Deutsche Bank Nat'l Trust Co. v. Valerio

• Decision Date: 20 May 2021
• Docket Number: No. A-1-CA-37330,A-1-CA-37330
• Court: Court of Appeals of New Mexico
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, AS Indenture TRUSTEE FOR NEW CENTURY HOME EQUITY LOAN TRUST 2004-3, Plaintiff/Counterdefendant-Appellee, v. Christine B. VALERIO; Lucy E. Valerio, if living; if deceased, The Unknown Heirs, Devisees, or Legatees of Lucy E. Valerio, Deceased; Blazer Financial Services Inc.; and The Unknown Spouse of Christine B. Valerio, if any, Defendants, and John Valerio, Defendant/Counterclaimant-Appellant.

493 P.3d 493

DEUTSCHE BANK NATIONAL TRUST COMPANY, AS Indenture TRUSTEE FOR NEW CENTURY HOME EQUITY LOAN TRUST 2004-3, Plaintiff/Counterdefendant-Appellee,

v.Christine B. VALERIO; Lucy E. Valerio, if living; if deceased, The Unknown Heirs, Devisees, or Legatees of Lucy E. Valerio, Deceased; Blazer Financial Services Inc.; and The Unknown Spouse of Christine B. Valerio, if any, Defendants,andJohn Valerio, Defendant/Counterclaimant-Appellant.

No. A-1-CA-37330

Court of Appeals of New Mexico.

Filing Date: May 20, 2021

Moses, Dunn, Farmer & Tuthill, P.C. Karla K. Poe Albuquerque, NM for Appellee

New Mexico Legal Aid, Inc. Mari Kempton Albuquerque, NM, Law Office of Jane B. Yohalem Jane B. Yohalem Santa Fe, NM for Appellant

HENDERSON, Judge.

{1} In light of our Supreme Court's recent jurisprudence holding that standing in mortgage foreclosure cases is prudential and not jurisdictional because these causes of action are derived from the common law, rather than statutory in origin, this case requires us to determine the scope of relief from judgments provided by Rule 1-060(B) NMRA in mortgage foreclosure cases. See Phoenix Funding, LLC v. Aurora Loan Servs., LLC , 2017-NMSC-010, ¶ 21, 390 P.3d 174 ("[S]tanding in mortgage-foreclosure cases is a prudential concern. The lack of a plaintiff's standing in an action to enforce a promissory note does not divest a court of subject matter jurisdiction." (citation omitted)); Deutsche Bank Nat'l Tr. Co. v. Johnston , 2016-NMSC-013, ¶¶ 9-10, 12-13, 369 P.3d 1046 ("[S]tanding is not a jurisdictional prerequisite in mortgage foreclosure cases in New Mexico[.] ... [O]nly prudential rules of standing apply ... in this case."). While Johnston and Phoenix Funding make clear that a homeowner may waive their right to challenge a bank's standing if the matter is not raised during active litigation, in this appeal we consider whether a homeowner may raise standing as a meritorious defense when seeking to reopen a default judgment under Rule 1-060(B)(6), and whether the district court has discretion to grant the motion under those circumstances.

{2} John Valerio (Appellant) contends that the district court erred when it determined that it could not grant relief from its entry of default judgment under Rule 1-060(B) because our Supreme Court has held that "a final judgment on ... an action to enforce a promissory note ... is not voidable under Rule 1-060(B) due to lack of prudential standing." Johnston , 2016-NMSC-013, ¶ 34, 369 P.3d 1046. Specifically, Appellant asks us to hold that Johnston and its progeny apply exclusively to efforts to void a foreclosure judgment due to lack of prudential standing,¹ but do not preclude district courts from reopening foreclosure judgments "on any other ground set forth in Rule 1-060(B) [(6)]." Conversely, Deutsche Bank argues that our Supreme Court did not confine its holding in Johnston to void judgments alone, and thus a defendant's waiver of an attack on prudential standing cannot be overcome by a Rule 1-060(B)(6) motion to reopen a default judgment.

{3} Although final judgments in mortgage foreclosure cases cannot be declared void under Rule 1-060(B) for lack of prudential standing, we hold that district courts, in their discretion, may set aside a default judgment in a mortgage foreclosure case under Rule 1-060(B)(6) if a party demonstrates grounds for reopening the judgment and a meritorious defense, even when the meritorious defense is that the plaintiff lacked standing. We therefore reverse and remand.

BACKGROUND

{4} In August 2004, Christine and Lucy Valerio (collectively, Mortgagors) executed a promissory note (Original Note) secured by a mortgage on their home. On May 2, 2012, Deutsche Bank brought a foreclosure complaint against Mortgagors. Lucy Valerio died prior to the filing of Deutsche Bank's complaint. On May 30, 2012, Deutsche Bank filed its first amended complaint. Both of Deutsche Bank's complaints stated that it was "the holder in due course of the note and the mortgagee of the mortgage" and included a copy of the Original Note, which listed New Century Mortgage Corporation as the original holder. Seven months later, however, Deutsche Bank filed an affidavit of lost Original Note, stating that it was "the legal holder of a Promissory Note ... executed by [Mortgagors]" but that the Original Note "has been lost or cannot be located." It further indicated that the Original Note had been lost since September 4, 2004, at the latest, though Deutsche Bank's complaints indicate that the mortgage was not assigned to Deutsche Bank until some years later. The notice of filing did not reflect whether the affidavit was served on Mortgagors.

{5} On January 29, 2014, Deutsche Bank moved under Rule 1-055 NMRA for a default judgment. In support of its motion, Deutsche Bank asserted Appellant "failed to appear, plead or otherwise answer in this action[.]" The following month, the district court entered an order granting the motion, along with a decree of foreclosure and appointment of a special master. Later that year, Deutsche Bank purchased the home at a judicial foreclosure sale. Christine Valerio died shortly after the sale. The district court entered an order confirming the sale on March 24, 2015.

{6} On July 23, 2015, Appellant, who is Christine Valerio's son and Lucy Valerio's brother, as a successor in interest to Mortgagors, sought relief from the default judgment pursuant to Rule 1-060(B). Appellant advanced two arguments in support of his motion. First, he argued that the judgment was void under Rule 1-060(B)(4) because Deutsche Bank lacked standing to bring a foreclosure complaint against Mortgagors. Specifically, Appellant maintained that the indorsement on the copy of the Original Note attached to Deutsche Bank's first amended complaint failed to establish the requirements necessary for enforceability, as did the lost note affidavit. Second, Appellant argued that the "[j]udgment should be set aside pursuant to Rule 1-060(B)(6) [b]ecause [Appellant] [h]as [m]eritorious [d]efenses and [c]ounterclaims[.]" The district court granted Appellant's motion but did not specify the grounds on which it based its ruling. In its order setting aside the default judgment, the district court directed Appellant to file an answer to Deutsche Bank's first amended complaint for foreclosure.

{7} On April 4, 2016, Deutsche Bank moved the district court to reconsider its order setting aside default judgment. As grounds, Deutsche Bank asserted that "[s]ince the basis for the [district c]ourt's decision in setting aside default judgment was due to concerns of prudential standing" the district court should "uphold [its] entry of the default judgment[,]" based on Johnston . Deutsche Bank argued that Johnston , which was decided on the same day that the district court entered its order granting Appellant's motion to set aside default judgment, stood for the proposition that "a final judgment on an action to enforce a promissory note is not voidable under Rule 1-060(B) due to lack of prudential standing."

{8} Appellant filed an answer to Deutsche Bank's first amended complaint for foreclosure, a counterclaim, and a response to Deutsche Bank's motion to reconsider the district court's order setting aside default judgment. In his answer, Appellant pled several affirmative defenses, including lack of standing, unclean hands, and equitable estoppel. As the basis for his defenses, Appellant asserted that Deutsche Bank was not in possession of the Original Note as stated in Deutsche Bank's affidavit of lost Original Note, and thus was not in fact "the holder" of Mortgagors’ Note as claimed in the original and first amended complaints, as well as the affidavit of lost Original Note. Appellant also included a counterclaim for violations of the New Mexico Unfair Practices Act, NMSA 1978, §§ 57-12-1 to - 26 (1967, as amended through 2019).

{9} In his response to Deutsche Bank's motion to reconsider the district court's order setting aside default judgment, Appellant argued that Deutsche Bank's interpretation of Johnston was "overbroad" and therefore, its reliance on Johnston was misguided. Appellant contended that Deutsche Bank did not comply with the procedures set forth in the New Mexico Uniform Commercial Code (UCC), NMSA 1978, § 55-3-309 (1992), to enforce a lost Original Note, and thus the circumstances surrounding his case warranted the relief afforded by Rule 1-060(B)(6). On December 28, 2016, the district court entered an order denying Deutsche Bank's motion to reconsider its order setting aside default judgment. Although the district court did not specify which provision of Rule 1-060(B) it relied upon, the district court's order included the following findings:

1. The [c]ourt had an independent obligation to review [Deutsche Bank]’s standing prior to entry of the default foreclosure judgment.

2. [Appellant] did not waive his defense relating to [Deutsche Bank]’s ability to enforce the [Original] Note under [Rule] 1-012 [NMRA] because said defense was unavailable.

{10} On June 5, 2017, Appellant moved the district court to dismiss the foreclosure action. In support of the motion, Appellant argued that Deutsche Bank lacked standing to enforce the Original Note and that Deutsche Bank's lost note affidavit failed to comply with the UCC. That same day, Deutsche Bank, for the second time, moved the district court to reconsider its order setting aside default judgment. Citing Bank of America, N.A. v. Roybal , No. 34,567, mem. op., 2017 WL 1019516 (N.M. Ct. App. Feb. 6, 2017) (non-precedential), Deutsche Bank repeated its earlier argument that Johnston does not permit a district court to grant relief from judgment pursuant to Rule 1-060(B) for lack of standing in mortgage foreclosure cases.

{11} Appellant filed a response in which he noted that Roybal is non-precedential, argued that it is "factually and procedurally distinguish[able]" from this case, and reiterated his earlier...