can su:stantiate t7e existence of 6ocuments e/i6encin0 a
transfer if t7ose 6ocuments are not entere6 into e/i6ence* Accor6in0.9%
.anni0an;s tria. testimon9 cannot esta:.is7 t7at t7e Romeros; note was
transferre6 to t7e Bank of New York*GE*S*H
We a.so re8ect t7e Bank;s ar0ument t7at it can enforce t7e Romeros;
note :ecause it was assi0ne6 t7e mort0a0e :9 MERS* An assi0nment of
a mort0a0e /ests on.9 t7ose ri07ts to t7e mort0a0e t7at were /este6 in
t7e assi0nin0 entit9 an6 not7in0 more* S ee 9 ::-&-20&%b' %/"ransfer of
an instrument, !et!er or not t!e transfer is a ne#otiation, vests in t!e
transferee any ri#!t of t!e transferor to enforce t!e instrument, includin#
any ri#!t as a !older in due course.0'K accord )art L -illier, su"ra, 9
12.0&%2' at 12-28 %/"!>is? s!elter rule puts t!e transferee in t!e s!oes of t!e
As a nominee for EEuit9 One on t7e mort0a0e contract% MERS cou.6
assi0n t7e mort0a0e :ut .acke6 an9 aut7orit9 to assi0n t7e Romeros;
note* A.t7ou07 t7is Court 7as ne/er exp.icit.9 ru.e6 on t7e issue of
w7et7er t7e assi0nment of a mort0a0e cou.6 carr9 wit7 it t7e transfer
of a note% we 7a/e .on0 reco0niFe6 t7e separate functions t7at note an6
mort0a0e contracts perform in forec.osure actions* See #irst Nat$l Bank
of Belen v. %uce, 1784-N16;-078, D 8, 88 N.1. 74, :27 4.2d 8E0 %!oldin#
t!at because t!e assi#nment of a mort#a#e to a ban( did not convey an
interest in t!e loan contract, t!e ban( as not entitled to foreclose on t!e
mort#a#e'K Simson v. Bilderbeck! Inc., 17EE-N16;-180, DD 1&-14, 8E N.1.
EE8, 418 4.2d 80& %e2plainin# t!at />t?!e ri#!t of t!e assi#nee to enforce t!e
mort#a#e is dependent upon !is ri#!t to enforce t!e note0 and notin# t!at
/>b?ot! t!e note and mort#a#e ere assi#ned to plaintiff.
>643+""+NG ")C NH"C 5NJ 1H<"G5GC?
%/5 mort#a#e securin# t!e repayment of a promissory note follos t!e
note, and t!us, only t!e ri#!tful oner of t!e note !as t!e ri#!t to enforce
t!e mort#a#e.0'K Junaay, su"ra, 9 24,18 %/"!e mort#a#e only secures t!e
payment of t!e debt, !as no life independent of t!e debt, and cannot be
separately transferred. +f t!e intent of t!e lender is to transfer only t!e
security interest %t!e mort#a#e', t!is cannot le#ally be done and t!e transfer
of t!e mort#a#e it!out t!e debt ould be a nullity.0'. "!ese separate
contractual functionsG!ere t!e note is t!e loan and t!e mort#a#e is a
pled#ed security for t!at loanGcannot be i#nored simply by t!e advent of
modern tec!nolo#y and t!e 1C<6 electronic mort#a#e re#istry system.
>")C NH=HJA C36C +6 ;35+1+NG 5<GI1CN" +6 CO43+;+"3A
ai.ure of Anot7er Entit9 to C.aim Owners7ip of t7e Romeros; Note
)oes Not Make t7e Bank of New York a Ho.6er
Finally, t!e =an( of Ne Aor( ur#es t!is ;ourt to adopt t!e district court.s
inference t!at if t!e =an( as not t!e proper !older of t!e <omeros. note,
t!en t!ird-party-defendant C*uity Hne ould !ave claimed to be t!e
ri#!tful !older, and C*uity Hne made no suc! claim.
T7e simp.e fact t7at EEuit9 One 6oes not c.aim owners7ip of t7e Romeros;
note 6oes not esta:.is7 t7at t7e note was proper.9 transferre6 to t7e Bank of
New York* !n fact% t7e e/i6ence in t7e recor6 in6icates t7at A,Mor0an C7ase
ma9 :e t7e .awfu. 7o.6er of t7e Romeros; note% as ref.ecte6 in t7e note;s
specia. in6orsement*
>)H3JC< 1I6" 4<HNC CN"+"3C1CN" "H CNFH<;C -- NH
4<C6I14"+HN 533H-CJ?
=ecause t!e transferee is not a !older, t!ere is no presumption under
6ection >::-?&-&08 >%1772' %entitlin# a !older in due course to payment by
production and upon si#nature'? t!at t!e transferee, by producin# t!e
instrument, is entitled to payment. "!e instrument, by its terms, is not
payable to t!e transferee and t!e transferee must account for possession of
t!e unindorsed instrument by provin# t!e transaction t!rou#! !ic! t!e
transferee ac*uired it.
>3CNJC<P6 H=3+G5"+HN "H 566I<C ")5" ")C 3H5N +6 N+5=3C?
B* A Len6er Must Consi6er a Borrower;s A:i.it9 to Repa9 a Home
Mort0a0e Loan in )eterminin0 W7et7er t7e Loan ,ro/i6es a
Reasona:.e% Tan0i:.e Net Benefit% as ReEuire6 :9 t7e New Mexico
For reasons t!at are not clear in t!e record, t!e <omeros did not appeal t!e
district court.s Bud#ment in favor of t!e ori#inal lender, C*uity Hne, on t!e
<omeros. claims t!at C*uity Hne violated t!e )345. "!e ;ourt of 5ppeals
addressed t!e )345 violation issue in t!e conte2t of t!e <omeros.
contentions t!at t!e alle#ed violation constituted a defense to t!e
foreclosure complaint of t!e =an( of Ne Aor( by affirmin# t!e district
court.s favorable rulin# on t!e =an( of Ne Aor(.s complaint. As a resu.t
of our 7o.6in0 t7at t7e Bank of New York 7as not esta:.is7e6 stan6in0
to :rin0 a forec.osure action% t7e issue of HL,A /io.ation is now moot
in t7is case* But :ecause it is an issue t7at is .ike.9 to :e a66resse6
a0ain in future attempts :9 w7ic7e/er institution ma9 :e a:.e to
esta:.is7 stan6in0 to forec.ose on t7e Romero 7ome an6 :ecause it
in/o./es a statutor9 interpretation issue of su:stantia. pu:.ic
importance in man9 ot7er cases% we a66ress t7e conc.usion of :ot7 t7e
Court of Appea.s an6 t7e 6istrict court t7at a 7omeowner;s ina:i.it9 to
repa9 is not amon0 3a.. of t7e circumstances4 t7at t7e =>>M HL,A%
app.ica:.e to t7e Romeros; .oan% reEuires a .en6er to consi6er un6er its
3f.ippin04 pro/isions"
No cre6itor s7a.. knowin0.9 an6 intentiona..9 en0a0e in t7e unfair act
or practice of f.ippin0 a 7ome .oan* As use6 in t7is su:section% 3f.ippin0
a 7ome .oan4 means t7e makin0 of a 7ome .oan to a :orrower t7at
refinances an existin0 7ome .oan w7en t7e new .oan 6oes not 7a/e
reasona:.e% tan0i:.e net :enefit to t7e :orrower consi6erin0 a.. of t7e
circumstances% inc.u6in0 t7e terms of :ot7 t7e new an6 refinance6
.oans% t7e cost of t7e new .oan an6 t7e :orrower;s circumstances*
6ection :8-215-4%=' %200&'K see also Bank of N.Y., 2011-N1;5-110, D 18
%!oldin# t!at /!ile t!e ability to repay a loan is an important consideration
!en ot!erise assessin# a borroer.s financial situation, e ill not read
suc! meanin# into t!e statute.s Freasonable, tan#ible net benefit.
-e !ave been presented it! no conceivable reason !y t!e 3e#islature in
200& ould consciously e2clude consideration of a borroer.s ability to
repay t!e loan as a factor of t!e borroer.s circumstances, and e can t!in(
of none. -it!out an e2press le#islative direction to t!at effect, e ill not
conclude t!at t!e 3e#islature meant to approve mort#a#e loans t!at ere
doomed to end in failure and foreclosure. 5part from t!e plain lan#ua#e of
t!e statute and its e2press statutory purpose, it is difficult to compre!end
!o an unrepayable !ome mort#a#e loan t!at ill result in a foreclosure on
one.s !ome and a deficiency Bud#ment to pay after t!e borroer is rendered
!omeless could provide /a reasonable, tan#ible net benefit to t!e borroer.0
TRANSACT!ONH a .en6er cannot a/oi6 its own o:.i0ation to consi6er
rea. facts an6 circumstances >C.6.? t!at mi#!t clarify t!e inaccuracy of a
borroer.s income claim. Id. %/3enders cannot, !oever, disre#ard (non
facts and circumstances t!at may place in *uestion t!e accuracy of
information contained in t!e application.0' 5 lender.s illful blindness to
its responsibility to consider t!e true circumstances of its borroers is
unacceptable. 5 full and fair consideration of t!ose circumstances mi#!t
ell s!o t!at a ne mort#a#e loan ould put a borroer into a materially
orse situation it! respect to t!e ability to ma(e !ome loan payments and
avoid foreclosure, conse*uences of a borroer.s circumstances t!at cannot
be disre#arded. if t!e inclusion of suc! boilerplate lan#ua#e in t!e mass of
documents a borroer must si#n at closin# ould substitute for a lender.s
conscientious compliance it! t!e obli#ations imposed by t!e )345, its
protections ould be no more t!an empty ords on paper t!at could be
summarily sept aside by t!e addition of yet one more document for t!e
borroer to si#n at t!e closin#.
>")C =351C G51C?
=orroers are certainly not blameless if t!ey try to refinance t!eir !omes
t!rou#! loans t!ey cannot afford. =ut t!ey do not !ave a mort#a#e lender.s
e2pertise, and t!e combination of t!e relative unsop!istication of many
borroers and t!e potential motives of unscrupulous lenders see(in# profits
from ma(in# loans it!out re#ard for t!e conse*uences to !omeoners led
to t!e need for statutory reform. See 9 :8-215-2 %discussin# %5' /abusive
mort#a#e lendin#0 practices, includin# %=' /ma(in# . . . loans t!at are
e*uity-based, rat!er t!an income based,0 %;' /repeatedly refinanc>in#?
!ome loans,0 reardin# lenders it! /immediate income0 from /points and
fees0 and %J' victimi$in# !omeoners it! t!e unnecessary /costs and
terms0 of /overreac!in# creditors0'.
>FCJC<53 4<CC14"+HN ;35+1 F<H1 H;; 6"5"C1CN" JHC6
NH" 4<HN+JC =5N@ HF NC- AH<@ 5NA 4<H"C;"+HN?

-!ile t!e =an( is correct in assertin# t!at t!e H;; issued a blan(et rule in
Manuary 2004, see 12 ;.F.<. 9 &4.4%a' %2004' %preemptin# state las t!at
impact /a national ban(.s ability to fully e2ercise its Federally aut!ori$ed
real estate lendin# poers0', and t!at t!e Ne 1e2ico 5dministrative ;ode
reco#ni$es t!is H;; rule, neit!er t!e =an( nor our administrative code
addresses several actions ta(en by ;on#ress and t!e courts since 2004 to
disavo t!e H;;.s broad preemption statement.

5pplyin# t!e Jodd-Fran( standard to t!e )345, e conclude t!at federal
la does not preempt t!e )345. First, our revie of t!e N=5 reveals no
e2press preemption of state consumer protection las suc! as t!e )345.
6econd, t!e =an( provides no evidence t!at conformin# to t!e dictates of
t!e )345 prevents or si#nificantly interferes it! a national ban(.s
operations. "!ird, t!e )345 does not create a discriminatory effectK rat!er,
t!e )345 applies to any /creditor,0 !ic! t!e 200& statute defines as /a
person !o re#ularly >offers or? ma(es a !ome loan.0 6ection :8-215-&%G'
%200&'. 5ny entity t!at ma(es !ome loans in Ne 1e2ico must follo t!e
)345, re#ardless of !et!er t!e lender is a state or nationally c!artered
ban(. See 9 :8-215-2 %providin# le#islative findin#s on abusive mort#a#e
lendin# practices t!at t!e )345 is meant to discoura#e'.
Bank of New York S.amme6 for Misrepresentin0 Stan6in0
Muly E, 2010 by Neil Garfield
Mud#e "odd also stated t!at additional discovery is to be produced !en t!e foreclosure
involves a securiti$ation, lost note claims, or a !older in due course c!allen#e %!ic!
may arise in t!e conte2t of t!e purported assi#nment of a to2ic loan to a securiti$ed trust
prior to t!e trustee of t!at trust institutin# a foreclosure action, as ell as any predatory
loan claims a#ainst t!e ori#inal lender'. Mud#e "odd reco#ni$ed t!at t!ere are do$ens of
le#al issues and in*uiries !ere a foreclosure involves a securiti$ation, and t!at a
borroer !as bot! t!e ri#!t to (no !o ons t!e mort#a#e loan and !et!er a
foreclosin# party !as t!e le#al ri#!t to foreclose.
-)A "+"3C 5NJ 6C;I<+"+Q5"+HN <C4H<" +6 6H +14H<"5N" FH<
Muly E, 2010 by Foreclosureblues
>Cditor GarfieldPs? NoteR."!is case and outcome in favor of t!e !omeoner as a
direct result of obtainin# an accurate title and securiti$ation report from a *ualified
e2pert t!at contradicted t!e /alle#ed0 evidence of t!e foreclosin# plaintiff and provided
substance t!at enabled t!e Bud#e to rule in favor of t!e !omeoner.
NC- MC<6CA "<+53 ;HI<" MIJGC +66IC6 :&-45GC H4+N+HN
J+61+66+NG FH<C;3H6I<C ;H1435+N" HF =5N@ HF NC- AH<@ 56
6C;I<+"+QCJ "<I6"CC, H4+N+HN ;HI3J 45NC ")C -5A FH<
51CNJ1CN"6 "H NC- MC<6CA <I3C6 HF 4<H;CJI<C <CTI+<+NG
FH<C;3H6I<C ;H1435+N"6 "H =C ;C<"+F+CJ 5NJ FH< FH<C;3H6+NG
45<"+C6 "H 4<HJI;C 6C;I<+"+Q5"+HN J+6;HNC<A +N H<JC< "H =C 5=3C
"H 4I<6IC FH<C;3H6I<C
"oday, Muly 0E, 2010, &0 minutes a#o
Meff =arnes Cs*.
Muly E, 2010
+n an e2tremely ell-reasoned and detailed ritten opinion, Ne Mersey trial court
Mud#e -illiam ;. "odd !as issued a :&-pa#e %yes, fifty-t!ree pa#e' Hrder dismissin# a
foreclosure action filed by =an( of Ne Aor( as "rustee for )ome 1ort#a#e +nvestment
"rust 2004-4 1ort#a#e-=ac(ed Notes 6eries 2004-4, Joc(et No. F-8&:E-07, 5tlantic
;ounty, Ne Mersey. "!e matter as decided on Mune 27, 2010 and t!e formal opinion
as approved for publication t!is ee( after t!e matter as tried at t!e end of Mune,
"!e opinion sets fort! an incredible analysis of a !ost of issues involvin#
foreclosure in securiti$ation conte2ts and !i#!li#!ts !y a foreclosin# plaintiff must
comply it! its obli#ations to prove standin# in order to be able to pursue a foreclosure
action. -!ile e do not summari$e t!e entire !oldin# !ere, e do ant to point out
some of t!e si#nificant findin#s.
"!e court found t!at t!ere as no meanin#ful attempt by =an( of Ne Aor(
%!ereafter /=HNA0' to comply it! applicable Ne Mersey procedural rules re*uirin# a
recitation of all assi#ments in t!e c!ain of title. =HNA simple alle#ed t!at it !ad
ac*uired possession of t!e note prior to t!e liti#ation bein# filed. )oever, t!e evidence
at trial failed to establis! t!is alle#ation, it! t!e ;ourt notin# t!at t!ere ere missin#
documents incident to t!e securiti$ation of t!e loan includin# t!e mort#a#e loan
sc!edule t!at s!ould !ave been attac!ed to t!e mort#a#e loan purc!ase a#reement. "!e
;ourt also found t!at t!e /1C<6 assi#nment as potentially misleadin#0.
"!e ;ourt found t!at t!ere as a failure of proof as to =HNA.s le#al standin#,
arrantin# dismissal of t!e action and conditionin# any refilin# on a certification t!at
t!e plaintiff is in possession of t!e ori#inal note at t!e time of filin#. "!is is in line it!
t!e recent action of t!e 6upreme ;ourt of Florida !ic!, as of February 11, 2010 by
5dministrative Hrder, re*uires all residential mort#a#e foreclosure complaints to be
verified. +t is no secret t!at Florida trial courts !ave and continue to dismiss foreclosure
actions !ic! do not comply it! t!e verification re*uirement. +t is !oped t!at t!e
courts of Ne Mersey ill adopt Mud#e "odd.s ell-reasoned analysis and dismiss
foreclosure complaints !ic! do not comply it! t!e Ne Mersey procedural rules
re*uirin# proof of le#al standin# to foreclose at inception and time of filin# a ;omplaint
for foreclosure.
Mud#e "odd also stated t!at additional discovery is to be produced !en t!e
foreclosure involves a securiti$ation, lost note claims, or a !older in due course
c!allen#e %!ic! may arise in t!e conte2t of t!e purported assi#nment of a to2ic loan to
a securiti$ed trust prior to t!e trustee of t!at trust institutin# a foreclosure action, as ell
as any predatory loan claims a#ainst t!e ori#inal lender'. Mud#e "odd reco#ni$ed t!at
t!ere are do$ens of le#al issues and in*uiries !ere a foreclosure involves a
securiti$ation, and t!at a borroer !as bot! t!e ri#!t to (no !o ons t!e mort#a#e
loan and !et!er a foreclosin# party !as t!e le#al ri#!t to foreclose.
"!is incredibly si#nificant decision ill !opefully become t!e la in t!e state of
Ne Mersey, and it is !oped t!at t!e <ules ;ommittee for t!e Ne Mersey courts ill
soon adopt court rules re*uirin# t!at all residential foreclosure complaints filed in Ne
Mersey be accompanied by t!e filin# of an appropriate ;ertification, and furt!er re*uirin#
t!at all securiti$ation discovery be produced in all foreclosure cases involvin# a
securiti$ed loan. -e applaud and salute Mud#e "odd for !is ama$in# effort to not only
streamline foreclosure liti#ation in Ne Mersey, but also insurin# t!at borroers. le#al
ri#!ts are protected as ell.
Meff =arnes, Cs*., !ttp,SS.ForeclosureJefenseNationide.com