320 P.3d 1 (N.M. 2014), 33,224, Bank of New York v. Romero

Docket Nº:Docket 33,224
Citation:320 P.3d 1, 2014 -NMSC- 007
Opinion Judge:CHARLES W. DANIELS, Justice.
Party Name:BANK OF NEW YORK as Trustee for POPULAR FINANCIAL SERVICES MORTGAGE/PASS THROUGH CERTIFICATE SERIES #2006, Plaintiff-Respondent, v. JOSEPH A. ROMERO and MARY ROMERO, a/k/a MARY O. ROMERO, a/k/a MARIA ROMERO, Defendants-Petitioners
Attorney:Joshua R. Simms, Joshua R. Simms, P.C., Albuquerque, NM; Frederick M. Rowe, Daniel Yohalem, Katherine Elizabeth Murray, Santa Fe, NM for Petitioners. Eraina Marie Edwards, Rose Little Brand & Associates, P.C., Albuquerque, NM; Jan T. Chilton, Severson & Werson, San Francisco, CA for Respondents. ...
Judge Panel:CHARLES W. DANIELS, Justice. WE CONCUR: PETRA JIMENEZ MAES, Chief Justice, RICHARD C. BOSSON, Justice, EDWARD L. CH
Case Date:February 13, 2014
Court:Supreme Court of New Mexico
 
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320 P.3d 1 (N.M. 2014)

2014 -NMSC- 007

BANK OF NEW YORK as Trustee for POPULAR FINANCIAL SERVICES MORTGAGE/PASS THROUGH CERTIFICATE SERIES #2006, Plaintiff-Respondent,

v.

JOSEPH A. ROMERO and MARY ROMERO, a/k/a MARY O. ROMERO, a/k/a MARIA ROMERO, Defendants-Petitioners

Docket No. 33,224

Supreme Court of New Mexico

February 13, 2014

Released for Publication March 18, 2014.

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ORIGINAL APPEAL ON CERTIORARI. James A. Hall, District Judge.

Joshua R. Simms, Joshua R. Simms, P.C., Albuquerque, NM; Frederick M. Rowe, Daniel Yohalem, Katherine Elizabeth Murray, Santa Fe, NM for Petitioners.

Eraina Marie Edwards, Rose Little Brand & Associates, P.C., Albuquerque, NM; Jan T. Chilton, Severson & Werson, San Francisco, CA for Respondents.

Gary K. King, Attorney General, Joel Cruz-Esparza, Assistant Attorney General, Karen J. Meyers, Assistant Attorney General, Santa Fe, NM for Amicus Curiae New Mexico Attorney General.

Nancy Ana Garner, Santa Fe, NM for Amicus Curiae Civic Amici.

Edward R. Ricco, John P. Burton, Rodey, Dickason, Sloan, Akin & Robb, P.A., Albuquerque, NM; James J. White, Ann Arbor, MI for Amicus Curiae New Mexico Bankers Association.

CHARLES W. DANIELS, Justice. WE CONCUR: PETRA JIMENEZ MAES, Chief Justice, RICHARD C. BOSSON, Justice, EDWARD L. CHÁVEZ, Justice, BARBARA J. VIGIL, Justice.

OPINION

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CHARLES W. DANIELS, Justice.

{1} We granted certiorari to review recurring procedural and substantive issues in home mortgage foreclosure actions. We hold that the Bank of New York did not establish its lawful standing in this case to file a home mortgage foreclosure action. We also hold that a borrower's ability to repay a home mortgage loan is one of the " borrower's circumstances" that lenders and courts must consider in determining compliance with the New Mexico Home Loan Protection Act, NMSA 1978, § § 58-21A-1 to -14 (2003, as amended through 2009) (the HLPA), which prohibits home mortgage refinancing that does not provide a reasonable, tangible net benefit to the borrower. Finally, we hold that the HLPA is not preempted by federal law. We reverse the Court of Appeals and district court and remand to the district court with instructions to vacate its foreclosure judgment and to dismiss the Bank of New York's foreclosure action for lack of standing.

I. FACTUAL AND PROCEDURAL BACKGROUND

{2} On June 26, 2006, Joseph and Mary Romero signed a promissory note with Equity One, Inc. to borrow $227,240 to refinance their Chimayo home. As security for the loan, the Romeros signed a mortgage contract with the Mortgage Electronic Registration Systems (MERS), as the nominee for Equity One, pledging their home as collateral for the loan.

{3} The Romeros allege that Equity One cold-called them and urged them to refinance their home for access to their home's equity. The terms of the Equity One loan were not an improvement over their current home loan: Equity One's interest rate was higher (starting at 8.1 percent and increasing to 14 percent compared to 7.71 percent), the Romeros' monthly payments were greater ($1,683.28 compared to $1,256.39), and the loan amount due was greater ($227,240 compared to $176,450). However, the Romeros would receive a cash payout of nearly $43,000, which would cover about $12,000 in new closing costs and provide them with about $30,000 to pay off other debts.

{4} Both parties agree that the Romeros' loan was a no income, no assets loan (NINA) and that documentation of their income was never requested or verified. The Romeros owned a music store in Espanola, New Mexico, and Mr. Romero allegedly told Equity One that the store provided him an income of $5,600 a month. Also known as liar loans because they are based solely on the professed income of the self-employed, NINA loans have since been specifically prohibited in New Mexico by a 2009 amendment to the HLPA and also by federal law. See NMSA 1978, § 58-21A-4(C)-(D) (requiring a creditor to document a borrower's ability to repay); 15 U.S.C.A. § 1639c(a)(1) (2010) (requiring creditors to make a reasonable and good-faith effort to determine a borrower's ability to repay); see also Pub. L. No. 111-203, § 1411(a)(1), 124 Stat. 2142 (2010) (same). The Romeros stated that they did not read the note or the mortgage contracts thoroughly before signing them, allegedly because of limited time for review, the complexity of the documents, and their own limited education. They admit having signed a document prepared by Equity One reciting that the home loan provided them a " reasonable tangible net benefit" based on the $30,000 cash payout.

{5} The Romeros soon became delinquent on their increased loan payments. On April 1, 2008, a third party--the Bank of New York, identifying itself as a trustee for Popular

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Financial Services Mortgage--filed a complaint in the First Judicial District Court seeking foreclosure on the Romeros' home and claiming to be the holder of the Romeros' note and mortgage with the right of enforcement.

{6} The Romeros responded by arguing, among other things, that the Bank of New York lacked standing to foreclose because nothing in the complaint established how the Bank of New York was a holder of the note and mortgage contracts the Romeros signed with Equity One. According to the Romeros, Securities and Exchange Commission filings showed that their loan certificate series was once owned by Popular ABS Mortgage and not Popular Financial Services Mortgage and that the holder was JPMorgan Chase. The Romeros also raised several counterclaims, only one of which is relevant to this appeal: that the loan violated the antiflipping provisions of the New Mexico HLPA, Section 58-21A-4(B) (2003).

{7} The Bank responded by providing (1) a document showing that MERS as a nominee for Equity One assigned the Romeros' mortgage to the Bank of New York on June 25, 2008, three months after the Bank filed the foreclosure complaint and (2) the affidavit of Ann Kelley, senior vice president for Litton Loan Servicing LP, stating that Equity One intended to transfer the note and assign the mortgage to the Bank of New York prior to the Bank's filing of the foreclosure complaint. However, the Bank of New York admits that Kelley's employer Litton Loan Servicing did not begin servicing the Romeros' loan until November 1, 2008, seven months after the foreclosure complaint was filed in district court.

{8} At a bench trial, Kevin Flannigan, a senior litigation processor for Litton Loan Servicing, testified on behalf of the Bank of New York. Flannigan asserted that the copies of the note and mortgage admitted as trial evidence by the Bank of New York were copies of the originals and also testified that the Bank of New York had physical possession of both the note and mortgage at the time it filed the foreclosure complaint.

{9} The Romeros objected to Flannigan's testimony, arguing that he lacked personal knowledge to make these claims given that Litton Loan Servicing was not a servicer for the Bank of New York until after the foreclosure complaint was filed and the MERS assignment occurred. The district court allowed the testimony based on the business records exception because Flannigan was the present custodian of records.

{10} The Romeros also pointed out that the copy of the " original" note Flannigan purportedly authenticated was different from the " original" note attached to the Bank of New York's foreclosure complaint. While the note attached to the complaint as a true copy was not indorsed, the " original" admitted at trial was indorsed twice: first, with a blank indorsement by Equity One and second, with a special indorsement made payable to JPMorgan Chase. When asked whether either of those two indorsements included the Bank of New York, Flannigan conceded that neither did, but he claimed that his review of the records indicated the note had been transferred to the Bank of New York based on a pooling and servicing agreement document that was never entered into evidence.

{11} The district court also heard testimony on the circumstances of the loan, the points and fees charged, and the calculus used to determine a reasonable, tangible net benefit. Following trial, the district court issued a written order finding that the Flannigan testimony and the assignment of the mortgage established the Bank of New York as the proper holder of the Romeros' note and concluding that the loan did not violate the HLPA because the cash payment to the Romeros provided a reasonable, tangible net benefit. The district court also determined that because the Bank of New York was a national bank, federal law preempted the protections of the HLPA.

{12} On appeal, the Court of Appeals affirmed the district court's rulings that the Bank of New York had standing to foreclose and that the HLPA had not been violated but determined as a result of the latter ruling that it was not necessary to address whether federal law preempted the HLPA. See Bank of N.Y. v. Romero, 2011 -NMCA- 110, ¶ 6, 150 N.M. 769,

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266 P.3d 638 (" Because we conclude that substantial evidence exists for each of the district court's findings and conclusions, and we affirm on those grounds, we do not address the Romeros' preemption argument." ).

{13} We granted the Romeros' petition for writ of certiorari.

II. DISCUSSION

A. The Bank of New York Lacks Standing to Foreclose

1. Preservation

{14} As a preliminary matter, we address the Bank of New York's argument that the Romeros waived their challenge of the Bank's standing in this Court and the Court of Appeals by failing to provide the evidentiary support required by Rule 12-213(A)(3) NMRA. See Bank of N.Y., 2011...

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