Bank of America v. BA Mortgage, LLC, 2005 NMCA 037 (NM 1/27/2005), Docket No. 24,133.
| Decision Date | 27 January 2005 |
| Docket Number | Docket No. 24,133. |
| Citation | 2005 NMCA 037 |
| Parties | BANK OF AMERICA, N.A., Cross-Plaintiff/Appellant, v. BA MORTGAGE, LLC (A Wholly Owned Subsidiary of BANK OF AMERICA, N.A.), THE ESTATE OF RITA SANCHEZ, Deceased, MELANIE SANCHEZ, Personal Representative of the Estate of Rita Sanchez, Deceased, THE UNKNOWN HEIRS, DEVISEES AND LEGATEES OF RITA K. SANCHEZ; BANK OF AMERICA, N.A.; JOHN DOE, Tenant Whose True Name is Unknown; JANE DOE, Tenant Whose True Name is Unknown, Cross-Defendants, and ALBUQUERQUE HOME LOANS, LLC, Real Party in Interest/Appellee. |
| Court | New Mexico Supreme Court |
Appeal from the District Court of Bernalillo County, Theresa Baca, District Judge.
Elizabeth M. Dranttel, Little & Dranttel, P.C., Albuquerque, NM, for Appellant.
Sylvain Segal, Law Offices of Sylvain Segal, Albuquerque, NM, for Appellee.
{1} A fund was created when BA Mortgage, LLC foreclosed on its mortgage and the subsequent sale of the property resulted in a surplus of $28,467.43. This appeal requires us to determine whether a junior mortgagee or the debtor's assignee of her rights of redemption and surplus is entitled to the surplus. The district court ruled that the debtor's assignee was entitled to the surplus. We hold that if the lien of junior mortgagee is valid, it is entitled to the surplus. We therefore reverse and remand for further proceedings.
{2} On April 5, 1999, BA Mortgage, LLC obtained a promissory note from Rita Sanchez secured by a mortgage on real property she owned. In July 2001, it filed a complaint for foreclosure against Ms. Sanchez. Ms. Sanchez died while the proceedings were pending, and her estate (Estate) was substituted as a defendant in an amended complaint.
{3} Bank of America, N.A. (Junior Mortgagee) was named as a defendant in the suit brought by BA Mortgage, LLC, because on October 22, 1999, it obtained a different promissory note from Ms. Sanchez secured by a mortgage on the same real property which was recorded on November 16, 1999. Junior Mortgagee's answer and cross-claim alleged that Ms. Sanchez had defaulted on its loan, that she remained indebted to it in the amount of $46,521.10, and requested foreclosure of the property pursuant to its mortgage.
{4} The Estate failed to answer and the property was ordered sold pursuant to a default judgment filed on August 13, 2004. In its order for default judgment, the district court recognized that Junior Mortgagee had filed a cross-claim for foreclosure "which is pending and undetermined." The court also noted that Junior Mortgagee had reserved the right to proceed on its cross-claim and that the court "retain[ed] jurisdiction of [the] proceedings for the purpose of . . . resolving [Junior Mortgagee's] crossclaim . . . [and] determining the rights of the parties in and to any surplus monies realized from the foreclosure sale."
{5} On October 2, 2002, the property was sold for $107,000. The district court approved the sale and ordered the resulting surplus of $28,467.43 deposited into the court registry. On November 1, 2002, the Estate assigned its right of surplus in the property to Albuquerque Home Loans (Assignee) and on November 12, 2002, Assignee recorded an assignment of right of redemption it received from the Estate. Assignee does not contend, and it presented no evidence that either assignment predated the recorded lien of Junior Mortgagee.
{6} On November 21, 2002, Assignee filed an application with the district court asking that the surplus from the foreclosure sale of the property be paid to it, and five days later, it petitioned the district court to allow it to exercise its assigned right of redemption. Junior Mortgagee responded to Assignee's application, arguing that it had a higher priority claim to the surplus than Assignee because of its mortgage on the foreclosed property, and filed its own motion for judgment of foreclosure and priority claim to surplus money proceeds. Following a hearing, the district court ordered that Assignee was entitled to the surplus proceeds. Consequently Assignee obtained title to the property at a net cost of $80,315.91 by paying $108,783.34 to the district court clerk to redeem the property and then receiving the surplus of $28,467.43 from the court registry. Junior Mortgagee appeals.
{7} This case involves the application of law to undisputed facts; we therefore review the court's ruling de novo. See Paradiso v. Tipps Equip., 2004-NMCA-009, ¶ 23, 134 N.M. 814, 82 P.3d 985.
{8} G. Nelson and D. Whitman, Real Estate Finance Law § 7.31, at 588 (2d ed. 1985), states the rule regarding the right to surplus after foreclosure:
The major underlying principle is that the surplus represents the remnant of the equity of redemption and security wiped out by the foreclosure. Consequently, the surplus stands in the place of the foreclosed real estate and the liens and interests that previously attached to that real estate now attach to the surplus. They are entitled to be paid out of the surplus in the order of priority they enjoyed prior to foreclosure. The claim of the foreclosed mortgagor or the owner of the equity of redemption normally is junior to those of all valid liens wiped out by the foreclosure. (footnotes omitted).
{9} Restatement (Third) of Property: Mortgages § 7.4 (1997), states the same rule, providing that "the surplus is applied to liens and other interests terminated by the foreclosure in order of their priority and the remaining balance, if any, is distributed to the holder of the equity of redemption." Therefore, "the claim of the holder of the foreclosed equity of redemption to the surplus is subordinate to the claims of all other holders of liens and interests terminated by the foreclosure." Id. cmt. b.
{10} It is undisputed that Junior Mortgagee recorded its lien before Assignee obtained its assignment of right of redemption and made a claim to the right to any surplus. Applying the foregoing rule, Junior Mortgagee has a higher priority claim to the surplus than Assignee. See Pacific Loan Mgmt. Corp. v. Superior Court, 242 Cal. Rptr. 547, 551-52 (Ct. App. 1987) (); W.A.H. Church, Inc. v. Holmes, 46 F.2d 608, 611 (D.C. 1931) (); Builders Supply Co. v. Pine Belt Sav. & Loan Ass'n, 369 So. 2d 743, 745 (Miss. 1979) (); Morsemere Fed. Sav. & Loan Ass'n v. Nicolaou, 503 A.2d 392, 394 (N.J. Super. Ct. App. Div. 1986) (...
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